-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AAneQL1RLAewGqBkC5gNjGBah9FcI1KAAfe2ar7xlsxEE5TJDqXNgfmQGNhcfacM SpobqVn7f8lTIOJI2YuT/Q== 0001004878-09-000168.txt : 20090814 0001004878-09-000168.hdr.sgml : 20090814 20090813194924 ACCESSION NUMBER: 0001004878-09-000168 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20090630 FILED AS OF DATE: 20090814 DATE AS OF CHANGE: 20090813 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Tongji Healthcare Group, Inc. CENTRAL INDEX KEY: 0001389518 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-GENERAL MEDICAL & SURGICAL HOSPITALS, NEC [8062] IRS NUMBER: 000000000 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-140645 FILM NUMBER: 091011917 BUSINESS ADDRESS: STREET 1: NO.5 BEIJI ROAD, NANNING, CHINA CITY: NANNING STATE: F4 ZIP: ----- BUSINESS PHONE: 0086-771-2020000 MAIL ADDRESS: STREET 1: NO.5 BEIJI ROAD, NANNING, CHINA CITY: NANNING STATE: F4 ZIP: ----- 10-Q 1 june0910q8-09.txt JUNE 09 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2009 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____ to _______ Commission File Number: None TONGJI HEALTHCARE GROUP, INC. ------------------------------------------------ (Exact Name of Registrant as Specified in its Charter) Nevada None - ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) No. 5 Beiji Road Nanning, Guangxi, China ------------------------------------ (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number including area code: 0086-771-2020000 N/A ---------------------------------------------------------------------- Former name, former address, and former fiscal year, if changed since last report Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of "large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. Larger accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [ ] Smaller reporting company [X] Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 15,812,391 shares outstanding as of August 10, 2009. TONGJI HEALTHCARE GROUP, INC. CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2009 AND DECEMBER 31, 2008 (UNAUDITED) June 30, 2009 December 31, 2008 ------------- ----------------- ASSETS Current Assets Cash and cash equivalents $ 35,057 $ 61,826 Accounts receivable, net 257,717 267,574 Due from related parties 54,861 268,815 Medicine supplies 93,249 144,746 Prepaid expenses and other current assets 90,702 128,761 ------------ ------------ Total Current Assets 531,586 871,722 Property, Plant and Equipment, net 4,689,911 4,323,445 Capital Lease Deposit 153,401 153,903 ------------ ------------ TOTAL ASSETS $ 5,374,898 $ 5,349,070 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Accounts payable and accrued expenses $ 428,898 $ 240,528 Due to related parties 3,920,536 3,367,857 Other payable 195,260 351,499 Deferred gain on sale & lease back 111,183 111,547 Capital lease obligation-short term 358,321 343,527 ------------ ------------ Total Current Liabilities 5,014,198 4,414,958 Long Term Liabilities Capital lease obligation 159,572 343,922 Deferred gain on sale & lease back 46,012 101,936 ------------ ------------ Total Long Term Liabilities 205,584 445,858 ------------ ------------ Total Liabilities 5,219,782 4,860,816 STOCKHOLDERS' EQUITY Preferred stocks; $0.001 par value, 20,000,000 shares authorized and 0 share issued and outstanding - - Common stocks; $0.001 par value, 100,000,000 shares authorized and 15,812,391 and 15,812,391 shares issued and outstanding as of June 30, 2009 and December 31, 2008 respectively 15,813 15,813 Additional paid in capital 424,967 424,967 Statutory reserve 41,812 41,812 Accumulated Deficit (402,351) (70,727) Accumulated other comprehensive income 74,874 76,389 ------------ ------------ Total Stockholders' Equity 155,116 488,254 ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,374,898 $ 5,349,070 ============ ============ The accompanying notes are an integral part of these unaudited consolidated financial statements. 1 TONGJI HEALTHCARE GROUP, INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 2009 AND 2008 (UNAUDITED) For the three month For the six month periods ended periods ended June 30, June 30, 2009 2008 2009 2008 -------- -------- -------- -------- OPERATING REVENUE Patient service revenue $ 160,038 $ 443,441 $ 316,390 $ 560,892 Other operating revenue 283,068 268,759 552,110 734,417 ----------- ----------- ----------- ----------- Total operating revenue 443,106 712,200 868,500 1,295,309 OPERATING EXPENSES Selling, general and adminstrative expenses 154,498 205,104 434,853 445,685 Medicine and supplies 219,071 268,759 462,638 568,547 Depreciation expenses 81,392 96,879 178,646 190,115 ----------- ----------- ----------- ----------- Total operating expenses 454,961 570,742 1,076,137 1,204,347 ----------- ----------- ----------- ----------- INCOME (LOSS) FROM OPERATIONS (11,854) 141,459 (207,636) 90,962 OTHER INCOME (EXPENSE) Other income (expense) 1,457 (1,755) 2,225 (798) Interest expense, net of income (63,730) (5,340) (126,212) (90,912) ----------- ----------- ----------- ----------- Total Other Expense (62,273) (7,095) (123,987) (91,710) ----------- ----------- ----------- ----------- NET INCOME (LOSS) (74,128) 134,364 (331,624) (748) ----------- ----------- ----------- ----------- Foreign currency translation gain (loss) 170 14,616 (1,514) 32,291 ----------- ----------- ----------- ----------- COMPREHENSIVE INCOME (LOSS) $ (73,957) $ 148,980 $ (333,137) $ 31,543 =========== =========== =========== =========== NET INCOME (LOSS) PER BASIC AND DILUTED SHARES $ (0.005) $ 0.009 $ (0.021) $ (0.000) =========== =========== =========== =========== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 15,812,391 15,759,698 15,812,391 15,706,128 =========== =========== =========== ===========
