JRSIS Health Care (JRSS) 10-Q2024 Q3 Quarterly report

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 September 30, 2024

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: 0-56013

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 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 fi les). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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 ☒

As of December 20, 2024, the registrant had 84,598,650 shares of common stock, par value $.0001 per share, issued and outstanding.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

JRSIS HEALTH CARE CORPORATION AND ITS SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

The accompanying notes are an integral part of the unaudited consolidated financial statements

JRSIS HEALTH CARE CORPORATION AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

The accompanying notes are an integral part of the unaudited consolidated financial statements

JRSIS HEALTH CARE CORPORATION AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY

(UNAUDITED)

The accompanying notes are an integral part of the unaudited consolidated financial statements

JRSIS HEALTH CARE CORPORATION AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

The accompanying notes are an integral part of the unaudited consolidated financial statements

JRSIS HEALTH CARE CORPORATION AND ITS SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

JRSIS Health Care Corporation (the “Company” or “JRSIS”) was incorporated on November 20, 2013 under the laws of the State of Florida. In December 2013 JRSIS acquired 100% of the equity in JRSIS Health Care Limited (“JRSIS-BVI”), which is a limited liability company registered in British Virgin Island (“BVI”) on February 25, 2013. JRSIS-BVI 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 Province, the People’s Republic of China (“the PRC”) in February 2006. The remaining 30% of the equity in Jiarun was owned by Zhang Junsheng, who is the Chairman of the Board of JRSIS Health Care Corporation until March 2022. On April 28, 2022, Runteng 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 ceased to consolidate Jiarun financial results with the financial results of JRSIS as on April 1, 2022.

On April 12, 2022, Runteng organized and owned 100% of the equity in Laidian Technology (Zhongshan) Co., Ltd. (“Laidian”), a wholly foreign-owned enterprise (“WFOE”) subsidiary registered under the law of the People’s Republic of China (“the PRC”) in Zhongshan City, Guangdong Province. Laidian initially engage in the business of providing charging services to electric vehicles in Zhongshan City, until the Company obtained the majority variable interest in Yongzhou Jumi Intelligent Technology Co., Ltd. (“Yongzhou JIT” or YZ JIT) on November 30, 2023.

On November 30, 2023, the Company through Laidian, a wholly-owned subsidiary of JRSIS, completed an acquisition transaction by entering into and executing four agreements with Yongzhou Jumi Intelligent Technology Co., Ltd. (“Yongzhou JIT”) and Guangzhou Jumi Intelligent Equipment Co., Ltd. (“Guangzhou JIE”) (the “Management Agreements”). After the execution of these Management Agreements, the Company obtained 85.53% variable interest in Yongzhou JIT. Subsequent to this transaction, the Company abandoned its prior business plan and is pursuing Yongzhou JIT’s historical businesses and its proposed businesses.

Each of the Management Agreements is summarized as below:

Exclusive Business Cooperation Agreement.

Under the Exclusive Business Consulting Agreement between Laidian and Yongzhou JIT, Laidian has the exclusive right to provide Yongzhou JIT marketing, management, consulting and other services related to its business operations. To fulfill its obligations, Laidian will provide to Yongzhou JIT the management and marketing services of Zhuowei Zhong, who is the Chairman of Laidian. In compensation for the services provided by Laidian, Yongzhou JIT will pay Laidian a quarterly fee equal to 85.53% of any net income that Yongzhou JIT earns from its business while being managed by Zhuowei Zhong less any losses carried forward from prior quarters. The remaining 14.47% of the net income earned by Yongzhou JIT will be distributed to Guangzhou JIE for further distribution to an entity that owns 14.47% of Guangzhou JIE and has not agreed to participate in the Management Arrangement (the Unpledged Interest”). The Exclusive Business Consulting Agreement will remain in effect until terminated by the parties.

Equity Interest Pledge Agreement.

Guangzhou JIE, which owns all the registered equity in Yongzhou JIT, has entered into an Equity Interest Pledge Agreement with Laidian. Pursuant to this agreement, Guangzhou JIE pledged 85.53% of its equity interest in Yongzhou JIT, including the right to receive dividends, to Laidian to secure the performance of Yongzhou JIT’s obligations under the Exclusive Business Consulting Agreement described above. If Yongzhou JIT breaches relevant contractual obligations under this agreement, Laidian, as pledgee, will be entitled to certain rights, including the right to sell the pledged equity interests. Guangzhou JIE has agreed not to transfer or create any new encumbrance on its equity interests without the prior written consent of Laidian. The Equity Interest Pledge Agreement shall terminate when Yongzhou JIT has fully performed its obligations under the Exclusive Business Consulting Agreement.

JRSIS HEALTH CARE CORPORATION AND ITS SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Exclusive Option Agreement.

Under the Exclusive Option Agreement among Laidian, Yongzhou JIT and Guangzhou JIE, Guangzhou JIE irrevocably granted Laidian or its designated person(s) an exclusive option to purchase, when and to the extent permitted under PRC law, all or part of its equity interest in Yongzhou JIT. The purchase price for the equity interest in Yongzhou JIT shall be determined through consultation according to the appraisal value approved by the relevant authorities and shall be the minimum amount permissible under PRC law. The Exclusive Option Agreement will be valid until all of the equity interest in Yongzhou JIT has been transferred to Laidian. The Exclusive Option Agreement provides, among other things, without Laidian’s prior written consent:

Power of Attorney.

Under the Power of Attorney, Guangzhou JIE grants to Laidian the authority to exercise all the powers given to Guangzhou JIE as a shareholder of Yongzhou JIT.

Yongzhou JIT was organized in 2018 in Yongzhou City in the Hunan Province of the PRC and is legally a wholly owned subsidiary of Guangzhou JIE. Yongzhou JIT is engaged in the business of developing medical and smart technology and producing equipment based on its technology. Yongzhou JIT is best known for developing the first smart medicine vending machine.

