10-Q 1 v452361_10q.htm FORM 10-Q

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

 

FORM 10-Q

 

(Mark One)

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

 

For the quarterly period ended September 30, 2016

 

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: 333-194359

 

JRSIS HEALTH CARE CORPORATION.

 

 

(Exact name of Registrant as specified in its charter)

 

  Florida   8099   46-4562047
(State or other jurisdiction of incorporation
or organization)
  (Primary Standard Industrial Classification
Code Number)
 

(I. R. S. Employer

Identification Number)

 

1 st – 7 th Floor, Industrial and Commercial Bank Building,

Xingfu Street, Hulan Town, 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 x     No ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted 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 and post such files).  Yes x     No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definition of “large accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large Accelerated Filer o Accelerated Filer o
       
Non-accelerated Filer o     (Do not check if a smaller reporting company) Smaller reporting company Yes  x

 

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

 

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

 

As of the date of filing of this report, there were outstanding 13,915,000 shares of the issuer’s common stock, par value $0.001 per share.

 

 

 

 

 

TABLE OF CONTENTS

 

    Page
PART I – FINANCIAL INFORMATION 3
     
Item 1 Consolidated Financial Statements F1-17
     
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations 4
     
Item 3 Quantitative and Qualitative Disclosures About Market Risk 12
     
Item 4 Controls and Procedures 12
     
PART II – OTHER INFORMATION 13
     
Item 1 Legal Proceedings 13
     
Item 1A Risk Factors 13
     
Item 2 Unregistered Sale of Equity Securities and Use of Proceeds 13
     
Item 3 Defaults Upon Senior Securities 13
     
Item 4 Other Information 13
     
Item 5 Exhibits 13
     
  Signatures 14

 

 

 

2 

 

 

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 nine months ended September 30, 2016, are not necessarily indicative of the results that can be expected for the year ended December 31, 2016.

 

 

3 

 

 

 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

  Page
   
JRSIS HEALTH CARE CORPORATION  
   
Consolidated Balance Sheets— September 30, 2016 (Unaudited) and December 31, 2015 F-2
   
Consolidated Statements of Operations and Comprehensive Income for the Three and Nine Months Ended September 30, 2016 and 2015 (Unaudited) F-3
   
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2016 and 2015 (Unaudited) F-4
   
Notes to Consolidated Financial Statements (Unaudited) F5-17

 

 F-1 

 

 

JRSIS HEALTH CARE CORPORATION

CONSOLIDATED BALANCE SHEETS

(AMOUNTS IN USD, EXCEPT SHARES)

 

 

    September 30,     December 31,  
    2016     2015  
   

(Unaudited)

 

       
Assets                
Current Assets:                
Cash and cash equivalents   $ 597,022     $ 352,153  
Accounts receivable, net     2,395,083       2,009,469  
Inventories     814,696       499,080  
Other receivables     3,223       2,125  
Prepayments     470,162       201,542  
Amount due from related parties     1,577,383       1,080,236  
Deferred expenses     67,641       63,034  
Total current assets     5,925,210       4,207,639  
                 
Property and equipment, net     24,379,696       22,447,911  
Long term deferred expenses     188,365       252,138  
Deposits for capital leases     880,927       828,131  
Total assets   $ 31,374,198     $ 27,735,819  
                 
Liabilities and shareholders’ equity                
Current Liabilities:                
Accounts payable   $ 912,583     $ 352,789  
Short-term bank loan     434,768       -  
Deposits received     5,988       6,666  
Amount due to related parties     34,728       97,328  
Other payable     26,911       78,307  
Payroll payable     50,311       44,376  
Capital lease obligations - current portion     2,174,016       1,881,200  
Total current liabilities     3,639,305       2,460,666  
                 
Capital lease obligations     16,307,291       17,863,608  
Other capital lease payable     607,580       -  
Total liabilities   $ 20,554,176     $ 20,324,274  
                 
Shareholders’ equity                
Common stock; $0.001 par value, 100,000,000 shares authorized; 13,915,000 and 13,915,000 issued and outstanding at September 30, 2016 and December 31, 2015, respectively     13,915       13,915  
Additional Paid-in capital     1,132,423       1,132,423  
Retained earnings     5,350,300       2,802,184  
Other comprehensive income     (455,838)       (260,669)  
Total shareholders’ equity of the Company     6,040,800       3,687,853  
Non-controlling interest     4,779,222       3,723,692  
Total shareholders’ equity     10,820,022       7,411,545  
Total liabilities and shareholders’ equity   $ 31,374,198     $ 27,735,819  

 

 

 

See notes to consolidated financial statements

 

 F-2 

 

 

JRSIS HEALTH CARE CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(AMOUNTS IN USD, EXCEPT SHARES) (UNAUDITED)

 

 

   Three Months Ended 
September 30,
   Nine Months Ended 
September 30,
 
   2016   2015   2016   2015 
                 
 Revenue:                    
Medicine  $1,846,898   $1,388,861   $5,643,897   $3,790,553 
Patient services   2,410,346    1,539,039    7,314,215    4,276,284 
Total revenue   4,257,244    2,927,900    12,958,112    8,066,837 
Operating costs and expenses:                    
Cost of medicine sold   1,161,959    836,741    3,374,138    2,325,239 
Medical consumables   382,891    239,678    1,200,169    558,089 
Salaries and benefits   720,860    491,110    2,106,103    1,313,726 
Office supplies   70,142    136,260    220,380    236,950 
Vehicle expenses   17,374    9,193    38,770    24,605 
Utilities expenses   76,027    62,851    308,358    354,609 
Advertising and promotion expenses   15,868    -    92,975    - 
Interest expense   339,737    316,151    1,030,949    903,737 
Professional fee   19,351    4,929    126,272    129,948 
Depreciation   282,302    230,606    779,321    629,927 
Total operating costs and expenses   3,086,511    2,327,519    9,277,435    6,476,830 
Earnings from operations before other income and income taxes   1,170,733    600,381    3,680,677    1,590,007 
Other income   (857)   (3,392)   3,900    9,201 
Earnings from operations before income taxes   1,169,876    596,989    3,684,577    1,599,208 
Income tax   866    925    3,172    1,699 
Net income   1,169,010    596,064    3,681,405    1,597,509 
Less: net income attributable to non-controlling interests   355,950    199,293    1,133,290    514,664 
Net income attributable to the Company  $813,060   $396,771   $2,548,115   $1,082,845 
Comprehensive income:                    
Foreign currency translation adjustment attributable to non-controlling interests   11,530    81,019    77,759    68,756 
Foreign currency translation adjustment attributable to the Company   27,126    189,157    195,169    159,356 
Comprehensive income  $1,130,354   $325,888   $3,408,477   $1,369,397 
Less: Comprehensive income attributable to non-controlling interests   344,420    118,274    1,055,531    445,908 
Comprehensive income attributable to the Company  $785,934   $207,614   $2,352,946   $923,489 
Basic and diluted earnings per share  $0.0584   $0.0288   $0.1831   $0.0783 
Weighted average number of shares outstanding   13,915,000    13,788,872    13,915,000    13,830,915 

