JRSIS HEALTH CARE Corp - Quarter Report: 2023 March (Form 10-Q)

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, 2023

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)

3/F Building A, De Run Yuan

No. 19 Chang Yi Road, Chang Ming Shui

Wu Gui Shan, Zhong Shan City 528458

+86-760-88963658

(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 58,366,569 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 Regulation S-X, Rule 10-01(c) Interim Financial Statements, and, therefore, do not include all information and footnotes necessary for a complete presentation of financial position, results of operations, cash flows, and stockholders’ equity in conformity with generally accepted accounting principles. In the opinion of management, all adjustments considered necessary for a fair presentation of the results of operations and financial position have been included and all such adjustments are of a normal recurring nature. Operating results for the three months ended March 31, 2023 are not necessarily indicative of the results that can be expected for the year ended December 31, 2023. These unaudited consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K 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 owned 70% of the equity in Harbin Jiarun Hospital Co., Ltd (“Jiarun”), a for-profit hospital incorporated in Harbin City of Heilongjiang, China in February 2006. The remaining 30% of the equity in Jiarun was owned by Junsheng Zhang, who is the Chairman of the Board of JRSIS Health Care Corporation.

On April 12, 2022, Runteng organized and acquired 100% of the equity in Laidian Technology (Zhongshan) Co., Ltd (“Laidian”), a wholly foreign-owned enterprise (“WFOE”) subsidiary. The Company organized Laidian to engage in the business of providing charging services to electric vehicles operating in Zhongshan City of Guangdong, China.

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

On April 28, 2022 JRSIS Health Care Corporation completed the spin-off of its subsidiary Harbin Jiarun Hospital Co., Ltd. as JRSIS’s subsidiary Runteng Medical Group Co., Ltd. transferred its 70% equity interest in Jiarun to Zhang Junsheng (the “Spin-Off”). In exchange for the 70% interest in Jiarun, Zhang Junsheng transferred to Runteng 5,392,000 shares of JRSIS common stock.

After the Spin-Off, JRSIS does not beneficially own any equity interest in Jiarun and will no longer consolidate Jiarun financial results with the financial results of JRSIS as on April 1, 2022. According to spin-off agreement on April 28, 2022, the effective 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 has been reclassified and reflected in JRSIS’s consolidated financial statements as a discontinued operation for 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.

C. Use of estimates

The preparation of 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 the three months ended March 31, 2023 and 2022, no customer accounted for more than 10% of net revenue. As of March 31, 2023 and December 31, 2022, no 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.

JRSIS HEALTH CARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(AMOUNTS IN USD)

NOTE 2. SUMMARIES OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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:

H. Leases

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

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)

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

J. Segment and geographic information

An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, and is identified on the basis of the internal financial reports that are provided to and regularly reviewed by the Group’s chief operating decision maker in order to allocate resources and assess performance of the segment.

In accordance with ASC (“Accounting Standard Codification”) 280, Segment Reporting, operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker (“CODM”), or decision-making group, in deciding how to allocate resources and in assessing performance. The Group uses the “management approach” in determining reportable operating segments. The management approach considers the internal organization and reporting used by the Group’s chief operating decision maker for making operating decisions and assessing performance as the source for determining the Group’s reportable segments. The Group’s CODM has been identified as the chief executive officer (the “CEO”), who reviews consolidated results when making decisions about allocating resources and assessing performance of the Group.

The Group has determined that there is only one reportable operating segment since all of the services provided are viewed as an integrated business process and allocation of the resources and assessment of the performance are not separately evaluated by the Group’s CODM.

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. 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.

L. Shares Issued for Officer’s Compensation

The Company accounts for stock-based compensation in accordance with ASC 718-10 “Compensation-Stock Compensation” which requires the measurement and recognition of compensation 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 based on the value of the portion of share-based payment awards that is ultimately expected to vest during the period.

The Company accounts 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 Non-Employees.

Share-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 expense of the Company for 3 years since April of 2022. For the three months ended March 31, 2023, the Company recorded $81,821 compensation expenses.

JRSIS HEALTH CARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(AMOUNTS IN USD)

NOTE 2. SUMMARIES OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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.

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.

O. Reclassification

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

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. 

JRSIS HEALTH CARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(AMOUNTS IN USD)

NOTE 3. DISCONTINUED OPERATIONS

At the beginning of 2022, the board of directors of the Company committed to a plan to dispose of Jiarun. On April 28, 2022 the subsidiary of JRSS, Runteng Medical Group Co., Ltd., entered into an Agreement Regarding a Transfer of Harbin Jiarun Hospital Co., Ltd.’s Equity with Zhang Junsheng, who was the Chairman of JRSS until April 28, 2022. Pursuant to the Transfer Agreement, Runteng transferred to Mr. Zhang equity in Harbin Jiarun Hospital Co., Ltd. representing 70% of the total equity in Jiarun Hospital and Mr. Zhang transferred to Runteng 5,392,000 shares of the Registrant’s common stock.

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 delay so as to obtain all parties consent and advance authoritative approval.

The following table presents the components of discontinued operations in relation to Jiarun Hospital reported in the consolidated statements of operations:

JRSIS HEALTH CARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(AMOUNTS IN USD)

NOTE 4. PROPERTY AND EQUIPMENT, NET

At March 31, 2023 and December 31, 2022, property and equipment, net, consisted of:

The Company recorded depreciation expense of $2,138 and $nil for the three months ended March 31, 2023 and 2022, respectively.

NOTE 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.

Operating lease

In March 2022, Laidian leased office space under non-cancellable operating lease agreements. Under terms of the lease agreement, from April 2022, Laidian is committed to make lease payments of approximately $1,528 per month for 23 months.

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 $15,487 and $15,487, respectively, as of March 31, 2023.

As of March 31, 2023, the Company has the following amounts recorded on the Company’s unaudited condensed consolidated balance sheet: 

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

The Company has recorded operating lease expense of $2,895 and $306,965 ($nil for the Company, $306,965 for discontinued operations) for the three months ended March 31, 2023 and 2022, respectively.

JRSIS HEALTH CARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(AMOUNTS IN USD)

NOTE 6. 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 the three months ended March 31, 2023:

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%.

JRSIS HEALTH CARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(AMOUNTS IN USD)

NOTE 6. INCOME TAX EXPENSE (Continued)

The following table shows the components of the allowance for Hong Kong income tax recorded for the three months ended March 31, 2023:

PRC

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

The following table shows the components of the allowance for PRC income tax recorded for the three months ended March 31, 2023:

NOTE 7. RELATED PARTY TRANSACTIONS

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

Amount due from related parties

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

Amounts due from Zhuowei Zhong, the Chairman of the Company, represented excess reimbursement by the Company of amounts paid by Mr. Zhong for the daily operation of the Company.

JRSIS HEALTH CARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(AMOUNTS IN USD)

NOTE 7. RELATED PARTY TRANSACTIONS (Continued)

Related parties’ transactions

Related parties’ transactions consisted of the following for the periods indicated:

(#1)Zhong Zhuowei is major shareholder holding 80.7% and 0% of the Company’s issued and outstanding common stock as of March 31, 2023 and 2022, respectively. On May 5, 2022, the Company issued 39,130,000 shares of its common stock to Zhong Zhuowei, pursuant to “agreement on the establishment of Laidian”, as compensation to serve as management to setup Laidian. As Mr. Zhong had previously acquired 8,000,000 shares in private transactions, he owned 47,130,000 shares (80.7%) of the Company’s common stock as on May 5, 2022.

As on same day, the Company issued 39,130,000 shares of its common stock to Zhong Zhuowei in compensation for his undertaking to provide management services and financing in connection with the initiation of operations of Laidian. These shares had a negotiated value of $1,056,510. $74,652 of that sum was treated as reimbursement for Mr. Zhong’s contribution of Laidian’s paid in capital. The remaining $981,858 was classified as share-based compensation and capitalized as a deferred expense to be amortized over the three years commencing in April of 2022. For the three months ended March 31, 2023, the Company recorded $81,821 compensation expenses.

NOTE 8. BASIC AND DILUTED EARNINGS PER SHARE

Basic earnings per share is computed using the weighted average number of common stock outstanding during the period. Diluted earnings per share is computed using the weighted average number of common stock and, if dilutive, potential common stock outstanding during the period. Potential common stock comprises 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 (loss) from operations is shown as follows: 

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

JRSIS HEALTH CARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(AMOUNTS IN USD)

NOTE 9. CONTINGENCIES AND COMMITMENT

Certain conditions may exist as of the date the consolidated financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company’s management and legal counsel assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought. There was no contingency of this type as of March 31, 2023 and December 31, 2022.

If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material would be disclosed. There was no contingency of this type as of March 31, 2023 and December 31, 2022.

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

NOTE 10. COMMON STOCK

On March 17, 2022, the Company entered into an agreement on the establishment of Laidian with Zhong Zhuowei. The agreement contained a covenant by Zhong Zhuowei to fund the operations of Laidian, which is 100% owned by Runteng, in consideration of Mr. Zhong’s financial commitment and commitment to provide management services, the Company agreed to issue 39,130,000 shares of its common stock to Zhong Zhuowei upon the initiation of operations of Laidian. On May 5, 2022, the Company issued 39,130,000 shares of its common stock to Zhong Zhuowei. As Mr. Zhong had previously acquired 8,000,000 shares in private transactions, he owned 47,130,000 shares (80.7%) of the Company’s common stock as on May 5, 2022.

On May 17, 2022, the Company issued a total of 6,000,000 share of common stock for US$60,000 at US$0.01 per share to six non-US shareholders.

On April 28, 2022, Runteng entered into an agreement regarding a transfer of Jiarun’s equity with Zhang Junsheng. Pursuant to the transfer agreement, Runteng transferred to Mr. Zhang equity interest in Jiarun, representing 70% of equity interest in Jiarun and Mr. Zhang transferred to Runteng 5,392,000 shares of the Company’s common stock. On May 27, 2022, the Company cancelled the respecrtive 5,392,000 shares of the Company’s common stock. Since this transaction required certain authoritative approval before effective, the publication of these transactions were delay so as to obtain all parties consent and advance authoritative approval. As of May 27, 2022, the issued and outstanding share number of the Company was 58,366,569, the balance of the number of shares held by Mr. Zhang and Mr. Zhong were nil (0%) and 4,7130,000 (80.7%), respectively.

There were 58,366,569 common stock issued and outstanding at March 31, 2023 and December 31, 2022.

NOTE 11. GOING CONCERN

As reflected in the accompanying consolidated financial statements, the Company had a recurring loss of $119,164 and $23,824,910 negative retained earnings or accumulated deficit as of March 31, 2023. These factors raised substantial doubt about its ability to continue as a going concern. In view of the matter described above, recoverability of a major portion of the recorded asset amounts shown in the accompanying balance sheet is dependent upon continued operations of the Company, which in turn is dependent upon the Company’s ability to raise additional capital, obtain financing and succeed in its future operations. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

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

NOTE 12. SUBSEQUENT EVENTS

The Management of the Company has determined that there were no material subsequent events required to be disclosed or because of which adjustments are needed.  

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

Cautionary Statement Regarding Forward Looking Statements

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

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

Overview

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

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

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

Harbin Jiarun Hospital Co., Ltd Harbin New District Branch (“3rd Branch Hospital”), a third hospital branch of Jiarun, incorporated in Harbin City of Heilongjiang, China in April 2021.

On November 20, 2013, Junsheng Zhang, the senior officer of Jiarun, established JRSIS Health Care Corporation, a Florida corporation (“JRSS” or the “Company”). On February 25, 2013, the officer of Jiarun established JRSIS Health Care Limited (“JHCL”), as a wholly owned subsidiary of the Company, and on September 17, 2012, the officer of Jiarun established Runteng Medical Group Co., Ltd (“Runteng”), as a wholly owned subsidiary of JHCL. Until April 28, 2022 Runteng, a Hong Kong registered Investment Company, held 70% equity interest in Jiarun.

On December 20, 2013, the Company acquired 100% of the issued and outstanding capital stock of JHCL, for 12,000,000 shares of its 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, JRSS relies on Jiarun to conduct 100% of its businesses and operations.

On March 17, 2022, the Company entered into an agreement on the establishment of Laidian Technology (Zhongshan) Co., Ltd. (“Laidian”) with Zhong Zhuowei. The agreement contains a covenant by Zhong Zhuowei to fund the operations of Laidian which is 100% owned by Runteng, in consideration of Mr. Zhong’s financial commitment and commitment to provide management services, the Company agreed to issue 39,130,000 shares of its common stock to Zhong Zhuowei upon the initiation of operations of Laidian.

On April 12, 2022, Runteng has setup and owned 100% of the equity in Laidian to engage in the business of providing charging services to electric vehicles incorporated in Zhongshan City of Guangdong, China.

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

On May 5, 2022, JRSS issued 39,130,000 shares of its common stock to Zhong Zhuowei. Under “agreement on the establishment of Laidian” to serve as a management and set up the Laidian. As Mr. Zhong had previously acquired 8,000,000 shares in private transactions, he owned 47,130,000 shares (80.7%) of JRSS’s common stock as on May 5, 2022.

On May 17, 2022, the Company issued a total of 6,000,000 share of common stock for US$60,000 at US$0.01 per share to six non-US shareholders.

Critical Accounting Policies and Management Estimates

In preparing our financial statements, we are required to formulate accounting policies regarding valuation of our assets and liabilities and to develop estimates of those values. In our preparation of the financial statements for the periods ended March 31, 2023, there were no estimates made which were (a) subject to a high degree of uncertainty and (b) material to our results.

Results of Operations for Three Months Ended March 31, 2023 and 2022

The following table shows key components of the results of operations for the three months ended March 31, 2023 and 2022:

Operating Costs and Expenses

The Company’s continued operations for the three months ended March 31, 2023 consisted of organizing its subsidiary Laidian and collecting the equipment, facilities and personnel that will be needed for Laidian’s operations. Total operating costs and expenses were $119,164 for the three months ended March 31, 2023.

69% the costs and expenses for the three months ended March 31, 2023 were attributable to stock-based compensation. In April 2022, the Company issued 39,130,000 shares of its common stock to Zhong Zhuowei in consideration of his commitment to provide managerial services for the development of the Laidian’s charging station business and to provide such funds to Laidian as would be required to initiate its operations. These shares had a negotiated value of $1,056,510, of which $74,652 was reimbursement for Mr. Zhong’s payment of Laidian’s paid in capital. The remaining $981,858 was capitalized as deferred expenses and will be amortized as stock-based compensation over the three years commencing in April of 2022. For the three months ended March 31, 2023, the Company record $81,821 stock-based compensation expense by virtue of this amortization.

The other significant operating expense was professional fees of $23,952 for three months ended March 31, 2023. These fees were primarily accounting and legal fees related to the Company’s U.S. reporting obligations.

Loss from operations and net loss

Loss from continued operations before income taxes was $119,164 for the three months ended March 31, 2023, attributable to the $81,821 stock-based compensation expenses incurred by issuing 39,130,000 shares of common stock to the Company’s new Chairman, Zhong Zhuowei. The balance of $37,343 were incurred for normal operation expenses.

On April 28, 2022, the Company completed the spin-off of its subsidiary Jiarun, and reclassified the results of Jiarun’s operations as discontinued operations. For the three months ended March 31, 2022, the Company realized net income from discontinued operations of $2,661,135, which represented the net income earned by Jiarun during that year.

After deducting the provision for income tax, the Company’s net loss for three months ended March 31, 2023 and 2022 was $119,164 and $2,638,816 respectively.

Foreign Currency Translation Adjustment.

Our reporting currency is the U.S. dollar. Our local currency, Renminbi (RMB), is our functional currency. Results of operations and cash flows are translated at average exchange rates during the period, and assets and liabilities are translated at the unified exchange rate as quoted by the People’s Bank of China at the end of the period. Translation adjustments resulting from this process are included in accumulated other comprehensive income in the statement of stockholders’ equity. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred. For the three months ended March 31, 2023 and 2022, foreign currency translation adjustments of ($257) and $11,201, respectively, have been reported as other comprehensive income in the consolidated statements of operations and comprehensive income (loss).

Liquidity and Capital Resources

As of March 31, 2023, the Company had $18,777 of cash and cash equivalents, a decrease of $39,839 from our cash and cash equivalents balance (included discontinued operations) at December 31, 2022. The decrease was primarily caused by our net cash used in operating activities, which was $36,510 for the three months ended March 31, 2023.

Our working capital at March 31, 2023 was $639,380, a decrease of $116,239 from our $755,619 in working capital at December 31, 2022. The decrease was primarily attributable to the cash used in operating activities.

The primary non-cash component of our working capital at March 31, 2023 was deferred expenses totaling $654,572. This balance was the Company’s grant of 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 expense of the Company for the next 3 years since April of 2022. For the three months ended March 31, 2023 the Company record $81,821 stock-based compensation expenses.

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

Cash Flows and Capital Resources 

Our cash flows for the three months ended of March 31, 2023 and 2022 are summarized below:  

Net Cash (Used in) Provided by Operating Activities

Net cash used in operating activities for the three months ended March 31, 2023 was $36,510, a decrease of $4,654,349 from $4,617,839 of cash flow provided by operating activities for the three months ended March 31, 2022. Cash flow from operations decreased primarily because Jiarun hospital was spun off from the Company.

Net Cash Used in Investing Activities

Net cash used in investing activities for three months ended March 31, 2023 and 2022 were $nil and $2,783,041, respectively. The cash used in investing activities for the three months ended March 31, 2022 was mainly used for the purchase of property and equipment for discontinued operations.

Net Cash Used in Financing Activities

Net cash used in financing activities for three months ended March 31, 2023 and 2022 were $nil and $867,501, respectively. The cash used in financing activities for the three months ended March 31, 2022 was mainly used for the purchase of property and equipment for discontinued operations.

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

Off-Balance Sheet Arrangements

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

Recent Accounting Pronouncements

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

ITEM 4. CONTROLS AND PROCEDURES

Evaluations of Disclosure Controls and Procedures

Under the supervision and with the participation of our management team, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended, as of March 31, 2023. Based on this evaluation, Management determined that the following material weakness existed in our internal control over financial reporting

Based on their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the Company’s system of disclosure controls and procedures was not effective as of March 31, 2023 for the purposes described in this paragraph.

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.

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

The Company is a smaller reporting company that is not required to provide this information.

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

(a) Unregistered sales of equity securities

On May 5, 2022, the Company issued 39,130,000 shares of its common stock to Zhong Zhuowei. The grant was made pursuant to the terms of an agreement in which Mr. Zhong promised to provide services to Laidian Technology (Zhongshan) Co., Ltd., a subsidiary of the Company. The shares were valued at $1,056,510. The shares were issued in a private offering to an investor who was acquiring the shares for his own account. The offering, therefore, was exempt from registration under the Securities Act of 1933 pursuant to Section 4(2) of the Securities Act.

On May 17, 2022, the Company issued a total of 6,000,000 share of common stock for US$60,000 at US$0.01 per share to six non-US shareholders. The US$60,000 will be used as fund for daily operations.

The Company did not effect any sales of unregistered securities during the first quarter of fiscal 2023.

(b) Purchases of equity securities

On April 28, 2022 the Company transferred its ownership interest in 70% of Harbin Jiarun Hospital Co. Ltd. in exchange for 5,392,000 shares of the Company’s common stock. The exchange was made with the gentleman who was Board of Directors Chairman of the Company at that time. On May 27, 2022, the company cancelled 5,392,000 shares of its common stock from Zhang Junsheng. Since this transaction required certain authoritative approval before effective, the publication of these transactions was delay so as to obtain all parties consent and advance authoritative approval.

The Company did not repurchase any of its equity securities that were registered under Section 12 of the Securities Exchange Act during the first quarter of fiscal 2023.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS

INDEX TO EXHIBITS

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)

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