In consideration of the agreements by the owners of Yongzhou JIT other than the holder of the 14.47% Unpledged Interest to the adoption of the Management Agreements, JRSIS issued to Jumi Group Company, Ltd. (“Jumi GCL”). 76,757,439 shares of its common stock. Jumi GCL is a holding company owned by Linhai Zhu, the director, chairman and the Chief Executive Officer of the Company, Yulin Investment (Guangzhou) Partnership L.P. (“Yulin IGP”), Jumi Intelligent Information Technology (Guangzhou)Partnership L.P. (“Jumi IIP”), who are the beneficial owners of 85.53% of Guangzhou JIE. The shares issued to Jumi GCL represent 92.9% of the outstanding shares of common stock of JRSIS at the time of the closing of the transactions.

For financial reporting purposes, the execution of the Management Agreements represents a “Reverse Acquisition” rather than a business combination and Yongzhou JIT is deemed to be the accounting acquirer in the transaction. The execution of the Management Agreements is being accounted for as a reverse acquisition and recapitalization. Yongzhou JIT is the acquirer for financial reporting purposes and JRSIS is the acquired company. Consequently, the assets and liabilities and the operations that will be reflected in the historical financial statements for periods prior to the execution of the Management Agreements will be those of Yongzhou JIT and will be recorded at the carrying amount basis of Yongzhou JIT, and the consolidated financial statements after execution of the Management Agreements will include the assets and liabilities of the Company and Yongzhou JIT, and the historical operations of Yongzhou JIT and operations of the Combined Company from the date of execution of the Management Agreements. No gain and loss recognized as a reverse acquisition and recapitalization.

JRSIS HEALTH CARE CORPORATION AND ITS SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Description of subsidiaries and VIEs as of September 30, 2024

The accompanying unaudited consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the discharge of liabilities in the normal course of business for the foreseeable future.

As reflected in the accompanying unaudited consolidated financial statements, for the nine months ended September 30, 2024 and 2023 the Company incurred a significant net loss of $509,680 and $31,415, the recurring operating loss resulted in an accumulated deficit of $3,878,835 as of September 30, 2024. The Company generated cash outflow from its operating activities of $826,061 and cash inflow of $420,966 for the nine months ended September 30, 2024 and 2023, the fluctuation of cash flows resulted in a working capital deficit of $512,474 and $405,105 as of September 30, 2024 and 2023. Management believes these factors raise substantial doubt about the Company’s ability to continue as a going concern for the next twelve months.

The continuation of the Company as a going concern through the next twelve months is dependent upon (1) the continued financial support from its external financing, including bank loans and issuance of its shares to potential shareholders, and (2) further implement management’s business plan to extend its operations and generate sufficient revenue and cash flows to meet its obligations. Management believes that it can obtain additional bank loans and the issuance of common shares of the Company is available if the Company decides to do so and believes that the Company’s operation can generate enough revenue and cash to meet its obligation in the normal course of business in future because the Company’s operations are on the upward trend. While the Company believes in its ability to raise additional funds and in the viability of its strategy to increase sales volume and cash flows, there can be neither any assurances to that effect, nor any assurance that the Company will be successful in securing sufficient funds to sustain the operations.

These conditions raise substantial doubt about the Company’s ability to continue as a going concern. These financial statements do not include any adjustments to reflect the possible future effect on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the outcome of these uncertainties. The Company is working to devote more efforts to improve its operation and generate more profits and cash flow. Management believes that the actions presently being taken to obtain additional funding and implement its strategic plan provide the opportunity for the Company to continue as a going concern.

JRSIS HEALTH CARE CORPORATION AND ITS SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

These accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”). These unaudited consolidated financial statements include the financial statements of the Company and its subsidiaries. All significant inter-company balances and transactions within the Company have been eliminated upon consolidation.

The unaudited interim consolidated financial information as of September 30, 2024 and for the three and nine months ended September 30, 2024 and 2023 have been prepared, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures, which are normally included in annual consolidated financial statements prepared in accordance with US GAAP, have been omitted pursuant to those rules and regulations. The unaudited interim consolidated financial information should be read in conjunction with the consolidated financial statements and the notes thereto, included in the Company’s Form 10-K for the fiscal year ended December 31, 2023 previously filed with the SEC on May 26, 2024.

In the opinion of management, all adjustments (which include normal recurring adjustments) necessary to present a fair statements of the Company’s unaudited consolidated financial position as of September 30, 2024 and its unaudited consolidated results of operations for the three and nine months ended September 30, 2024 and 2023, and its unaudited consolidated cash flows for the nine months ended September 30, 2024 and 2023, as applicable, have been made. The interim results of operations are not necessarily indicative of the operating results for the fiscal year or any future periods.

Certain prior period balances were reclassified to conform to the current period presentation, mainly with consideration of reflecting the acquisition transaction by entering into and executing four Management Agreements with Yongzhou JIT and Guangzhou JIE. None of these reclassifications had an impact on reported financial position or cash flows for any of the periods presented.

The preparation of the unaudited consolidated financial statements in conformity with US GAAP requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities on the date of the unaudited consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods.

The Company bases its estimates and judgments on historical experience and on various other assumptions and information that are believed to be reasonable under the circumstances. Estimates and assumptions of future events and their effects cannot be perceived with certainty and, accordingly, these estimates may change as new events occur, as more experience is acquired, as additional information is obtained and as our operating environment changes. Estimates and assumptions are periodically reviewed and the effects of revisions are reflected in the consolidated financial statements in the period they are determined to be necessary.

Significant estimates and assumptions made by management include, among others, useful lives and impairment of long-lived assets, collectability of accounts receivable, discount rate of leases and its impairment assessment, allowance for inventory, revenue recognition, product warranty liabilities, deferred tax and uncertain tax positions. While the Company believes that the estimates and assumptions used in the preparation of the consolidated financial statements are appropriate, actual results could differ from those estimates.

The Company follows the guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) Topic 820, “Fair Value Measurements” (“ASC 820”), to address fair value measurement with respect to financial assets and liabilities. ASC 820 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 it considers assumptions that market participants would use when pricing the asset or liability.

JRSIS HEALTH CARE CORPORATION AND ITS SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

ASC 820 also 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. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels of inputs are:

ASC 820 describes three main approaches to measuring the fair value of assets and liabilities: (1) market approach; (2) income approach; and (3) cost approach. The market approach uses prices and other relevant information generated from market transactions involving identical or comparable assets or liabilities. The income approach uses valuation techniques to convert future amounts to a single present value amount. The measurement is based on the value indicated by current market expectations about those future amounts. The cost approach is based on the amount that would currently be required to replace an asset.