 

 

See notes to consolidated financial statements

 

 F-3 

 

 

JRSIS HEALTH CARE CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(AMOUNTS IN USD, EXCEPT SHARES) (UNAUDITED)

 

 

   Nine Months Ended September30, 
   2016   2015 
         
Cash Flows from Operating Activities          
Net income  $3,681,405   $1,597,509 
Adjustments to reconcile net income to net cash provided by operating activities:          
Depreciation   779,321    629,927 
Interest   1,030,949    903,737 
Gain on disposal of fixed assets   -    (12,481)
Changes in operating assets and liabilities:          
Accounts receivable, net   (445,404)   (1,042,058)
Inventories   (333,473)   (226,848)
Amount due from related parties   (531,897)   (65,498)
Prepayments and other current assets   (446,649)   (425,795)
Accounts payable   303,474    68,913 
Amount due to related parties   (191,282)   (1,121,619)
Deposits received   (507)   525 
Accrued expenses and other current liabilities   68,086    1,121,548 
Net cash provided by operating activities   3,914,023    1,427,860 
           
Cash Flows from Investing Activities          
Purchases of fixed assets   (3,346,535)   (3,753,997)
Prepayment for fixed assets acquisition   428,106    566,997 
Proceeds from disposal of fixed assets   -    45,355 
Net cash used in investing activities   (2,918,429)   (3,141,645)
           
Cash Flows from Financing Activities          
Proceeds from shareholders   -    178,048 
Payments on capital lease obligation   (2,149,599)   (1,931,772)
Payments to related parties   -    (1,109,581)
Proceeds from related parties   75,985    - 
Proceeds from capital lease   904,854    3,849,970 
Short-term bank loan   421,331    - 
Net cash (used in) provided by financing activities   (747,429)   986,665 
           
Effect of exchange rate fluctuation on cash and cash equivalents   (3,296)   152,315 
Net increase (decrease) in cash and cash equivalents   244,869    (574,805)
           
Cash and cash equivalents, beginning of period   352,153    1,046,485 
Cash and cash equivalents, ending of period  $597,022   $471,680 
           
Supplemental disclosure of cash flow information          
Cash paid for income taxes   3,172    1,699 
Cash paid for interest   1,030,949    903,737 

 

 See notes to consolidated financial statements

 

 F-4 

 

 

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 “JHCC”) was incorporated on November 20, 2013, under the laws of the United States and the State of Florida. The general nature of the business shall be to engage in any and all lawful business permitted under the laws of the United States and the State of Florida.

 

JRSIS HEALTH CARE LIMITED (“JHCL”), formally named China Runteng Medical Group Co., Ltd, which is a privately held Limited Liability Company registered in British Virgin Island (“BVI”) on February 25, 2013. JHCL was authorized to issue 50,000 shares of a single class each with par value of $1.00 per share to its sole shareholder Ms. Yanhua Xing. On November 20, 2013, China Runteng Medical Group Co., Ltd has changed its name to JRSIS HEALTH CARE LIMITED.

 

Runteng Medical Group Co., Ltd (“Runteng”) is a privately held limited liability company registered in Hong Kong on September 17, 2012. Runteng was authorized to issue up to 10,000 shares with par value of HK$1 per share to its sole shareholder Ms. Yanhua Xing.

 

Harbin Jiarun Hospital Co., Ltd (“Jiarun”) was a privately held, for-profit hospital, incorporated in Harbin city of Heilongjiang, China in February 2006. Jiarun is a private hospital serving patients on a municipal and county level and providing both Western and Chinese medical practices to the residents of Harbin. After a series of share exchanges mentioned here after in note 1, Jiarun became a 70% owned subsidiary of the Company.

 

JHCC, JHCL, Runteng and Jiarun are collectively referred as the “Group”.

 

Reorganization

 

On December 23, 2012, in accordance with the “Foreign Investment Enterprise Law” under the People’s Republic of China (“PRC”), Runteng and Jiarun entered into an agreement that Runteng and the original owner of Jiarun should invest a total of RMB50,000,000 ($7,496,005), in which Runteng and the original owner should contribute RMB35,000,000 ($5,247,203) or 70% and RMB15,000,000 ($2,248,801) or 30% of the total capital, respectively. According to the Article of Association (Joint venture investment agreement) and the amendment of Article of Association (Joint venture investment agreement), Runteng has the obligation to pay RMB35,000,000 ($5,247,203) within five years after the issuance of the joint venture business license. As of June 30, 2016, Jiarun has received $1,081,000 from Runteng.

 

On March 7, 2013, JHCL acquired all 100 issued and outstanding shares of through share exchanges to obtain 100% controlling interests of Runteng.

 

On June 1, 2013, Junsheng Zhang, the owner of Jiarun, entered into a supplemental agreement with Runteng for the attribution of accumulated retained earnings of Jiarun. In which, the historical accumulated profit of Jiarun up to June 30, 2013, should be 100% attributed to Junsheng Zhang; the profit generated from Jiarun after July 1, 2013 should be attributed to Runteng and Junsheng Zhang on the basis of 70% and 30%, respectively.

 

On July 29, 2013, the Joint Venture Investment Agreement between Runteng and Junsheng Zhang has been approved by the Development and Reform Commission of Hulan District, Harbin City and Harbin Investment Promotion Bureau. On the same date, Jiarun has obtained Certificate of Approval for Establishment of Enterprises with Investment of Taiwan, Hong Kong, Macao and Overseas Chinese in the People’s Republic of China; the Joint Venture Jiarun duration of operation is twenty years.

 

 F-5 

 

 

JRSIS HEALTH CARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(AMOUNTS IN USD)

 

NOTE 1. DESCRIPTION OF BUSINESS AND ORGANIZATION (CONTINUED)

 

On October 3, 2013, Ms. Yanhua Xing transferred 23,275 JHCL shares to Mr. Junsheng Zhang, 23,225 JHCL shares to Ms. Chunlan Tang, and 1,050 JHCL shares to Mr. Weiguang Song.

 

On November 8, 2013, Ms. Chunlan Tang transferred all 23,225 JHCL shares to Mr. Junsheng Zhang, subsequently making Mr. Junsheng Zhang holdings 46,500 JHCL shares.

  

On December 20, 2013, a share exchange agreement was entered by and among JHCC, JHCL and the shareholders of JHCL, Junsheng Zhang, Yanhua Xing and Weiguang Song. JHCC desires to issue a total of 12,000,000 shares of its Common Stock (the “JHCC Shares”) to the Shareholders of JHCC, pro rata, in exchange for 100% of the JHCL Shares owned by the Shareholders. At the Closing, the Shareholders shall allot and deliver to JHCC a total of 50,000 shares of the ordinary share of JHCL which represents 100% of the issued and outstanding shares of JHCL. JHCL shall become a wholly-owned subsidiary of JHCC, and JHCC will effectively acquire all business and assets of JHCL as now or hereafter existing, including all business and assets of any and all subsidiaries of JHCL, including 70% ownership interest in Jiarun.

 

On July 8, 2014, Jiarun obtained joint venture business license. Runteng has already completed cooperation restructuring. Up to completion of the legal structures, Jiarun are compliance with the Company Law of People’s Republic of China and all other requirements imposed by PRC authorities.

   

Before and after the reorganization mentioned above, Junsheng Zhang continued to serve as chairman of Jiarun (the “Operating Subsidiary”), and together with the other management of the Company, continued to direct both day-to-day operation and management of the Operating Subsidiary, as well as its strategic direction. The reorganization effectively resulted in Junsheng Zhang continuing to bear the residual risks and rewards related to the Operating Subsidiary. Because of the reasons described above, the Company is substantively controlled by Junsheng Zhang, and the Company continued to consolidate the Operating subsidiary during the reorganization. And the reorganization transactions are considered as a series of transactions between the parties under common control and did not establish a new basis in the assets and liabilities of the Operating Subsidiary.

 

During the reorganization, JHCC, JHCL, Runteng and Jiarun were under common control of Junsheng Zhang. Therefore, the reorganization was effectively a legal recapitalization accounted for as transactions between entities under common control at the carry over basis, in a manner similar to pooling-of-interests accounting. The effect of the reorganization was applied retroactively to the prior years’ consolidated financial statements as if the current structure existed since inception.

 

30% of Jiarun hospital interest held by Junsheng Zhang is subjecting to non-controlling interest (“NCIs”), which was stated under ASC810-10-45, the ownership interest in the subsidiary that are held by owners other than the parent is a non-controlling interest. 70% held by Runteng is applying to its holding Runteng. According to the supplemental agreement signed between Junsheng Zhang and Runteng on June 1, 2013, the comprehensive income from Jiarun would be attributable to retained earnings and non-controlling interest for 70% and 30% respectively, from July 1, 2013.

 

NOTE 2. SUMMARIES OF SIGNIFICANT ACCOUNTING POLICIES

 

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, separately from the Company’s equity and that net income or loss and comprehensive income or loss are attributable to the Company’s and the non-controlling interest.

 

 F-6 

 

 

JRSIS HEALTH CARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(AMOUNTS IN USD)

 

C. Use of estimates

 

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

 

D. Functional currency and foreign currency translation

 

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

 

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

 

E. Concentration of Credit Risk

 

Financial instruments that potentially subject the Company to concentrations of credit risk are cash, accounts receivable and other receivables arising from its normal business activities. The Company places its cash in what it believes to be credit-worthy financial institutions. The Company has a diversified customer base. The majority of sales are either cash receipt in advance or cash receipt upon delivery. For the nine months ended September 30, 2016 and 2015, no customer accounted for more than 10% of net revenue. As of September 30, 2016 and December 31, 2015, 2 and 1 customer accounted for more than 10% of net accounts receivable, respectively. For those credit sales, the Company routinely assesses the financial strength of its customers and, based upon factors surrounding the credit risk, establishes an allowance, if required, for uncollectible accounts and, as a consequence, believes that its accounts receivable credit risk exposure beyond such allowance is limited.

 

F. Cash and cash equivalents

 

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

 

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.

 

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.

 

 F-7 

 

 

JRSIS HEALTH CARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(AMOUNTS IN USD)

 

J. Property and equipment

 

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

 

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

 

K. Leases

 

Operating lease

 

Leases where substantially all the rewards and risks of ownership of assets remain with the lessor are accounted for as operating leases. Minimum lease payments, including scheduled rent increases, made under operating leases are charged to the consolidated statements of operations and other comprehensive income (loss) on a straight-line basis over the lease term. Contingent rentals are excluded from minimum lease payments, and are recognized as expense when the achievement of the specified target is considered probable.

 

Capital lease

 

Leases which substantially transfer all of the benefits and risks inherent in ownership to the lessee are classified as capital leases. In a capital lease, assets and liabilities are recorded at the amount of the lesser of (a) the fair value of the leased asset at the inception of the lease or (b) the present value of the minimum lease payments (excluding executing costs) over the lease term. Recorded assets are depreciated over their estimated useful lives. During the lease term, each minimum lease payment is allocated between a reduction of the obligation and interest expense to produce a constant periodic rate of interest on the remaining balance of the obligation. Leasehold improvements are depreciated over the depreciable lives of the corresponding fixed asset or the related lease term, whichever is shorter.

 

L. Fair Value Measurement

 

The Company applies the provisions of ASC Subtopic 820-10, Fair Value Measurements, for fair value measurements of financial assets and financial liabilities and for fair value measurements of nonfinancial items that are recognized or disclosed at fair value in the financial statements. ASC 820 also establishes a framework for measuring fair value and expands disclosures about fair value measurements.

 

Fair value is defined as the price that would be received when selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining the fair value for the assets and liabilities required or permitted to be recorded, the Company considers the principal or most advantageous market in which it would transact and it considers assumptions that market participants would use when pricing the asset or liability.

 

ASC 820 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes three levels of inputs that may be used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:

 

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2: Quoted prices in markets that are not active, or inputs that is observable, either directly or indirectly, for substantially the full term of the asset or liability;

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).

 

There were no transfers between level 1, level 2 or level 3 measurements for the nine months ended September 30, 2016 and 2015.

 

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

 

M. Segment and geographic information

 

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

 

 F-8 

 

 

JRSIS HEALTH CARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(AMOUNTS IN USD)

 

N. Revenue recognition

 

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

 

Medicine sales

 

Revenue from the sale of medicine is recognized when it is both earned and realized. The Company’s policy is to recognize the sale of medicine when the title of the medicine, ownership and risk of loss have transferred to the purchasers, and collection of the sales proceeds is reasonably assured, all of which generally occur when the patient receives the medicine.

 

Given the nature of this revenue source of the Company’s business and the applicable rules guiding revenue recognition, the revenue recognition practices for the sale of medicine do not contain estimates that materially affect results of operations nor any policy for return of products.

 

Patient Services

 

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

 

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

 

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

 

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

 

·For out-patient medical services, revenue is recognized when the Company provides medical service to the patient. The Company collects payment when the patient checks out from the hospital, which is the same day the services are provided.

 

·For in-patient medical services, the Company estimates the approximate fee the patients will spend in the hospital based on patients’ symptom. This is when the patients check in to the hospital. At that time, the Company collects the estimated fees from the patient and records the payment as deposits received.

 

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

 

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

 

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

 

Settlement process

 

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

 

 F-9 

 

 

JRSIS HEALTH CARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(AMOUNTS IN USD)

 

N. Revenue recognition(continued)

 

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

 

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

 

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

 

O. Income taxes

 

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

 

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

 

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

 

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

 

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

 

Jiarun’s medical services have been exempt from enterprise income tax since March 1, 2006, which has been approved by the Local Taxation Bureau.

 

Jiarun was incorporated in accordance with the law of medical and health institutions, mainly provide medical services, with the “PRC Business Tax Tentative Regulations” Article 8 (3) medical service income tax-free provisions (hospital, clinics and other medical institutions to provide medical services shall be exempt from business tax). The Company’s medical services have been exempted from business tax since March 1, 2006.

 

In considering the achievement of the hospital, it could not have been done without the support of local authorities, Jiarun hospital has voluntarily paid income tax of $3,172 and $1,699 for the nine months ended September 30, 2016 and 2015, respectively to support the local tax bureau’s economical obligations.

 

 F-10 

 

 

JRSIS HEALTH CARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(AMOUNTS IN USD)

 

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. Recently accounting pronouncements

 

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), aimed at making leasing activities more transparent and comparable. The new standard requires substantially all leases be recognized by lessees on their balance sheet as a right-of-use asset and corresponding lease liability, including today’s operating leases. For public business entities, the standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. For all other entities, the standard is effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early application is permitted for all entities. The Company is currently evaluating the impact of the adoption of this guidance on its consolidated financial condition, results of operations and cash flows.

 

In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net). The amendment in this update affect entities with transactions included within the scope of Topic 606, The scope of that Topic includes entities that enter into contracts with customers to transfer goods or services (that are an output of the entity’s ordinary activities) in exchange for consideration. The amendments are intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations. In April 2016, the FASB issued ASU No. 2016-10, The amendments in ASU 2016-10 provide more detailed guidance, including additional implementation guidance and examples in the following key areas: 1) identifying performance obligations and 2) licenses of intellectual property. In May 2016, the FASB issued ASU No. 2016-12 a proposed Update, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, on September 30, 2015. The amendments do not change the core principles of the standard, but clarify the guidance on assessing collectability, presenting sales taxes, measuring noncash consideration and certain transition matters. This update becomes effective concurrently with ASU No. 2014-09. The Company is currently evaluating the effect of this new standard, including the transition method, to determine the impact on the Company's consolidated financial position, results of operations, cash flows, or related disclosures.

 

In October 2016, the FASB issued Accounting Standards Update No. 2016-16, Income Taxes – Intra-Entity Transfers of Assets Other Than Inventory (ASU 2016-16). The standard is intended to address diversity in practice and complexity in financial reporting, particularly for intra-entity transfers of intellectual property. ASU 2016-16 will be effective for the Company beginning with the interim periods of fiscal 2018 and requires the modified retrospective method of adoption. Early adoption is permitted. The Company is in the process of determining timing of adoption and assessing the impact of ASU 2016-16 on its consolidated financial statements.

 

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

 

 F-11 

 

 

JRSIS HEALTH CARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(AMOUNTS IN USD)

 

NOTE 3. Accounts Receivable, Net

 

   September 30   December 31 
   2016   2015 
   (Unaudited)     
Accounts receivable  $2,420,195   $2,035,271 
Less: allowance for doubtful debts   25,112    25,802 
   $2,395,083   $2,009,469 
           

The Company experienced nil bad debts during nine months ended September 30, 2016 and December 31, 2015.

 

NOTE 4. Inventories

 

At September 30, 2016 and December 31, 2015, inventories consist of the following:

 

   September 30   December 31 
   2016   2015 
   (Unaudited)     
Western medicine  $545,563   $377,989 
Chinese herbal medicine   10,131    6,590 
Medical material   1,198    111,808 
Other material   257,804    2,693 
   $814,696   $499,080 
           

NOTE 5. Prepayment

 

At September 30, 2016 and December 31, 2015 prepayment consists of the following:

 

   September 30   December 31 
   2016   2015 
   (Unaudited)     
Deposits on medical equipment  $399,069   $38,952 
Heating fees   -    92,535 
Others   71,093    70,055 
   $470,162   $201,542 

 

NOTE 6. Property and Equipment

 

At September 30, 2016 and December 31, 2015, property and equipment, at cost, consist of:

 

   September 30,   December 31, 
   2016   2015 
   (Unaudited)     
Transportation equipment  $745,102   $765,592 
Medical equipment   9,635,489    7,047,404 
Electrical equipment   1,234,482    799,045 
Office equipment and others   95,571    87,110 
Buildings   14,558,464    14,958,817 
Software   142,668    87,957 
Total fixed assets at cost   26,411,776    23,745,925 
Accumulated depreciation   (2,032,080)   (1,298,014)
Total fixed assets, net  $24,379,696   $22,447,911 
           

The Company recorded depreciation expense of $779,321 and $629,927 for the nine months ended September 30, 2016 and 2015, and $282,302 and $230,606 for the three months ended September 30, 2016 and 2015, respectively.

 

 F-12 

 

 

JRSIS HEALTH CARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(AMOUNTS IN USD)

 

NOTE 7. Long term deferred expenses

 

On May 7, 2015, July 3, 2015 and October 16, 2015, Jiarun entered into three lease agreements to lease medical equipment from Hair Finance Leasing(China) Co., Ltd. (“Hair”), a third party, for a five-year period, in which Jiarun is required to pay a consulting fee to Hair for the services provided over the five years. The consulting fee paid but attributable to the current and subsequent accounting periods was accounted for as deferred expenses and long term deferred expenses. The current portion of the prepaid consulting fee was recorded as deferred expenses $67,641 and $63,034 as of September 30, 2016 and December 31, 2015. The long-term deferred expenses were $188,365 and $252,138 as of September 30, 2016 and December 31, 2015.

 

The Company recorded the consulting fee of $51,425 and $12,764 for the nine months ended September 30, 2016 and 2015, and $16,912 and $7,923 for the three months ended September 30, 2016 and 2015, respectively.

 

NOTE 8. Capital Lease Obligations and Deposit for Capital Leases

 

On June 5, 2013, Jiarun entered into a lease agreement to lease hospital building from Harbin Baiyi Real Estate Development Co., Ltd, which is owned by Junsheng Zhang, a related party. The Leasing terms consist of principal plus 30 payments. Each payment will be made on an annual basis when RMB7,000,000 per payment will be paid upfront for each leasing period. The first payment was made on September, 2014. At the end of the leasing period, a final payment will be made to settle the total leasing amount. Both parties agreed for Jiarun to pay RMB3,000,000 as deposit at the execution of the Leasing agreement, which will be deducted from the final rental settlement. The lending interest rate was calculated at 6.55%, which is the benchmark interest rate announced from The People’s Bank of China. After the completion of all payments, the ownership of the lease item will be transferred to Jiarun.

 

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

 

Rental payments of RMB7,000,000 (equivalent to $1,049,441) per year, payable at the beginning of September 2014.

 

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

 

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

 

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

 

On September 1, 2014, October 22, 2014, March 26, 2015, May 7, 2015, July 3, 2015, October 16, 2015, April 6, 2016 and April 13, 2016, Jiarun entered into several lease agreements to lease medical equipment and elevator from four lease finance companies, which are all third parties, for three to five year periods, in which Jiarun is required to make monthly or quarterly payments toward the leases. The Company was also required to pay deposits up front, which deposits will later be used to offset against the last quarterly payment. The medical equipment and elevator will be transferred to Jiarun upon the completion of the agreement.

 

These leases have been classified as capital leases. The cost of the medical equipment included in these leases is included in the consolidated balance sheets as property and equipment and construction in progress.

 

 F-13 

 

 

JRSIS HEALTH CARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(AMOUNTS IN USD)

 

NOTE 8. Capital Lease Obligations and Deposit for Capital Leases (Continued)

 

The future minimum lease payments for annual capital lease obligation as of September 30, 2016 are as follows:

 

Year  Amounts
(Unaudited)
 
2016  $1,310,344 
2017   2,090,976 
2018   1,460,508 
Thereafter   13,619,479 
Total  $18,481,307 

  

The Company recorded finance lease fees of $1,028,871 and $893,883 for the nine months ended September 30, 2016 and 2015, and $349,488 and $325,062 for the three months ended September 30,2016 and 2015, respectively.

 

NOTE 9. Short-term Bank Loan

 

   September 30   December 31 
   2016   2015 
   (Unaudited)     
Short- term bank loan  $434,768   $- 

 

As of September 30, 2016, the above bank loan was for working capital and capital expenditure purposes. The loan was primarily obtained from Harbin Bank with interest rate of 6.09% per annum, the contract was signed from December 25, 2015 to December 24, 2016, and the loan was received on January 4, 2016. The interest expenses were $19,384 and $28,030 for the nine months ended September 30, 2016 and 2015, respectively, and $6,775 and $9,265 for the three months ended September 30, 2016 and 2015, respectively.

 

NOTE 10. Non-controlling Interests

 

Jiarun is the Company’s majority-owned subsidiary which is consolidated in the Company’s financial statements with a non-controlling interest recognized. The Company holds 70% interest of Jiarun as of September 30, 2016 and December 31, 2015.

 

As of September 30, 2016 and December 31, 2015, NCI in the consolidated balance sheet was $4,779,222 and $3,723,692, respectively. For the nine months ended September 30, 2016, the comprehensive income attributable to shareholders’ equity and NCIs is $2,352,946 and $1,055,531, respectively. For the nine months ended September 30, 2015, the comprehensive income attributable to shareholders’ equity and NCI is $923,489 and $445,908, respectively. For the three months ended September 30, 2016, the comprehensive income attributable to shareholders’ equity and NCIs is $785,934 and $344,420, respectively. For the three months ended September 30, 2015, the comprehensive income attributable to shareholders’ equity and NCI is $207,614 and $118,274 respectively.

 

NOTE 11. Revenue

 

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

 

   Nine Months Ended September 30, 
   2016   2015 
   (Unaudited)   (Unaudited) 
Medicine:          
Western medicine  $4,332,469   $2,980,213 
Chinese medicine   1,093,906    710,009 
Herbal medicine   217,522    100,331 
Total medicine  $5,643,897   $3,790,553 
           
Patient services:          
Medical consulting  $3,772,599   $2,117,967 
Medical treatment   3,413,746    2,131,441 
Others   127,870    26,876 
Total patient services  $7,314,215   $4,276,284 
           
   $12,958,112   $8,066,837 

 

   Three Months Ended September 30, 
   2016   2015 
   (Unaudited)   (Unaudited) 
Medicine:          
Western medicine  $1,440,135   $1,089,956 
Chinese medicine   340,944    263,576 
Herbal medicine   65,819    35,329 
Total medicine  $1,846,898   $1,388,861 
           
Patient services:          
Medical consulting  $1,222,847   $802,512 
Medical treatment   1,146,895    728,002 
Others   40,604    8,525 
Total patient services  $2,410,346   $1,539,039 
           
   $4,257,244   $2,927,900 

 

 F-14 

 

 

JRSIS HEALTH CARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(AMOUNTS IN USD)

 

NOTE 12. Income Tax Expense

 

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

 

United States

 

JHCC is subject to the United States of America Tax law at tax rate of 34%. No provision for the US federal income taxes has been made as the Company had no US taxable income for the periods presented, and its earnings are permanently invested in PRC.

 

BVI

 

JHCL was incorporated in the BVI and, under the current laws of the BVI, it is not subject to income tax.

 

Hong Kong

 

Runteng was incorporated in Hong Kong and is subject to Hong Kong profits tax. Runteng is subject to Hong Kong taxation on its activities conducted in Hong Kong and income arising in or derived from Hong Kong. The applicable statutory tax rate is 16. 5%.

 

PRC

 

Jiarun's medical services have been exempt from enterprise income tax since March 1, 2006, which has been approved by the Local Taxation Bureau.

 

Jiarun was incorporated in accordance with the law of medical and health institutions, mainly provide medical services, with the "PRC Business Tax Tentative Regulations" Article 8 (3) medical service income tax-free provisions (hospital, clinics and other medical institutions to provide medical services shall be exempt from business tax). The Company's medical services have been exempted from business tax since March 1, 2006.

 

In considering the achievement of the hospital, it could not have been done without the support of local authorities, Jiarun hospital has voluntarily paid income tax of $3,172 and $1,699 for the nine months ended September 30, 2016 and 2015, respectively to support the local tax bureau's economical obligations.

 

NOTE 13. Related Party Transactions

 

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

 

(a) Junsheng Zhang, the Chairman of the Company

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

(c) Heilongjiang Dahua Medicine Wholesale Co., Ltd owned by Junsheng Zhang

(d) Harbin Jiarun Pharmacy Co., Limited owned by Junsheng Zhang

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

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

(g) Harbin Qi-run pharmacy limited owned by Junsheng Zhang

(h) Yanhua Xing and Weiguang Song, the former shareholder of JHCL

 

Amount due from related parties

 

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

 

   September 30,   December 31, 
Name of related parties  2016   2015 
Harbin Baiyi Real Estate Development Co., Ltd,  $1,527,383   $1,030,236 
Junsheng Zhang   46,500    46,500 
Yanhua Xing   2,450    2,450 
Weiguang Song   1,050    1,050 
   $1,577,383   $1,080,236 

 

 F-15 

 

 

JRSIS HEALTH CARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(AMOUNTS IN USD)

 

NOTE 13. Related Party Transactions (Continued)

 

Amount due from Baiyi was mainly represented the deposit for the new outpatient building which was constructed by Baiyi. The Company signed a purchase agreement with Baiyi to acquire the first to eight floor of a building which is under construction by Baiyi and expected to be completed before December 31, 2016. The total amount for the purchased property is approximately RMB63,900,000 ($9,579,894). The Company had paid a deposit of RMB6,500,000 on November 26, 2015, and a further deposit of RMB3,500,000 ($524,720) was paid in August and September of 2016.

 

Amount due from Junsheng Zhang, Yanhua Xing and Weiguang Song, who are the prior shareholders of JHCL, was mainly for the paid-in capital to be paid.

 

Amount due to related parties

 

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

 

   September 30,   December 31, 
Name of related parties  2016   2015 
Heilongjiang Dahua Medicine Wholesale Co., Ltd  $-   $59,424 
Heilongjiang Province Runjia Medical Equipment Co., Ltd   31,031    32,742 
Harbin Qirun pharmacy Co., Ltd   3,697    - 
           
Junsheng Zhang   -    5,162 
   $34,728   $97,328 

 

Amount due to Heilongjiang Dahua Medicine Wholesale Co., Ltd., Harbin Jiarun Pharmacy Co., Ltd. Harbin Qi-run pharmacy Co., Ltd and Heilongjiang Province Runjia Medical Equipment Company Limited were mainly for the balance for purchase of medicine and medical material from these four companies.

 

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

 

Related parties’ transactions

 

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

 

   For nine months ended September 30, 
Name of related parties  2016   2015 
Heilongjiang Dahua Medicine Wholesale Co., Ltd  $552,682   $441,509 
Harbin Jiarun Pharmacy Co., Ltd   143,530    216,574 
Heilongjiang Province Runjia Medical Equipment Co., Ltd   58,899    95,559 
Harbin Qi-run pharmacy Co., Ltd   19,185    30,498 
   $774,296   $784,140 

 

Deposits for capital leases and Capital lease obligations

 

On June 5, 2013, Jiarun entered into a Lease Agreement to lease a new hospital building from Harbin Baiyi Real Estate Development Co., Ltd, which is owned by Junsheng Zhang, a related party. As of September 30, 2016, the Company has balance of deposits for capital leases and capital lease obligations of $449,760 and $13,204,506 respectively. As of December 31, 2015, the Company has balance of deposits for capital leases and capital lease obligations of $462,129 and $13,975,067, respectively.

 

 F-16 

 

 

JRSIS HEALTH CARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(AMOUNTS IN USD)

 

NOTE 14.  Basic and Diluted Earnings Per Share

 

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

 

   Nine Months Ended September 30, 
   2016   2015 
   (Unaudited)   (Unaudited) 
Numerator:          
Net income available to common stockholders  $2,548,115   $1,082,845 
Denominator:          
Basic and diluted weighted-average number of shares outstanding   13,915,000    13,830,915 
Net income per share:          
Basic and diluted  $0.1831   $0.0783 

 

NOTE 15.  Contingencies and Commitment

 

There was no contingency as of September 30, 2016 and December 31, 2015.

 

Capital commitment for purchase of a new outpatient building from Baiyi (note 13) was approximately $9,579,894 and $nil as of September 30, 2016 and December 31, 2015.

 

NOTE 16.  Subsequent Events

 

The Management of the Company determined that there were no reportable subsequent events to be disclosed.

 

 F-17 

 

 

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

 

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. See “Cautionary Statement Regarding Forward Looking Statements” above.

 

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.

 

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 Medicine (TCM), Ophthalmology, Internal Medicine Dentistry, General Surgery, Rehabilitation Science, Gynecology, General Medical Services, etc.

 

On November 20, 2013, Junsheng Zhang, the 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 medicines 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 medicine is recognized when it is both earned and realized. The Company’s policy is to recognize the sale of medicine when the title of the medicine, ownership and risk of loss have transferred to the purchasers, and collection of the sales proceeds is reasonably assured, all of which generally occur when the patient receives the medicine. 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.

 

Plan of Operation

 

Over the next twelve months, we will concentrate on the following four areas to grow our operations:

 

  Capital and Funding – Seek to obtain capital from all available sources to complete our hospital expansion and acquisition targets.

 

  Advertising and Marketing – Work with several marketing companies to develop brand identity, marketing materials, and update our web site. Utilize all available marketing venues and public relations opportunities to promote the Company and its medicine and services. In April, 2014, we also bought a mobile clinic to provide free health examinations in the hospital area. Management believes this free service will bring us much higher brand reputation and potential customers locally.

 

4 

 

 

Critical Accounting Policies and Management Estimates

 

Our discussion and analysis of our financial condition and results of operations relates to our consolidated financial statements, which have been prepared in accordance with the United States generally accepted accounting principles ("U. S. GAAP"). The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant inter-company accounts and transactions have been eliminated in consolidation.

 

Principles of consolidation

 

The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant inter-company accounts and transactions have been eliminated in consolidation.

  

Use of estimates

 

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

 

Revenue Recognition

 

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

 

Medicine sales

 

Revenue from the sale of medicine is recognized when it is both earned and realized. The Company's policy is to recognize the sale of medicine when the title of the medicine, ownership and risk of loss have transferred to the purchasers, and collection of the sales proceeds is reasonably assured, all of which generally occur when the patient receives the medicine.

 

Given the nature of this revenue source of the Company's business and the applicable rules guiding revenue recognition, the revenue recognition practices for the sale of medicine do not contain estimates that materially affect results of operations nor any policy for return of products.

 

Patient Services

 

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

 

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

 

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

 

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

 

  l For out-patient medical services, revenue is recognized when the Company provides medical service to the patient. The Company collects payment when the patient checks out from the hospital, which is the same day the services are provided

 

  l For in-patient medical services, the Company estimates the approximate fee the patients will spend in the hospital based on patients' symptom. This is when the patients check in to the hospital. At that time, the Company collects the estimated fees from the patient and records the payment as deposits received.

 

 

5 

 

 

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

 

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

 

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

 

Settlement process

 

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

 

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

 

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

 

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

 

Income Taxes and Uncertain Tax Positions

 

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

 

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

 

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

 

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

 

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

 

Jiarun's medical services have been exempt from enterprise income tax since March 1, 2006, which has been approved by the Local Taxation Bureau.

 

6 

 

  

Jiarun was incorporated in accordance with the law of medical and health institutions, mainly provide medical services, with the "PRC Business Tax Tentative Regulations" Article 8 (3) medical service income tax-free provisions (hospital, clinics and other medical institutions to provide medical services shall be exempt from business tax). The Company's medical services have been exempted from business tax since March 1, 2006.

 

In considering the achievement of the hospital, it could not have been done without the support of local authorities, Jiarun hospital has voluntarily paid income tax of $3,172 and $1,699 for the nine months ended September 30, 2016 and 2015, respectively to support the local tax bureau's economical obligations.

 

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.

 

Property and equipment

 

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

 

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

 

Foreign currency transactions and translations

 

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

 

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

 

Results of Operations for Three Months Ended September 30, 2016 and 2015

 

The following table shows key components of the results of operations during three months ended September 30, 2016 and 2015: 

 

   Three Months Ended 
September 30,
   Change 
   2016   2015   $   % 
                 
 Revenue:                    
Medicine  $1,846,898   $1,388,861   $458,037    33%
Patient services   2,410,346    1,539,039    871,307    57%
Total revenue   4,257,244    2,927,900    1,329,344    45%
Operating costs and expenses:                    
Cost of medicine sold   1,161,959    836,741    325,218    39%
Medical consumables   382,891    239,678    143,213    60%
Salaries and benefits   720,860    491,110    229,750    47%
Office supplies   70,142    136,260    (66,118)   (49)%
Vehicle expenses   17,374    9,193    8,181    89%
Utilities expenses   76,027    62,851    13,176    21%
Advertising and promotion expenses   15,868    -    15,868    NA 
Interest expense   339,737    316,151    23,586    7%
Professional fee   19,351    4,929    14,422    293%
Depreciation   282,302    230,606    51,696    22%
Total operating costs and expenses   3,086,511    2,327,519    758,992    33%
Earnings from operations before other income and income taxes   1,170,733    600,381    570,352    95%
Other income   (857)   (3,392)   2,535    75%
Earnings from operations before income taxes   1,169,876    596,989    572,887    96%
Income tax   866    925    (59)   (6)%
Net income   1,169,010    596,064    572,946    96%
Less: net income attributable to non-controlling interests   355,950    199,293    156,657    79%
Net income attributable to the Company  $813,060    396,771    416,289    105%
Comprehensive income:                    
Foreign currency translation adjustment attributable to non-controlling interests   11,530    81,019    (69,489)   (86)%
Foreign currency translation adjustment attributable to the Company   27,126    189,157    (162,031)   (86)%
Comprehensive income  $1,130,354   $325,888   $804,466    247%

 

 

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Revenue

 

Operating revenue for the three months ended September 30, 2016, which resulted primarily from medicine revenue and patient services revenue, was $4,257,244, an increase of 45% as compared with the operating revenue of $2,927,900 for the three months ended September 30, 2015. The increase was primarily a result of the number of treated inpatients growing to 3,410 patients, about 842 more than the 2,568 patients treated in three months ended September 30, 2015.

 

Costs and Expenses

 

Total costs and expenses were $3,086,511 for the three months ended September 30, 2016, an increase of $758,992 or 33% as compared to $2,327,519 for the same period of 2015. This increase was primarily due to significant increase of cost of medicine sold of $325,218, medical consumables of $143,213, salaries and benefits of $229,750.

 

Cost of medicine sold

 

Cost of medicine sold mainly consists of cost of Western medicine, Chinese medicine and herbal medicine. Total cost of medicine sold was $1,161,959 for the three months ended September 30, 2016, an increase of $325,218 or 39% as compared to $836,741 for the same period of 2015. This increase was primarily due to significant increases in sales of Western medicine and Chinese medicine. For the three months ended September 30, 2016, the cost of Western medicine and Chinese medicine were $1,136,255 as compared to $823,243 for the same period of 2015.

 

Medical consumables

 

Medical consumables mainly consist of materials expenses, medical film expenses and test reagent. Total medical consumables were $382,891 for the three months ended September 30, 2016, an increase of $143,213 or 60% as compared to $239,678 for the same period of 2015. The increase was mainly a result of increase in materials expenses of $113,245.

 

Salaries and benefits

 

Salaries and benefits mainly consist of salary expenses, and social insurance expenses. Total salaries and benefits were $720,860 for the three months ended September 30, 2016, an increase of $229,750 or 47% as compared to $491,110 for the same period of 2015. The increase was mainly a result of increase in salaries expenses of $211,027 and increase in social insurance expenses of $18,739. The number of employees was 479, an increase of 106 as compared to 373 for the same period of 2015.

 

Income Taxes

 

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

 

Jiarun's medical services have been exempt from enterprise income tax since March 1, 2006, which has been approved by the Local Taxation Bureau.

 

Jiarun was incorporated in accordance with the law of medical and health institutions to mainly provide medical services, with the "PRC Business Tax Tentative Regulations" Article 8 (3) medical service income tax-free provisions (hospital, clinics and other medical institutions to provide medical services shall be exempt from business tax). The Company's medical services have been exempted from business tax since March 1, 2006.  

 

In considering the achievements of the hospital, they could not have been reached without the support of local authorities. Jiarun hospital has voluntarily paid income tax of $866 and $925 for the three months ended September 30, 2016 and 2015, respectively to support the local tax bureau's economical obligations.

 

Income from Operations and Net income

 

Income from Operations was $1,170,733 for the three months ended September 30, 2016, as compared with operating income of $600,381 for the three months ended September 30, 2015. The Company’s net income for the three months ended September 30, 2016, was $1,169,010 representing an increase of $572,946 or 96%, over $596,064 for the three months ended September 30, 2015. The increases in income from operations and net income for the three months ended September 30, 2016, were primarily due to aforementioned changes in operating revenue and operating expenses.

 

 

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Results of Operations for the nine months Ended September 30, 2016 and 2015

 

The following table shows key components of the results of operations during nine months ended September 30, 2016 and 2015: 

 

   Nine Months Ended 
September 30,
   Change 
   2016   2015   $   % 
                 
 Revenue:                    
Medicine  $5,643,897   $3,790,553   $1,853,344    49%
Patient services   7,314,215    4,276,284    3,037,931    71%
Total revenue   12,958,112    8,066,837    4,891,275    61%
Operating costs and expenses:                    
Cost of medicine sold   3,374,138    2,325,239    1,048,899    45%
Medical consumables   1,200,169    558,089    642,080    115%
Salaries and benefits   2,106,103    1,313,726    792,377    60%
Office supplies   220,380    236,950    (16,570)   (7)%
Vehicle expenses   38,770    24,605    14,165    58%
Utilities expenses   308,358    354,609    (46,251)   (13)%
Advertising and promotion expenses   92,975    -    92,975    NA 
Interest expense   1,030,949    903,737    127,212    14%
Professional fee   126,272    129,948    (3,676)   (3)%
Depreciation   779,321    629,927    149,394    24%
Total operating costs and expenses   9,277,435    6,476,830    2,800,605    43%
Earnings from operations before other income and income taxes   3,680,677    1,590,007    2,090,670    131%
Other income   3,900    9,201    (5,301)   (58)%
Earnings from operations before income taxes   3,684,577    1,599,208    2,085,369    130%
Income tax   3,172    1,699    1,473    87%
Net income   3,681,405    1,597,509    2,083,896    130%
Less: net income attributable to non-controlling interests   1,133,290    514,664    618,626    120%
Net income attributable to the Company  $2,548,115   $1,082,845   $1,465,270    135%
Comprehensive income:                    
Foreign currency translation adjustment attributable to non-controlling interests   77,759    68,756    9,003    13%
Foreign currency translation adjustment attributable to the Company   195,169    159,356    35,813    22%
Comprehensive income  $3,408,477   $1,369,397   $2,039,080    149%

 

Revenue

 

Operating revenue for the nine months ended September 30, 2016, which resulted primarily from medicine revenue and patient services revenue, was $12,958,112, an increase of 61% as compared with the operating revenue of $8,066,837 for the nine months ended September 30, 2015. The increase was primarily a result of the number of treated inpatients growing to 10,558 patients, about 3,230 more than the 7,328 patients treated in nine months ended September 30, 2015.

 

Costs and Expenses

 

Total costs and expenses were $9,277,435 for the nine months ended September 30, 2016, an increase of $2,800,605 or 43% as compared to $6,476,830 for the same period of 2015. This increase was primarily due to significant increases in medical consumables of $641,080, and increases in cost of medicine supplies of approximately $1,048,899, and increase in salaries and benefits of $792,377.

 

9 

 

 

Cost of medicine sold

 

Cost of medicine sold mainly consists of cost of Western medicine, Chinese medicine and herbal medicine. Total cost of medicine sold was $3,374,138 for the nine months ended September 30, 2016, an increase of $1,048,899 or 45% as compared to $2,325,239 for the same period of 2015. This increase was primarily due to significant increases in cost of Western medicine and Chinese medicine of $1,002,993. For the nine months ended September 30, 2016, the cost of Western medicine and Chinese medicine were $3,289,686, as compared to $2,286,693 for the same period of 2015.

 

Medical consumables

 

Medical consumables mainly consist of materials expenses, medical film expenses and test reagent. Total medical consumables were $1,200,169 for the nine months ended September 30, 2016, an increase of $642,080 or 115% as compared to $558,089 for the same period of 2015. The increase was mainly a result of increase in materials expenses of $402,706 and increase in test reagent expense of $58,029.

 

Salaries and benefits

 

Salaries and benefits mainly consist of salaries expenses, and social insurance expenses. Total salaries and benefits were $2,106,103 for the nine months ended September 30, 2016, an increase of $792,377 or 60% as compared to $1,313,726 for the same period of 2015. The increase was mainly a result of increase in salaries expenses of $739,528. The number of employees was 461, an increase of 129 as compared to 332 for the same period of 2015.

 

Income Taxes

 

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

 

Jiarun's medical services have been exempt from enterprise income tax since March 1, 2006, which has been approved by the Local Taxation Bureau.

 

Jiarun was incorporated in accordance with the law of medical and health institutions mainly provide medical services, with the "PRC Business Tax Tentative Regulations" Article 8 (3) medical service income tax-free provisions (hospital, clinics and other medical institutions to provide medical services shall be exempt from business tax). The Company's medical services have been exempted from business tax since March 1, 2006.  

 

In considering the achievements of the hospital, they could not have been reached without the support of local authorities, Jiarun hospital has voluntarily paid income tax voluntary of $3,172 and $1,699 for the nine months ended September 30, 2016 and 2015, respectively to support the local tax bureau's economical obligations.

 

Income from Operations and Net income

 

Income from Operations was $3,680,677 for the nine months ended September 30, 2016, as compared with operating income of $1,590,007 for the nine months ended September 30, 2015. The Company’s net income for the nine months ended September 30, 2016, was $3,681,405 representing an increase of $2,083,896 or 130%, over $1,597,509 for the nine months ended September 30, 2015. The increases in income from operations and net income for the nine months ended September 30, 2016 were primarily due to aforementioned changes in operating revenue and operating expenses.

 

Liquidity and Capital Resources

 

The accompanying financial statements have been prepared for the Company to continue as a going concern which contemplates, among other things, the realization of assets and satisfaction of liabilities in the ordinary course of business.

 

As of September 30, 2016, the Company had $597,022 of cash and cash equivalents.

  

We are presently able to meet our obligations as they come due. As of September 30, 2016, we had non-controlling interest of $4,779,222 and shareholders’ equity of $6,040,800.

 

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We anticipate that our future liquidity requirements will arise from the need to fund our growth, pay current obligations and future capital expenditures. The primary sources of funding for such requirements are expected to be cash generated from operations and raising additional funds from the public offering and/or debt financing. However, we can provide no assurances that we will be able to generate sufficient cash flow from operations and/or obtain additional financing on terms satisfactory to us, if at all, to remain a going concern.

 

Cash Flows and Capital Resources 

 

We believe that we will generate cash flow from our business, which, along with our available cash, will provide sufficient liquidity and financial flexibility. Our cash flows are summarized below: 

   Nine Months Ended September 30, 
   2016   2015 
Net cash provided by operating activities   3,914,023    1,427,860 
Net cash used in investing activities   (2,918,429)   (3,141,645)
Net cash (used in) provided by financing activities   (747,429)   986,665 
Effect of exchange rate fluctuation on cash and cash equivalents   (3,296)   152,315 
Net decrease(increase) in cash and cash equivalents   244,869    (574,805)
Cash and cash equivalents, beginning of period   352,153    1,046,485 
Cash and cash equivalents, ending of period  $597,022   $471,680 

  

Net Cash provided by Operating Activities

 

For the nine months ended September 30, 2016, we had positive cash flow from operating activities of $3,914,023, an increase of $2,486,163 from the same period of 2015, during which we had cash flow from operating activities of $1,427,860. The increase in net cash used in operating activities was mainly as a result of the net income for the nine months ended September 30, 2016 increased by $2,083,896 as compared to the nine months ended September 30, 2015, and the addition of a due to Amount due to related parties items totaling $930,337, which was due to the purchase and borrowing from related parties.

 

Net Cash Used in Investing Activities

 

Net cash used in investing activities for the nine months ended September 30, 2016 was $2,918,429, compared to net cash used in investing activities of $3,141,645 for the nine months ended September 30, 2015. The cash used in investing activities for the nine months ended September 30, 2016, was mainly used for the purchase of medical equipment.

 

Net Cash (Used in) Provided by Financing Activities

 

Net cash used in financing activities for the nine months ended September 30, 2016, was $747,429, as compared to net cash provided by financing activities of $986,665 for the nine months ended September 30, 2015. The cash used in financing activities for the nine months ended September 30, 2016, was mainly from a short-term bank loan of $421,331, payments on capital leases obligation of $2,149,599 and proceeds from capital lease of $904,854.

 

Trends, Events and Uncertainties

 

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.

 

In December 2014, our operations moved into the new building. We have finished most of the decoration of the new building, part of the expansion of medical facilities and purchases of new medical equipment. The hospital will need more medical facilities to update the medical equipment and acquire one pharmaceuticals wholesale and one medicine retail company. The new hospital building is being constructed by Harbin Baiyi Real Estate Development Co., Ltd, which is owned by Junsheng Zhang, a related party. The building was leased from the related party by financial leasing, the price of the leasing agreement referred to the local market price and audited by the auditor. The Leasing terms consist of 30 payments. Each payment will be made on an annual basis when 7 million RMB per payment will be paid upfront for each leasing period. The first payment was made on September 1, 2014. At the end of the leasing period, a final payment will be made to settle the total leasing amount. Both parties agreed for the lessee to pay 3 million RMB as a deposit at the execution of the leasing agreement, which will be deducted from the final rental settlement. The lending interest rate was calculated at 6. 55%, which is the benchmark interest rate announced from The People’s Bank of China. After the completion of all payments, the ownership of the lease item will be transferred to the lessee (Jiarun hospital). Up to September 30, 2016, we had paid approximately $485,476 for the construction of the new hospital. We borrowed the funds from our related company and banks. In addition to what we had paid for the new hospital building construction, we estimate the additional costs to complete the project and more medical facilities to update the medical equipment.

 

11 

 

 

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 December 31, 2004. Based on this evaluation, we concluded that our disclosure controls and procedures are effective in timely alerting them to material information required to be included in our periodic reports.

 

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.

 

 

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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

 

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

 

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

 

We did not sell or issue any shares of unregistered securities during the three month period ended September 30, 2016.  

  

ITEM 3.        DEFAULTS UPON SENIOR SECURITIES

 

Not applicable 

 

ITEM 4.        OTHER INFORMATION

 

Not applicable

 

ITEM 5.        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

 

 

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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
         
 Lihua. Sun   Chief Executive Officer    
/s/ Lihua. Sun  

(Principal Executive Officer)

  November 14, 2016
         
         

 

 Xuewei. Zhang

  Chief Financial Officer    
/s/ Xuewei. Zhang  

(Principal Financial Officer)

  November 14, 2016
         

 

 

 

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