The accompanying notes are an integral part of these unaudited consolidated financial statements. 2 TONJI HEALTHCARE GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTH PERIODS ENDED JUNE 30, 2009 AND 2008 (UNAUDITED) 2009 2008 -------- -------- Cash flows from operating activities: Net loss $ (331,624) $ (748) Adjustments to reconcile net loss to Net cash provided by (used in) operating activities: Depreciation and amortization 178,646 190,115 Allowance for doubtful accounts 42,165 - Increase/(decrease) in assets and liabilities: Accounts receivable 8,987 (52,171) Inventory 51,038 59,318 Prepaid expense and other current assets (4,517) (103,589) Accounts payable and accrued expenses 180,244 (14,672) Unearned revenue (55,604) (53,921) Other payables (146,177) 58,282 ------------ ------------ Total adjustment 124,782 83,362 ------------ ------------ Net Cash Provided By (Used in) Operating Activities (206,842) 82,614 ------------ ------------ Cash flows from investing activities: (Acquisitions) of fixed assets (9,046) (2,391) Disposals of fixed assets 7,306 - Payments for construction and lease back (427,545) (1,797,416) Due from related parties 213,127 690,731 ------------ ------------ Net Cash Used in Investing Activities (216,158) (1,109,076) ------------ ------------ Cash flows from financing activities: Payments of capital lease (167,354) (148,369) Due to related parties 563,781 1,210,109 ------------ ------------ Net Cash Provided by Financing Activities 396,426 1,061,740 ------------ ------------ Effects of foreign currency translation (195) 2,486 ------------ ------------ Net Increase (decrease) in Cash and Cash Equivalents (26,769) 37,764 Cash and Cash Equivalents-Beginning of Period 61,826 23,165 ------------ ------------ Cash and Cash Equivalents-Ending of Period $ 35,057 $ 60,929 ============ ============ Cash Paid During the Year for: Income taxes $ - $ - ============ ============ Interest paid $ 126,249 $ 118,733 ============ ============ Supplemental disclosures for non cash financing activities Shares issued against subscription receivable $ - $ 77,780 ============ ============ Shares cancelled $ - $ 18 ============ ============ The accompanying notes are an integral part of these unaudited consolidated financial statements. 3 TONGJI HEALTHCARE GROUP, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2009 NOTE 1- ORGANIZATION AND BASIS OF PRESENTATION Nanning Tongji Hospital, Inc. ("NTH") was established in Nanning in the province of Guangxi of the Peoples Republic of China ("PRC") by the Nanning Tongji Medical Co. Ltd. and an individual on October 30, 2003. NTH is an assigned hospital for medical insurance in City of Nanning and Guangxi Province. NTH contains specialties in the areas of internal medicine, surgery, gynecology, pediatrics, emergency medicine, ophthalmology, medical cosmetology, rehabilitation, dermatology, otolaryngology, traditional Chinese medicine, medical imaging, anesthesia, acupuncture, physical therapy, health examination, and prevention. On December 19, 2006, the officers of NTH filed Articles of Incorporation in the State of Nevada which was approved on December 19, 2006 to create Tongji Healthcare Group, Inc. a Nevada corporation (the "Company") and also established Tongji, Inc., a Colorado corporation ("Tongji") a wholly owned subsidiary of the Company. On December 27, 2006, Tongji acquired 100% of the equity in NTH pursuant to an Agreement and Plan of. Pursuant to the acquisition of NTH, it became the wholly owned subsidiary of Tongji. The Company incorporated with 50,000,000 shares of common stock and 20,000,000 shares of preferred stock both with a par value of $0.001. The Company issued 15,652,557 shares of common stock to the shareholders of NTH in exchange for 100% of the issued and outstanding shares of NTH. Thereafter and for purposes of these consolidated financial statements the "Company" and "NTH" are used to refer to the operations of Nanning Tongji Hospital Co. Ltd. The acquisition of NTH was accounted for as a reverse acquisition under the purchase method of accounting since the shareholders of NTH obtained control of the consolidated entity. Accordingly, the reorganization of the two companies was recorded as a recapitalization of NTH, with NTH being treated as the continuing operating entity. According to the PRC Regulation of Healthcare Institutions, hospitals shall be subject to register with the Administration of Health of the local government to obtain their license for hospital service operation. The Company received its renewed operation license from Nanning's government in May of 2005, and this license remains valid until the next scheduled renewing date of May 2009. Other existing regulations having material effects on the Company's business include those dealing with physician's licensing, usage of medicine and injection, public security in health and medical advertising. As the Company maintains a facility with an excess of 100 beds, they must have their license renewed at least every three years. The Company is also obligated to provide free service or dispatch their physicians or employees for public assistance. The Company has a very small percentage of their service for this area. 4 NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying unaudited financial statements of the Company have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the interim periods are not necessarily indicative of the results for any future period. These statements should be read in conjunction with the Company's audited financial statements and notes thereto for the fiscal year ended December 31, 2008. The results of the six month period ended June 30, 2009 are not necessarily indicative of the results to be expected for the full fiscal year ending December 31, 2009. Principles of Consolidation The consolidated financial statements include the accounts of Tongji Healthcare Group, Inc. and its wholly owned subsidiaries Tongji, Inc. and Nanning Tongji Hospital, Inc. All significant intercompany accounts and transactions have been eliminated in consolidation. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, the Company evaluates its estimates, including, but not limited to, those related to depreciation, bad debts, income taxes and contingencies. Actual results could differ from those estimates. Foreign Currency Translation The Company's functional currency is that of the PRC which is the Chinese Renminbi (RMB). The reporting currency is that of the US Dollar. Capital accounts of the consolidated financial statements are translated into United States dollars from RMB at their historical exchange rates when the capital transactions occurred. Assets and liabilities are translated at the exchange rates as of the balance sheet date. Income and expenditures are translated at the average exchange rate of the year. The RMB is not freely convertible into foreign currency and all foreign currency exchange transactions must take place through authorized institutions. No representation is made that the RMB amounts could have been, or could be, converted into US dollar at the rates used in translation. The Company records these translation adjustments as accumulated other comprehensive income (loss). Gains and losses from foreign currency transactions are included in other income (expense) in the results of operations. For the six month periods ended June 30, 2009 and 2008, the Company recorded approximately $(1,520) and $32,291 in transaction gains (loss) as a result of currency translation. Revenue Recognition The Company's revenue recognition policies are in compliance with Staff Accounting Bulletin (SAB) 104. Sales revenue is recognized at the date of shipment to customers or services has been rendered when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, no other 5 significant obligations of the Company exist and collectibility is reasonably assured. Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as unearned revenue. The Company generates revenue from the individuals as well as third-party payers, including PRC government programs and insurance providers, under which the hospital is paid based upon several methodologies including established charges, the cost of providing services, predetermined rates per diagnosis, fixed per diem rates or discounts from established charges. Revenues are recorded at estimated net amounts due from patients, third-party payers and others for healthcare services provided at the time the service is provided. Revenues for pharmaceutical drug sales are recognized upon the drug being administered to a patient or at the time a prescription is filled for a patient that contain an executed prescription slip by a registered physician. Revenues are recorded at estimated net amounts due from patients and government Medicare funds. The Company's accounting system calculates the expected amounts payable by the government Medicare funds. The Company bills for services provided to Medicare patients through a medical card (the US equivalent to an insurance card). The Company normally receives 90% of the billed amount within 90 days with the remaining 10% upon approval by the end of the year by the PRC government. However, there have not been significant differences between the amounts the Company bills the government Medicare funds and the amounts collected from the Medicare funds. Accounts Receivable Accounts receivable are recorded at the estimated net realizable amounts from government units, insurance companies and patients. Generally, the third-party payers reimburse the Company on a 30-day cycle, so collections for the Company has historically not been considered to be an area that exposes the Company to additional risk. Hospital staff does perform verification of patient coverage prior to examinations and/or procedures taking place For any Medicare patient who visits the hospital that is qualified for acceptance, the hospital will only include the portion that the social insurance organization in the accounts receivable and collects the self-pay portion in cash at the time of the service. At times, the pre-determined rate the hospital will charge may be different than the approved Medicare rate, thus the likelihood of some bad debt can occur. Management continues to evaluate this estimate on an ongoing basis. The Company has established a reserve for uncollectibles of $59,779 and $59,975 as of June 30, 2009 and December 31, 2008. Prepaid expenses and other current assets Prepaid expenses and other current assets consisted of the following as of June 30, 2009 and December 31, 2008: March 31, 2009 December 31,2008 -------------- ---------------- Other receivable $ 7,348 $ 54,364 Advance to suppliers 10,781 38,486 Prepaid expenses 72,573 35,910 Total $ 90,702 $128,761 Prepaid expenses include amounts paid for the business plan and design fees for a new hospital under construction. 