The Company’s financial instruments include cash, accounts receivable, advance to suppliers, prepaid expenses and other current assets, bank loans, accounts payable, amount due from/to related parties, and accrued expenses and other current liabilities. The carrying values of these financial instruments approximate their fair values due to their short-term maturities. The carrying amount of the long-term borrowing approximates its fair values since it bears an interest rate which approximates market interest rate.

The reporting currency of the Company is the United States Dollar (“US$”). The Company’s subsidiaries in the PRC maintain their books and records in their local currency, the Renminbi Yuan (“RMB”), which is the functional currency as being the primary currency of the economic environment in which these entities operate.

Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency using the applicable exchange rates at the balance sheet dates. The resulting exchange differences are recorded in the statement of operations.

In general, for consolidation and reporting purposes, assets and liabilities of its subsidiaries whose functional currency is not the US$ are translated into US$, in accordance with ASC Topic 830-30, “Translation of Financial Statement”, using the exchange rate on the balance sheet date, equity accounts are translated at its historical rates; revenue and expenses are translated at average rates prevailing during the period. The gains and losses resulting from translation of financial statements of foreign subsidiaries are recorded as a separate component of accumulated other comprehensive income within the statement of stockholders’ equity.

JRSIS HEALTH CARE CORPORATION AND ITS SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Translation of amounts from RMB into US$ has been made at the following exchange rates for the respective periods:

The Company adopted ASC 850, Related Party Disclosures, for the identification of related parties and disclosure of related party transactions. Related parties include: (a) Affiliates of the entity, who directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with an entity; (b) Entities for which investments in their equity securities would be required to be accounted for by the equity method by the investing entity; (c) Trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; (d) Principal owners, who record or known beneficial owners of more than 10 percent of the voting interests, of the entity and members of their immediate families; (e) Management of the entity and members of their immediate families; (f) Other parties with which the entity may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; (g) Other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests. The Company disclosed all material related party transactions in the notes to these financial statements.

ASC Topic 280, “Segment Reporting” establishes standards for reporting information about operating segments on a basis consistent with the Company’s internal organization structure as well as information about geographical areas, business segments and major customers in financial statements. The Company’s chief operating decision maker has been identified as the CEO who reviews consolidated results of the Company when making decisions about allocating resources and assessing performance. The Company is domiciled in the United States while its main business operation is within the PRC and it earns a majority of its revenue from external customers attributed from the PRC. As a whole and hence, the Company has only one operating segment for the periods ended September 30, 2024 and 2023, respectively.

Cash consists of cash on hand and deposits in financial institutions which is readily available in checking and saving accounts. The Company maintains cash with various financial institutions in the PRC and are uninsured. The Company has not experienced any losses in bank account and believes it is not exposed to any risk on its cash held in bank accounts.

Accounts receivable arise from revenue from contracts with customers and are reported at their original amount less an allowance for expected credit losses. Accounts receivable are initially recorded at the invoiced amount, and are payable at various times based on contractual payment terms, generally 30 to 90 days from delivery. Credit is granted based on management’s evaluation of a customer’s financial condition, the customer credit-worthiness and their payment history. Accounts receivable outstanding longer than the contractual payment terms are considered past due. Past due balances over 90 days and over a specified amount are reviewed individually for collectability. At the end of each period, the Company specifically evaluates individual customer’s financial condition, credit history, and the current economic conditions to monitor the progress of the collection of accounts receivables. The Company will consider the allowance for any estimated credit losses resulting from the inability of its customers to make required payments. Account balances are charged off against the allowance for credit losses after all means of collection have been exhausted and the potential for recovery is considered remote.

JRSIS HEALTH CARE CORPORATION AND ITS SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Advances to suppliers consist of prepayments to our vendors, such as outsources services and marketing promotion parties. We typically receive products from vendors within three to nine months after making prepayments. We continuously monitor delivery from, and payments to, our vendors while maintaining a provision for estimated credit losses based upon historical experience and any specific supplier issues, such as discontinuing of inventory supply, that have been identified. If we have difficulty receiving products from a vendor, we take the following steps: cease purchasing products from such vendor, ask for return of our prepayment promptly, and if necessary, take legal action. If all of these steps are unsuccessful, management then determines whether the prepayments should be reserved or written off. As of September 30, 2024 and December 31, 2023, the balance of allowance for doubtful accounts was $0 and $0, respectively.

Inventories consist of raw material and parts, work-in-progressing, and finished goods of the Company’s product, such as medicine or goods vending machine, health micro-consulting room. Inventories are stated at the lower of cost and net realizable value. Cost is determined using weighted average method. Net realizable value equal to the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The Company carries out physical inventory counts from time to time and at least once within a fiscal year. The Company reviews historical sales activity quarterly to determine excessive, slow-moving items, and items that damage, physical deterioration, obsolescence to determine if evidence exists that the net realizable value of inventory is lower than its cost, if any, the difference shall be recognized as a loss in earnings in the period in which it occurs.

Equipment and vehicles are stated at cost less accumulated depreciation and impairment, if any. Depreciation is calculated on the straight-line basis over the following expected useful lives from the date on which they become fully operational and after taking into account their estimated residual values:

Expenditures for repairs and maintenance are expensed as incurred. When assets have been retired or sold, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in the results of operations.

Intangible assets consist primarily of patents, including utility model patents, software copyright and utility software purchased from outside parties. Intangible assets are stated at cost less accumulated amortization and impairment, if any. Intangible assets are amortized using the straight-line method with the following estimated useful lives:

JRSIS HEALTH CARE CORPORATION AND ITS SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

In accordance with the provisions of ASC Topic 360, “Impairment or Disposal of Long-Lived Assets”, all long-lived assets such as property, plant and equipment held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is evaluated by a comparison of the carrying amount of an asset to its estimated future undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amounts of the assets exceed the fair value of the assets.

The Company stated lease transactions in accordance with the FASB ASC Topic 842 Leases.

Identify a lease

At inception of a contract, the Company assesses whether a contract is, or contains, a lease. A contract is or contains a lease if it conveys the right to control the use of an identified asset for a period of time in exchange of a consideration. To assess whether a contract is or contains a lease, the Company assesses whether the contract involves the use of an identified asset, whether it has the right to obtain substantially all the economic benefits from the use of the asset and whether it has the right to control the use of the asset.

Lease classification

Lease classification for leases under which the Company is a lessor is evaluated at lease commencement and leases not classified as sales-type leases or direct financing leases are classified as operating leases. Leases qualify as sales-type leases if the contract includes either transfer of ownership clauses, certain purchase options, a lease term representing a major part of the economic life of the asset, or the present value of the lease payments and residual guarantees provided by the lessee exceeds substantially all of the fair value of the asset. Additionally, leasing an asset so specialized that it is not deemed to have any value to the Company at the end of the lease term may also result in classification as a sales-type lease. Leases qualify as direct financing leases when the present value of the lease payments and residual value guarantees provided by the lessee and unrelated third parties exceeds substantially all of the fair value of the asset and collection of the payments is probable. There are not leases under which the Company is a lessor during the periods of the accompanying financial statements.

Lease classification for leases under which the Company is a lessee is evaluated at lease commencement as finance or operating leases. Leases qualify as finance leases if the lease transfers ownership of the asset at the end of the lease term, the lease grants an option to purchase the asset that the Company is reasonably certain to exercise, the lease term is for a major part of the remaining economic life of the asset, or the present value of the lease payments exceeds substantially all of the fair value of the asset. Leases that do not qualify as finance leases are deemed to be operating leases.

In accordance with the FASB ASC Topic 842, the Company recognizes a right-of-use asset and a lease liability at the commencement date of the lease and recognizes in profit or loss the lease cost or expense during the lease term. As an accounting policy, the Company elects not to recognize a right-of-use asset and a lease liability to a short-term lease which with a term of 12 months or less, instead it recognizes the lease payments in profit or loss on a straight-line basis over the lease term. Variable lease payments are recorded in earnings in the period in which the obligation for those payments is incurred. The Company generally uses an incremental borrowing rate as discount rate to measure its lease liabilities, as the rate implicit in the lease is typically not readily determinable. Certain lease agreements include renewal options that are under the Company’s control. The Company includes optional renewal periods in the lease term only when it is reasonably certain that the Company will exercise its option.

Right-of-use assets

The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and less any lease incentive received.

JRSIS HEALTH CARE CORPORATION AND ITS SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Lease liabilities

Lease liability is initially measured at the present value of the outstanding lease payments at the commencement date, discounted using the Company’s incremental borrowing rate. Lease payments included in the measurement of the lease liability comprise fixed lease payments, variable lease payments that depend on an index or a rate, amounts expected to be payable under a residual value guarantee and any exercise price under a purchase option that the Company is reasonably certain to exercise. Lease liability is measured at amortized cost using the effective interest rate method. It is re-measured when there is a change in future lease payments, if there is a change in the estimate of the amount expected to be payable under a residual value guarantee, or if there is any change in the Company assessment of option purchases, contract extensions or termination options.

The Company adopted ASC Topic 606, Revenue from Contract with Customers (“ASC 606”) for all periods presented. Under ASC 606, revenue is recognized when control of the promised goods and services is transferred to the Company’s customers and the performance obligation was satisfied, in an amount that reflects the consideration that the Company expects to be entitled to in exchange for those goods and services transferred. The Company determines revenue recognition through the following steps:

The transaction price is allocated to each performance obligation on a relative standalone selling price basis. The transaction price allocated to each performance obligation is recognized as revenue when that performance obligation is satisfied by the control of the promised goods and services is transferred to the customers, which at a point in time or over time as appropriate.

The Company’s revenue consists primarily of sales of machines plus design and development of software systems for customers based on the Company’s intelligent and communication technology, system installation and maintenances services.

The Company determined for each performance obligation identified at contract inception whether it satisfies the performance obligation over time or satisfies the performance obligation at a point in time. If an entity does not satisfy a performance obligation over time, the performance obligation is satisfied at a point in time.

The Company recognizes revenue from sales of machines at the point in time when the Company has transferred physical possession of the goods to the customer and the customer has accepted the goods, therefore, indicating as control of the goods has been transferred to the customer.

The Company determined each performance obligation identified from a contract with a customer for design and development of software systems and contracts for system installment and maintenance at the inception of each contract whether it satisfied over time or at point in time. During the three and nine months ended September 30, 2024 and 2023, all the performance obligation identified from the contracts were satisfied at point in time and its related revenue were recognized at point in time.

JRSIS HEALTH CARE CORPORATION AND ITS SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

When a contract with customers has been performed, the Company presents the contract in the consolidated balance sheet as a contract asset or a contract liability, depending on the relationship between the Company’s performance and the customer’s payment.

Contract assets or accounts receivable

A contract asset is the Company’s right to consideration in exchange for goods or services that the Company has transferred to a customer. A receivable is recorded when the Company has an unconditional right to consideration. A right to consideration is unconditional if only the passage of time is required before payment of that consideration is due. The Company does not have material contract assets.

Contract liabilities

The contract liability represents the billings or cash received for goods or services in advance of revenue recognition which is recognized as revenue when all of the Company’s revenue recognition criteria are met. The Company presents contract liabilities in its financial statements as advances from customers.

Cost of revenue consists primarily of material costs, direct labor, depreciation, and manufacturing overhead, which are directly attributable to the manufacture of products and other costs directly related to rendering of services or projects performance.

The Company expenses advertising costs as incurred and includes it in selling expenses. The Company reported $98,098 and $0 of advertising and promotional expenses for the three months ended September 30, 2024 and 2023, respectively, and reported $292,889 and $0 of advertising and promotional expenses for the nine months ended September 30, 2024 and 2023, respectively.

Research and development expenses consist primarily of salary and welfare for research and development department personnel and materials used for research. The Company reported $28,840 and $36,202 as research and development expenses for the three months ended September 30, 2024 and 2023, respectively; and reported $48,693 and $104,841 as research and development expenses for the nine months ended September 30, 2024 and 2023, respectively.

ASC Topic 220, “Comprehensive Income”, establishes standards for reporting and display of comprehensive income, its components and accumulated balances. Comprehensive income as defined includes all changes in equity during a period from non-owner sources. Accumulated other comprehensive income, as presented in the accompanying consolidated statement of stockholders’ equity, consists of changes in unrealized gains and losses on foreign currency translation. This comprehensive income is not included in the computation of income tax expense or benefit.

Income taxes are determined in accordance with the provisions of ASC Topic 740, “Income Taxes” (“ASC 740”). Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Any effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

JRSIS HEALTH CARE CORPORATION AND ITS SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

ASC 740 prescribes a comprehensive model for how companies should recognize, measure, present, and disclose in their financial statements uncertain tax positions taken or expected to be taken on a tax return. Under ASC 740, tax positions must initially be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions must initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant facts.

For the three and nine months ended September 30, 2024 and 2023, the Company did not have any interest and penalties associated with tax positions. As of September 30, 2024 and December 31, 2023, the Company did not have any significant unrecognized uncertain tax positions.

The Company conducts majority of its businesses in the PRC and is subject to tax in this jurisdiction. As a result of its business activities, the Company files tax returns that are subject to examination by a foreign tax authority.

Sales revenue represents the invoiced value of goods, net of Value-Added Tax (“VAT”). All of the Company’s goods or services are sold in the PRC and are subject to a VAT on the gross sales price. The VAT rates range from 6% to 13%, depending on the type of goods or services sold. The VAT may be offset by qualified VAT paid by the Company on raw materials and other materials included in the cost of producing or acquiring its finished products. The Company’s subsidiaries in PRC were required to file VAT tax return each month. The Company recorded a VAT payable net of payments if VAT payable on the gross sales is larger than VAT paid by the Company on purchase of materials or finished goods, on the contrary, the Company recorded VAT deductible, VAT deductible can be used to deducted VAT payable in the future.

The Company calculates income (loss) per share in accordance with ASC Topic 260, “Earnings per Share.” Basic income (loss) per share is computed by dividing the net income (loss) attributable to the holders of common shares by the weighted-average number of common shares outstanding during the period. Diluted income (loss) per share is computed similar to basic income (loss) per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common stock equivalents had been issued and if the additional common shares were dilutive.

In November 2023, the Financial Accounting Standards Board (“FASB”) issued a new standard to improve reportable segment disclosures. The guidance expands the disclosures required for reportable segments in our annual and interim consolidated financial statements, primarily through enhanced disclosures about significant segment expenses. The standard will be effective for us beginning with our annual reporting for fiscal year 2025 and interim periods thereafter, with early adoption permitted. We are currently evaluating the impact of this standard on our segment disclosures.

In December 2023, the FASB issued a new standard to improve income tax disclosures. The guidance requires disclosure of disaggregated income taxes paid, prescribes standardized categories for the components of the effective tax rate reconciliation, and modifies other income tax-related disclosures. The standard will be effective for us beginning with our annual reporting for fiscal year 2026, with early adoption permitted. We are currently evaluating the impact of this standard on our income tax disclosures.

The Company does not believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on the consolidated balance sheets, consolidated statements of income and consolidated statements of cashflows.

JRSIS HEALTH CARE CORPORATION AND ITS SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

On November 30, 2023, the Company and Yongzhou JIT closed a reverse acquisition as Laidian, an indirectly wholly-owned subsidiary of JRSIS, entered into four agreements with Yongzhou JIT and Guangzhou JIE (the “Management Agreements”). The key terms of these Management Agreements are summarized in Note 1 - Organization and Business Background of previous notes to these financial statements.

In accordance with FASB ASC 810, Variable Interest Entity (“VIE”) is an entity that has either a total equity investment that is insufficient to permit the entity to finance its activities without additional subordinated financial support, or whose equity investors lack the characteristics of a controlling financial interest, such as through voting rights, right to receive the expected residual returns of the entity or obligation to absorb the expected losses of the entity. The variable interest holder, if any, that has a controlling financial interest in a VIE is deemed to be the primary beneficiary and must consolidate the VIE. Laidian is deemed to have a controlling financial interest and be the primary beneficiary of Yongzhou JIT under the term of Management Agreements, because it has both of the following characteristics:

In addition, as all of these Management Agreements are governed by PRC law and provide for the resolution of disputes through arbitration in the PRC, they would be interpreted in accordance with PRC law and any disputes would be resolved in accordance with PRC legal procedures. The legal environment in the PRC is not as developed as in other jurisdictions, such as the United States. As a result, uncertainties in the PRC legal system could further limit the Company’s ability to enforce these Management Agreements. Furthermore, these contracts may not be enforceable in China if PRC government authorities or courts take a view that such contracts contravene PRC laws and regulations or are otherwise not enforceable for public policy reasons. In the event the Company is unable to enforce these Management Agreements, it may not be able to exert effective control over Yongzhou JIT and its ability to conduct its business may be materially and adversely affected.

All of the Company’s main current operations are conducted through Yongzhou JIT. Current regulations in China permit Yongzhou JIT to pay dividends to the Company only out of its accumulated distributable profits, if any, determined in accordance with their articles of association and PRC accounting standards and regulations. The ability of Yongzhou JIT to make dividends and other payments to the Company may be restricted by factors including changes in applicable foreign exchange and other laws and regulations.

In the opinion of management, (i) the corporate structure of the Company is in compliance with existing PRC laws and regulations; (ii) the Management Agreements are valid and binding, and do not result in any violation of PRC laws or regulations currently in effect; and (iii) the business operations of Laidian and the VIE are in compliance with existing PRC laws and regulations in all material respects.

However, there are substantial uncertainties regarding the interpretation and application of current and future PRC laws and regulations. Accordingly, the Company cannot be assured that PRC regulatory authorities will not ultimately take a contrary view to the foregoing opinion of its management. If the current corporate structure of the Company or the Management Agreements is found to be in violation of any existing or future PRC laws and regulations, the Company may be required to restructure its corporate structure and operations in the PRC to comply with changing and new PRC laws and regulations. In the opinion of management, the likelihood of loss in respect of the Company’s current corporate structure or the Management Agreements is remote based on current facts and circumstances.

JRSIS HEALTH CARE CORPORATION AND ITS SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The carrying amount of the major classes of assets and liabilities of the VIE in the PRC are included in the consolidated financial statements as of September 30, 2024 and December 31, 2023 consist of the following:

The summarized unaudited operating results of the VIE in the PRC included in the Company’s unaudited consolidated financial statements for the periods indicated consist of the following:

JRSIS HEALTH CARE CORPORATION AND ITS SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2024, the VIE had amounts due to non-VIE subsidiaries within the Company of approximately $20,045, representing the amount YZ JIT received in consideration of common shares JRSIS issued in March 2024. As of December 31, 2023 the VIE had not recorded any amount due to or due from non-VIE subsidiaries of the Company.

For the nine months ended September 30, 2024, JRSIS issued 2,004,545 common shares to certain personnel in the PRC. The consideration for these shares amounted to $20,045 (approximately RMB 143,686) that was received by Yongzhou JIT, the VIE of the Company; For the three months ended September 30, 2024 and for the three and nine months ended September 30, 2023, the VIE had no transaction with any subsidiary of the Company. All transactions incurred and ending balances between VIE and non-VIE subsidiaries of the Company would be eliminated upon consolidation.

Under the Management Agreements, the Company has the power to direct activities of the VIE and can have assets transferred out of the VIE under its control. Therefore, the Company considers that there is no asset in the VIE that can be used only to settle obligations of the VIE, except for registered capital and PRC statutory reserves. As the VIE is incorporated as a limited liability company under the Company Law of the PRC, creditors of the VIE do not have recourse to the general credit of the Company for any of the liabilities of the VIE.

The Company and its directly and indirectly wholly owned subsidiaries, JRSIS-BVI, Runteng and Laidian, do not have any substantial assets or liabilities or results of operations. They were incorporated for the purpose of providing a corporation structure for Yongzhou JIT to be listed in the market and to raise additional capital for its development.

The accounts receivable, excluding accounts receivable from related parties, consisted of the following:

The Company did not record any allowance for credit loss of accounts receivable for the three and nine months ended September 30, 2024 and 2023.

Inventories consisted of the following:

JRSIS HEALTH CARE CORPORATION AND ITS SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The Company did not record any allowance for impairment of inventories for the three and nine months ended September 30, 2024 and 2023, respectively. There were $38,104 and $514 of allowance for impairment of inventories transferred out due to disposal of impaired inventories for the three months ended September 30, 2024 and 2023, respectively, and there were $138,497 and $24,206 of allowance for impairment of inventories transferred out due to disposal of impaired inventories for the nine months ended September 30, 2024 and 2023, respectively. In June 2024, YZ JIT disposed of certain obsolete inventories, which resulted a loss of $60,884.

Prepayments and other receivables present the amount the Company prepaid as deposits on leases and utilities, security deposits of certain contracts, advances to employees for ordinary business purpose for the company which might reimburse or return from the employee, VAT deductible and advances for employee’s social security payments such as and so on. The table below sets forth the balance of these categories as of September 30, 2024 and December 31, 2023.

Management evaluated the recoverable value of these balances periodically according to the Company’s credit policy and allowance for credit loss, if any. For the three and nine months ended September 30, 2024 and 2023, the Company did not report any allowance for credit loss of prepayment and other receivables.

Equipment and vehicles consisted of the following:

The Company reported depreciation expense on its equipment and vehicles in the amount of $2,697 and $3,838 for the three months ended September 30, 2024 and 2023, respectively. The Company reported depreciation expense on its equipment and vehicles in the amount of $8,346 and $13,015 for the nine months ended September 30, 2024 and 2023, respectively.

No impairment loss was recognized during the three and nine months ended September 30, 2024 and 2023.

JRSIS HEALTH CARE CORPORATION AND ITS SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Intangible assets consist of the following:

The Company recorded amortization expense on these intangible assets for the three months ended September 30, 2024 and 2023 totaling $9,449 and $9,101, respectively. The Company recorded amortization expense on these intangible assets for the nine months ended September 30, 2024 and 2023 totaling $27,907 and $28,164, respectively.

The estimated amortization expense on these intangible assets in the next five years and thereafter is as follows:

The following consisted of leases under which the Company is a lessee.

Operating Lease

In October 2022, the Company entered in a lease contract to lease five dormitory rooms for use as dormitory of staffs (“2022 Dormitory Lease”). According to the lease contract, the lease term is about 24 months duration from October 2022 to September 2024; the lease payments are $369 (appropriate RMB 2,615) per month and payable quarterly in advance. The Company should inform the lessor 30 days in advance to the end of the contract if the Company would like to continue to lease the dormitory room and the leased space and price will be re-negotiated and agreed by the two parties in the circumstance at that time; at the inception of the lease contract, the Company could not determine that it will renew the lease contract in the same terms. In May 2024, the Company terminated the lease of one of the five dormitories rooms. The lease contract continued except that the monthly lease payment declined to RMB 2,116 per month since May 2024.

Short-term Lease

Generally, the Company enters into lease contracts to rent a plant area for use of its product manufacturing, laboratory for research and development and production office (“Plant Leases”) in May each year. Plant leases were renewed every year upon re-negotiation of the lease term with the lessor. Each Plant Lease has a lease term of 12 months but with varying plant sizes and unit rental fees, determined in the circumstances. The Company can determine whether it will continue to lease the plant from the lessor and the lease terms if it continue the lease at the commencement date of each Plant lease. Each Plant Lease is treated as a separate lease agreement. The Company elected not to recognize a right-of-use asset and lease liability requirement to these Plants Leases, because it has a lease term of 12 months or less. The Company recognized the lease payments in profit or loss on a straight-line basis over the lease term and variable lease payments in the period in which the obligation for those payments is incurred.

JRSIS HEALTH CARE CORPORATION AND ITS SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2024 and December 31, 2023, the Company reported the following amounts in the Company’s balance sheets:

The following table illustrated quantitative information for the Company as a lessee for the periods indicated:

JRSIS HEALTH CARE CORPORATION AND ITS SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The following table is a maturity analysis of it operating lease liabilities that showing the minimum annual undiscounted cash flows the Company will pay in the following five years and the total thereafter as of September 30, 2024:

The Company’s revenue derived from two sources: 1) sales of smart terminal products, such as unmanned medicine vending machine, that the Company self-manufactured and assembled in its plant, and 2) services rendered, such as installation and debugging of new equipment, maintenance of terminal systems of smart equipment, designing and development of application systems customized to its customers. Goods and services that the Company transferred deriving its revenue are all based on the Company’s technology and manufacturing capacity.

The Company derived its revenue from both third-party customers and related party customers. During the periods presented in the financial statements, the Company derived its revenue from its related parties mainly with Guangzhou JIE, Guangzhou JIT, Youzhou Jingmi Health Technology Co., Ltd. and Yaolian (Guangzhou) Wulinwang Co., Ltd. (see Note 12 for relationship of these related parties). Generally related parties purchase machines from Yongzhou JIT and resell them to their customers. They also have Yongzhou JIT provide instalment and maintenance service for their customers from time to time and pay case by case under a negotiated range of rates charged to Yongzhou JIT. End users of the Company’s goods and services mainly include medicine service organization, business entities and local government.

During the three and nine months ended September 30, 2024 and 2023, all customers of the Company were within the PRC and all revenue derived within the PRC.

The following table set forth quantitative information related to revenue for the periods indicated:

JRSIS HEALTH CARE CORPORATION AND ITS SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Related parties and its relationship:

The following related parties involved in transactions with the Company during the three and nine months ended September 30, 2024 and 2023, or had ending balance as of September 30, 2024 and December 31, 2023, respectively.

Accounts receivable, net – related parties

Accounts receivable, net – related parties consisted of the following:

JRSIS HEALTH CARE CORPORATION AND ITS SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Amount due from related parts

Accounts payable – related parties:

Amount due to related parties

Related parties’ transactions

Revenue recognized from goods and services transferred to related parties amounts to $222,922 and $497,106, or 100% and 100% of total revenue, for the three months ended September 30, 2024 and 2023, respectively. Revenue recognized from goods and services transferred to related parties amounted to $647,393 and $1,085,181, or 49% and 83% of total revenue, for the nine months ended September 30, 2024 and 2023, respectively.

Purchase of raw materials and software to be used in assembling machines from related parties amounted to $67,633 and $197,161, or 12% and 45% of total purchased for the three months ended September 30, 2024 and 2023, respectively. Purchase of raw materials and software to be used in assembling machine for related parties amounted to $232,466 and $555,945, or 24% and 66% of total purchase, for the nine months ended September 30, 2024 and 2023, respectively.

On June 29, 2024, Guangzhou JIE made a capital contribution of $412,814 (approximately RMB 3,000,000) to YZ JIT, the 85.53% beneficiary VIE of the Company. On August 30, 2024, Guangzhou JIE made a capital contribution of $2,821 (approximately RMB 20,000) to YZ JIT. These contributions were recorded as additional paid-in capital in the financial statements.

Guarantee provided by related parties consisted of the following:

On May 20, 2022, Linhai Zhu, his spouse Mei Liu and Guangzhou Jumi Intelligent Equipment Co., Ltd. provided a guarantee for the short-term loan of $507,452 from Bank of China. The loan was fully repaid in May 2023.

On July 20, 2022, Linhai Zhu, his spouse Mei Liu and Guangzhou Jumi Intelligent Equipment Co., Ltd. provided a guarantee for the short-term loan of $336,513 from Postal Savings Bank of China. The loan was fully paid in July 2023.

JRSIS HEALTH CARE CORPORATION AND ITS SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

On August 16, 2022, Linhai Zhu and his spouse Mei Liu provided a guarantee for the short-term loan of $547,563 from China Construction Bank. The loan was fully paid in August 2024.

On June 29, 2023, Linhai Zhu, his spouse Mei Liu and Guangzhou Jumi Intelligent Equipment Co., Ltd. provided a guarantee for the short-term loan of $412,814 from Bank of China. The loan was fully paid in July 2024.

On July 2, 2024, Linhai Zhu, his spouse Mei Liu and Guangzhou Jumi Intelligent Equipment Co., Ltd. provided a guarantee for the short-term loan from Bank of China which has ending balance as of September 30, 2024 of $370,497.

On August 12, 2024, Linhai Zhu, his spouse Mei Liu and Guangzhou Jumi Intelligent Equipment Co., Ltd. provided a guarantee for the short-term loan from China Construction Bank which has ending balance as of September 30, 2024 of $527,246.

Short-term Loans

Short-term loans consist of the following:

JRSIS HEALTH CARE CORPORATION AND ITS SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Long-term loans

Long-term loans consist of following:

All bank loans the Company borrowed were for use as working capital in the ordinary course of business. For the three months ended September 30, 2024 and 2023, the Company recorded interest expense on bank loans of $13,846 and $11,673, respectively. For the nine months ended September 30, 2024 and 2023, the Company recorded interest expense on bank loans of $40,817 and $45,429, respectively.

Other payables and accrued liabilities consisted of the following:

The Company has a controlling financial interest in YZ JIT, a majority VIE of the Company, which is consolidated in the Company’s financial statements with a non-controlling interest (“NCI”) recognized. The Company held an 85.53% controlling financial interest in YZ JIT as of September 30, 2024 and December 31, 2023.

As of September 30, 2024 and December 31, 2023, NCI in the consolidated balance sheet was ($36,883) and ($23,246), respectively. For the three months ended September 30, 2024, the comprehensive loss attributable to shareholders’ equity and NCI is ($192,606) and ($32,703), respectively. For the nine months ended September 30, 2024, the comprehensive loss attributable to shareholders’ equity and NCI is ($435,726) and ($73,779), respectively. For the three months ended September 30, 2023, the comprehensive income attributable to shareholders’ equity and NCI is $32,312 and $5,467, respectively. For the nine months ended September 30, 2023, the comprehensive loss attributable to shareholders’ equity and NCI is ($22,712) and ($3,841), respectively.

JRSIS HEALTH CARE CORPORATION AND ITS SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Income Taxes

United States of America

JRSIS is registered in the State of Florida and is subject to the tax laws of United States of America.

The Company has no tax position at September 30, 2024 for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. The Company did not recognize interest accrued related to unrecognized tax benefits or penalties during the periods presented. The Company had no accruals for interest and penalties at September 30, 2024. The Company’s utilization of any net operating loss carry forward may be unlikely as a result of its intended activities.

As of September 30, 2024, the operations in the United States of America had incurred $23,233,689 of cumulative net operating losses which can be carried forward to offset future taxable income in the United States. The net operating loss carryforwards begin to expire in 2044, if unutilized. The Company has provided for a full valuation allowance against the deferred tax assets of $4,879,075 on the expected future tax benefits from the net operating loss carryforwards as the management believes it is more likely than not that these assets will not be realized in the future.

British Virgin Islands (“BVI”)

The Company subsidiary, JRSIS Health Care Limited, is incorporated in BVI and is not subject to tax on income or capital gain. In addition, payments of dividends by the Company to its shareholders are not subject to withholding tax in the BVI.

Hong Kong

The Company’s subsidiary, Runteng Medical Group Company Limited, is incorporated in Hong Kong and has no operating profit or tax liabilities during the periods presented. Runteng is subject to tax at 16.5% on the assessable profits arising in or derived from Hong Kong.

The PRC

The Company’s subsidiaries operating in the PRC are subject to the Corporate Income Tax Law of the People’s Republic of China at a unified income tax rate of 25%. The reconciliation of income tax rate to the effective income tax rate for the three and nine months ended September 30, 2024 and 2023 from our continuing operation is as follows:

JRSIS HEALTH CARE CORPORATION AND ITS SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Value-Added Tax and Other Withholding and Other Levies

The Company’s goods and services are sold in the PRC and are subject to Value-added tax (“VAT”) on the gross sales price. The VAT rates range from 6% to 13%, depending on the type of goods or services sold. The VAT may be offset by VAT paid by the Company on raw materials and other materials included in the cost of producing or acquiring its finished products. The Company’s subsidiaries in PRC were required to file VAT tax return each month to qualify the VAT paid and calculate VAT payable. The Company recorded a VAT payable net of payments if VAT payable on the gross sales is larger than VAT paid by the Company on purchase of materials or finished goods; on the contrary, the Company recorded VAT deductible in the accompanying financial statements net of any VAT payable at the end of reporting periods.

The Company is also subject to other levies such as stamp tax, unban construction tax, and additional education tax which are charged by local governments. The rate of such levies is small and varies among the different jurisdictions in which the Company does business. The Company also acts as the personal income tax withholding agent for the salaries paid its employees.

The following table provided details of taxes payable as of September 30, 2024 and December 31, 2023:

Basic earnings per share is computed using the weighted average number of common shares outstanding during the year. The dilutive effect of potential common shares outstanding is included in diluted earnings per share. The following table sets forth the computation of basic and diluted earnings per share for the three and nine months ended September 30, 2024 and 2023:

The Company is authorized to issue 2,000,000 shares of preferred stock, $0.0001 par value. No shares were issued and outstanding as of September 30, 2024 and December 2023.

The Company is authorized to issue 100,000,000 shares of common stock, $0.0001 par value. As of November 30, 2023, immediately before the closing of the Reverse Acquisition as described in NOTE 1 - ORGANIZATION AND BUSINESS BACKGROUND, the Company has 5,836,666 shares of common stock issued and outstanding. To affect the closing of the Reverse Acquisition, the Company issued 76,757,439 shares of its common stock to Jumi GCL which is a holding company owned by Linhai Zhu, Yulin IGP and Jumi IIP, who are the beneficial owners of 85.53% of Guangzhou JIE that adopted the underlying Reverse Acquisition. On March 12, 2024, the Company issued 2,004,545 common shares to certain personal in the PRC. The consideration for these shares issued amounted to $20,045 (approximately RMB 143,686), which was received by Yongzhou JIT, the VIE of the Company. As of September 30, 2024, the common shares issued and outstanding are 84,598,650 shares.

JRSIS HEALTH CARE CORPORATION AND ITS SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Under the PRC Law, full-time employees of the subsidiaries of the Company in the PRC are entitled to staff welfare benefits including medical care, welfare subsidies, unemployment insurance and pension benefits through a China government-mandated multi-employer defined contribution plan. These benefits are required to accrue for, based on certain percentages of the employees’ salaries. The total contributions made for such employee benefits were approximately $2,620 and $1,652 for the three months ended September 30, 2024 and 2023, respectively. The total contributions made for such employee benefits were approximately $6,939 and $4,376 for the nine months ended September 30, 2024 and 2023, respectively.

Under the PRC Law the Company’s subsidiaries and VIE are required to make appropriations to their statutory reserve based on after-tax net earnings which are determined in accordance with generally accepted accounting principles of the People’s Republic of China (the “PRC GAAP”). Appropriation to the statutory reserve should be at least 10% of the after-tax net income until the reserve is equal to 50% of the registered capital. The statutory reserve is established for the purpose of providing employee facilities and other collective benefits to the employees and is non-distributable other than in liquidation. The Company’s subsidiaries and VIE have not been made earnings determined in PRC GAAP; therefore there were not any statutory reserves made until September 30, 2024.

The Company is exposed to the following concentrations of risks:

For the three months ended September 30, 2024, one customer accounted for 10% or more of the Company’s total revenue and its related outstanding accounts receivable as at the balance sheets date presented as follows:

For the nine months ended September 30, 2024, three customers each accounting for 10% or more of the Company’s total revenue and its related outstanding accounts receivable at the balance sheets date presented as follows:

JRSIS HEALTH CARE CORPORATION AND ITS SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

For the three months ended September 30, 2023, one customer accounted for 10% or more of the Company’s total revenue and its related outstanding accounts receivable at the balance sheets date presented as follows:

For the nine months ended September 30, 2023, two customers accounted for 10% or more of the Company’s total revenue and its related outstanding accounts receivable at the balance sheets date presented as follows: