UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2007
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number - None
TONGJI HEALTHCARE GROUP, INC.
-----------------------------
(Exact name of registrant as specified in its charter)
Nevada None
- ------------------------------ ------------------------------------
State or other jurisdiction of (I.R.S.) Employer Identification No.
incorporation
No.5 Beiji Road, Nanning, China
0086-771-2020000
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Address of principal executive offices
0086-771-2020000
----------------
Registrant's telephone number, including area code
N/A
----------------------------------
Former name, former address and former fiscal year, if changed from last report
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports) and (2) had been subject to such filing
requirements for the past 90 days.
Yes ____ No X
------------
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act):
Yes No __X___
------------------ -
As of October 31, 2007 the Company had 15,652,557 outstanding shares of
common stock.
TONGJI HEALTHCARE GROUP, INC.
CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
INDEX TO FINANCIAL STATEMENTS (UNAUIDTED)
Page(s)
-------
Report of Independent Registered Public Accounting Firm 1
Consolidated Balance Sheet as of September 30, 2007 2
Consolidated Statements of Operations and Accumulated Other
Comprehensive Income for the Nine and Three Months
Ended September 30, 2007 3
Consolidated Statements of Changes in Stockholders' Equity for
the Nine Months Ended September 30, 2007 and the Years Ended
December 31, 2006 and 2005 4
Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 2007 5
Notes to Consolidated Financial Statements 6-21
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
Tongji Healthcare Group, Inc.
I have reviewed the accompanying consolidated balance sheet of Tongji Healthcare
Group, Inc. (the "Company") as of September 30, 2007 and the related
consolidated statements of operations and accumulated other comprehensive income
(loss), changes in stockholders' equity, and cash flows for the nine months
ended September 30, 2007 and 2006. These interim consolidated financial
statements are the responsibility of the Company's management.
I conducted the reviews in accordance with standards of the Public Company
Accounting Oversight Board (United States). A review of interim financial
information consists principally of applying analytical procedures and making
inquiries of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with standards
of the Public Company Accounting Oversight Board (United States), the objective
of which is the expression of an opinion regarding the condensed consolidated
financial statements taken as a whole. Accordingly, I do not express such an
opinion.
Based on my reviews, I am not aware of any material modifications that should be
made to the accompanying interim consolidated financial statements for them to
be in conformity with U.S. generally accepted accounting principles.
/s/ Michael Pollack CPA
Cherry Hill, NJ
October 31, 2007
TONGJI HEALTHCARE GROUP, INC.
CONSOLIDATED BALANCE SHEET (UNAUDITED)
SEPTEMBER 30, 2007
(IN US$)
ASSETS
Current Assets:
Cash and cash equivalents $ 34,844
Accounts receivable, net 202,054
Due from related party 444,229
Inventories 128,639
Other receivables 1,080
Prepaid expenses and other current assets 31,384
-------------
Total Current Assets 842,230
-------------
Fixed assets, net of depreciation 760,339
-------------
TOTAL ASSETS $ 1,602,569
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Current Liabilities:
Note payable $ 399,675
Accounts payable and accrued expenses 442,497
Accrued taxes 68,725
Due to related parties 274,788
-------------
Total Current Liabilities 1,185,685
-------------
Total Liabilities 1,185,685
-------------
STOCKHOLDERS' EQUITY
Preferred stock, $0.001 Par Value; 20,000,000
shares authorized and 0 shares issued and
outstanding -
Common stock, $0.001 Par Value; 50,000,000
shares authorized and 15,652,557 shares
issued and outstanding 15,653
Additional paid-in capital 347,347
Statutory reserves 36,848
Retained earnings (deficit) (8,409)
Accumulated other comprehensive income 25,445
-------------
Total Stockholders' Equity 416,884
-------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,602,569
=============
The accompanying notes are an integral part of the consolidated financial
statements.
2
TONGJI HEALTHCARE GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND
ACCUMULATED OTHER COMPREHENSIVE INCOME (UNAUDITED)
FOR THE NINE AND THREE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
(IN US $)
THREE MONTHS
NINE MONTHS ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
2007 2006 2007 2006
------------ ------------ ------------ ------------
PATIENT SERVICE REVENUE $ 1,623,439 $ 1,088,511 $ 618,998 $ 387,707
------------ ------------ ------------ ------------
DIRECT COST OF PROVIDING PATIENT SERVICE REVENUE
Inventory, beginning of period 97,399 129,469 78,813 145,073
Purchases of medical supplies, pharmaceuticals
and labor 961,161 624,505 451,518 222,332
Inventory, end of period (128,639) (209,333) (128,639) (209,333)
------------ ------------ ------------ ------------
Total Cost of Sales 929,921 544,641 401,692 158,072
------------ ------------ ------------ ------------
GROSS PROFIT 693,518 543,870 217,306 229,635
------------ ------------ ------------ ------------
OPERATING EXPENSES
Selling and promotion 457,256 307,238 230,934 139,167
General and administrative fees 114,548 103,911 27,890 33,293
Bad debt expense (recovery of bad debt) (2,723) 4,992 9 1,632
Depreciation, amortization and impairment 111,052 97,528 37,714 35,097
------------ ------------ ------------ ------------
Total Operating Expenses 680,133 513,669 296,547 209,189
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE OTHER INCOME (EXPENSE) 13,385 30,201 (79,241) 20,446
OTHER INCOME (EXPENSE)
Interest expense, net of interest income 11,504 24,820 1,942 7,947
------------ ------------ ------------ ------------
Total Other Income (Expense) 11,504 24,820 1,942 7,947
------------ ------------ ------------ ------------
NET INCOME (LOSS) BEFORE PROVISION FOR
INCOME TAXES 1,881 5,381 (81,183) 12,499
Provision for Income Taxes (26,694) - - -
------------ ------------ ------------ ------------
NET INCOME (LOSS) APPLICABLE TO COMMON SHARES $ (24,813) $ 5,381 $ (81,183) $ 12,499
============ ============ ============ ============
NET INCOME (LOSS) PER BASIC AND DILUTED SHARES $ (0.00) $ 0.00 $ (0.01) $ 0.00
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 15,652,557 15,652,557 15,652,551 5,652,557
============ ============ ============ ============
COMPREHENSIVE INCOME (LOSS)
Net income (loss) $ (24,813) $ 5,381 $ (81,183) $ 12,499
Other comprehensive income
Currency translation adjustments 15,141 3,033 5,077 876
------------ ------------ ------------ ------------
Comprehensive income (loss) $ (9,672) $ 8,414 $ (76,106) $ 13,375
============ ============ ============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
3
TONGJI HEALTHCARE GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND YEARS ENDED
DECEMBER 31, 2006 AND 2005
(IN US $)
Accumulated
Additional Retained Other
Common Stock Paid-in Statutory Earnings Comprehenisve
Shares Amount Capital Reserves (Deficit) Income Total
---------- ---------- ---------- ---------- ----------- -------------- ----------
Balance January 1, 2005 3,000,000 $ 363,000 $ - $ - $ (114,691) $ - $ 248,309
Net loss for the year ended
December 31, 2005 - - - - (16,299) 3,295 (13,004)
----------- ----------- ----------- ---------- ------------ ---------- -----------
Balance December 31, 2005 3,000,000 363,000 - - (130,990) 3,295 235,305
Shares cancelled in merger with
Tongji, Inc. (3,000,000) (363,000) - - - - (363,000)
Shares issued in reverse merger with
Tongji Healthcare Group, Inc. 15,652,557 15,653 347,347 - - - 363,000
Allocation of staturoty reserves - - - 36,848 (36,848) - -
Net income for the year ended
December 31, 2006 - - - - 184,242 7,009 191,251
----------- ----------- ----------- ---------- ------------ ---------- -----------
Balance December 31, 2006 15,652,557 15,653 347,347 36,848 16,404 10,304 426,556
Net income for the nine months ended
September 30, 2007 - - - - (24,813) 15,141 (9,672)
----------- ----------- ----------- ---------- ------------ ---------- -----------
15,652,557 $ 15,653 $ 347,347 $ 36,848 $ (8,409) $ 25,445 $ 416,884
=========== =========== =========== ========== ============ ========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
4
TONGJI HEALTHCARE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
(IN US $)
2007 2006
--------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (24,813) $ 5,381
----------- ----------
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating
activities:
Depreciation, amortization and impairment 111,052 97,528
Changes in assets and liabilities
(Increase) decrease in accounts receivable 82,734 (96,306)
(Increase) in inventory (27,145) (76,576)
(Increase) decrease in other receivables 907 (13,867)
(Increase) in prepaid expenses and other
current assets (4,009) (2,976)
Increase (decrease) in accounts payable and
and accrued expenses 17,552 (117,808)
----------- ----------
Total adjustments 181,091 (210,005)
----------- ----------
Net cash provided by (used in) operating
activities 156,278 (204,624)
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
(Acquisitions) of fixed assets (13,953) (22,786)
Disposals of fixed assets - 2,311
Net advancements to/from related parties (298,261) 43,244
----------- ----------
Net cash provided by (used in) investing
activities (312,214) 22,769
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITES
Proceeds from note payable 394,755 -
Net advancements from/to related parties (225,124) 170,588
----------- ----------
Net cash provided by financing activities 169,631 170,588
----------- ----------
Effect of foreign currency translation 5,084 (1,110)
----------- ----------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS 18,779 (12,377)
CASH AND CASH EQUIVALENTS -
BEGINNING OF PERIOD 16,065 28,425
----------- ----------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 34,844 $ 16,048
=========== ==========
CASH PAID DURING THE PERIOD FOR:
Interest $ 3,891 $ -
=========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
5
TONGJI HEALTHCARE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2007 AND 2006
NOTE 1- ORGANIZATION AND BASIS OF PRESENTATION
Nanning Tongji Hospital, Inc. ("NTH") was established in Nanning in
the province of Guangxi of the Peoples Republic of China ("PRC") by
the Nanning Tongji Medical Co. Ltd. and an individual on October 30,
2003.
NTH is the largest private hospital modernized and comprehensive in
combining medical treatment, scientific research, teaching,
prevention, and health care together. It is an assigned hospital for
medical insurance in Nanning and Guangxi. NTH contains specialties
in the areas of internal medicine, surgery, gynecology, pediatrics,
emergency medicine, ophthalmology, medical cosmetology,
rehabilitation, dermatology, otolaryngology, traditional Chinese
medicine, medical imaging, anesthesia, acupuncture, physical
therapy, health examination, and prevention. NTH is a 105-bed modern
hospital containing 4 operating rooms, with Paramount beds installed
from Japan, as well as the most advanced medical equipment worldwide
from Japan, USA, Germany and France.
On December 19, 2006, the officers of NTH filed Articles of
Incorporation in the State of Nevada which was approved December 19,
2006 to create Tongji Healthcare Group, Inc. a Nevada corporation
(the "Company") and also established Tongji, Inc., a Colorado
corporation ("Tongji") and wholly owned subsidiary of the Company.
On December 27, 2006, NTH merged into and with Tongji and became the
surviving entity and wholly owned subsidiary of the Company. The
Company incorporated with 50,000,000 shares of common stock and
20,000,000 shares of preferred stock both with a par value of
$0.001. The Company issued 15,652,557 shares of common stock to the
shareholders of NTH in exchange for 100% of the issued and
outstanding shares of NTH. Thereafter and for purposes of these
consolidated financial statements the "Company" and "NTH" are used
to refer to the operations of Nanning Tongji Hospital Co. Ltd. For
accounting purposes, the Company accounted for the acquisition of
NTH as a recapitalization. The transaction involved entities under
common control as defined in Statement of Financial Standard 141,
"Business Combinations". As such, the net assets of NTH were
acquired at their carrying values at the time of the acquisition.
The comparative figures for 2006 are those of NTH.
The unaudited financial statements included herein have been
prepared, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission ("SEC"). The interim
financial statements and notes do not contain information included
in the Company's annual statements and notes. Certain information
and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted
in the United States of America have been condensed or omitted
pursuant to such rules and regulations, although the Company
believes that the disclosures are adequate to make the information
presented not misleading. It is suggested that these interim
consolidated financial statements be read in conjunction with the
December 31, 2006 audited financial statements and the accompanying
notes thereto.
6
TONGJI HEALTHCARE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2007 AND 2006
NOTE 1- ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)
While management believes the procedures followed in preparing these
interim consolidated financial statements are reasonable, the
accuracy of the amounts are in some respects dependent upon the
facts that will exist, and procedures that will be accomplished by
the Company later in the year.
These interim consolidated financial statements reflect all
adjustments, including normal recurring adjustments which, in the
opinion of management, are necessary to present fairly the
consolidated operations and cash flows for the periods presented.
NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its subsidiaries. All significant intercompany accounts
and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during
the reporting period. On an on-going basis, the Company evaluates
its estimates, including, but not limited to, those related to
depreciation, bad debts, income taxes and contingencies. The Company
bases its estimates on historical experience and on various other
assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making
judgments about the carrying value of assets and liabilities that
are not readily apparent from other sources. Actual results could
differ from those estimates.
Economic and Political Risks
The Company's operations are conducted in the PRC. Accordingly, the
Company's business, financial condition and results of operations
may be influenced by the political, economic and legal environment
in the PRC, and by the general state of the PRC economy.
The Company's operations in the PRC are subject to special
considerations and significant risks not typically associated with
companies in North America and Western Europe. These include risks
associated with, among others, the political, economic and legal
environment and foreign currency exchange. The Company's results may
be adversely affected by changes in governmental policies with
respect to laws and regulations, anti-inflationary measures,
currency conversion, remittances abroad, and rates and methods of
taxation, among other things.
7
TONGJI HEALTHCARE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2007 AND 2006
NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments and other
short-term investments with an initial maturity of three months or
less to be cash equivalents. The Company maintained $14,562 as of
September 30, 2007 in cash on hand. The remainder of the cash was in
financial institutions.
Comprehensive Income
The Company adopted Statement of Financial Accounting Standards No,
130, "Reporting Comprehensive Income," (SFAS No. 130). SFAS No. 130
requires the reporting of comprehensive income in addition to net
income from operations.
Comprehensive income is a more inclusive financial reporting
methodology that includes disclosure of information that
historically has not been recognized in the calculation of net
income.
Inventory
Inventory is valued at the lower of cost or market (using the
weighted average method) and net realizable value. Inventory
consists of Chinese and western medicines and pharmaceuticals.
The net realizable value is the estimated selling price in the
ordinary course of business less the estimated costs of completion,
selling expenses and related taxes.
Fair Value of Financial Instruments
The carrying amounts reported in the balance sheets for cash and
cash equivalents, accounts receivable, other receivables and
payables and accounts payable approximate fair value because of the
immediate or short-term maturity of these financial instruments.
Currency Translation
The Company's functional currency is that of the PRC which is the
Chinese Renminbi (RMB). The reporting currency is that of the US
Dollar. Capital accounts of the consolidated financial statements
are translated into United States dollars from RMB at their
historical exchange rates when the capital transactions occurred.
Assets and liabilities are translated at the exchange rates as of
the balance sheet date. Income and expenditures are translated at
the average exchange rate of the year. The period end RMB to US
dollar as of September 30 2007 was 7.5061, and the average period
RMB to the US dollar for the nine months ended September 30, 2007
and 2006 were 7.6621 and 7.9943, respectively. 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.
8
TONGJI HEALTHCARE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2007 AND 2006
NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Currency Translation (Continued)
The Company records these translation adjustments as accumulated
other comprehensive income (loss). Gains and losses from foreign
currency transactions are included in other income (expense) in the
results of operations. For the nine months ended September 30, 2007
and 2006, the Company recorded approximately $15,141 and $3,033 in
transaction gains as a result of currency translation.
Retirement Benefits
Retirement benefits in the form of contributions under defined
contribution retirement plans to the relevant authorities are
charged to the statements of operations as incurred.
Revenue Recognition
According to the PRC Regulation of Healthcare Institutions,
hospitals shall be subject to register with the Administration of
Health of the local government to obtain their license for hospital
service operation. The Company received its renewed operation
license from Nanning's government in May of 2005, and this license
remains valid until the next scheduled renewing date of May 2008.
Other existing regulations having material effects on the Company's
business include those dealing with physician's licensing, usage of
medicine and injection, public security in health and medical
advertising.
As the Company maintains a facility with an excess of 100 beds, they
must have their license renewed at least every three years. The
Company is also obligated to provide free service or dispatch their
physicians or employees for public assistance. In the US this is
commonly referred to as charity care. The Company has a very small
percentage of their service for this area.
The Company generates revenue from the individuals as well as
third-party payers, including PRC government programs and insurance
providers, under which the hospital is paid based upon several
methodologies including established charges, the cost of providing
services, predetermined rates per diagnosis, fixed per diem rates or
discounts from established charges. Revenues are recorded at
estimated net amounts due from patients, third-party payers and
others for healthcare services provided at the time the service is
provided. Revenues for pharmaceutical drug sales are recognized upon
the drug being administered to a patient or at the time a
prescription is filled for a patient that contain an executed
prescription slip by a registered physician.
Revenues are recorded at estimated net amounts due from patients and
government Medicare funds. The Company's accounting system
calculates the expected amounts payable by the government Medicare
funds. The Company bills for services provided to Medicare patients
through a medical card (the US equivalent to an insurance card). The
Company normally receives 90% of the billed amount within 90 days
with the remaining 10% upon approval by the end of the year by the
PRC government.
9
TONGJI HEALTHCARE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2007 AND 2006
NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue Recognition (Continued)
Historically, there have not been significant differences between
the amounts the Company bills the government Medicare funds and the
amounts collected from the Medicare funds.
Third-party payers include, the Nanning Social Medicare Management
Center, a license that took effect in November of 2003, which works
like the US Medicare system. The hospital is reimbursed most of the
charges for the services provided with the exception of a self-pay
portion (like Medicare Part B); the hospital also has a license with
the Guangxi Province Medicare Center, which was initially entered
into in May of 2004, which works similar to that of Nanning.
Accounts Receivable
Accounts receivable are recorded at the estimated net realizable
amounts from government units, insurance companies and patients.
Generally, the third-party payers reimburse the Company on a 30-day
cycle, so collections for the Company has historically not been
considered to be an area that exposes the Company to additional
risk. Hospital staff does perform verification of patient coverage
prior to examinations and/or procedures taking place
For any Medicare patient who visits the hospital that is qualified
for acceptance, the hospital will only include the portion that the
social insurance organization in the accounts receivable and
collects the self-pay portion in cash at the time of the service. At
times, the pre-determined rate the hospital will charge may be
different than the approved Medicare rate, thus the likelihood of
some bad debt can occur. Management has spent a great deal of time
estimating this likelihood and has determined that a reserve
estimating 5% of their total accounts receivable does accurately
account for their bad debt. Management continues to evaluate this
estimate on an ongoing basis.
The Company has established a reserve for uncollectibles of $10,634
as of September 30, 2007.
Advertising Costs
The Company expenses the costs associated with advertising as
incurred. Advertising expenses for the nine months ended September
30, 2007 and 2006 of $289,466 and $36,357, respectively are included
in selling and promotional expenses in the statements of operation.
Advertising costs include marketing brochures and an advertising
campaign to the public.
Advance to Suppliers
Advances to suppliers represent the cash paid in advance for
purchasing materials utilized in the hospital as well as
pharmaceuticals.
10
TONGJI HEALTHCARE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2007 AND 2006
NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Fixed Assets
Fixed assets are stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets,
net of the estimated residual values; equipment - 5 to 10 years (3
to 5% residual value) and vehicles - 5 years (3% residual value).
When assets are retired or otherwise disposed of, the costs and
related accumulated depreciation are removed from the accounts, and
any resulting gain or loss is recognized in income for the period.
The cost of maintenance and repairs is charged to income as
incurred; significant renewals and betterments are capitalized.
Land Use Rights
According to the laws of China, the government owns all the land in
China. Companies or individuals are authorized to possess and use
the land only through land use rights granted by the Chinese
government. Land use rights would be amortized using the
straight-line method over the respective lease term. The Company
does not have nay land use rights as they lease the land and
building from a related party.
Construction in Progress
Construction in progress represents direct costs of construction or
acquisition and design fees incurred, as well as interest charges
directly related to debt incurred on behalf of particular
construction projects. Capitalization of these costs ceases and the
construction in progress is transferred to fixed assets (building or
equipment) when substantially all the activities necessary to
prepare the assets for their intended use are completed. No
depreciation is provided until it is completed and ready for
intended use. There were no such costs for the Company in the nine
months ended September 30, 2007 and 2006, respectively.
Impairment of Long-Lived Assets
Long-lived assets, primarily fixed assets, are reviewed for
impairment whenever events or changes in circumstances indicate that
the carrying amount of the assets might not be recoverable. The
Company does perform a periodic assessment of assets for impairment
in the absence of such information or indicators. Conditions that
would necessitate an impairment assessment include a significant
decline in the observable market value of an asset, a significant
change in the extent or manner in which an asset is used, or a
significant adverse change that would indicate that the carrying
amount of an asset or group of assets is not recoverable. For
long-lived assets to be held and used, the Company recognizes an
impairment loss only if its carrying amount is not recoverable
through its undiscounted cash flows and measures the impairment loss
based on the difference between the carrying amount and estimated
fair value.
11
TONGJI HEALTHCARE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2007 AND 2006
NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Earnings (Loss) Per Share of Common Stock
Basic net earnings (loss) per common share is computed using the
weighted average number of common shares outstanding. Diluted
earnings per share (EPS) includes additional dilution from common
stock equivalents, such as stock issuable pursuant to the exercise
of stock options and warrants. Common stock equivalents are not
included in the computation of diluted earnings per share when the
Company reports a loss because to do so would be antidilutive. The
Company did not have a loss for either period.
The Company has not granted any options or warrants during 2007 or
2006, and there are no options or warrants outstanding as of
September 30, 2007.
The following is a reconciliation of the computation for basic and
diluted EPS:
September 30, September 30,
2007 2006
-------------- --------------
Net income (loss) $ (24,813) $ 5,381
-------------- --------------
Weighted-average common shares
Outstanding
(Basic) 15,652,557 15,652,557
Weighted-average common stock
Equivalents
Stock options - -
Warrants - -
-------------- --------------
Weighted-average common shares
Outstanding (Diluted) 15,652,557 15,652,557
============== ==============
Income Taxes
The Company accounts for income tax using an asset and liability
approach and allows for recognition of deferred tax benefits in
future years. Under the asset and liability approach, deferred taxes
are provided for the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. A
valuation allowance is provided for deferred tax assets if it is
more likely than not these items will either expire before the
Company is able to realize their benefits, or that future
realization is uncertain.
12
TONGJI HEALTHCARE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2007 AND 2006
NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes (Continued)
In accordance with the relevant tax laws and regulations of PRC and
US, the corporation income tax rate would typically be 33% in the
PRC. The Company has received a waiver (duty free certificate) from
the taxing authorities in the PRC for corporate enterprise income
tax for the year ended 2004 through 2006. Effective 2007, the
Company will be taxed at the rate of 33%.
In addition, companies in the PRC are required to pay business taxes
consisting of 5% of income they derive from providing medical
treatment and city construct taxes, and educational taxes are based
on 7% and 3% of the business taxes, and the Company had accrued
these taxes for 2005. The Company has received notification that
they are exempt from these taxes for the years ending 2006 through
2008.
Stock-Based Compensation
The Company follows FASB 123R in accounting for its stock based
compensation (see Recent Accounting Pronouncements). This measures
compensation expense for its employee stock-based compensation using
the intrinsic-value method. Under the intrinsic-value method of
accounting for stock-based compensation, when the exercise price of
options granted to employees and common stock issuances are less
than the estimated fair value of the underlying stock on the date of
grant, deferred compensation is recognized and is amortized to
compensation expense over the applicable vesting period. The Company
for 2007 and 2006 did not grant any options or warrants that would
need to be valued under such method. The following represents the
effect on net income attributable to common shareholders per share
if the fair value method had been applied to all awards.
On January 1, 2006, the Company adopted the provisions of FAS No.
123R "Share-Based Payment" ("FAS 123R") which requires recognition
of stock-based compensation expense for all share-based payments
based on fair value. Prior to January 1, 2006, the Company measured
compensation expense for all of its share-based compensation using
the intrinsic value method prescribed by Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25") and related interpretations. The Company has provided pro
forma disclosure amounts in accordance with FAS No. 148, "Accounting
for Stock-Based Compensation - Transition and Disclosure - an
amendment of FASB Statement No. 123" ("FAS 148"), as if the fair
value method defined by FAS No. 123, "Accounting for Stock Based
Compensation" ("FAS 123") had been applied to its stock-based
compensation.
The Company has elected to use the modified-prospective approach
method. Under that transition method, the calculated expense in 2006
is equivalent to compensation expense for all awards granted prior
to, but not yet vested as of January 1, 2006, based on the
grant-date fair values estimated in accordance with the original
provisions of FAS 123. Stock-based compensation expense for all
awards granted after January 1, 2006 is based on the grant-date fair
values estimated in accordance with the provisions of FAS 123R.
13
TONGJI HEALTHCARE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2007 AND 2006
NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Stock-Based Compensation (Continued)
The Company recognizes these compensation costs, net of an estimated
forfeiture rate, on a pro rata basis over the requisite service
period of each vesting tranche of each award. The Company considers
voluntary termination behavior as well as trends of actual option
forfeitures when estimating the forfeiture rate.
The Company measures compensation expense for its non-employee
stock-based compensation under the Financial Accounting Standards
Board (FASB) Emerging Issues Task Force (EITF) Issue No. 96-18,
"Accounting for Equity Instruments that are Issued to Other Than
Employees for Acquiring, or in Conjunction with Selling, Goods or
Services". The fair value of the option issued is used to measure
the transaction, as this is more reliable than the fair value of the
services received. The fair value is measured at the value of the
Company's common stock on the date that the commitment for
performance by the counterparty has been reached or the
counterparty's performance is complete. The fair value of the equity
instrument is charged directly to compensation expense and
additional paid-in capital.
Segment Information
The Company follows the provisions of SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information". This
standard requires that companies disclose operating segments based
on the manner in which management disaggregates the Company in
making internal operating decisions. For 2007 and 2006, the Company
operated in one geographical location, and segmented their revenues
into two segments; one for the providing of medical care, and one
for the sale of pharmaceuticals.
The Company in 2007 had total revenues of $1,623,439 of which
$790,013 was revenue recognized for providing medical care, and
$833,426 for the sale of pharmaceuticals.
The Company in 2006 had total revenues of $1,088,511 of which
$492,363 was revenue recognized for providing medical care, and
$596,148 for the sale of pharmaceuticals.
Recent Accounting Pronouncements
In September 2006, the FASB issued SFAS 157, "Fair Value
Measurements." This standard defines fair value, establishes a
framework for measuring fair value in generally accepted accounting
principles, and expands disclosure about fair value measurements.
This statement is effective for financial statements issued for
fiscal years beginning after November 15, 2007. Early adoption is
encouraged. The adoption of SFAS 157 is not expected to have a
material impact on the consolidated financial statements.
14
TONGJI HEALTHCARE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2007 AND 2006
NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recent Accounting Pronouncements (Cont'd)
In September 2006, the FASB issued SFAS 158, "Employers' Accounting
for Defined Benefit Pension and Other Postretirement Plans, an
amendment of FASB Statements 87, 88, 106 and 132(R)" ("SFAS 158").
SFAS 158 requires an employer to recognize the over-funded or
under-funded status of a defined benefit postretirement plan (other
than a multiemployer plan) as an asset or liability in its statement
of financial position and to recognize changes in that funded status
in the year in which the changes occur through comprehensive income.
SFAS 158 also requires the measurement of defined benefit plan
assets and obligations as of the date of the employer's fiscal
year-end statement of financial position (with limited exceptions).
Management does not expect adoption of SFAS 158 to have a material
impact on the Company's consolidated financial statements.
In February 2007, the FASB issued FAS No. 159, "The Fair Value
Option for Financial Assets and Financial Liabilities - Including an
amendment of FASB Statement No. 115", ("FAS 159") which permits
entities to choose to measure many financial instruments and certain
other items at fair value at specified election dates. A business
entity is required to report unrealized gains and losses on items
for which the fair value option has been elected in earnings at each
subsequent reporting date. This statement is expected to expand the
use of fair value measurement. FAS 159 is effective for financial
statements issued for fiscal years beginning after November 15,
2007, and interim periods within those fiscal years.
In July 2006, the FASB issued Interpretation No. 48 (FIN No. 48),
"Accounting for Uncertainty in Income Taxes." This interpretation
requires recognition and measurement of uncertain income tax
positions using a "more-likely-than-not" approach. FIN No. 48 is
effective for fiscal years beginning after December 15, 2006.
Management is still evaluating what effect this will have on the
Company's consolidated financial statements.
In September 2006, the United States Securities and Exchange
Commission ("SEC") issued SAB 108, "Considering the Effects of Prior
Year Misstatements when Quantifying Misstatements in Current Year
Financial Statements."
15
TONGJI HEALTHCARE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2007 AND 2006
NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recent Accounting Pronouncements (Continued)
This SAB provides guidance on the consideration of the effects of
prior year misstatements in quantifying current year misstatements
for the purpose of a materiality assessment. SAB 108 establishes an
approach that requires quantification of financial statement errors
based on the effects of each of the company's financial statements
and the related financial statement disclosures. SAB 108 permits
existing public companies to record the cumulative effect of
initially applying this approach in the first year ending after
November 15, 2006 by recording the necessary correcting adjustments
to the carrying values of assets and liabilities as of the beginning
of that year with the offsetting adjustment recorded to the opening
balance of retained earnings. Additionally, the use of the
cumulative effect transition method requires detailed disclosure of
the nature and amount of each individual error being corrected
through the cumulative adjustment and how and when it arose. The
Company does not anticipate that SAB 108 will have a material impact
on its consolidated financial statements.
NOTE 3- FIXED ASSETS
Fixed assets as of September 30, 2007 were as follows:
Estimated
Useful
Lives
(Years)
---------
Office equipment 5-10 $199,945
Medical equipment 5 819,088
Fixtures 10 95,922
Vehicles 5 37,096
----------
1,152,051
Less: accumulated depreciation 391,712
----------
Property and equipment, net $ 760,339
==========
There was $111,052 and $97,528 charged to operations for
depreciation expense for the nine months ended September 30, 2007
and 2006, respectively. There was no impairment for these assets
during the nine months ended September 30, 2007 and 2006.
The Company leases the building and land from a related party, under
an arms length agreement. Rent expense included in selling and
promotional expenses for the nine months ended September 30, 2007
and 2006 were approximately $19,315 and $18,518 (49,316 RMB each
period), respectively. The lease term runs from October 2003 to
December 2008.
16
TONGJI HEALTHCARE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2007 AND 2006
NOTE 4- INVENTORIES
Inventories consisted of the following as of September 30, 2007:
Medicines and pharmaceuticals $ 128,639
Less: provision for write-down of inventory --
---------
Inventory, net $ 128,639
=========
There was no obsolescence of inventory or write-downs of inventory
for the nine months ended September 30, 2007 and 2006.
NOTE 5- STOCKHOLDERS' EQUITY
Common Stock
As of September 30, 2007, the Company has 50,000,000 shares of
common stock authorized with a par value of $0.001.
The Company issued 15,652,557 shares of common stock in exchange of
100% of the authorized capital of Nanning Tongji Hospital Co. Ltd.
(CHINA) in 2006. There were no shares issued in 2007.
Nanning Tongji Hospital Co. Ltd. (CHINA) in 2003 issued 3,000,000
shares.
The Company has not granted any options or warrants during 2007 or
2006, and there are no options or warrants outstanding as of
September 30, 2007.
Preferred Stock
As of September 30, 2007, 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.
Statutory Reserves
The Company is required to make appropriations to reserve funds,
comprising the statutory surplus reserve, statutory welfare fund and
discretionary surplus reserve, based on after-tax net income
determined in accordance with generally accepted accounting
principles of the PRC ("PRC GAAP"). Appropriation to the statutory
surplus reserve is required to be at least 10% of the after tax net
income determined in accordance with the PRC GAAP until the reserve
is equal to 50% of the entities' registered capital.
17
TONGJI HEALTHCARE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2007 AND 2006
NOTE 5- STOCKHOLDERS' EQUITY (CONTINUED)
Statutory Reserves (Continued)
Appropriations to the statutory public welfare fund is required to
be 10% of the after-tax net income determined in accordance with the
PRC GAAP. Appropriations to the discretionary surplus reserve are
made at the discretion of the Board of Directors.
The statutory reserve fund is non-distributable other than during
liquidation and can be used to fund previous years' losses, if any,
and may be utilized for business expansion or converted into share
capital by issuing new shares to existing shareholders in proportion
to their shareholding or by increasing the par value of the shares
currently held by them, providing that the remaining reserve balance
after such issue is not less than 25% of the registered capital.
The statutory welfare reserve can only be utilized on capital items
for the collective benefit of the Company's employees, such as
construction of dormitories, cafeteria facilities, and other staff
welfare facilities. This fund is non-distributable other than
liquidation. The transfer to this fund must be made before
distribution of any dividend to shareholders.
The discretionary surplus fund may be used to acquire fixed assets
or to increase the working capital to expend on production and
operation of the business. The Company's Board of Directors decided
not to make appropriations to this reserve.
NOTE 6- PROVISION FOR INCOME TAXES
Corporate Income Taxes
In accordance with the relevant tax laws and regulations of PRC, the
corporate income tax rate is 33%. As noted, the corporate income tax
for 2004 through 2006 was 0% due to the Company's receipt of a
waiver (tax relief) from the PRC government as they acquired a
previous government-owned hospital and privatized it and improved
it. Commencing, 2007, the corporate tax rate will be 33%.
Business Taxes
In accordance with the relevant tax laws and regulations of PRC, the
Company is required to pay business taxes of 5% of income they
derive from providing medical treatment and then 7% and 3%,
respectively for city construct taxes and educational taxes. As
noted, the Company has received a waiver for these taxes for the
years ending 2006 through 2008.
18
TONGJI HEALTHCARE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2007 AND 2006
NOTE 6- PROVISION FOR INCOME TAXES (CONTINUED)
At September 30, 2007 and 2006, corporate income and business taxes
consist of the following:
2007 2006
---- ----
Corporate income tax $ 26,694 $ -
Business taxes including city
construct and educational taxes -- --
---------- --------
$ 26,694 $ --
========== ========
A reconciliation of the PRC enterprise income tax and business tax
rate to the effective income tax rate is as follows:
2007 2006
---- ----
Statutory rate - corporate income tax 33% 0%
Timing differences
0% 0%
-------- -------
33% 0%
======= =======
Deferred income taxes are determined using the liability method for
the temporary differences between the financial reporting basis and
income tax basis of the Company's assets and liabilities. Deferred
income taxes are measured based on the tax rates expected to be in
effect when the temporary differences are included in the Company's
tax return. Deferred tax assets and liabilities are recognized based
on anticipated future tax consequences attributable to differences
between financial statement carrying amounts of assets and
liabilities and their respective tax bases. The Company has no
temporary or permanent differences. Therefore, no deferred tax
assets and liabilities have been recognized and no valuation
allowance has been established.
The depreciation methods and lives the Company utilizes are
identical for book and tax purposes. Additionally, there is no
income or expense included in books not included in tax.
19
20
TONGJI HEALTHCARE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2007 AND 2006
NOTE 7- RELATED PARTY TRANSACTIONS
Due from Related Party
The Company has entered into an agreement with Nanning Tongji Chain
Pharmacy Co. Ltd. whereby the Company from time to time will advance
amounts to Nanning Tongji Chain Pharmacy Co., Ltd. to assist them in
their operations. The two companies have common shareholders. The
advanced amounts accrue interest at a rate of 6% per annum which
exceeds the interest rates in the PRC for similar borrowings. The
Company as of September 30, 2007 is owed, $197,784. Accrued interest
receivable on this agreement of $23,685 as of September 30, 2007, is
included in due from related party.
The Company has entered into an agreement with Guangxi Tongji Medicine
Co. Ltd. whereby they from time to time will advance amounts to assist
each other in their operations. The two companies have common
shareholders. The advanced amounts accrue interest at a rate of 6% per
annum which exceeds the interest rates in the PRC for similar
borrowings. The Company as of June 30, 2007 was indebted to Guangxi
Tongji Medicine Co. Ltd, in the amount of $176,968. Accrued interest
payable on this agreement of $52,950 as of June 30, 2007, is included
in due to related party. In the third quarter of 2007, the company has
paid off the amount due to Guangxi Tongji Medicine Co., Ltd and
advanced amounts to Guangxi Tongji Medicine Co., Ltd. Guangxi Tongji
Medicine Co. Ltd as of September 30, 2007 is indebted to the Company,
in the amount of $245,445. Accrued interest payable on this agreement
of $1,636 as of September 30, 2007, is included in due to related
party. Guangxi Tongji Medicine Co. Ltd. is also owed $52,053 in back
interest. This amount is included in amounts due to related parties at
September 30, 2007.
Due to Related Parties
The Company has entered into an agreement with the Chairman of the
Company, Mr. Yunhui Yu whereby the Company from time to time will be
advanced amounts to assist them in their operations. The advanced
amounts accrue interest at a rate of 6% per annum which exceeds the
interest rates in the PRC for similar borrowings. The Company as of
September 30, 2007 is indebted to their Chairman in the amount of
$119,802. Accrued interest payable on this agreement of $24,802 as
of September 30, 2007, is included in due to related party.
20
TONGJI HEALTHCARE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2007 AND 2006
NOTE 7- RELATED PARTY TRANSACTIONS (CONTINUED)
Rental
The Company has entered into a lease agreement for their hospital
with Guangxi Tongji Medicine Co. Ltd that expires December 2008.
Monthly rentals are 16,438.86 per month (RMB). Included in due to
related parties as of September 30, 2007 is $102,933 in amounts that
are currently due. Based on the exchange rate at September 30, 2007,
minimum lease payments are as follows:
Period ending September 30, 2008 $26,264
2009 $ 6,566
NOTE 8- NOTE PAYABLE
The Company borrowed $399,675 (3,000,000 RMB) from a bank to repay
certain debt to related parties as noted in Note 7. The debt accrues
interest at the banks benchmark rate plus 20 basis points (ranging
between 8.21% and 8.75%). The debt has a maturity of one year and is
secured by the Company's assets. Interest expense for the nine
months ended September 30, 2007 is $4,855.
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND PLAN
OF OPERATION
You should read the following discussion and analysis of our financial
condition and results of operations in conjunction with our financial statements
and the related notes included elsewhere in this report. Our financial
statements have been prepared in accordance with U.S. GAAP. In addition, our
financial statements and the financial data included in this report reflect our
reorganization and have been prepared as if our current corporate structure had
been in place throughout the relevant periods. The following discussion and
analysis contains forward-looking statements that involve risks and
uncertainties. Actual results could differ materially from those projected.
Overview
We were organized as a Nevada corporation on December 19, 2006. On
December 27, 2006 we issued 15,652,557 shares of our common stock to acquire all
outstanding shares of Nanning Tongji Hospital Co., Ltd., which we refer to as
"Tongji Hospital," a PRC company which was formed in October 30, 2003. The
purpose of the transaction was to redomicile us as a Nevada corporation. Unless
otherwise indicated, all references to us throughout this prospectus includes
the operations of Tongji Hospital.
Our critical accounting policies, as well as recent accounting
pronouncements which apply to us, are described in Note 2 to our financial
statements which are included as part of this report.
Results of Operation
Material changes of items in our Statement of Operations for the nine
months ended September 30, 2007, as compared to the nine months ended September
30, 2006, are discussed below:
Patient Service Revenue: The increase in revenues was the result of more
patients being treated by our hospital, due to our increased reputation as being
a preferred provider of health care services in the region.
Gross profit: Our gross profit, as a percentage of our gross revenue, was
43% during the nine months ended September 30, 2007, which was comparable to our
gross profit percentage of 50% during the nine months ended September 30, 2006.
The decline in our gross profit percentage was the result of lower prices
charged for drugs administered or sold to patients.
Operating Expenses: Selling and promotion expenses increased as we spent
more during the period to promote our hospital. General and administrative
expenses increased as we hired more employees to provide medical services.
Depreciation, amortization and expenses increased mainly due to the depreciation
and amortization of new medical equipment.
Trends, Events and Uncertainties
The China Ministry of Health, as well as other related agencies, have
proposed changes to the prices we can charge for medical services, drugs and
medications. We cannot predict the impact of these proposed changes since the
changes are not fully defined and we do not know whether those proposed changes
will ever be implemented or when they may take effect.
We would normally be required to pay a tax of 5% of the income derived
from providing medical treatment plus city construction and educational taxes
equal to 7% and 3% respectively, of the business tax. We are exempt from these
taxes for 2006, 2007 and 2008.
Other than the factors listed above we do not know of any trends, events
or uncertainties that have had or are reasonably expected to have a material
impact on our net sales or revenues or income from continuing operations. Our
business is not seasonal in nature.
Accounting Estimates
In the United States most hospitals have contracts with health insurance
companies which provide that patients with health insurance will be charged
reduced rates for healthcare services. Reduced rates are also charged for
Medicare and Medicaid patients. Although the patient is billed for the services
provided by the hospital at the higher rate normally charged to patients without
insurance the amount billed is reduced by the charges paid by the insurance
carrier and by the difference (sometimes known as the "contractual allowance")
between the normal rate for the services and the reduced rate which the hospital
estimates it will receive from Medicare, Medicaid and insurance companies.
For financial reporting purposes, hospitals in the United States record
revenues based upon established billing rates less adjustments for contractual
allowances. Revenues are recorded based upon the estimated amounts due from the
patients and third-party payors, including federal and state agencies (under the
Medicare and Medicaid programs) managed care health plans, health insurance
companies, and employers. Estimates of contractual allowances under third-party
payor arrangements are based upon the payment terms specified in the related
contractual agreements. Third-party payor contractual payment terms are
generally based upon predetermined rates per diagnosis, per diem rates, or
discounted fee-for-service rates.
Due to the complexities involved in determining amounts ultimately due
under reimbursement arrangements with a large number of third-party payors,
which are often subject to interpretation, the reimbursement actually received
by U.S. hospitals for health care services is sometimes different from their
estimates.
The medical system in China is different than that in the United States.
Private medical insurance is not generally available to the Chinese population
and as a result services and medications provided by our hospital are usually
paid for in cash or by the Medicare agencies of the Nanning municipal government
and the Guangxi provincial government. Our billing system automatically
calculates the reimbursements to which we are entitled based upon regulations
promulgated by the Medicare agencies. We bill the Medicare agencies directly for
services provided to patients coved by the Medicare programs. Since we bill the
Medicare agencies directly, our gross revenues are not reduced by contractual
allowances.
Since we only deal with the Nanning municipal and the Guangxi provincial
Medicare agencies we are familiar with their regulations pertaining to
reimbursements. As a result, there is normally no material difference between
the amounts we bill and the amounts we receive for services provided to Medicare
patients.
Liquidity and Capital Resources
Future payments due on our material contractual obligations as of
September 30, 2007 are as follows:
Twelve Months Ended June 30,
Item Current 2008 2009
---- ------- ---- ----
Medical Building Lease $102,923 $26,264 $6,500
Except as shown above, as of September 30, 2007 we did not have any
material capital requirements.
Virtually all of our accounts receivable at September 30, 2007 were due
from the Nanning and Guangxi Medicare agencies.
Cash provided by our operations has been, and is expected to be in the
future, our primary source of cash.
We do not have any off-balance sheet items reasonably likely to have a
material effect on our financial condition.
ITEM 3. CONTROLS AND PROCEDURES
Yun-hui Yu, the Company's President and Chief Executive Officer, and
Wei-Dong Huang, the Company's Principal Financial Officer, have evaluated the
effectiveness of the Company's disclosure controls and procedures as of a date
prior to the filing date of this report, and in their opinion the Company's
disclosure controls and procedures are effective to ensure that material
information relating to the Company, including its consolidated subsidiaries, is
made known to them by others within those entities, particularly during the
period in which this report is being prepared, so as to allow timely decisions
regarding required disclosure. There have been no changes in the Company's
internal controls or in other factors that could significantly affect the
Company's internal controls. As a result, no corrective actions with regard to
significant deficiencies or material weakness in the Company's internal controls
were required.
PART II
OTHER INFORMATION
Item 6. Exhibits
Number Exhibit
31 Rule 13a-14(a) Certifications
32 Section 1350 Certifications
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized on November 12, 2007.
TONGJI HEALTHCARE GROUP, INC.
By: /s/ Yun-hui Yu
----------------------------------------
Yun-hui Yu, President and Chief Executive
Officer
By: /s/ Wei-dong Huang
-----------------------------------------
Wei-dong Huang, Chief Financial and
Accounting Officer