6 Advertising Costs The Company expenses the costs associated with advertising as incurred. Advertising expenses for the six month periods ended June 30, 2009 and 2008 of $34,319 and $107,132, respectively are included in selling and promotional expenses in the statements of income. Advertising costs include marketing brochures and an advertising campaign to the public. Impairment of Long-Lived Assets Effective January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"), which addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," and the accounting and reporting provisions of APB Opinion No. 30, "Reporting the Results of Operations for a Disposal of a Segment of a Business." The Company periodically evaluates the carrying value of long-lived assets to be held and used in accordance with SFAS 144. SFAS 144 requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amounts. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair market value of the long-lived assets. Loss on long-lived assets to be disposed of is determined in a similar manner, except that fair market values are reduced for the cost of disposal. Based on its review, the Company believes that, as of June 30, 2009 and December 31, 2008 there were no significant impairments of its long-lived assets. Earnings (Loss) Per Share of Common Stock Earnings per share is calculated in accordance with the Statement of financial accounting standards No. 128 (SFAS No. 128), "Earnings per share". SFAS No. 128 superseded Accounting Principles Board Opinion No.15 (APB 15). Net loss per share for all periods presented has been restated to reflect the adoption of SFAS No. 128. Basic net loss per share is based upon the weighted average number of common shares outstanding. Diluted net loss per share is based on the assumption that all dilutive convertible shares and stock options were converted or exercised. Dilution is computed by applying the treasury stock method. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period. The Company has not granted any options or warrants during 2009 or 2008, and there are no options or warrants outstanding as of June 30, 2009 and December 31, 2008. Income Taxes The Company utilizes SFAS No. 109, "Accounting for 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 7 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 accordance with the relevant tax laws and regulations of PRC and US, the corporation income tax rate would typically be 33% in the PRC. The Company has received a waiver (duty free certificate) from the taxing authorities in the PRC for corporate enterprise income tax for the year ended 2004 through 2006. Effective 2007, the Company will be taxed at the rate of 33%. Beginning January 1, 2008, the new Enterprise Income Tax (EIT) law will replace the existing laws for Domestic Enterprises (DES) and Foreign Invested Enterprises (FIEs). The new standard EIT rate of 25% will replace the 33% rate currently applicable to both DES and FIEs. In addition, companies in the PRC are required to pay business taxes consisting of 5% of income they derive from providing medical treatment and city construction taxes, and educational taxes are based on 7% and 3% of the business taxes, and the Company had accrued these taxes for 2005. The Company has received notification that they are exempt from these taxes for the years ending 2006 through 2008. The company become normal taxpayer in 2009 and need to pay the above taxes. Segment Information Statement of Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosure About Segments of an Enterprise and Related Information" requires use of the "management approach" model for segment reporting. The management approach model is based on the way a company's management organizes segments within the company for making operating decisions and assessing performance. Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company. SFAS 131 has no effect on the Company's consolidated financial statements as the Company consists of one reportable business segment. All revenue is from customers in People's Republic of China. All of the Company's assets are located in People's Republic of China. Recent Accounting Pronouncements On December 30, 2008 FASB issued FIN 48-3, "Effective Date of FASB Interpretation No. 48 for Certain Nonpublic Enterprises". This FSP defers the effective date of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, for certain non-public enterprises as defined in paragraph 289, as amended, of FASB Statement No. 109, Accounting for Income Taxes, including non-public not-for-profit organizations. However, non-public consolidated entities of public enterprises that apply U. S. GAAP are not eligible for the deferral. Nonpublic enterprises that have applied the recognition, measurement, and disclosure provisions of Interpretation 48 in a full set of annual financial statements issued prior to the issuance of this FSP also are not eligible for the deferral. This FSP shall be effective upon issuance. The Company does not believe this pronouncement will impact its financial statements. In January 2009, the FASB issued FSP EITF 99-20-1, "Amendments to the Impairment Guidance of EITF Issue No. 99-20, and EITF Issue No. 99-20, Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interests in Securitized Financial Assets" ("FSP EITF 99-20-1"). FSP EITF 99-20-1 changes the impairment model included within EITF 99-20 to be more consistent with the impairment models of FAS No. 115. FSP EITF 99-20-1 achieves this by amending the impairment model in EITF 99-20 to remove its exclusive reliance on "market participant" estimates of future cash flows used in determining fair value. Changing the cash flows used to analyze other-than-temporary impairment from the "market participant" view to a holder's estimate of whether there has been a "probable" adverse change in estimated cash flows allows companies to apply reasonable judgment in assessing whether an other-than-temporary impairment has 8 occurred. The adoption of FSP EITF 99-20-1 will not have a material impact on the Company's