☒
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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☐
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TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE
ACT
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Nevada
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99-0364697
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(State or other jurisdiction of incorporation or
organization)
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(I.R.S. Employer Identification No.)
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No. 5 Beiji Road
Nanning, Guangxi, People’s Republic of China
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530011
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(Address of principal executive offices)
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(Zip Code)
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(Former name, former address and former fiscal year, if changed
since last report)
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Large accelerated filer
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☐
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Accelerated filer
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☐
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Non-accelerated filer
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☐
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Smaller reporting company
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☒
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Page
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PART I.
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Financial Information
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4
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Item 1. Financial Statements (Unaudited).
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4
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Condensed Consolidated Balance Sheets as of March 31, 2017
(Unaudited) and December 31, 2016.
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4
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Condensed Consolidated Statements of Operations and Comprehensive
Income (loss) for the Three Months Ended March 31, 2017 and 2016
(Unaudited).
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5
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Condensed Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 2017 and 2016 (Unaudited).
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6
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Notes to Condensed Consolidated Financial Statements as of March
31, 2017 (Unaudited).
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7
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Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations.
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18
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Item 3. Quantitative and Qualitative Disclosures About Market
Risk.
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22
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Item 4. Controls and Procedures.
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22
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PART II.
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Other Information
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24
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Item 1. Legal Proceedings.
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24
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Item 1A. Risk Factors.
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24
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Item 2. Unregistered Sales of Equity Securities and Use of
Proceeds.
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24
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Item 3. Defaults Upon Senior Securities.
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24
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Item 4. Mine Safety Disclosures.
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24
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Item 5. Other Information.
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24
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Item 6. Exhibits.
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25
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TONGJI HEALTHCARE GROUP, INC.
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CONDENSED CONSOLIDATED BALANCE SHEETS
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March 31, 2017
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December 31, 2016
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(Unaudited)
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(Audited)
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ASSETS
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Current
Assets
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Cash
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$42,251
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$47,597
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Accounts
receivable, net
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190,599
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239,377
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Due
from related parties
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186,975
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185,365
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Other current
receivable
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7,305,954
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7,243,028
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Medical
supplies
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16,289
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52,357
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Prepaid
expenses and other current assets
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13,201
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13,087
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Total
Current Assets
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7,755,269
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7,780,811
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Equipment,
net
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371,504
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386,158
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Deposit
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172,966
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171,476
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Intangible
assets, net
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23,269
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25,301
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TOTAL
ASSETS
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$8,323,008
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$8,363,746
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LIABILITIES AND STOCKHOLDERS' DEFICIT
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Current
Liabilities
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Accounts
payable and accrued expenses
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$957,616
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$997,040
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Due
to related parties
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10,499,289
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10,371,235
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Other
payable
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1,318,709
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1,269,176
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Settlement
payable
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1,399,980
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1,366,639
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Short-term
loan
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-
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-
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Current
portion of capital lease payable
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526,922
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522,384
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Total
Current Liabilities
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14,702,516
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14,526,474
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Total
Liabilities
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14,702,516
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14,526,474
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STOCKHOLDERS'
DEFICIT
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Preferred
stock; $0.001 par value, 20,000,000 shares authorized and none
issued and outstanding
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-
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-
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Common stock; $0.001 par value,
50,000,000 shares authorized and 15,812,191 shares issued and
outstanding as of March 31, 2017 and December 31, 2016
respectively
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15,812
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15,812
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Additional
paid in capital
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440,368
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440,368
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Accumulated
deficit
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(7,369,605)
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(7,206,416)
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Accumulated
other comprehensive income
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533,917
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587,508
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Total
Stockholders' Deficit
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(6,379,508)
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(6,162,728)
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TOTAL
LIABILITIES AND STOCKHOLDERS' DEFICIT
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$8,323,008
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$8,363,746
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The accompanying notes are an integral part of these consolidated
financial statements.
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TONGJI
HEALTHCARE GROUP, INC.
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CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
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FOR THE
THREE MONTH PERIODS ENDED MARCH 31
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(UNAUDITED)
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March
31, 2017
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March
31, 2016
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OPERATING
REVENUE
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In-patient
service revenue
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$194,626
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$257,902
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Out-patient
service revenue
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143,770
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243,764
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Total
operating revenue
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338,396
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501,666
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OPERATING
EXPENSES
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Administrative
expenses
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65,229
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45,916
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Depreciation
and amortization expenses
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20,254
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17,977
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Medicine
and supplies
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144,050
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241,302
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Other
operating expenses
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49,749
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73,253
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Salary
and fringes
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139,894
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175,159
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Total
operating expenses
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419,176
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553,607
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LOSS
FROM OPERATIONS
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(80,780)
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(51,941)
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OTHER
INCOME (EXPENSE)
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Other
income
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6,449
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7,451
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Interest
expense, net
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(88,858)
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(80,815)
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Total
Other Expense
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(82,409)
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(73,364)
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LOSS
BEFORE INCOME TAXES
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(163,189)
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(125,305)
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Provision
for income taxes
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-
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-
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NET
LOSS
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(163,189)
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(125,305)
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OTHER
COMPREHENSIVE INCOME(LOSS)
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Foreign
currency translation gain (loss)
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(53,591)
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(15,061)
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NET
COMPREHENSIVE INCOME (LOSS)
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$(216,780)
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$(140,366)
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Net
loss per common stock-Basic and Diluted
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$(0.014)
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$(0.009)
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Weighted
average common stock outstanding
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Basic
and Diluted
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15,812,191
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15,812,191
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The
accompanying notes are an integral part of these consolidated
financial statements.
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TONJI
HEALTHCARE GROUP, INC.
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CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
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FOR
THE THREE MONTH ENDED MARCH 31
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(UNAUDITED)
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2017
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2016
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Operating
activities:
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Net
loss
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$(163,189)
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$(125,305)
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Adjustments
to reconcile net loss to
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Net
cash provided by (used in) operating activities:
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Depreciation
expense
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20,254
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17,977
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Increase/(decrease)
in operating assets and liabilities:
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Accounts
receivable
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50,842
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40,600
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Medical
supplies
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36,511
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80,301
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Prepaid
expense and other current assets
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(2)
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(1,921)
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Other
receivable
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2
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(2,384)
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Accounts
payable and accrued expenses
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(48,072)
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(41,955)
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Other
payables
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38,495
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28,243
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Contingent
liability
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21,461
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23,104
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Net
Cash Use in Operating Activities
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(43,698)
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18,660
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Investing
activities:
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Acquisitions
of fixed assets
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-
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(6,641)
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Construction
in progress
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-
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(44,316)
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Net
Cash Used in Investing Activities
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-
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(50,957)
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Financing
activities:
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Due
to related parties
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37,940
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64,339
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Net
Cash Provided by Financing Activities
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37,940
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64,339
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Effect
of Exchange Rate Changes in Cash and Cash Equivalent
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412
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499
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Net
increase (decrease) in Cash
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(5,346)
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32,541
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Cash-Beginning
of Period
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47,597
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10,300
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Cash-Ending
of Period
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$42,251
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$42,841
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Cash
Paid During the Year for:
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Income
taxes
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$-
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$-
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Interest
paid
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$6,570
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$4,756
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The
accompanying notes are an integral part of these consolidated
financial statements.
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March 31, 2017
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Balance sheet
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RMB 6.88 to US $1.00
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Statement of income and other comprehensive income
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RMB 6.89 to US $1.00
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December 31, 2016
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Balance sheet
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RMB 6.94 to US $1.00
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Statement of income and other comprehensive income
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RMB 6.64 to US $1.00
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March 31, 2016
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Balance sheet
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RMB 6.45 to US $1.00
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Statement of income and other comprehensive income
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RMB 6.54 to US $1.00
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·
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Level 1 – observable market inputs that are unadjusted quoted
prices for identical assets or liabilities in active
markets.
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·
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Level 2 – other significant observable inputs (including
quoted prices for similar securities, interest rates, credit risk,
etc.).
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·
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Level 3 – significant unobservable inputs (including the
Company’s own assumptions in determining the fair value of
investments).
