UNITED STATES

SECURITIES AND EXCHANGE COMMISSION 

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31,September 30, 2022

or

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

For the transition period from _______ to _______

Commission File Number: 000-56013

JRSIS HEALTH CARE CORPORATION.  

(Exact name of Registrant as specified in its charter)

No. 38 South Street3/F Building A, De Run Yuan

Hulan District, Harbin City,No. 19 Chang Yi Road, Chang Ming Shui

Heilongjiang Province, China 150025Wu Gui Shan, Zhong Shan City 528458

+0086-451-5688893386-760-88963658

(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

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

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

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

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

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

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

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

As of the date of filing of this report, there were outstanding 18,628,56958,366,569 shares of the issuer’s common stock, par value $0.001 per share.

TABLE OF CONTENTS

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 threenine months ended March 31,September 30, 2022 are not necessarily indicative of the results that can be expected for the year ended December 31, 2022.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

JRSIS HEALTH CARE CORPORATION

CONSOLIDATED BALANCE SHEETS

(AMOUNTS IN USD, EXCEPT SHARES)

See notes to consolidated financial statements 

JRSIS HEALTH CARE CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(AMOUNTS IN USD, EXCEPT SHARES) (UNAUDITED)

See notes to consolidated financial statements

JRSIS HEALTH CARE CORPORATION

CONSOLIDATED STATEMENT OF SHARESHOLDERS’ EQUITY

(AMOUNTS IN USD, EXCEPT SHARES)

See notes to consolidated financial statements

JRSIS HEALTH CARE CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(AMOUNTS IN USD, EXCEPT SHARES)

See notes to consolidated financial statements

JRSIS HEALTH CARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(AMOUNTS IN USD)

NOTE 1. DESCRIPTION OF BUSINESS AND ORGANIZATION

JRSIS Health Care Corporation (the “Company” or “JRSS”) was incorporated on November 20, 2013 under the laws of the State of Florida. In December 2013, JRSS acquired 100% of the equity in JRSIS Health Care Limited (“JHCL”), which is a Limited Liability Company registered in British Virgin Island (“BVI”) on February 25, 2013. JHCL owns 100% of the equity in Runteng Medical Group Co., Ltd (“Runteng”), a limited liability company registered in Hong Kong on September 17, 2012. Until March 31, 2022, Runteng ownsowned 70% of the equity interest in Harbin Jiarun Hospital Co., Ltd (“Jiarun”), a for-profit hospital incorporated in Harbin City of Heilongjiang, China in February 2006. The remaining 30% of the equity interest in Jiarun is owned by Junsheng Zhang, who iswas the Chairman of the Board of JRSIS Health Care Corporation.Corporation until April 28, 2022.

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

30%On April 12, 2022, Runteng has set up and owned 100% of the equity in Jiarun is held by Junsheng Zhang, and is therefore a non-controlling interestLaidian Technology (Zhongshan) Co., Ltd (“NCI”Laidian”), accounted for pursuanta wholly foreign-owned enterprise (“WFOE”) subsidiary to ASC 810-10-45, which states thatengage in the ownershipbusiness of providing charging services to electric vehicles incorporated in Zhongshan City of Guangdong, China.

Spin-Off of Harbin Jiarun Hospital Co., Ltd.

On April 28, 2022 JRSIS completed the spin-off of its subsidiary Jiarun. as JRSIS’s subsidiary Runteng transferred its 70% equity interest in Jiarun to Zhang Junsheng (the “Spin-Off”). In exchange for the subsidiary that is held by owners other than70% equity interest in Jiarun, Zhang Junsheng transferred 5,392,000 shares of JRSIS’ common stock to Runteng.

After the parent is a non-controlling interest.Spin-Off, JRSIS does not beneficially own any equity interest in Jiarun and will no longer consolidate Jiarun’s financial results with the financial results of JRSIS as on April 1, 2022. According to spin-off agreement on April 28, 2022, the supplemental agreement signed between Junsheng Zhangeffective date of spin-off was April 1, 2022, Commencing on the second quarter of fiscal year 2022, Jiarun’s historical financial results for periods prior to April 1, 2022 was reclassified and Runteng on June 1, 2013, the comprehensive income from Jiarun would be attributable to retained earnings and non-controlling interestreflected in JRSIS’s consolidated financial statements as a discontinued operation for 70% and 30% respectively, from July 1, 2013.comparative purposes.

NOTE 2. SUMMARIES OF SIGNIFICANT ACCOUNTING POLICIES

A. Basis of presentation

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

B. Principles of consolidation

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

C. Use of estimates

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

JRSIS HEALTH CARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(AMOUNTS IN USD)

NOTE 2. SUMMARIES OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

D. Functional currency and foreign currency translation

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

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

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

E. Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk are cash, accounts receivable and other receivables arising from its normal business activities. The Company places its cash in what it believes to be credit-worthy financial institutions. The majority of sales are either cash receipt in advance or cash receipt upon delivery. For threethe nine months ended March 31,September 30, 2022 and 2021, no customer accounted for more than 10% of net revenue. As of March 31,September 30, 2022 and December 31, 2021, three and three customersno customer accounted for more than 5% of net accounts receivable, respectively. For those credit sales, the Company routinely assesses the financial strength of its customers and, based upon factors surrounding the credit risk, establishes an allowance, if required, for uncollectible accounts and, as a consequence, believes that its accounts receivable credit risk exposure beyond such allowance is limited.

F. Cash and cash equivalents

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

G. Accounts receivable

Accounts receivable are recorded at net realizable value consisting of the carrying amount less an allowance for uncollectible accounts as needed. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable. The Company determines the allowance based on aging data, historical collection experience, customer specific facts and economic conditions. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. F-7

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. 

JRSIS HEALTH CARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(AMOUNTS IN USD)

NOTE 2. SUMMARIES OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

I. Construction in progress

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

J.G. Property and equipment

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

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

K.H. Leases

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

L.I. 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).

JRSIS HEALTH CARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(AMOUNTS IN USD)

NOTE 2. SUMMARIES OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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

A summary of changes in Warrantwarrant liability for threethe nine months ended March 31, 2022wasSeptember 30, 2022 was as follows:

The fair value of the outstanding warrants was calculated using the Binomial Option Pricing Model, withas of the following assumptions at inception and on subsequent valuation date:date of filling this report, there was no outstanding warrants.

Cash and cash equivalents, accounts receivable,other receivables, deferred expenses, accounts payable, amount due to related parties, other payable and accrued liabilitiespayroll payable 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 obligationsliabilities also approximates carrying value as they bear interest at current market rates.

JRSIS HEALTH CARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(AMOUNTS IN USD)

NOTE 2. SUMMARIES OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

M.J. Segment and geographic information

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

N.K. Revenue recognition

The Company recognizes revenue when the contract and performance obligations are identified with a customer, the transaction price are determined and allocated to the performance obligations in the contract for which the amount of revenue can be reliably measured,measured. The Company will recognize revenue when the entity satisfies a performance obligation, 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.activities.

Medicine salesL. Shares Issued for Officer’s Compensation

Revenue fromThe Company accounts for stock-based compensation in accordance with ASC 718-10 “Compensation-Stock Compensation” which requires the salemeasurement and recognition of medicinecompensation expense for all share-based payment awards made to employees and directors including employee stock options, restricted stock units, and stock appreciation rights are based on estimated fair values. Stock-based compensation expense recognized during the period is recognized when it is both earned and realized. The Company’s policy is to recognizebased on the sale of medicine when the titlevalue of the medicine, ownership and riskportion of loss have transferredshare-based payment awards that is ultimately expected to vest during the purchasers, and collection of the sales proceeds is reasonably assured, all of which generally occur when the patient receives the medicine.

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

Patient Services

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

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

The Company provides servicesaccounts for non-employee stock-based awards at fair value in accordance with the measurement and recognition criteria of ASC 505-50 “Equity-Based Payments 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.Non-Employees.

Patients who are not covered by social insurance are liableShare-based payment awards granted to a customer shall be measured and classified according to the terms of award. A share-based payment transaction shall be measured based on the fair value. On May 5, 2022, the Company issued 39,130,000 shares of its common stock as officer compensation to Zhong Zhuowei upon the initiation of operations of Laidian. These shares had a negotiated value of $1,056,510, of which $74,652 was obligation for Laidian’s paid in capital, remaining $981,858 was the total costexpense of medical treatment.the Company for 3 years since April of 2022. For the three months ended September 30, 2022, the Company recorded $81,821 compensation expenses. For the nine months ended September 30, 2022, the Company recorded $163,643 compensation expenses.

F-9

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

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

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

JRSIS HEALTH CARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(AMOUNTS IN USD)

NOTE 2. SUMMARIES OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Settlement process

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

O.M. Income taxes

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

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

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

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

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

JRSIS HEALTH CARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(AMOUNTS IN USD)

NOTE 2. SUMMARIES OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

P.N. 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. The dilutive earnings per share will not be computed if the effect would be anti-dilutive.

Q.O. Reclassification

The comparative figures before April 1, 2022 have been reclassified to conform to current year presentation.presentation to reflect the disposal of a component of business derived from the recognition of a spin-off transaction on April 28, 2022.

R.P. Recently adopted accounting pronouncements

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

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

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

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

NOTE 3. ACCOUNTS RECEIVABLE, NET

The Company experienced $ nil bad debts during three months ended March 31, 2022 and 2021. The allowance for doubtful debts as of March 31, 2022 and December 31, 2021 was measured by the two years old unreimbursed excess insurance claim submitted by the Company to the Harbin Medical Insurance Management Centre.