consolidated financial statements. In June 2009, the FASB issued SFAS No. 166, "Accounting for Transfers of Financial Assets -- an amendment of FASB Statement No. 140" ("SFAS 166"), which requires additional information regarding transfers of financial assets, including securitization transactions, and where companies have continuing exposure to the risks related to transferred financial assets. SFAS 166 eliminates the concept of a "qualifying special-purpose entity," changes the requirements for derecognizing financial assets, and requires additional disclosures. SFAS 166 is effective for fiscal years beginning after November 15, 2009. In June 2009, the FASB issued SFAS No. 167, "Amendments to FASB Interpretation No. 46(R)" ("SFAS 167"), which modifies how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. SFAS 167 clarifies that the determination of whether a company is required to consolidate an entity is based on, among other things, an entity's purpose and design and a company's ability to direct the activities of the entity that most significantly impact the entity's economic performance. SFAS 167 requires an ongoing reassessment of whether a company is the primary beneficiary of a variable interest entity. SFAS 167 also requires additional disclosures about a company's involvement in variable interest entities and any significant changes in risk exposure due to that involvement. SFAS 167 is effective for fiscal years beginning after November 15, 2009. In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification TM and the Hierarchy of Generally Accepted Accounting Principles ("SFAS No. 168"), which becomes effective for financial statements issued for interim and annual periods ending after September 15, 2009. SFAS No. 168 replaces SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles. SFAS No. 168 identifies the sources of accounting principles and the framework for selecting principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with US GAAP (the GAAP hierarchy). NOTE 3- PROPERTY & EQUIPMENT Property & equipment as of June 30, 2009 and December 31, 2008 comprised of following: Estimated June 30, December 31, Useful Lives 2009 2008 (Years) Office equipment 5-10 $ 73,317 $ 80,320 Medical equipment 5 1,103,259 ,103,494 Fixtures 10 111,128 106,353 Vehicles 5 40,680 40,813 Construction in Progress 3,959,997 3,544,097 ----------- ----------- 5,288,381 4,875,077 Less: accumulated depreciation (598,470) (551,632) ----------- ----------- Property and equipment, net $4,689,911 $4,323,445 =========== =========== 9 Depreciation expense charged to operations was $178,646 and $190,115 for the six month periods ended June 30, 2009 and 2008, respectively. NOTE 4- MEDICINE SUPPLIES Medicine supplies consisted of the following as of June 30, 2009 and December 31, 2008, 2007: June 30, 2009 December 31,2008 ------------- ---------------- Western medicine $85,944 $ 3,543 Traditional Chinese medicine 7,305 141,203 Total $ 93,249 $144,746 NOTE 5 - MAJOR CUSTOMERS AND SUPPLIERS The Company had one supplier that accounted for 67% of purchase for the six month periods ended June 30, 2009. Accounts payable from this major supplier was $109,047 as of June 30, 2009. The Company does not have any major customers for the six month periods ended June 30, 2009 as the customers are mostly patients. NOTE 6- CAPITAL LEASE OBLIGATIONS: Lease Deposit The lease deposit as of June 30, 2009 and December 31, 2008 and were $153,401 and $153,903 respectively. It will be due in November 2010. Deferred Gain on Sale and Lease Back The total gain on sale and lease back was $333,549. According to SFAS 13 "Accounting for Leases" this gain is deferred and amortized over the Lease term of 36 months. Accordingly, $55,604 and $53,922 were amortized for the six month periods ended June 30, 2009 and 2008 respectively. The deferred revenue outstanding as of June 30, 2009 and December 31, 2008 were as follows: June 30, 2009 December 31, 2008 Current $ 111,183 $111,547 Long term 46,012 101,936 ------------ ------------ $ 157,195 $213,483 ------------ ------------ Capital Lease Obligations In 2007, the Company leased various equipments under capital leases expiring in 2010. The assets and liabilities under capital leases are recorded at the lower of the present value of the minimum lease payments or the fair value of the asset. The assets are depreciated over the lesser of their related lease terms 10 or their estimated productive lives. Depreciation of assets under capital leases was included in depreciation expense for the six month periods ended June 30, 2009. Aggregate minimum future lease payments under capital leases for next five years after June 30, 2009 are as follows: 2009 $ 390,821 2010 162,842 ---------- Total $ 553,663 =========== Capital lease obligations represent the following at June 30, 2009 and December 31, 2008: June 30, 2009 December 31, 2008 ------------- ----------------- Total minimum lease payments $ 553,662 $ 751,521 Less : Interest expense relating to future periods (35,769) (64,073) ------------- ------------- Present value of the minimum lease payments 517,893 687,448 Less: current portion 358,321 (343,526) ------------- ------------- Non-current portion $ 159,572 $ 343,922 ============= ============= The following is a summary of fixed assets held under capital leases at June 30, 2009 and December 31, 2008: June 30, 2009 December 31, 2008 ------------- ----------------- Medical Equipment $ 1,022,674 $ 1,026,017 Less: accumulated depreciation (403,532) (376,977) ------------- ------------- Capital leased fixed assets, Net 619,141 649,040 NOTE 7- OTHER PAYABLE Other payable as of June 30, 2009 and December 31, 2008 consists of the following: June 30, December 31, 2009 2008 Advance from customers $ 7,041 $ 5,397 Welfare payable 76,892 84,161 Other payable 111,327 261,941 ---------------------------------------------------------------- Total $ 195,260 $ 351,499 ================================================================ 11 NOTE 8- STOCKHOLDERS' EQUITY Common Stock As of June 30, 2009 and December 31, 2008, the Company has 100,000,000 shares of common stock authorized with a par value of $0.001. During the period ended December 31, 2008, the company issued 177,834 shares for $77,780.and cancelled 18,000 previously issued shares issued in error. The company did not issue any shares during the six month periods ended June 30, 2009. The Company has not granted any options or warrants during 2009 or 2008, and there are no options or warrants outstanding as of June 30, 2009 and December 31, 2008. Preferred Stock As of June 30, 2009 and December 31, 2008, the Company has 20,000,000 shares of preferred stock authorized with a par value of $0.001. There are no shares issued and outstanding as of June 30, 2009. Statutory Reserves As stipulated by the Company Law of the People's Republic of China (PRC), net income after taxation can only be distributed as dividends after appropriation has been made for the following: i. Making up cumulative prior years' losses, if any; ii. Allocations to the "Statutory surplus reserve" of at least 10% of income after tax, as determined under PRC accounting rules and regulations, until the fund amounts to 50% of the Company's registered capital; iii. Allocations of 5-10% of income after tax, as determined under PRC accounting rules and regulations, to the Company's "Statutory common welfare fund", which is established for the purpose of providing employee facilities and other collective benefits to the Company's employees; and iv. Allocations to the discretionary surplus reserve, if approved in the stockholders' general meeting. Pursuant to the new Corporate Law effective on January 1, 2006, there is now only one "Statutory surplus reserve" requirement. The reserve is 10 percent of income after tax, not to exceed 50 percent of registered capital. The Company did not appropriate reserve for the statutory surplus reserve for the six month periods ended June 30, 2009, and 2008. NOTE 9- PROVISION FOR INCOME TAXES In accordance with the relevant tax laws and regulations of PRC, the corporate income tax rate is 25%. As noted, the corporate income tax for 2004 through 2006 was 0% due to the Company's receipt of a waiver (tax relief) from the PRC 12 government as they acquired a previous government-owned hospital and privatized it and improved it. Commencing, 2008, the corporate tax rate will be 25%. Income tax for the six month period ended June 30, 2009 and 2008 is summarized as follows: 2009 2008 -------- -------- U.S. Federal and State Current $ - $ - U.S. Federal and State Deferred - - PRC - Current - - ----------- ----------- PRC - Deferred - 46,000 ----------- ----------- Less: Valuation allowance - (46,000) ----------- ----------- Income tax expense (benefit) $ - $ - =========== =========== A reconciliation of the effective income tax rate is as follows: 2009 2008 ---- ---- Tax at U.S. Federal rate 34% 34% U.S. tax exemption (34)% (34)% ------- ----- 0% 0% PRC Tax rate 25% 25% Valuation allowance (25)% (25)% Current tax provision 0% 0% The Company does not have any significant deferred tax asset or liabilities in the PRC tax jurisdiction as of June 30,2009. NOTE 10- RELATED PARTY TRANSACTIONS Due from/to Related Parties The Company has entered into agreements with Nanning Tongji Chain Pharmacy Co. Ltd. and Guangxi Tongji Medicine Co. Ltd. whereby the Company from time to time will advance amounts to assist them in their operations. The three companies have common major shareholders. The advanced amounts accrue interest at a rate of 6% per annum. The amount of receivable as of June 30, 2009 and December 31, 2008 were $54,861 and $268,815. Interest income for the six month periods ended June 30, 2009 and 2008 were $0 and $35,266, respectively. The Company has entered into an agreement with the Chairman and the shareholder of the Company whereby the Company from time to time will be advanced amounts to assist them in their operations. The advanced amounts accrue interest at a rate of 6% per annum. As of June 30, 2009 and December 31, 2008, $3,920,536, and $3,367,857 were payable to their Chairman, shareholder and Guangxi Tongji Medicine Co. Ltd. respectively. Interest expenses for the six month periods ended June 30, 2009 and 2008 were $102,608 and $66,647, respectively. 13 Rental The Company has entered into a lease agreement for their hospital with Guangxi Tongji Medicine Co. Ltd that expires December 2008. The Company renewed the lease for additional 5 years at monthly rate of $2,402 (RMB16,439). Based on the exchange rate at June 30, 2009, minimum future 5 years lease payments are as follows: 2010 $ 28,820 2011 28,820 2012 28,820 2013 28,820 ---------- Total $ 115,280 14 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operation You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our financial statements and the related notes included elsewhere in this report. Our financial statements have been prepared in accordance with U.S. GAAP. In addition, our financial statements and the financial data included in this report reflect our reorganization and have been prepared as if our current corporate structure had been in place throughout the relevant periods. The following discussion and analysis contains forward-looking statements that involve risks and uncertainties. Actual results could differ materially from those projected in the forward-looking statements. Overview We were organized as a Nevada corporation on December 19, 2006. On December 27, 2006 we issued 15,652,557 shares of our common stock to acquire all outstanding shares of Nanning Tongji Hospital Co., Ltd., which we refer to as "Tongji Hospital," a PRC company which was formed in October 30, 2003. The purpose of the transaction was to redomicile us as a Nevada corporation. Unless otherwise indicated, all references to us throughout this report includes the operations of Tongji Hospital. Our critical accounting policies, as well as recent accounting pronouncements which apply to us, are described in Note 2 to our financial statements which are included as part of this report. Results of Operation Material changes of items in our Statement of Operations are discussed below. Three Months Ended June 30, 2009 Patient Service Revenue decreased primarily as the result of road construction near our hospital as well as the rainy season which reduced patient visits. Other Operating Revenue increased slightly as the result of increased sales of medicine to our patients. Operating Expenses: Selling, General and Administrative expenses increased primarily due to the higher accounting and legal expenses. Our costs for Medicine and Supplies increased as the result of increased revenue from patients for the three months ended June 30, 2009 as compared to the same period of prior year. An increase in the reserve for bad debts during the period also contributed to higher operating expenses. 15 Six Months Ended June 30, 2009 Patient Service Revenue decreased primarily as the result of road construction near our hospital which reduced patient visits. Other Operating Revenue decreased as less patients were treated which contributed to the reduced sales of medicine during the period. Operating Expenses: Selling, General and Administrative expenses increased primarily due to increased accounting expenses and consulting fees associated with the construction of our new hospital. Our costs for Medicine and Supplies decreased as the result of the decreased sales of medicine. An increase in the reserve for bad debts during the period also contributed to higher operating expenses. Trends, Events and Uncertainties The China Ministry of Health, as well as other related agencies, have proposed changes to the prices we can charge for medical services, drugs and medications. We cannot predict the impact of these proposed changes since the changes are not fully defined and we do not know whether those proposed changes will ever be implemented or when they may take effect. In accordance with the relevant laws and regulations of PRC our income tax rate is typically be 33%. We are required to pay a tax of 5% of the income derived from providing medical treatment plus city construction and educational taxes equal to 7% and 3% respectively, of the business tax. We were exempt from these taxes in 2008. We are building a new 600-bed hospital in Nanning, China. We expect the new hospital to be completed by January 2011. The hospital is being built by Guangxi Construction Engineering Group Corporation and, when completed, will be leased by us for a twenty-year term. The lease payment will be $381,000 during the first year of the lease. The annual lease payments will gradually increase each year such that, during the final year of the lease, our lease payments will be $801,783, based upon current exchange rates. Our agreement with Langdong 8th Group requires us to make payments of approximately $5,600,000 to Langdong 8th Group during the construction phase. As of June 30, 2009 we had paid approximately $3,960,000 towards this amount. Other than the factors listed above we do not know of any trends, events or uncertainties that have had or are reasonably expected to have a material impact on our net sales or revenues or income from continuing operations. Our business is not seasonal in nature. 16 Accounting Estimates In the United States most hospitals have contracts with health insurance companies which provide that patients with health insurance will be charged reduced rates for healthcare services. Reduced rates are also charged for Medicare and Medicaid patients. Although the patient is billed for the services provided by the hospital at the higher rate normally charged to patients without insurance the amount billed is reduced by the charges paid by the insurance carrier and by the difference (sometimes known as the "contractual allowance") between the normal rate for the services and the reduced rate which the hospital estimates it will receive from Medicare, Medicaid and insurance companies. For financial reporting purposes, hospitals in the United States record revenues based upon established billing rates less adjustments for contractual allowances. Revenues are recorded based upon the estimated amounts due from the patients and third-party payors, including federal and state agencies (under the Medicare and Medicaid programs) managed care health plans, health insurance companies, and employers. Estimates of contractual allowances under third-party payor arrangements are based upon the payment terms specified in the related contractual agreements. Third-party payor contractual payment terms are generally based upon predetermined rates per diagnosis, per diem rates, or discounted fee-for-service rates. Due to the complexities involved in determining amounts ultimately due under reimbursement arrangements with a large number of third-party payors, which are often subject to interpretation, the reimbursement actually received by U.S. hospitals for health care services is sometimes different from their estimates. The medical system in China is different than that in the United States. Private medical insurance is not generally available to the Chinese population and as a result services and medications provided by our hospital are usually paid for in cash or by the Medicare agencies of the Nanning municipal government and the Guangxi provincial government. Our billing system automatically calculates the reimbursements to which we are entitled based upon regulations promulgated by the Medicare agencies. We bill the Medicare agencies directly for services provided to patients coved by the Medicare programs. Since we bill the Medicare agencies directly, our gross revenues are not reduced by contractual allowances. Since we only deal with the Nanning municipal and the Guangxi provincial Medicare agencies we are familiar with their regulations pertaining to reimbursements. As a result, there is normally no material difference between the amounts we bill and the amounts we receive for services provided to Medicare patients. Liquidity and Capital Resources - ------------------------------- Refer to the Consolidated Statements of Cash Flows included with this report for information concerning our sources and uses of cash during the six months ended June 30, 2009. 17 Future payments due on our material contractual obligations as of June 30, 2009 are as follows: Item Total 2009 2010 2011 2012 2013 Thereafter - ---- ----- ---- ---- ---- ---- ---- ---------- Medical Building Lease $ 113,572 $ -- $ 28,393 $ 28,393 $ 28,393 $ 28,393 $ -- Capital Leases $ 336,167 $ -- $ 336,167 -- -- -- $ -- Lease on New Hospital $1,187,248 $ -- -- $ 381,092 $ 395,749 $ 410,407 $ --
Except as shown above, as of June 30, 2009 we did not have any material capital requirements. Income from our operations has been, and is expected to be in the future, our primary source of cash. We do not have any off-balance sheet items reasonably likely to have a material effect on our financial condition. Item 4. Controls and Procedures. (a) Tongji maintains a system of controls and procedures designed to ensure that information required to be disclosed in reports filed or submitted under the Securities Exchange Act of 1934, as amended ("1934 Act"), is recorded, processed, summarized and reported, within time periods specified in the SEC's rules and forms and to ensure that information required to be disclosed by Tongji in the reports that it files or submits under the 1934 Act, is accumulated and communicated to Tongji's management, including its Principal Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure. As of June 30, 2009, Tongji's Principal Executive Officer and Principal Financial Officer evaluated the effectiveness of the design and operation of Tongji's disclosure controls and procedures. Based on that evaluation, the Principal Executive Officer and Principal Financial Officer concluded that Tongji's disclosure controls and procedures were effective. (b) Changes in Internal Controls. There were no changes in Tongji's internal control over financial reporting during the quarter ended June 30, 2009, that materially affected, or are reasonably likely to materially affect, its internal control over financial reporting. PART II Item 6. Exhibits Exhibits 31.1 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 18 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TONGJI HEALTHCARE GROUP, INC. August 13, 2009 By: /s/ Yun-hui Yu ------------------------------------- Yun-hui Yu, Principal Executive Officer August 13, 2009 By: /s/ Wei-dong Huang ------------------------------------- Wei-dong Huang, Principal Financial and Accounting Officer EX-31 2 june0910qexh318-09.txt EXHIBIT 31 EXHIBIT 31 CERTIFICATIONS I, Yun-hui Yu, certify that; 1. I have reviewed this quarterly report on Form 10-Q of Tongji Healthcare Group, Inc.; 2. Based on my knowledge, this report, does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, no misleading with respect to the period covered by the report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is make known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provided reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. August 13, 2009 /s/ Yun-hui Yu ------------------------------------ Yun-hui Yu, Principal Executive Officer CERTIFICATIONS I, Wei-dong Huang, certify that; 1. I have reviewed this quarterly report on Form 10-Q of Tongji Healthcare Group, Inc.; 2. Based on my knowledge, this report, does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, no misleading with respect to the period covered by the report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is make known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provided reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. August 13, 2009 /s/ Wei-dong Huang ------------------------------ Wei-dong Huang, Principal Financial Officer EX-32 3 june0910qexh328-09.txt EXHIBIT 32 EXHIBIT 32 In connection with the quarterly report of Tongji Healthcare Group, Inc., (the "Company") on Form 10-Q for the quarter ended June 30, 2009 as filed with the Securities and Exchange Commission on the date hereof (the "Report") Yun-hui Yu, the Principal Executive Officer of the Company and Wei-dong Huang, the Principal Financial Officer of the Company, certify pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of their knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the company. August 13, 2009 By: /s/ Yun-hui Yu ---------------------------------- Yun-hui Yu, Principal Executive Officer August 13, 2009 By: /s/ Wei-dong Huang ---------------------------------- Wei-dong Huang, Principal Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----