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Estimated
Useful Lives (Years)
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March
31,
2017
(Unaudited)
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December
31,
2016
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Office
equipment
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5-10
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$78,261
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$77,587
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Medical
equipment
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5
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1,251,452
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1,240,674
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Capital
lease equipment
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5
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1,635,064
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1,620,982
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Fixtures
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10
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102,936
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102,049
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Vehicles
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5
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40,453
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40,104
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Total
equipment
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3,108,166
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3,081,396
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Less
accumulated depreciation
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(1,359,129)
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(1,329,569)
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Less
impairment of the equipment
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|
1,377,533)
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(1,365,669)
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Property
and equipment, net
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|
$371,504
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$386,158
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March 31, 2017
(Unaudited)
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December 31, 2016
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Advance
from customers
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$0
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$555
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Accrued
Salary
|
53,590
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53,128
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|
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Tax
payable
|
699,864
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694,039
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Accrued
Professional Expenses
|
434,139
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387,160
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Unemployment
& Retirement Insurance Payable
|
33,475
|
27,133
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Deposit
Payable
|
31,401
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31,131
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Employees
Training Fees Payable
|
16,275
|
16,135
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Rent
Deposit Payable
|
5,102
|
5,058
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Other
Payable
|
44,863
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54,837
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Total
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$1,318,709
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$1,269,176
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i.
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Making up cumulative prior years’ losses, if
any;
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|
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ii.
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Allocations to the “Statutory surplus reserve” of at
least 10% of income after tax, as determined under PRC accounting
rules and regulations, until the fund amounts to 50% of the
Company’s registered capital;
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iii.
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Allocations to the discretionary surplus reserve, if approved in
the stockholders’ general meeting.
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Expected volatility
|
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105 %
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Expected Dividends
|
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0 %
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Stock price
|
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$ 0.24
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Expected term (in years)
|
|
3 years
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Risk-free rate
|
|
1.32 %
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Number of
Shares
|
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Weighted
Average
Exercise
Price
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Aggregate
Intrinsic Value
(in thousands)
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Outstanding
at January 1, 2017
|
100,000
|
$0.24
|
$-
|
Granted
|
-
|
-
|
-
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Exercised
|
-
|
-
|
-
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Cancelled/expired
|
-
|
-
|
-
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Outstanding
and exercisable at March 31, 2017
|
100,000
|
$0.24
|
$-
|
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Related Party
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Total
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2017
|
$39,226
|
$39,226
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2018
|
8,717
|
8,717
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Total
|
$47,943
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$47,943
|
|
2017
(Unaudited)
|
2016
(Unaudited)
|
Cash
provided by (used in) operating activities
|
$(43,698)
|
$18,660
|
|
|
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Cash
(used in) investing activities
|
$0
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$(50,957)
|
|
|
|
Cash
provided by financing activities
|
$37,940
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$64,339
|
|
Related Party
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Total
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2017
|
$39,226
|
$39,226
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2018
|
8,717
|
8,717
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Total
|
$47,943
|
$47,943
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●
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We did not design, implement, or maintain effective entity-level
controls related to our control environment, resulting in the
following significant control deficiencies:
|
|
o
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The Code of Business Conduct and Ethics, which was specifically
designed for public company applicability, has yet to be formally
acknowledged by members of management and the finance
department.
|
|
o
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There is an absence of independence and financial expertise on the
Board of Directors, and we do not have an Audit Committee or a
formalized internal audit function, limiting its ability to provide
effective oversight of our management.
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|
o
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The full implementation of, and related training for, our
newly-formalized IT policies and procedures were still in process
at year-end. Accordingly, we lacked sufficiently-trained personnel
to provide for adequate segregation of duties within the accounting
system and effective oversight of controls over access, change,
data, and security management.
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●
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Require all members of our management and the finance department
across all corporate entities to certify receipt of the revised
Code of Business Conduct and Ethics by signature. Signed copies
will be retained by our management. Thereafter, our management
plans to periodically require signatories to acknowledge that they
understand the contents of the Code of Business Conduct and Ethics,
and whether they are aware of anyone in our Company that might have
violated some part of the Code.
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●
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Recruit an independent financial expert to the Board of Directors
to chair an Audit Committee and formalize roles and
responsibilities over our internal control over financial reporting
for the Board and our management. Our management also plans to
develop and implement a formal corporate internal audit capability,
reporting directly to an independent Audit Committee, to provide
effective oversight of our internal control over financial
reporting.
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●
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Continue to engage the services of qualified consultants with China
GAAP, U.S. GAAP and SEC reporting experience to support our
financial reporting and SOX compliance requirements, including
assistance with the following:
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|
o
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Remediating identified material weaknesses;
|
|
o
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Monitoring our internal control over financial reporting on an
ongoing basis;
|
|
o
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Managing our period-end financial closing and reporting processes;
and
|
|
o
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Identifying and resolving non-routine or complex accounting
matters.
|
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●
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Complete the implementation of, and related training for, its IT
policies and procedures related to access, change, data, and
security management to ensure that all relevant financial
information is secure, identified, captured, processed, and
reported within the accounting system and spreadsheets supporting
financial reporting.
|
|
●
|
Continue providing training to accounting personnel regarding our
significant policies and procedures related to accounting, finance,
and internal control to ensure that financial reporting
competencies are strengthened.
|
Item 1.
Legal Proceedings.
|
Item 1A.
Risk Factors.
|
Item 2.
Unregistered Sales of Equity Securities and Use of
Proceeds.
|
Item 3.
Defaults Upon Senior Securities.
|
Item 4.
Mine Safety Disclosures.
|
Item 5.
Other Information.
|
Item 6.
Exhibits.
|
Exhibit No.
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Title of Document
|
101.INS
|
XBRL Instance
Document*
|
101.SCH
|
XBRL Taxonomy Extension Schema Document*
|
101.PRE
|
XBRL Taxonomy Extension Presentation Linkbase
Document*
|
101.CAL
|
XBRL Taxonomy Extension Calculation Linkbase Document*
|
101.LAB
|
XBRL Taxonomy Extension Label Linkbase Document*
|
101.DEF
|
XBRL Taxonomy Extension Definition Linkbase Document*
|
|
TONGJI HEALTHCARE GROUP, INC.
|
|
|
|
|
Date: May 19, 2017
|
By:
|
/s/ Yunhui Yu
|
|
Yunhui Yu
President and Chief Executive Officer
(Principal Executive Officer)
|
Date: May 19, 2017
|
By:
|
/s/ Eric Zhang
|
|
Eric Zhang
Chief Financial Officer
(Principal Financial Officer)
|
|
|
|
|
Date : May 19, 2017
|
By:
|
/s/ Yunhui Yu
|
|
|
|
Yunhui Yu
|
|
|
|
President and Chief Executive Officer
(Principal Executive Officer)
|
|
|
|
|
|
|
|
|
|
Date: May 19, 2017
|
By:
|
/s/ Eric Zhang
|
|
|
|
Eric Zhang
|
|
|
|
Chief Financial Officer
(Principal Financial Officer)
|
|
Dated: May 19, 2017
|
|
|
|
/s/ Yunhui Yu
|
|
|
|
|
Yunhui Yu
President and Chief Executive Officer
(Principal Executive Officer)
|
Dated: May 19, 2017
|
|
|
|
/s/ Eric Zhang
|
|
|
|
|
Eric Zhang
Chief Financial Officer
(Principal Financial Officer)
|
Document and Entity Information - shares |
3 Months Ended | |
---|---|---|
Mar. 31, 2017 |
May 13, 2017 |
|
Document And Entity Information | ||
Entity Registrant Name | Tongji Healthcare Group, Inc. | |
Entity Central Index Key | 0001389518 | |
Document Type | 10-Q | |
Document Period End Date | Mar. 31, 2017 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --12-31 | |
Is Entity a Well-known Seasoned Issuer? | No | |
Is Entity a Voluntary Filer? | No | |
Is Entity's Reporting Status Current? | Yes | |
Entity Filer Category | Smaller Reporting Company | |
Entity Common Stock, Shares Outstanding | 15,812,191 | |
Document Fiscal Period Focus | Q1 | |
Document Fiscal Year Focus | 2017 |
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Parenthetical) - $ / shares |
Mar. 31, 2017 |
Dec. 31, 2016 |
---|---|---|
Stockholders equity: | ||
Preferred stock, par value | $ 0.001 | $ .001 |
Preferred stock, authorized shares | 20,000,000 | 20,000,000 |
Preferred stock, issued shares | 0 | 0 |
Preferred stock, outstanding shares | 0 | 0 |
Common stock, par value | $ 0.001 | $ .001 |
Common stock, authorized shares | 50,000,000 | 50,000,000 |
Common stock, issued shares | 15,812,191 | 15,812,191 |
Common stock, outstanding shares | 15,812,191 | 15,812,191 |
1. ORGANIZATION |
3 Months Ended |
---|---|
Mar. 31, 2017 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
NOTE 1 - ORGANIZATION | Nanning Tongji Hospital, Inc. ("NTH") was established in Nanning in the province of Guangxi of the People’s Republic of China ("PRC" or “China”) by the Nanning Tongji Medical Co. Ltd. and an individual on October 30, 2003.
NTH is a designated hospital for medical insurance in the city of Nanning and Guangxi province. NTH specializes 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, NTH filed the Articles of Incorporation in the State of Nevada to establish Tongji Healthcare Group, Inc. (the "Company"). On the same day, Tongji, Inc., a wholly owned subsidiary of the Company, was incorporated in the State of Colorado. Tongji Inc. was later dissolved on March 25, 2011.
On December 27, 2006, Tongji Inc. acquired 100% of the equity in NTH pursuant to an Agreement and Plan of Merger, pursuant to which NTH became a wholly owned subsidiary of Tongji Inc. Pursuant to the Agreement and Plan of Merger, the Company issued 15,652,557 shares of common stock to the stockholders of NTH in exchange for 100% of the issued and outstanding shares of common stock of NTH. Thereafter and for purposes of these consolidated financial statements the "Company" and "NTH" are used to refer to the operations of NTH. The acquisition of NTH was accounted for as a reverse acquisition under the purchase method of accounting since the stockholders 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.
The Company is authorized to issue 50,000,000 shares of common stock, par value $0.001 per share and 20,000,000 shares of preferred stock, par value $0.001 per share.
According to the PRC Regulation of Healthcare Institutions, hospitals are subject to registration with the health department of the local government to obtain business license for hospital services. We received our renewed business license from Nanning municipal government in November 2007, and this license is valid until November, 2020. Other existing regulations having material effects on our business include regulations dealing with physician's licensing, usage of medicine and injection, and public security in health and medical advertising.
NTH must register with and maintain an operating license from the local health department, due to the fact that NTH currently maintains a facility with over 100 beds. NTH is subject to review by the local health department at least once every three years. If NTH fails to meet their standards, NTH’s business license may be revoked. NTH is also obligated to provide free services or dispatch our physicians or other employees in the event of a need for public assistance. NTH dedicates a very small percentage of its resources to providing free public services.
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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
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Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | The accompanying unaudited condensed consolidated financial statements have been prepared by management without audit pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted as allowed by such rules and regulations, and management believes that the disclosures are adequate to make the information presented not misleading. These condensed consolidated financial statements include all of the adjustments, which, in the opinion of management, are necessary to a fair presentation of financial position and results of operations. All such adjustments are of a normal and recurring nature. Interim results are not necessarily indicative of results for a full year. The condensed consolidated balance sheet information as of December 31, 2016 was derived from the audited consolidated financial statements included in the Form 10-K. These condensed consolidated financial statements should be read in conjunction with the audited financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended on December 31, 2016(“Form 10-K”), filed with the Commission on April 17, 2017.
This summary of significant accounting policies of the Company is presented to assist in understanding the Company’s consolidated financial statements. The consolidated financial statements and notes are representations of the Company’s management, which is responsible for their integrity and objectivity. These accounting policies conform to generally accepted accounting principles and have been consistently applied in the preparation of the condensed consolidated financial statements and the Form 10-K.
BASIS OF PRESENTATION AND CONSOLIDATION
These financial statements present the Company’s results of operations, financial position and cash flows on a consolidated basis. The consolidated financial statements include the Company and its wholly owned subsidiaries. Intercompany transactions and accounts have been eliminated in consolidation. Our policy is to consolidate all subsidiaries in which a greater than 50% voting interest is owned and all variable interest entities to which we had a variable interest and effectively control the entity. The Company operates in one segment in accordance with the accounting guidance FASB ASC topic 280, “Segment Reporting”.
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. A substantial amount of the Company’s cash is held in bank accounts in the PRC and is not protected by Federal Deposit Insurance Corporation (FDIC) insurance or any other similar insurance. Cash held in China amounted to $42,251 as of March 31, 2017. Given the current economic environment and the financial condition of the banking industry, there is a risk that the deposits may not be readily available or covered by such insurance. The Company has had no loss of cash in domestic or foreign banks in past years.
USE OF ESTIMATES
The preparation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported assets and liabilities, disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of net revenues and expenses during the reporting period. Actual results may differ from those estimates and such differences may be material. The more significant estimates and assumptions by management include, among others, useful lives and residual values of fixed assets, valuation of inventories, accounts receivable, stock based compensation, and allowance for bad debt. The current economic environment has increased the degree of uncertainty inherent in these estimates and assumptions.
TRANSLATION ADJUSTMENT
The Company's functional currency 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 exchange rates used to translate amounts in RMB into USD for the purposes of preparing the financial statements were as follows:
RECLASSIFICATIONS
Certain items previously reported under specific financial statement captions have been reclassified to conform to the current year presentation.
REVENUE RECOGNITION
The Company's revenue recognition policies are in compliance with Staff Accounting Bulletin 104 (ASC 605). Service revenue is recognized on the dates services were rendered. When a formal arrangement exists, the price is fixed or determinable. When the service is completed, no other significant obligations of the Company exist and collectability 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 individual patients as well as third-party payers, including PRC government programs and insurance providers, under which the hospital is paid based upon government established charges. Revenues for pharmaceutical drug sales are recognized upon the drug being administered to a patient.
Patient revenues are recorded based on pre-established rates set by the local government. The Company bills for services provided to Medicare patients through a medical card (the US equivalent of an insurance card). There have not been significant differences between the amounts the Company has billed 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 fund, insurance companies and patients. Collections have not been considered an area that exposes the Company to additional risk. Hospital staff verifies patient coverage prior to examinations and/or procedures.
For any Medicare patient who visits the hospital and is qualified for acceptance, the hospital will only include the portion that the social insurance organization will pay in the accounts receivable and collects the self-pay portion in cash at the time of service. Management continues to estimate the likelihood of bad debt on an ongoing basis.
The Company has estimated a bad debt allowance of approximately $28,268 as of March 31, 2017 and $28,000 as of December 31, 2016.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company applies the provisions of FASB ASC Topic 825, which requires all entities to disclose the fair value of financial instruments, both assets and liabilities recognized and not recognized on the balance sheet, for which it is practicable to estimate fair value, and defines fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties. As of March 31, 2017 and December 31, 2016 the fair value of cash and cash equivalents, accounts receivable, other current receivable, accounts payable and accrued expenses, settlement payable, capital lease payable and other payables approximated the carrying value due to the short maturity of the instruments, quoted market prices or interest rates which fluctuate with market rates except for related party debt or receivables for which it is not practicable to estimate fair value.
FAIR VALUE MEASUREMENTS
FASB ASC Topic 820, “Fair Value Measurements and Disclosures”, establishes a framework for measuring fair value and requires additional disclosures about the use of fair value measurements.
Various inputs are considered when determining the fair value of the Company’s investments, and long-term debt. The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing in these securities. These inputs are summarized in the three broad levels listed below.
The carrying value of financial assets and liabilities recorded at fair value is measured on a recurring or non-recurring basis. Financial assets and liabilities measured on a non-recurring basis are those that are adjusted to fair value when a significant event occurs. The Company had no financial assets or liabilities carried and measured on a nonrecurring basis during the reporting periods. Financial assets and liabilities measured on a recurring basis are those that are adjusted to fair value each time a financial statement is prepared. The Company had no financial assets and liabilities carried at fair value on a recurring basis.
The availability of inputs observable in the market varies from instrument to instrument and depends on a variety of factors including the type of instrument, whether the instrument is actively traded, and other characteristics particular to the transaction. For many financial instruments, pricing inputs are readily observable in the market, the valuation methodology used is widely accepted by market participants, and the valuation does not require significant management discretion. For other financial instruments, pricing inputs are less observable in the market and may require management judgment.
CONCENTRATIONS, RISKS, AND UNCERTAINTIES
All of the Company’s operations are located in the PRC. There can be no assurance that the Company will be able to successfully continue to operate and failure to do so would have a material adverse effect on the Company’s financial position, results of operations and cash flows. In addition, the success of the Company’s operations is subject to numerous contingencies, some of which are beyond management’s control. These contingencies include general economic conditions, the price of medicine, competition, governmental and political conditions, and changes in regulations. Because the Company is dependent on the domestic market of the PRC, the Company is subject to various additional political, economic and other uncertainties. Among other risks, the Company’s operations will be subject to risk of restrictions on the transfer of funds, domestic policy changes, changing taxation policies, foreign exchange restrictions, and political and governmental regulations.
CONTINGENCIES
Certain conditions may exist as of the date the consolidated financial statements are issued. These conditions may result in a future loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company’s management and legal counsel assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought.
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material would be disclosed. Loss contingencies considered to be remote by management are generally not disclosed unless they involve guarantees, in which case the guarantee would be disclosed.
MEDICAL SUPPLIES
Medical supplies include both western and traditional Chinese medicine, are valued on the lower of weighted average cost or market basis. Inventory includes product cost and inbound freight. Management compares the cost of medical supplies with the market value and allowance is made for writing down their inventories to market value, if such value is lower.
EQUIPMENT
Equipment is recorded at cost. Depreciation is computed over the estimated useful lives of the related asset type using the straight-line method. Maintenance and repairs are expensed as incurred and the costs of additions and betterments that increase the useful lives of the assets are capitalized. When equipment is disposed, the cost and related accumulated depreciation are removed from the accounts and any gain or loss is included in other income or expenses.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company’s long-lived assets are reviewed for impairment in accordance with the guidance of FASB Topic ASC 360, “Property, Plant, and Equipment”, and FASB ASC Topic 205 “Presentation of Financial Statements”. The Company tests for impairment losses on long-lived assets used in operations whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Whenever any such impairment exists, an impairment loss will be recognized for the amount by which the carrying value exceeds the fair value.
The Company tests long-lived assets for recoverability at least annually or more frequently upon the occurrence of an event or when circumstances indicate that the net carrying amount is greater than its fair value. Assets are grouped and evaluated at the lowest level for their identifiable cash flows that are largely independent of the cash flows of other groups of assets. The Company considers historical performance and future estimated results in its evaluation of potential impairment and then compares the carrying amount of the asset to the future estimated cash flows expected to result from the use of the asset. If the carrying amount of the asset exceeds estimated expected undiscounted future cash flows, the Company measures the amount of impairment by comparing the carrying amount of the asset to its fair value. The estimation of fair value is generally measured by discounting expected future cash flows at the rate the Company utilizes to evaluate potential investments. The Company estimates fair value based on the information available in making whatever estimates, judgments and projections are considered necessary. There was no impairment of long-lived assets for the three months ended March 31, 2017 and 2016.
BASIC AND DILUTED EARNINGS PER SHARE
Earnings per share (EPS) is calculated in accordance with the FASB ASC Topic 260, “Earnings Per Share.” Basic net income (loss) per share is based upon the weighted average number of common shares outstanding. Diluted net income (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. Potentially dilutive securities to purchase 100,000 shares of common stock were not included in the calculation of the diluted earnings per share as their effect would be anti-dilutive for the three months ended March 31, 2017. During the three month period ended March 31, 2017, the average market price of the common stock was less than the exercise price of the stock options and the Company was in net loss position. Accordingly, the stock options were anti-dilutive and have not been included in the calculation of diluted earnings per share.
INCOME TAXES
FASB ASC Topic 740, "Income Taxes” requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
In accordance with ASC Topic 740-10, “Accounting for Uncertainty in Income Taxes — An Interpretation of FASB ASC Topic 740” , which requires income tax positions to meet a more-likely-than-not recognition threshold to be recognized in the financial statements. Tax positions that previously failed to meet the more-likely-than-not threshold should be recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not threshold should be derecognized in the first subsequent financial reporting period in which that threshold is no longer met.
The application of tax laws and regulations is subject to legal and factual interpretation, judgment and uncertainty. Tax laws and regulations themselves are subject to change as a result of changes in fiscal policy, changes in legislation, the evolution of regulations and court rulings. Therefore, the actual liability may be materially different from our estimates, which could result in the need to record additional tax liabilities or potentially reverse previously recorded tax liabilities or deferred tax asset valuation allowance.
The Company has made a comprehensive review of its portfolio of tax positions in accordance with recognition standards established by ASC 740-10 and has not recognized any material uncertain tax positions.
In addition, companies in the PRC are required to pay business taxes consisting of 5% of income they derive from providing medical treatment, as well as city construction taxes and educational taxes which are 7% and 3%, respectively, of the business taxes. In April 2010, the Company was granted an exemption from these taxes until further notice from the tax bureau.
The Company had accrued approximately $40,000 under taxes payable account for failure to file US tax returns and Form 5472 between the years 2006 to 2009. The Company is current with its required filings. In addition, the Company does not accrue United States income taxes on unremitted earnings from foreign operations, as it is the Company’s intention to invest these earnings in the foreign operations indefinitely.
STATEMENT OF CASH FLOWS
In accordance with FASB ASC Topic 230, "Statement of Cash Flows," cash flows from the Company's operations are calculated based upon the local currencies. As a result, amounts related to assets and liabilities reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheet.
EMPLOYEE BENEFIT COSTS
The Company contributes to a defined contribution retirement plan organized by the municipal government in the province in which the Company’s subsidiary is registered. The Company makes contributes for qualified employees that are eligible to participate in the plan. Contributions to the plan are calculated at 30% of the employees’ salaries above a fixed threshold amount; employees contribute 8% and the Company’s subsidiary contributes the balance of 22%. The Chinese government is responsible for the benefit liability to retired employees. The Company has no other material obligation for the payment of retirement beyond the annual contribution.
STOCK-BASED COMPENSATION
For purposes of determining the variables used in the calculation of stock compensation expense under the provisions of FASB ASC Topic 505, “Equity” and FASB ASC Topic 718, “Compensation — Stock Compensation,” we perform an analysis of current market data and historical Company data to calculate an estimate of implied volatility, the expected term of the option and the expected forfeiture rate. With the exception of the expected forfeiture rate, which is not an input, we use these estimates as variables in the Black Scholes model. Depending upon the number of stock options granted, any fluctuations in these calculations could have a material effect on the results presented in our consolidated statement of operations. In addition, any differences between estimated forfeitures and actual forfeitures could also have a material impact on our financial statements.
Stock-based compensation costs that have been included in operating expenses amounted to $0 and $0, for the three month periods ended March 31, 2017 and 2016, respectively.
COMPREHENSIVE INCOME
The Company reports comprehensive income in accordance with FASB ASC Topic 220 “Comprehensive Income," which established standards for reporting and displaying comprehensive income and its components in a financial statement that is displayed with the same prominence as other financial statements.
Total comprehensive income is defined as all changes in stockholders' equity during a period, other than those resulting from investments by and distributions to stockholders (i.e., issuance of equity securities and dividends). Generally, for the Company, total comprehensive income (loss) equals net income (loss) plus or minus adjustments for currency translation. Total comprehensive income (loss) represents the activity for a period net of related tax and was a loss of $(216,780) and $(140,366) for the three month periods ended March 31, 2017 and 2016, respectively.
While total comprehensive income is the activity in a period and is largely driven by net earnings in that period, accumulated other comprehensive income or loss (“AOCI”) represents the cumulative balance of other comprehensive income as of the balance sheet date. For the Company, AOCI is primarily the cumulative balance related to the currency adjustments and increased overall equity by $533,917 and $587,508 as of March 31, 2017 and December 31, 2016, respectively.
RECENT ACCOUNTING PRONOUNCEMENTS
Recent accounting pronouncements issued by the FASB, the AICPA and the SEC did not, or are not believed by management to, have a material effect on the Company’s present or future consolidated financial statements.
GOING CONCERN
The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles, which contemplate continuation of the Company as a going concern. However, the Company has negative working capital of $6,947,247, an accumulated deficit of $7,369,605, and a stockholders’ deficit of $6,379,508 as of March 31, 2017. The Company’s ability to continue as a going concern ultimately is dependent on the management’s ability to obtain equity or debt financing, attain further operating efficiencies, and achieve profitable operations. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company not be able to continue as a going concern.
Management has taken certain restructuring steps to provide the necessary capital to continue its operations. These steps included: 1) disposal of the construction-in-progress new hospital. 2) plan to convert existed related parties’ loans into equity, 3) plan to increase sales revenue with additional medical equipment, No assurances can be given that the steps taken will provide necessary capital for the Company to continue its operations.
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3. EQUIPMENT |
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Property, Plant and Equipment [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
NOTE 3 - EQUIPMENT | Equipment as of March 31, 2017 and December 31, 2016 comprised the following:
Depreciation expense charged to operations was $20,254 and $17,977 for the three months periods ended March 31, 2017 and 2016.
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4. OTHER CURRENT RECEIVABLE |
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Mar. 31, 2017 | |
Notes to Financial Statements | |
NOTE 4 - OTHER CURRENT RECEIVABLE | In March 2016, Nanning Tongji Hospital, Inc. sold its construction in progress hospital building to Guangxi Yida Friendship Hospital Management, Inc. for RMB 86,000,000 (approximately $13,000,000). As of the date of disposal, we had accrued approximately $15,000,000 for the construction of the hospital. As a result of the sale, we increased other receivables to approximately $13,000,000. Concurrently, the remaining balance results in an extraordinary loss in the approximate amount of $2,000,000 in 2016. As of March 31, 2017, we received payment of approximately $5,400,000, whereas no payment received during first quarter of 2017. The remaining balance of other current receivable is $7,305,954 as of March 31, 2017.
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5. LAWSUIT SETTLEMENT PAYABLE |
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Mar. 31, 2017 | |
Commitments and Contingencies Disclosure [Abstract] | |
NOTE 5- LAWSUIT SETTLEMENT PAYABLE | In September 2009, Guangxi Nanning Tingyouyuxiang Commercial Co., Ltd. (“Tingyouyuxiang”) filed a civil suit against Nanning Tongji Hospital, Inc. (“NTH”), a subsidiary of the Company in the People’s Court. In the complaint, Tingyouyuxiang asserted a breach of contract claim against NTH, alleging that NTH had failed to make timely and total payment of RMB 5,050,000 (approximately $800,000) under certain Supplement Agreement by and among NTH, Tingyouyuxiang and the Eighth Group of Langdong Village Committee, Nanhu Community Office, Qingxiu District, Nanning City (the “Village Committee”). On December 30, 2009, the People’s Court ruled that NTH shall pay to Tingyouyuxiang damages of RMB 5,050,000 (approximately $800,000) plus interest and the court hearing fee approximately $320,000. On March 9, 2012, NTH appealed to the Intermediate Court in Nanning City, alleging, among other things, that NTH was never served. On June 6, 2012, the Intermediate Court remanded the case to the People’s Court. On June 20, 2013, the People’s Court dismissed the action. On October 21, 2013, NTH appealed the dismissal to the Intermediate Court and the Intermediate Court accepted the appeal on October 21, 2013. On April 16, 2014, the Intermediate Court dismissed NTH appeal and affirmed the decision of the People’s Court. Upon settlement of the lawsuit, the Company had accrued approximately $1,399,980 settlement payable as of March 31, 2017.
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6. MAJOR SUPPLIERS AND CUSTOMERS |
3 Months Ended |
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Mar. 31, 2017 | |
Notes to Financial Statements | |
NOTE 6 - MAJOR SUPPLIERS AND CUSTOMERS | The Company purchases the majority of its medicine supplies from Guangxi Liuzhou Medicine Co., Ltd., which accounted for 44% and 6% of all medicine purchases for three month periods ended March 31, 2017 and 2016. The rest are from around 13 different suppliers.One of the suppliers, Guangxi Tongji Medicine Co. Ltd., a related company that our Chief Executive Officer controls accounted for 0% and 5% of all medicine purchases for the three month periods ended March 31, 2017 and 2016.
The Company had two major customers for the three month periods ended March 31, 2017 and 2016: Nanning Social Insurance Center accounted for 53% and 47% of revenue for the three month periods ended March 31, 2017 and 2016, respectively. China UMS accounted for 10% and 14% of revenue for the three month periods ended March 31, 2017 and 2016, respectively. As of March 31, 2017, accounts receivable due from Nanning Social Insurance Center and China UMS was approximately $199,369 and $309, respectively. The Company has estimated a bad debt allowance of approximately $28,268 as of March 31, 2017 and $28,000 as of December 31, 2016.
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7. CAPITAL LEASE OBLIGATIONS |
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Mar. 31, 2017 | |
Debt Disclosure [Abstract] | |
NOTE 7 - CAPITAL LEASE OBLIGATIONS | Sale and Lease Back
On March 25, 2011, the Company completed a financing arrangement with an independent third party to sell and leaseback certain machinery and equipment. The net carrying value of the machinery and equipment sold was $262,683. The machinery and equipment was sold for $371,517, of which $334,365 was received in cash and $37,152 was held as refundable deposit. The transaction has been accounted for as a financing arrangement, wherein the property remains on the Company’s books and will continue to be depreciated. A financing obligation in the amount of $371,517, representing the proceeds, has been recorded under “Capital Lease Payable” in the Company’s Balance Sheet, and is being reduced based on payments under the lease. The lease was not completed as no payment was made in 2016 and first quarter of 2017. As of March 31, 2017, lease payable was approximately $100,000.
In October 2011, the Company entered into an agreement to lease certain machinery and equipment that are classified as capital leases. The cost of equipment under capital leases of approximately $1,430,000 is included in the Balance Sheet as property, plant, and equipment at December 31, 2016. Those equipment are to be placed in service upon usage approval from the Chinese government and hiring qualified personnel. As of March 31, 2017, the Company still has not received the approval. Accumulated impairment loss of the leased equipment at March 31, 2017 was approximately $1,377,533. Capital Lease Payable was approximately $425,000 including accrued interest payable of approximately $30,000 as of March 31, 2017. |
8. OTHER PAYABLE |
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NOTE 8 - OTHER PAYABLE |
Other payable as of March 31, 2017 and December 31, 2016 consists of the following:
In March 2016, Nanning Tongji Hospital, Inc. sold its construction in progress hospital building to Guangxi Yida Friendship Hospital Management, Inc. for RMB 86,000,000 (approximately $13,000,000). We incurred value-added tax (VAT) and other taxes liability of RMB 4,530,000 (approximately $658,124) related to this transaction in tax payable account.
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9. STOCKHOLDERS' EQUITY |
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Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
NOTE 9 - STOCKHOLDERS' EQUITY |
Preferred Stock
As of March 31, 2017 and December 31, 2016, 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 March 31, 2017.
Common Stock
As of March 31, 2017 and December 31, 2016, the Company has 50,000,000 shares of common stock authorized with a par value of $0.001 and 15,812,191 shares issued and outstanding.
Statutory Reserves
As stipulated by the Company Law of the PRC, net income after taxation can only be distributed as dividends after appropriation has been made for the following:
As of March 31, 2017, the Company had accumulated deficits of $7,369,605. Therefore, the Company did not appropriate any fund for the statutory surplus reserve for the three month period ended March 31, 2017.
Stock Option
No stock-based compensation recorded for the three months periods ended March 31, 2017 and 2016, respectively.
On March 3, 2011, an option to purchase 100,000 shares of common stock was granted to the Company’s CFO. The option vests in three equal installments starting on the first anniversary of grant and subsequent anniversaries thereafter, at an exercise price equivalent to the closing price per share of common stock on the date of grant.
The fair value of the option award is estimated on the date of grant using the Black Scholes model to be $15,400. The valuation was based on the assumptions noted in the following table.
The risk-free interest rate is based on the U.S. Treasury yield curve in effect for the expected term of the option at the time of grant. The dividend yield on our common stock is assumed to be zero since we do not pay dividends and have no current plans to pay them in the future. The market price volatility of our common stock was based on historical volatility since May 13, 2010. The expected life of the options is based upon our anticipated expectations of exercise behavior since no options have been exercised in the past to provide relevant historical data.
The following table summarizes stock option activity in the Company's stock-based compensation plans for the three month period ended March 31, 2017.
There were no options granted, exercised or cancelled/expired during the three month period ended March 31, 2017.
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10. RELATED PARTY TRANSACTIONS AND COMMITMENTS |
3 Months Ended | ||||||||||||
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Mar. 31, 2017 | |||||||||||||
Related Party Transactions [Abstract] | |||||||||||||
NOTE 10 - RELATED PARTY TRANSACTIONS AND COMMITMENTS | Due from/to Related Parties
The Company has entered into agreements with Nanning Tongji Chain Pharmacy Co. Ltd., Guangxi Tongji Medicine Co. Ltd., and Nanning Switch Factory whereby the Company from time to time will advance funds to assist them with their operations. The three companies have common major stockholders. The advanced amounts accrue interest at a rate of 1.5% per annum. The amount receivable as of March 31, 2017 and December 31, 2016 was $48,565 and $48,145, respectively. Interest income for the three month periods ended March 31, 2017 and 2016 were approximately $182 and $159, respectively.
The Company has entered into an agreement with the Chairman and a stockholder of the Company, Nanning Tongji Chain Pharmacy Co. Ltd., Guangxi Tongji Medicine Co. Ltd., and Nanning Tongji Electric Coating Factory, whereby the Company from time to time will be advanced funds to for its operations. The advanced amounts accrue interest at a rate of 1.5% per annum. As of March 31, 2017 and December 31, 2016, $12,111,543 and $12,005,569 were payable to these related parties, respectively. Interest expenses for the three month periods ended March 31, 2017 and 2016 were $57,000 and $67,485, respectively.
Rental Commitments
On March 1, 2015, the Company renewed the lease agreement for their hospital with Guangxi Tongji Medicine Co. Ltd that expires in December 2014. Monthly lease payment under the new lease is approximately $4,800. The lease will expire on February 28, 2018. Based on the exchange rate at March 31, 2017, minimum future lease payments are as follows:
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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) |
3 Months Ended | ||||||||||||||||||||
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Mar. 31, 2017 | |||||||||||||||||||||
Notes to Financial Statements | |||||||||||||||||||||
BASIS OF PRESENTATION AND CONSOLIDATION | These financial statements present the Company’s results of operations, financial position and cash flows on a consolidated basis. The consolidated financial statements include the Company and its wholly owned subsidiaries. Intercompany transactions and accounts have been eliminated in consolidation. Our policy is to consolidate all subsidiaries in which a greater than 50% voting interest is owned and all variable interest entities to which we had a variable interest and effectively control the entity. The Company operates in one segment in accordance with the accounting guidance FASB ASC topic 280, “Segment Reporting”. |
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CASH AND CASH EQUIVALENTS | For purposes of the statements of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. A substantial amount of the Company’s cash is held in bank accounts in the PRC and is not protected by Federal Deposit Insurance Corporation (FDIC) insurance or any other similar insurance. Cash held in China amounted to $42,251 as of March 31, 2017. Given the current economic environment and the financial condition of the banking industry, there is a risk that the deposits may not be readily available or covered by such insurance. The Company has had no loss of cash in domestic or foreign banks in past years. |
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USE OF ESTIMATES | The preparation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported assets and liabilities, disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of net revenues and expenses during the reporting period. Actual results may differ from those estimates and such differences may be material. The more significant estimates and assumptions by management include, among others, useful lives and residual values of fixed assets, valuation of inventories, accounts receivable, stock based compensation, and allowance for bad debt. The current economic environment has increased the degree of uncertainty inherent in these estimates and assumptions. |
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TRANSLATION ADJUSTMENT | The Company's functional currency 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 exchange rates used to translate amounts in RMB into USD for the purposes of preparing the financial statements were as follows:
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RECLASSIFICATIONS | Certain items previously reported under specific financial statement captions have been reclassified to conform to the current year presentation. |
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REVENUE RECOGNITION | The Company's revenue recognition policies are in compliance with Staff Accounting Bulletin 104 (ASC 605). Service revenue is recognized on the dates services were rendered. When a formal arrangement exists, the price is fixed or determinable. When the service is completed, no other significant obligations of the Company exist and collectability 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 individual patients as well as third-party payers, including PRC government programs and insurance providers, under which the hospital is paid based upon government established charges. Revenues for pharmaceutical drug sales are recognized upon the drug being administered to a patient.
Patient revenues are recorded based on pre-established rates set by the local government. The Company bills for services provided to Medicare patients through a medical card (the US equivalent of an insurance card). There have not been significant differences between the amounts the Company has billed the government Medicare funds and the amounts collected from the Medicare funds.
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ACCOUNTS RECEIVABLE | Accounts receivable are recorded at the estimated net realizable amounts from government fund, insurance companies and patients. Collections have not been considered an area that exposes the Company to additional risk. Hospital staff verifies patient coverage prior to examinations and/or procedures.
For any Medicare patient who visits the hospital and is qualified for acceptance, the hospital will only include the portion that the social insurance organization will pay in the accounts receivable and collects the self-pay portion in cash at the time of service. Management continues to estimate the likelihood of bad debt on an ongoing basis.
The Company has estimated a bad debt allowance of approximately $28,268 as of March 31, 2017 and $28,000 as of December 31, 2016.
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FAIR VALUE OF FINANCIAL INSTRUMENTS | The Company applies the provisions of FASB ASC Topic 825, which requires all entities to disclose the fair value of financial instruments, both assets and liabilities recognized and not recognized on the balance sheet, for which it is practicable to estimate fair value, and defines fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties. As of March 31, 2017 and December 31, 2016 the fair value of cash and cash equivalents, accounts receivable, other current receivable, accounts payable and accrued expenses, settlement payable, capital lease payable and other payables approximated the carrying value due to the short maturity of the instruments, quoted market prices or interest rates which fluctuate with market rates except for related party debt or receivables for which it is not practicable to estimate fair value.
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FAIR VALUE MEASUREMENTS | FASB ASC Topic 820, “Fair Value Measurements and Disclosures”, establishes a framework for measuring fair value and requires additional disclosures about the use of fair value measurements.
Various inputs are considered when determining the fair value of the Company’s investments, and long-term debt. The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing in these securities. These inputs are summarized in the three broad levels listed below.
The carrying value of financial assets and liabilities recorded at fair value is measured on a recurring or non-recurring basis. Financial assets and liabilities measured on a non-recurring basis are those that are adjusted to fair value when a significant event occurs. The Company had no financial assets or liabilities carried and measured on a nonrecurring basis during the reporting periods. Financial assets and liabilities measured on a recurring basis are those that are adjusted to fair value each time a financial statement is prepared. The Company had no financial assets and liabilities carried at fair value on a recurring basis.
The availability of inputs observable in the market varies from instrument to instrument and depends on a variety of factors including the type of instrument, whether the instrument is actively traded, and other characteristics particular to the transaction. For many financial instruments, pricing inputs are readily observable in the market, the valuation methodology used is widely accepted by market participants, and the valuation does not require significant management discretion. For other financial instruments, pricing inputs are less observable in the market and may require management judgment.
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CONCENTRATIONS, RISKS, AND UNCERTAINTIES | All of the Company’s operations are located in the PRC. There can be no assurance that the Company will be able to successfully continue to operate and failure to do so would have a material adverse effect on the Company’s financial position, results of operations and cash flows. In addition, the success of the Company’s operations is subject to numerous contingencies, some of which are beyond management’s control. These contingencies include general economic conditions, the price of medicine, competition, governmental and political conditions, and changes in regulations. Because the Company is dependent on the domestic market of the PRC, the Company is subject to various additional political, economic and other uncertainties. Among other risks, the Company’s operations will be subject to risk of restrictions on the transfer of funds, domestic policy changes, changing taxation policies, foreign exchange restrictions, and political and governmental regulations.
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CONTINGENCIES | Certain conditions may exist as of the date the consolidated financial statements are issued. These conditions may result in a future loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company’s management and legal counsel assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought.
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material would be disclosed. Loss contingencies considered to be remote by management are generally not disclosed unless they involve guarantees, in which case the guarantee would be disclosed.
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MEDICAL SUPPLIES | Medical supplies include both western and traditional Chinese medicine, are valued on the lower of weighted average cost or market basis. Inventory includes product cost and inbound freight. Management compares the cost of medical supplies with the market value and allowance is made for writing down their inventories to market value, if such value is lower. |
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EQUIPMENT | Equipment is recorded at cost. Depreciation is computed over the estimated useful lives of the related asset type using the straight-line method. Maintenance and repairs are expensed as incurred and the costs of additions and betterments that increase the useful lives of the assets are capitalized. When equipment is disposed, the cost and related accumulated depreciation are removed from the accounts and any gain or loss is included in other income or expenses. |
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IMPAIRMENT OF LONG-LIVED ASSETS | The Company’s long-lived assets are reviewed for impairment in accordance with the guidance of FASB Topic ASC 360, “Property, Plant, and Equipment”, and FASB ASC Topic 205 “Presentation of Financial Statements”. The Company tests for impairment losses on long-lived assets used in operations whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Whenever any such impairment exists, an impairment loss will be recognized for the amount by which the carrying value exceeds the fair value.
The Company tests long-lived assets for recoverability at least annually or more frequently upon the occurrence of an event or when circumstances indicate that the net carrying amount is greater than its fair value. Assets are grouped and evaluated at the lowest level for their identifiable cash flows that are largely independent of the cash flows of other groups of assets. The Company considers historical performance and future estimated results in its evaluation of potential impairment and then compares the carrying amount of the asset to the future estimated cash flows expected to result from the use of the asset. If the carrying amount of the asset exceeds estimated expected undiscounted future cash flows, the Company measures the amount of impairment by comparing the carrying amount of the asset to its fair value. The estimation of fair value is generally measured by discounting expected future cash flows at the rate the Company utilizes to evaluate potential investments. The Company estimates fair value based on the information available in making whatever estimates, judgments and projections are considered necessary. There was no impairment of long-lived assets for the three months ended March 31, 2017 and 2016.
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BASIC AND DILUTED EARNINGS PER SHARE | Earnings per share (EPS) is calculated in accordance with the FASB ASC Topic 260, “Earnings Per Share.” Basic net income (loss) per share is based upon the weighted average number of common shares outstanding. Diluted net income (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. Potentially dilutive securities to purchase 100,000 shares of common stock were not included in the calculation of the diluted earnings per share as their effect would be anti-dilutive for the three months ended March 31, 2017. During the three month period ended March 31, 2017, the average market price of the common stock was less than the exercise price of the stock options and the Company was in net loss position. Accordingly, the stock options were anti-dilutive and have not been included in the calculation of diluted earnings per share.
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INCOME TAXES | FASB ASC Topic 740, "Income Taxes” requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
In accordance with ASC Topic 740-10, “Accounting for Uncertainty in Income Taxes — An Interpretation of FASB ASC Topic 740” , which requires income tax positions to meet a more-likely-than-not recognition threshold to be recognized in the financial statements. Tax positions that previously failed to meet the more-likely-than-not threshold should be recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not threshold should be derecognized in the first subsequent financial reporting period in which that threshold is no longer met.
The application of tax laws and regulations is subject to legal and factual interpretation, judgment and uncertainty. Tax laws and regulations themselves are subject to change as a result of changes in fiscal policy, changes in legislation, the evolution of regulations and court rulings. Therefore, the actual liability may be materially different from our estimates, which could result in the need to record additional tax liabilities or potentially reverse previously recorded tax liabilities or deferred tax asset valuation allowance.
The Company has made a comprehensive review of its portfolio of tax positions in accordance with recognition standards established by ASC 740-10 and has not recognized any material uncertain tax positions.
In addition, companies in the PRC are required to pay business taxes consisting of 5% of income they derive from providing medical treatment, as well as city construction taxes and educational taxes which are 7% and 3%, respectively, of the business taxes. In April 2010, the Company was granted an exemption from these taxes until further notice from the tax bureau.
The Company had accrued approximately $40,000 under taxes payable account for failure to file US tax returns and Form 5472 between the years 2006 to 2009. The Company is current with its required filings. In addition, the Company does not accrue United States income taxes on unremitted earnings from foreign operations, as it is the Company’s intention to invest these earnings in the foreign operations indefinitely.
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STATEMENT OF CASH FLOWS | In accordance with FASB ASC Topic 230, "Statement of Cash Flows," cash flows from the Company's operations are calculated based upon the local currencies. As a result, amounts related to assets and liabilities reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheet. |
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EMPLOYEE BENEFIT COSTS | The Company contributes to a defined contribution retirement plan organized by the municipal government in the province in which the Company’s subsidiary is registered. The Company makes contributes for qualified employees that are eligible to participate in the plan. Contributions to the plan are calculated at 30% of the employees’ salaries above a fixed threshold amount; employees contribute 8% and the Company’s subsidiary contributes the balance of 22%. The Chinese government is responsible for the benefit liability to retired employees. The Company has no other material obligation for the payment of retirement beyond the annual contribution. |
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STOCK-BASED COMPENSATION | For purposes of determining the variables used in the calculation of stock compensation expense under the provisions of FASB ASC Topic 505, “Equity” and FASB ASC Topic 718, “Compensation — Stock Compensation,” we perform an analysis of current market data and historical Company data to calculate an estimate of implied volatility, the expected term of the option and the expected forfeiture rate. With the exception of the expected forfeiture rate, which is not an input, we use these estimates as variables in the Black Scholes model. Depending upon the number of stock options granted, any fluctuations in these calculations could have a material effect on the results presented in our consolidated statement of operations. In addition, any differences between estimated forfeitures and actual forfeitures could also have a material impact on our financial statements.
Stock-based compensation costs that have been included in operating expenses amounted to $0 and $0, for the three month periods ended March 31, 2017 and 2016, respectively.
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COMPREHENSIVE INCOME | The Company reports comprehensive income in accordance with FASB ASC Topic 220 “Comprehensive Income," which established standards for reporting and displaying comprehensive income and its components in a financial statement that is displayed with the same prominence as other financial statements.
Total comprehensive income is defined as all changes in stockholders' equity during a period, other than those resulting from investments by and distributions to stockholders (i.e., issuance of equity securities and dividends). Generally, for the Company, total comprehensive income (loss) equals net income (loss) plus or minus adjustments for currency translation. Total comprehensive income (loss) represents the activity for a period net of related tax and was a loss of $(216,780) and $(140,366) for the three month periods ended March 31, 2017 and 2016, respectively.
While total comprehensive income is the activity in a period and is largely driven by net earnings in that period, accumulated other comprehensive income or loss (“AOCI”) represents the cumulative balance of other comprehensive income as of the balance sheet date. For the Company, AOCI is primarily the cumulative balance related to the currency adjustments and increased overall equity by $533,917 and $587,508 as of March 31, 2017 and December 31, 2016, respectively. |
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RECENT ACCOUNTING PRONOUNCEMENTS | Recent accounting pronouncements issued by the FASB, the AICPA and the SEC did not, or are not believed by management to, have a material effect on the Company’s present or future consolidated financial statements. |
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GOING CONCERN | The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles, which contemplate continuation of the Company as a going concern. However, the Company has negative working capital of $6,947,247, an accumulated deficit of $7,369,605, and a stockholders’ deficit of $6,379,508 as of March 31, 2017. The Company’s ability to continue as a going concern ultimately is dependent on the management’s ability to obtain equity or debt financing, attain further operating efficiencies, and achieve profitable operations. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company not be able to continue as a going concern.
Management has taken certain restructuring steps to provide the necessary capital to continue its operations. These steps included: 1) disposal of the construction-in-progress new hospital. 2) plan to convert existed related parties’ loans into equity, 3) plan to increase sales revenue with additional medical equipment, No assurances can be given that the steps taken will provide necessary capital for the Company to continue its operations. |
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables) |
3 Months Ended | ||||||||||||||||||||
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Mar. 31, 2017 | |||||||||||||||||||||
Summary Of Significant Accounting Policies Tables | |||||||||||||||||||||
Schedule of Translation Adjustments |
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3. EQUIPMENT (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Equipment Tables | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Equipment |
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8. OTHER PAYABLES (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Other Payables Tables | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Other Payables |
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9. STOCKHOLDERS' EQUITY (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||
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Mar. 31, 2017 | |||||||||||||||||||||||||||||
Accounting Policies [Abstract] | |||||||||||||||||||||||||||||
Fair value of the option award |
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Stock option activity |
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10. RELATED PARTY TRANSACTIONS AND COMMITMENTS (Tables) |
3 Months Ended | ||||||||||||
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Mar. 31, 2017 | |||||||||||||
Related Party Transactions And Commitments Tables | |||||||||||||
Minimum future lease payments |
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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) |
Mar. 31, 2017 |
Dec. 31, 2016 |
Mar. 31, 2016 |
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RMBMember | StatementOfIncomeAndOtherComprehensiveIncomeMember | |||
Exchange rates used to translate amounts in RMB into USD for the purposes of preparing the financial statements | 6.89 | 6.64 | 6.54 |
USDollarMember | StatementOfIncomeAndOtherComprehensiveIncomeMember | |||
Exchange rates used to translate amounts in RMB into USD for the purposes of preparing the financial statements | 1.00 | 1.00 | 1.00 |
BalanceSheetMember | RMBMember | |||
Exchange rates used to translate amounts in RMB into USD for the purposes of preparing the financial statements | 6.88 | 6.94 | 6.45 |
BalanceSheetMember | USDollarMember | |||
Exchange rates used to translate amounts in RMB into USD for the purposes of preparing the financial statements | 1.00 | 1.00 | 1.00 |
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - USD ($) |
3 Months Ended | |||
---|---|---|---|---|
Mar. 31, 2017 |
Mar. 31, 2016 |
Dec. 31, 2016 |
Dec. 31, 2015 |
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Accounting Policies [Abstract] | ||||
Cash and cash equivalents | $ 42,251 | $ 42,841 | $ 47,597 | $ 10,300 |
Estimated bad debt allowance | $ 28,268 | 28,000 | ||
Dilutive securities not included in the calculation of the diluted earnings per share | 100,000 | |||
Stock-based compensation costs | $ 0 | 0 | ||
Comprehensive Income (Loss) | (216,780) | $ (140,366) | ||
Accumulated other comprehensive income | 533,917 | 587,508 | ||
Working capital | (6,947,247) | |||
Accumulated deficit | (7,369,605) | (7,206,416) | ||
Stockholders deficit | $ (6,379,508) | $ (6,162,728) |
3. EQUIPMENT (Details) - USD ($) |
3 Months Ended | |
---|---|---|
Mar. 31, 2017 |
Dec. 31, 2016 |
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Office equipment | $ 78,261 | $ 77,587 |
Medical equipment | 1,251,452 | 1,240,674 |
Capital lease equipment | 1,635,064 | 1,620,982 |
Fixtures | 102,936 | 102,049 |
Vehicles | 40,453 | 40,104 |
Total equipment | 3,108,166 | 3,081,396 |
Less accumulated depreciation | 1,359,129 | 1,329,569 |
Less impairment of the equipment | 1,377,533 | (1,365,669) |
Property and equipment, net | $ 371,504 | $ 386,158 |
Office Equipment | ||
Estimated Useful Lives, minimum | 5 years | |
Estimated Useful Lives, maximum | 10 years | |
Medical equipment | ||
Estimated Useful Lives | 5 years | |
Capital Lease Equipment | ||
Estimated Useful Lives | 5 years | |
Fixtures | ||
Estimated Useful Lives | 10 years | |
Vehicles | ||
Estimated Useful Lives | 5 years |
3. EQUIPMENT (Details Narrative) - USD ($) |
3 Months Ended | |
---|---|---|
Mar. 31, 2017 |
Mar. 31, 2016 |
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Property, Plant and Equipment [Abstract] | ||
Depreciation expenses | $ 20,254 | $ 17,977 |
5. LAWSUIT SETTLEMENT PAYABLE (Details Narrative) |
Mar. 31, 2017
USD ($)
|
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Lawsuit Details Narrative | |
Accrued settlement payable | $ 1,399,980 |
6. MAJOR SUPPLIERS AND CUSTOMERS (Details Narrative) - USD ($) |
3 Months Ended | ||
---|---|---|---|
Mar. 31, 2017 |
Mar. 31, 2016 |
Dec. 31, 2016 |
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Accounts receivable from major cutomers | $ 28,268 | $ 28,000 | |
Nanning Social Insurance Center | |||
Percentage of medicine purchases | 53% | 47% | |
Liuzhou Guangxi Medicine Co. | |||
Percentage of medicine purchases | 44% | 6% |
7. CAPITAL LEASE OBLIGATION (Details Narrative) |
Mar. 31, 2017
USD ($)
|
---|---|
Capital Lease Obligation Details Narrative | |
Capital lease payable under sales lease back | $ 100,000 |
Impairment loss to equipment under lease | 1,377,533 |
Capital lease payable | $ 425,000 |
8. OTHER PAYABLES (Details) - USD ($) |
Mar. 31, 2017 |
Dec. 31, 2016 |
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Other Payables Details | ||
Advance from customers | $ 0 | $ 555 |
Accrued Salary | 53,590 | 53,128 |
Tax payable | 699,864 | 694,039 |
Accrued Professional Expenses | 434,139 | 387,160 |
Unemployment & Retirement Insurance Payable | 33,475 | 27,133 |
Deposit Payable | 31,401 | 31,131 |
Employees Training Fees Payable | 16,275 | 16,135 |
Rent Deposit Payable | 5,102 | 5,058 |
Other Payable | 44,863 | 54,837 |
Total | $ 1,318,709 | $ 1,269,176 |
9. STOCKHOLDERS' EQUITY (Details) |
3 Months Ended |
---|---|
Mar. 31, 2017
$ / shares
| |
Notes to Financial Statements | |
Expected volatility | 105.00% |
Expected Dividends | 0.00% |
Stock price | $ 0.24 |
Expected term (in years) | 3 years |
Risk-free rate | 1.32% |
9. STOCKHOLDERS' EQUITY (Details 1) |
3 Months Ended |
---|---|
Mar. 31, 2017
USD ($)
$ / shares
shares
| |
Number of Shares | |
Outstanding at beginning of period | shares | 100,000 |
Granted | shares | 0 |
Exercised | shares | 0 |
Cancelled/expired | shares | 0 |
Outstanding at end of the period | shares | 100,000 |
Exercisable | shares | 100,000 |
Weighted Average Exercise Price | |
Outstanding at beginning of period | $ / shares | $ 0.24 |
Granted | $ / shares | 0.00 |
Exercised | $ / shares | 0.00 |
Cancelled/expired | $ / shares | 0.00 |
Outstanding at end of the period | $ / shares | 0.24 |
Exercisable | $ / shares | $ .24 |
Aggregate Intrinsic Value | |
Outstanding at beginning of period | $ | $ 0 |
Granted | $ | 0 |
Exercised | $ | 0 |
Cancelled/expired | $ | 0 |
Outstanding at end of the period | $ | 0 |
Exercisable | $ | $ 0 |
9. STOCKHOLDERS' EQUITY (Details Narrative) - USD ($) |
3 Months Ended | ||
---|---|---|---|
Mar. 31, 2017 |
Mar. 31, 2016 |
Dec. 31, 2016 |
|
Stockholders Equity Details Narrative | |||
Preferred stock authorized | 20,000,000 | 20,000,000 | |
Preferred stock par value | $ 0.001 | $ .001 | |
Preferred stock shares issued | 0 | 0 | |
Preferred stock shares outstanding | 0 | 0 | |
Common Stock shares Authorized | 50,000,000 | 50,000,000 | |
Common Stock par value | $ 0.001 | $ .001 | |
Accumulated deficits | $ 7,369,605 | $ 7,206,416 | |
Stock-based compensation costs | $ 0 | $ 0 |
10. RELATED PARTY TRANSACTIONS AND COMMITMENTS (Details) |
Mar. 31, 2017
USD ($)
|
---|---|
2017 | $ 39,226 |
2018 | 8,717 |
Total | 47,943 |
Related Party [Member] | |
2017 | 39,226 |
2018 | 8,717 |
Total | $ 47,943 |
10. RELATED PARTY TRANSACTIONS AND COMMITMENTS (Details Narrative) - USD ($) |
3 Months Ended | ||
---|---|---|---|
Mar. 31, 2017 |
Mar. 31, 2016 |
Dec. 31, 2016 |
|
Related Party Transactions And Commitments Details Narrative | |||
Amount receivable | $ 48,565 | $ 48,145 | |
Interest income | 182 | $ 159 | |
Amount payable to related parties | 12,111,543 | 12,005,569 | |
Interest expenses | 57,000 | $ 67,485 | |
Due to related parties | $ 10,499,289 | $ 10,371,235 |
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