NOTE 4. INVENTORIES

At March 31, 2022 and December 31, 2021, inventories consist of the following:

JRSIS HEALTH CARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(AMOUNTS IN USD)

NOTE 5. PREPAYMENT

At March 31, 2022 and December 31, 2021 prepayment consists of the following:

NOTE 6. PROPERTY AND EQUIPMENT

At March 31, 2022 and December 31, 2021, property and equipment, at cost, consist of:

The Company recorded depreciation expense of $882,235 and $807,974 for the three months ended March 31, 2022 and 2021, respectively.

NOTE 7. LONG TERM DEFERRED EXPENSES3. DISCONTINUED OPERATIONS

On May 7, 2015, July 3, 2015 and October 16, 2015, JiarunApril 28, 2022 the subsidiary of JRSS, Runteng entered into three lease agreements to lease medical equipment from Hair Finance Leasing (China) Co., Ltd. (“Hair”), an unrelated third party, foragreement regarding a five-year period, in which Jiarun is required to pay a consulting fee to Hair fortransfer of Jiarun’s equity interest with Zhang Junsheng, who was the services provided over the five years. During the year ended December 31, 2018, the Company paid approximately $1.7 million for the decorationChairman of its outpatient building and the two Branch Hospitals. During the year ended December 31, 2020, the Company paid approximately $2.2 million for the decoration of its New District Branch hospital. The consulting and decoration fees paid but attributableJRSS until April 28, 2022. Pursuant to the currentagreement, Runteng transferred equity in Jiarun, representing 70% of equity interest in Jiarun to Mr. Zhang and subsequent accountingMr. Zhang transferred 5,392,000 shares of JRSS’s common stock to Runteng.

After the Spin-Off, JRSIS did not beneficially own any equity interest in Jiarun and will no longer consolidate Jiarun’s financial results with financial results of JRSS. Commencing on the second quarter of fiscal year 2022, Jiarun’s historical financial results for periods prior to April 1, 2022 was reclassified and reflected in JRSS’s consolidated financial statements as a discontinued operation. 

Since this transaction required certain authoritative approval before effective, the publication of these transactions were accounted fordelay so as deferred expensesto obtain all parties consent and long term deferred expenses.advance authoritative approval.

The current portionfollowing table presents the components of discontinued operations in relation to Jiarun reported in the prepaid consulting and decoration fees were recorded as deferred expensesconsolidated statements of $398,820 and $461,331 as of March 31, 2022 and December 31, 2021. The long-term deferred expenses were $2,064,658 and $2,117,763 as of March 31, 2022 and December 31, 2021.operations:

The Company recorded consulting feefollowing table presents the major classes of $nilassets and $nil, and decoration feesliabilities of $116,338 and $$113,900 fordiscontinued operations of Jiarun reported in the three months ended March 31, 2022 and 2021, respectively.consolidated balance sheets:

JRSIS HEALTH CARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(AMOUNTS IN USD)

NOTE 4. PROPERTY AND EQUIPMENT, NET

At September 30, 2022 and December 31, 2021, property and equipment, net, consisted of:

The Company recorded depreciation expense of $2,166 and $nil for the three months ended September 30, 2022 and 2021, respectively, and $3,671 and $nil for the nine months ended September 30, 2022 and 2021, respectively.

NOTE 8.5. RIGHT-OF-USE ASSETS AND LEASE LIABILITIES

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

Finance lease

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

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

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

On November 20, 2020 Jiarun entered into a sale and leaseback agreement for the sale-leaseback of properties from Haier Finance Leasing Company Limited, with a collective net value of $2,272,053.

On June 16, 2021 Jiarun entered into a finance lease agreement for the acquisition of medical equipment from GE with a net value of $2,524,061.

Operating lease

In August 2017 JRSSMarch 2022, Laidian leased office space under non-cancellable operating lease agreements. Under terms of the lease agreement, from August 2017, JRSSApril 2022, Laidian is committed to make lease payments of approximately $41,607$1,528 per yearmonth for 5 years. This office is used for outpatient services by 2nd Branch Hospital.23 months.

In December 2017 JRSS leased office space under non-cancellable operating lease agreements. Under terms of the lease agreement, from December 2017, JRSS is committed to make lease payments of approximately $68,128 per year for 5 years. This office is used by 1st Branch Company. In October 2019 JRSS updated this operating lease agreements to expand the operating area for the remain lease period, under terms of the new lease agreement, from October 2019, JRSS is committed to lease expense payments of approximately $193,433 per year for 3 years. This office is used for the operations of Nanjing Road Branch.

In January 2021 JRSS leased office space under non-cancellable operating lease agreements. Under terms of the lease agreement, from January 2021, JRSS is committed to lease expense payments of approximately $864,943 per year for 10 years. This office is used for the operations of the New District Branch.

In June 2021 JRSS leased office space under non-cancellable operating lease agreements. Under terms of the lease agreement, from July 2021, JRSS is committed to lease expense payments of approximately $125,810 per year for 3 years. This office is used for the operations of the New District Branch.

JRSIS HEALTH CARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(AMOUNTS IN USD)

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

The Company’s adoption of the new lease standard included new processes and controls regarding asset financing transactions, financial reporting and a system-related implementation required for the new lease standard. The Company’s accounting for finance leases (formerly referred to as capital leases prior to the adoption of the new lease standard) remained substantially unchanged. The impact of the adoption of the new lease standard included the recognition of right-of-use (“ROU”) assets and lease liabilities. The adoption of the new lease standard resulted in additional net lease assets and net lease liabilities of approximately $21.70 million and $22.72 million, respectively, as of March 31, 2022. 

As of March 31,September 30, 2022, the Company has the following amounts recorded on the Company’s unaudited condensed consolidated balance sheet: 

The future minimum lease payments for annual capital lease obligation as of March 31, 2022 are as follows:

The Company recorded finance interest lease fees of $283,152 and $257,792 for the three months ended March 31, 2022 and 2021, respectively.

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

The companyCompany has recorded operating lease expense of $306,965$4,323 and $269,204$352,600 ($nil for the Company, $352,600 for discontinued operations) for the three months ended March 31,September 30, 2022 and 2021, respectively, and $10,435 and $902,327 ($nil for the Company, $902,327 for discontinued operations) for the nine months ended September 30, 2022 and 2021, respectively.

At March 31, 2022 right-of-use assets, consist of:

F-12

The Company recorded finance lease amortization expense of $285,698 and $283,281 in depreciation and amortization for the three months ended March 31, 2022 and 2021, respectively. For the three months ended March 31, 2022, the amount of depreciation and amortization was $882,235, also included general property and equipment depreciation of $596,537.

JRSIS HEALTH CARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(AMOUNTS IN USD)

NOTE 8.5. RIGHT-OF-USE ASSETS AND LEASE LIABILITIES (Continued)

The Company recorded operating lease expense of $306,965 and $269,204 for the three months ended March 31,At September 30, 2022 and 2021, including operating lease amortization expense of $218,456 and $218,856 for the three months ended March 31, 2022 and 2021, respectively.right-of-use assets, net consist of:

NOTE 9.6. DERIVATIVE FINANCIAL INSTRUMENTS

Derivative Financial Instruments

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

Warrant liability – In 2019 the Company issued a common stock purchase warrant (the “warrant”) to purchase 21,000 shares of the registrant’s common stock to Auctus Fund, LLC. The warrant contains certain reset provisions. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivative as of the inception date (issuance date) and to record changes in fair value as of each subsequent reporting date.

At March 31, 2022, the Company marked to market the fair value As of the Auctus Fund warrant liability and determined a fair valuedate of $0. The Company recorded a loss from issuance expense and change in fair value of warrant liability of $(7) and $20,531 for three months ended March 31, 2022 and 2021. The fair value of the warrant liability was determined using Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 46.47%, (3) weighted average risk-free interest rate of 0.668%, (4) expected life of 0.33 years, and (5) the quoted market price of the Company’s common stock at each valuation date.filling this report, there were no outstanding warrants.

NOTE 10. NON-CONTROLLING INTERESTS

Jiarun is the Company’s majority-owned subsidiary which is consolidated in the Company’s financial statements with a non-controlling interest recognized. The Company holds a 70% equity interest in Jiarun as of March 31, 2022 and December 31, 2021.

As of March 31, 2022 and December 31, 2021, NCI on the consolidated balance sheet was $11,885,026 and $11,034,278, respectively, representing the 30% of Jiarun that is owned by Junsheng Zhang. For the three months ended March 31, 2022, the comprehensive income attributable to shareholders’ equity and NCI is $1,996,278 and $850,748, respectively. For the three months ended March 31, 2021, the comprehensive income attributable to shareholders’ equity and NCI is $276,525 and $145,648, respectively.

JRSIS HEALTH CARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(AMOUNTS IN USD)

NOTE 11. REVENUE

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

NOTE 12.7. INCOME TAX EXPENSE

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

United States

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

The following table shows the components of the allowance for US income tax recorded for threethe nine months ended March 31,September 30, 2022:

BVI

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

JRSIS HEALTH CARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(AMOUNTS IN USD)

NOTE 12. INCOME TAX EXPENSE(Continued)

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%.

JRSIS HEALTH CARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(AMOUNTS IN USD)

NOTE 7. INCOME TAX EXPENSE (Continued)

The following table shows the components of the allowance for Hong Kong income tax recorded for threethe nine months ended March 31,September 30, 2022: