UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q/A
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended September 30, 2008
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.
Nevada None
- ----------------------------------------------- ------------------
State or other jurisdiction of incorporation (I.R.S.) Employer
Identification No.
No.5 Beiji Road,
Nanning, Guangxi, China
Address of principal executive offices
0086-771-2020000
------------------------
Registrant's telephone number, including area code
N/A
--------------------------
Former address of principal executive offices
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 ____X_____ No __________
Indicate by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act. (Check One):
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
(Do not check if a smaller reporting company)
Indicate by check mark whether the Registrant is a shell company (as defined in
Exchange Act Rule 12b-2 of the Exchange Act).
Yes _____X____ No _________
-
Class of Stock No. Shares Outstanding Date
Common 15,812,391 October 31, 2008
TONGJI HEALTHCARE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2008 (UNAUDITED) AND DECEMBER 31, 2007
September 30, December 31,
2008 2007
------------- -------------
(UNAUDITED) (AUDITED)
ASSETS
Current Assets
Cash and cash equivalents $ 17,219 $ 23,165
Accounts receivable, net 334,263 287,593
Due from related parties 462,483 1,516,026
Inventory, net 154,408 152,242
Prepaid expenses and other current assets 137,596 32,779
---------- ------------
Total Current Assets $1,105,969 $2,011,805
Property, Plant and Equipment, net 4,097,467 2,148,801
Other Assets
Capital lease deposit 154,641 143,945
-------------- -------------
TOTAL ASSETS $ 5,358,077 $ 4,304,551
============== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses 408,876 418,368
Due to related parties 3,113,314 1,563,842
Other payable 230,980 161,350
Short term bank loan - 411,270
Deferred gain on sale & lease back 112,082 104,329
Capital lease obiligation-short term 337,424 293,394
------------- ------------
Total Current Liabilities 4,202,676 2,952,554
Long Term Liabiliteis
Capital lease obligation 434,507 642,968
Deferred gain on sale and lease back 130,763 199,964
------------ ------------
Total Long Term Liabilities 565,270 842,932
------------ ------------
Total Liabilities 4,767,946 3,795,486
STOCKHOLDERS' EQUITY
Preferred stock; $0.001 par value,
20,000,000 shares authorized and 0 share
issued and outstanding - -
Common stock; $0.001 par value,
100,000,000 shares authorized and 15,812,391 5,813 5,653
and 15,652,557 shares issued and
outstanding as of Sept 30, 2008 and Dec. 31,
2007 respectively 1 1
Additional paid in capital 424,967 347,347
Statutory reserve 1,812
41,812 41,812
Retained earnings 26,719 61,079
Accumulated other comprehensive income 80,820 43,174
------------ ------------
Total Stockholders' Equity 590,131 509,065
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,358,077 $ 4,304,551
=========== ============
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
TONGJI HEALTHCARE GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME
FOR THE THREE MONTH PERIODS AND
NINE MONTH PERIODS ENDED
SEPTEMBER 30, 2008 AND 2007
(UNAUDITED)
For the three month For the nine month
periods ended periods ended
September 30 September 30
------------------ ----------------------
2008 2007 2008 2007
------------------ ----------------------
PATIENT SERVICE REVENUE $ 682,952 $ 618,998 $ 1,978,261 $1,623,439
Cost of Revenue 276,442 401,692 844,989 929,921
--------- --------- ----------- ----------
GROSS PROFIT 406,510 217,306 1,133,272 693,518
OPERATING EXPENSES
Selling expenses 235,019 230,934 577,152 457,256
General and administrative
expenses 44,359 27,899 147,911 111,825
Depreciation expenses 98,772 37,714 288,887 111,052
--------- --------- ----------- ----------
Total operating expenses 378,150 296,547 1,013,950 680,133
--------- --------- ----------- ----------
INCOME (LOSS) FROM OPERATIONS 28,360 (79,241) 119,321 13,385
OTHER EXPENSE
Other expense (3,300) - (4,098) -
Interest expense, net of income (50,756) (1,942) (141,668) (11,504)
--------- --------- ----------- -----------
Total Other Expense (54,056) (1,942) (145,766) (11,504)
--------- --------- ----------- -----------
INCOME (LOSS) BEFORE
INCOME TAXES (25,696) (81,183) (26,444) 1,881
Provision for Income Taxes - - (7,916) (26,694)
--------- --------- ----------- -----------
NET LOSS (25,696) (81,183) (34,360) (24,813)
Foreign currency translation
gain 5,355 5,077 37,646 15,141
--------- --------- ----------- -----------
COMPREHENSIVE INCOME (LOSS) $ (20,341) $(76,106) $ 3,286 $ (9,672)
========= ======== ========== ==========
NET INCOME (LOSS) PER BASIC AND
DILUTED SHARES $ (0.002) $ (0.005) $ (0.002) $ (0.002)
========= ======== ========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OF OUTSTANDING 15,812,391 15,652,551 15,741,807 15,652,557
========== ========== ========== ==========
Weighted average number of shares for dilutive securities has not been taken
since the effect of dilutive securities is anti-dilutive
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
TONJI HEALTHCARE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 2008 AND 2007
(UNAUDITED)
2008 2007
------------- -------------
Cash flows from operating activities:
Net income (loss) $ (34,360) $ (24,813)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 288,887 111,052
Change in assets and liabilities:
(Increase) in accounts receivable (24,598) 82,734
Decrease in inventory 8,895 (27,145)
(Increase) decrease in prepaid expense
and other current assets (144,295) (3,102)
(Decrease) in accounts payable and
accrued expenses 64,163 17,552
(Decrease) in unearned revenue (81,738) -
Increase in other payables 54,984 -
--------- ----------
Total adjustment 166,299 181,091
--------- ----------
Net Cash Provided By Operating Activities 131,940 156,278
--------- ----------
Cash flows from investing activities:
(Acquisitions) of fixed assets (25,818) (13,953)
Payments for construction work in progress (2,002,603) -
Decrease (increase) in due from related
parties 1,178,713 (298,261)
--------- ----------
Net Cash Used in Investing Activities (849,708) (312,214)
--------- ----------
Cash flows from financing activities:
(Payment) proceeds of note payable (429,620) 394,755
Issurance of stock 76,401
Payments toward capitalized leases (227,547) -
Advances from (to) to related parties 1,291,079 (225,124)
--------- ----------
Net Cash Provided by Financing Activities 710,314 169,631
--------- ----------
Effects of foreign currency translation 1,508 5,084
--------- ----------
Net Increase (decrease) in Cash and Cash
Equivalents (5,946) 18,779
Cash and Cash Equivalents-Beginning of Period 23,165 16,065
--------- ----------
Cash and Cash Equivalents-Ending of Period $ 17,219 $ 34,844
========= =========
Cash Paid During the Year for:
Income taxes $ 7,916 $ -
========= =========
Interest paid $ 84,015 $ 3,891
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
TONGJI HEALTHCARE GROUP, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY(UNAUDITED)
FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 2008
AND THE YEARS ENDED DECEMBER 31, 2007,2006 AND 2005
Accumulated
Additional Other Total
Number Common Paid In Subscription Statutory Retained Comprehensive Shareholders'
of Shares Stock Capital Receivable Reserve Earning Income Equity
---------- ------- ---------- ------------ --------- -------- ------------- ------------
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 statutory 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
Transfer of statutory reserves - - - 4,964 (4,964) - -
Net income for the year ended
December 31, 2007 - - - - - 32,870 -
---------- ------ ------- -------- -------- -------- ------- --------
Balance December 31, 2007 15,652,557 $15,653 $347,347 $ - $ 41,812 $ 61,079 $43,174 $509,065
Shares issued for cash 177,834 178 77,602 77,780
Shares cancelled (18,000) (18) 18 0
Transfer of statutory reserves - - - - -
Net income for the nine months period
ended September 30, 2008 - - - (34,360) 37,646 3,286
---------- ------- ------- -------- -------- -------- -------- --------
Balance September 30, 2008 15,812,391 $15,813 $424,967 $ - $ 41,812 $ 26,719 $ 80,820 $590,131
========== ======= ======== ======== ======== ======== ======== ========
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
F-5
TONGJI HEALTHCARE GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2008 AND 2007
NOTE 1- ORGANIZATION AND BASIS OF PRESENTATION
Nanning Tongji Hospital, Inc. ("NTH") was established in Nanning in the province
of Guangxi of the Peoples Republic of China ("PRC") by the Nanning Tongji
Medical Co. Ltd. and an individual on October 30, 2003.
NTH is an assigned hospital for medical insurance in 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.
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") a wholly owned subsidiary of the
Company.
On December 27, 2006, Tongji acquired 100% of the equity in NTH pursuant to an
Agreement and Plan of. Pursuant to the acquisition of NTH, it became the wholly
owned subsidiary of Tongji. The Company incorporated with 50,000,000 shares of
common stock and 20,000,000 shares of preferred stock both with a par value of
$0.001. The Company issued 15,652,557 shares of common stock to the shareholders
of NTH in exchange for 100% of the issued and outstanding shares of NTH.
Thereafter and for purposes of these consolidated financial statements the
"Company" and "NTH" are used to refer to the operations of Nanning Tongji
Hospital Co. Ltd.
The acquisition of NTH was accounted for as a reverse acquisition under the
purchase method of accounting since the shareholders of NTH obtained control of
the consolidated entity. Accordingly, the reorganization of the two companies
was recorded as a recapitalization of NTH, with NTH being treated as the
continuing operating entity.
According to the PRC Regulation of Healthcare Institutions, hospitals shall be
subject to register with the Administration of Health of the local government to
obtain their license for hospital service operation. The Company received its
renewed operation license from Nanning's government in May of 2005, and this
license remains valid until the next scheduled renewing date of May 2009.
Other existing regulations having material effects on the Company's business
include those dealing with physician's licensing, usage of medicine and
injection, public security in health and medical advertising.
As the Company maintains a facility with an excess of 100 beds, it must have its
license renewed at least every three years. The Company is also obligated to
provide free service or dispatch their physicians or employees for public
assistance. The Company has a very small percentage of its service for this
area.
F-6
NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited financial statements of the Company have been
prepared in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation have been
included. Operating results for the interim periods are not necessarily
indicative of the results for any future period. These statements should be read
in conjunction with the Company's audited financial statements and notes thereto
for the fiscal year ended December 31, 2007. The results of the nine month
periods ended September 30, 2008 are not necessarily indicative of the results
to be expected for the full fiscal year ending December 31, 2008.
Principles of Consolidation
The consolidated financial statements include the accounts of Tongji Healthcare
Group, Inc. and its wholly owned subsidiaries Tongji, Inc. and Nanning Tongji
Hospital, Inc. All significant intercompany accounts and transactions have been
eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. On an on-going basis, the Company evaluates its
estimates, including, but not limited to, those related to depreciation, bad
debts, income taxes and contingencies. Actual results could differ from those
estimates.
Foreign Currency Translation
The Company's functional currency is that of the PRC which is the Chinese
Renminbi (RMB). The reporting currency is that of the US Dollar. Capital
accounts of the consolidated financial statements are translated into United
States dollars from RMB at their historical exchange rates when the capital
transactions occurred. Assets and liabilities are translated at the exchange
rates as of the balance sheet date. Income and expenditures are translated at
the average exchange rate of the year. The RMB is not freely convertible into
foreign currency and all foreign currency exchange transactions must take place
through authorized institutions. No representation is made that the RMB amounts
could have been, or could be, converted into US dollar at the rates used in
translation.
The Company records these translation adjustments as accumulated other
comprehensive income (loss). Gains and losses from foreign currency transactions
are included in other income (expense) in the results of operations. For the
nine month periods ended September 30, 2008 and 2007, the Company recorded
approximately $37,646 and $15,141 in transaction gains as a result of currency
translation.
Revenue Recognition
The Company's revenue recognition policies are in compliance with Staff
Accounting Bulletin (SAB) 104. Sales revenue is recognized at the date of
shipment to customers or services has been rendered when a formal arrangement
exists, the price is fixed or determinable, the delivery is completed, no other
F-7
significant obligations of the Company exist and collectibility is reasonably
assured. Payments received before all of the relevant criteria for revenue
recognition are satisfied are recorded as unearned revenue.
The Company generates revenue from the individuals as well as third-party
payers, including PRC government programs and insurance providers, under which
the hospital is paid based upon several methodologies including established
charges, the cost of providing services, predetermined rates per diagnosis,
fixed per diem rates or discounts from established charges. Revenues are
recorded at estimated net amounts due from patients, third-party payers and
others for healthcare services provided at the time the service is provided.
Revenues for pharmaceutical drug sales are recognized upon the drug being
administered to a patient or at the time a prescription is filled for a patient
that contain an executed prescription slip by a registered physician.
Revenues are recorded at estimated net amounts due from patients and government
Medicare funds. The Company's accounting system calculates the expected amounts
payable by the government Medicare funds. The Company bills for services
provided to Medicare patients through a medical card (the US equivalent to an
insurance card). The Company normally receives 90% of the billed amount within
90 days with the remaining 10% upon approval by the end of the year by the PRC
government. However, there have not been significant differences between the
amounts the Company bills the government Medicare funds and the amounts
collected from the Medicare funds.
Accounts Receivable
Accounts receivable are recorded at the estimated net realizable amounts from
government units, insurance companies and patients. Generally, the third-party
payers reimburse the Company on a 30-day cycle, so collections for the Company
has historically not been considered to be an area that exposes the Company to
additional risk. Hospital staff does perform verification of patient coverage
prior to examinations and/or procedures taking place.
For any Medicare patient who visits the hospital that is qualified for
acceptance, the hospital will only include the portion that the social insurance
organization in the accounts receivable and collects the self-pay portion in
cash at the time of the service. At times, the pre-determined rate the hospital
F-8
will charge may be different than the approved Medicare rate, thus the
likelihood of some bad debt can occur. Management continues to evaluate this
estimate on an ongoing basis.
The Company has established a reserve for uncollectibles of $58,603 and $54,549
as of September 30, 2008 and December 31, 2007.
Prepaid expenses and other current assets
Prepaid expenses and other current assets consisted of the following as of
September 30, 2008 and December 31, 2007:
September 30, 2008 December 31,2007
Other receivable $109,585 $935
Advance to suppliers 28,011 31,844
---------- ------
Total $137,596 $32,779
Advertising Costs
The Company expenses the costs associated with advertising as incurred.
Advertising expenses for the nine month periods ended September 30, 2008 and
2007 of $165,850 and $289,466, respectively are included in selling and
promotional expenses in the statements of income. Advertising costs include
marketing brochures and an advertising campaign to the public.
Earnings (Loss) Per Share of Common Stock
Earnings per share is calculated in accordance with the Statement of financial
accounting standards No. 128 (SFAS No. 128), "Earnings per share". SFAS No. 128
superseded Accounting Principles Board Opinion No.15 (APB 15). Net loss per
share for all periods presented has been restated to reflect the adoption of
SFAS No. 128. Basic net loss per share is based upon the weighted average number
of common shares outstanding. Diluted net loss per share is based on the
assumption that all dilutive convertible shares and stock options were converted
or exercised. Dilution is computed by applying the treasury stock method. Under
this method, options and warrants are assumed to be exercised at the beginning
of the period (or at the time of issuance, if later), and as if funds obtained
thereby were used to purchase common stock at the average market price during
the period.
The Company has not granted any options or warrants during 2008 or 2007, and
there are no options or warrants outstanding as of September 30, 2008 and
December 31, 2007.
Income Taxes
The Company utilizes SFAS No. 109, "Accounting for Income Taxes," which requires
the recognition of deferred tax assets and liabilities for the expected future
tax consequences of events that have been included in the financial statements
or tax returns. Under this method, deferred income taxes are recognized for the
tax consequences in future years of differences between the tax bases of assets
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
F-9
the differences are expected to affect taxable income. Valuation allowances are
established, when necessary, to reduce deferred tax assets to the amount
expected to be realized.
In accordance with the relevant tax laws and regulations of PRC and US, the
corporation income tax rate would typically be 33% in the PRC. The Company has
received a waiver (duty free certificate) from the taxing authorities in the PRC
for corporate enterprise income tax for the year ended 2004 through 2006.
Effective 2007, the Company will be taxed at the rate of 33%.
Beginning January 1, 2008, the new Enterprise Income Tax (EIT) law will replace
the existing laws for Domestic Enterprises (DES) and Foreign Invested
Enterprises (FIEs). The new standard EIT rate of 25% will replace the 33% rate
currently applicable to both DES and FIEs.
In addition, companies in the PRC are required to pay business taxes consisting
of 5% of income they derive from providing medical treatment and city 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.
Segment Information
Statement of Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosure
About Segments of an Enterprise and Related Information" requires use of the
"management approach" model for segment reporting. The management approach model
is based on the way a company's management organizes segments within the company
for making operating decisions and assessing performance. Reportable segments
are based on products and services, geography, legal structure, management
structure, or any other manner in which management disaggregates a company. SFAS
131 has no effect on the Company's consolidated financial statements as the
Company consists of one reportable business segment. All revenue is from
customers in People's Republic of China. All of the Company's assets are located
in People's Republic of China.
Recent Accounting Pronouncements
In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in
Consolidated Financial Statements", which is an amendment of Accounting Research
Bulletin ("ARB") No. 51. This statement clarifies that a noncontrolling interest
in a subsidiary is an ownership interest in the consolidated entity that should
be reported as equity in the consolidated financial statements. This statement
changes the way the consolidated income statement is presented, thus requiring
consolidated net income to be reported at amounts that include the amounts
attributable to both parent and the noncontrolling interest. This statement is
effective for the fiscal years, and interim periods within those fiscal years,
beginning on or after December 15, 2008. Based on current conditions, the
Company does not expect the adoption of SFAS 160 to have a significant impact on
its results of operations or financial position.
In December 2007, the FASB issued SFAS No. 141 (revised 2007), "Business
Combinations." This statement replaces FASB Statement No. 141, "Business
Combinations." This statement retains the fundamental requirements in SFAS 141
F-10
that the acquisition method of accounting (which SFAS 141 called the purchase
method) be used for all business combinations and for an acquirer to be
identified for each business combination. This statement defines the acquirer as
the entity that obtains control of one or more businesses in the business
combination and establishes the acquisition date as the date that the acquirer
achieves control. This statement requires an acquirer to recognize the assets
acquired, the liabilities assumed, and any noncontrolling interest in the
acquiree at the acquisition date, measured at their fair values as of that date,
with limited exceptions specified in the statement. This statement applies
prospectively to business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period beginning on or after
December 15, 2008. The Company does not expect the adoption of SFAS 160 to have
a significant impact on its results of operations or financial position.
In March, 2008, the FASB issued FASB Statement No. 161, "Disclosures about
Derivative Instruments and Hedging Activities". The new standard is intended to
improve financial reporting about derivative instruments and hedging activities
by requiring enhanced disclosures to enable investors to better understand their
effects on an entity's financial position, financial performance, and cash
flows. It is effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008, with early application
encouraged. The new standard also improves transparency about the location and
amounts of derivative instruments in an entity's financial statements; how
derivative instruments and related hedged items are accounted for under
Statement 133; and how derivative instruments and related hedged items affect
its financial position, financial performance, and cash flows.
FASB Statement No. 161 achieves these improvements by requiring disclosure of
the fair values of derivative instruments and their gains and losses in a
tabular format. It also provides more information about an entity's liquidity by
requiring disclosure of derivative features that are credit risk-related.
Finally, it requires cross-referencing within footnotes to enable financial
statement users to locate important. Based on current conditions, the Company
does not expect the adoption of SFAS 161 to have a significant impact on its
results of operations or financial position.
In May 0f 2008, FSAB issued SFASB No.162, The Hierarchy of Generally Accepted
Accounting Principles. The pronouncement mandates the GAAP hierarchy reside in
the accounting literature as opposed to the audit literature. This has the
practical impact of elevating FASB Statements of Financial Accounting Concepts
in the GAAP hierarchy. This pronouncement will become effective 60 days
following SEC approval. The company does not believe this pronouncement will
impact its financial statements.
In May of 2008, FASB issued SFASB No. 163, Accounting for Financial Guarantee
Insurance Contracts-an interpretation of FASB Statement No. 60. The scope of the
statement is limited to financial guarantee insurance (and reinsurance)
contracts. The pronouncement is effective for fiscal years beginning after
December 31, 2008. The company does not believe this pronouncement will impact
its financial statements.
F-11
NOTE 3- PROPERTY & EQUIPMENT
Property & equipment as of September 30, 2008 and December 31, 2007 comprised of
following:
Estimated September 30, December 31,
Useful Lives 2008 2007
(Years)
Office equipment 5-10 $ 80,043 $ 67,652
Medical equipment 5 1,091,856 994,968
Fixtures 10 107,077 103,172
Vehicles 5 41,008 38,171
Construction in progress 3,221,550 1,081,640
--------- ----------
4,541,534 2,285,603
Less: accumulated depreciation (444,067) (136,802)
--------- ---------
Property and equipment, net $4,097,467 $2,148,801
========== ==========
Depreciation expense charged to operations was $288,887 and $111,052 for the
nine month periods ended September 30, 2008 and 2007, respectively.
NOTE 4- INVENTORIES
Inventories consisted of the following as of September 30, 2008 and December 31,
2007:
September 30, 2008 December 31,2007
Western medicine $ 4,392 $141,082
Traditional Chinese medicine 150,016 11,160
------- --------
Total $154,408 $152,242
NOTE 5- CAPITAL LEASE OBLIGATIONS:
Lease Deposit
The lease deposit as September 30, 2008 and December 31, 2007 were $154,641 and
$143,945 respectively. It is due on November 2010.
Deferred Gain on sale and lease back
The total gain on sale and lease back was $336,246. According to SFAS 13
"Accounting for Leases" this gain is deferred and amortized over the Lease term.
Accordingly, $81,738 and $0 were amortized for the nine month periods ended
September 30, 2008 and 2007 respectively.
F-12
The deferred revenue outstanding as of September 30, 2008 and December 31, 2007
were as follows:
September 30, 2008 December 31, 2007
Current $ 112,082 $104,329
Long term 130,763 199,964
---------- --------
$242,845 $304,293
---------- --------
Capital Lease Obligations
In 2007, the Company leased various equipments under capital leases expiring in
2010. The assets and liabilities under capital leases are recorded at the lower
of the present value of the minimum lease payments or the fair value of the
asset. The assets are depreciated over the lesser of their related lease terms
or their estimated productive lives. Depreciation of assets under capital leases
was included in depreciation expense for the nine month periods ended September
30, 2008.
Aggregate minimum future lease payments under capital leases for next five years
after September 30, 2008 are as follows:
1 year after September 30, 2008 $ 393,981
2 year after September 30, 2008 393,981
3 year after September 30, 2008 65,663
----------
Total $ 853,625
===========
Capital lease obligations represent the following at September 30, 2008 and
December 31, 2007:
September 30, December 31,
2008 2007
-------------- ------------
Total minimum lease payments $ 853,624 $ 1,069,623
Less : Interest expense relating to
future periods 81,693 (133.261)
----------- -----------
Present value of the minimum lease
payments 771,931 936,362
Less: current portion 337,424 293,394
---------- -----------
Non-current portion $ 434,507 $ 642,968
=========== ===========
Following is a summary of fixed assets held under capital leases at September
30, 2008 and December 31, 2007:
September 30, December 31,
2008 2007
-------------- ------------
Medical Equipment $ 1,030,943 $ 959,630
Less: accumulated depreciation (291,360) (27,959)
------------ ------------
Net 739,583 931,671
------------ ------------
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NOTE 6- OTHER PAYABLE
Other payable as of September 30, 2008 and December 31, 2007 consists of the
following:
September 30, December 31,
2008 2007
------------ -------------
Advance from customers $ 6,041 $ 17,325
Welfare payable 84,565 78,873
Other payable 140,374 65,152
--------- ----------
Total $ 230,980 $ 161,350
========= =========
NOTE 7- STOCKHOLDERS' EQUITY
Common Stock
As of September 30, 2008 and December 31, 2007, the Company has 100,000,000
shares of common stock authorized with a par value of $0.001.
During the period ended September 30, 2008, the company issued 177,834 shares
for $77,780.and cancelled 18,000 previously issued shares as such shares were
issued in error.
The Company has not granted any options or warrants during 2008 or 2007, and
there are no options or warrants outstanding as of September 30, 2008 and
December 31, 2007.
Preferred Stock
As of September 30, 2008 and December 31, 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
As stipulated by the Company Law of the People's Republic of China (PRC), net
income after taxation can only be distributed as dividends after appropriation
has been made for the following:
i. Making up cumulative prior years' losses, if any;
ii. Allocations to the "Statutory surplus reserve" of at least 10% of income
after tax, as determined under PRC accounting rules and regulations, until
the fund amounts to 50% of the Company's registered capital;
F-14
iii. Allocations of 5-10% of income after tax, as determined under PRC
accounting rules and regulations, to the Company's "Statutory common
welfare fund", which is established for the purpose of providing employee
facilities and other collective benefits to the Company's employees; and
iv. Allocations to the discretionary surplus reserve, if approved in the
stockholders' general meeting.
Pursuant to the new Corporate Law effective on January 1, 2006, there is now
only one "Statutory surplus reserve" requirement. The reserve is 10 percent of
income after tax, not to exceed 50 percent of registered capital.
The Company did not appropriate reserve for the statutory surplus reserve for
the nine month periods ended September 30, 2008, and 2007.
NOTE 8- PROVISION FOR INCOME TAXES
In accordance with the relevant tax laws and regulations of PRC, the corporate
income tax rate is 25%. As noted, the corporate income tax for 2004 through 2006
was 0% due to the Company's receipt of a waiver (tax relief) from the PRC
government as they acquired a previous government-owned hospital and privatized
it and improved it. Commencing, 2008, the corporate tax rate will be 25%.
Income tax for the nine month periods ended September 30, 2008 and 2007 is
summarized as follows:
2008 2007
-------------------------
U.S. Federal and State Current $ - $ -
U.S. Federal and State Deferred - -
PRC - Current 7,916 26,694
-------- ---------
PRC - Deferred - -
-------- ---------
Less: Valuation allowance - -
-------- ---------
Income tax expense (benefit) $ 7,916 $ 26,694
======== =========
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A reconciliation of the effective income tax rate is as follows:
2008 2007
----- -----
Tax at U.S. Federal rate 34% 34%
U.S. tax exemption (34)% (34)%
------- -----
0% 0%
PRC Tax rate 25% 33%
Valuation allowance - -
Current tax provision 25% 33%
The Company does not have any significant deferred tax asset or liabilities in
the PRC tax jurisdiction as of September 30, 2008.
NOTE 9- RELATED PARTY TRANSACTIONS
Due from/to Related Party
The Company has entered into agreements with Nanning Tongji Chain Pharmacy Co.
Ltd. and Guangxi Tongji Medicine Co. Ltd. whereby the Company from time to time
will advance amounts to assist them in their operations. The three companies
have common major shareholders. The advanced amounts accrue interest at a rate
of 6% per annum. The amount of receivable as of September 30, 2008 and December
31, 2007 were $416,467 and $1,516,026. Interest incomes for the nine month
periods ended September 30, 2008 and 2007 were $46,015and $23,685, respectively.
The Company has entered into an agreement with the Chairman and the shareholder
of the Company whereby the Company from time to time will be advanced amounts to
assist them in their operations. The advanced amounts accrue interest at a rate
of 6% per annum. As of September 30, 2008 and December 31, 2007, $3,007,837, and
$1,563,842 were payable to their Chairman, shareholder and Guangxi Tongji
Medicine Co. Ltd. respectively. Interest expenses for the nine month periods
ended September 30, 2008 and 2007 were $105,478 and $78,491, respectively.
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). Based on the exchange rate at September 30, 2008,
minimum future lease payments are as follows:
1 year after September 30, 2008 $7,263
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NOTE 10 - MAJOR CUSTOMERS AND SUPPLIERS
The Company had three suppliers that accounted for 60%, 16% and 13% of purchase
for the nine month periods ended September 30, 2008. Accounts payable from these
major suppliers were $0, $47,217 and $26,195 as of September 30, 2008.
The Company did not have any major customers for the nine month periods ended
September 30, 2008 as the customers are mostly patients.
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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 filing. Our financial statements have
been prepared in accordance with U.S. GAAP. In addition, our financial
statements and the financial data included in this filing reflect our
reorganization and have been prepared as if our current corporate structure had
been in place throughout the relevant periods. The following discussion and
analysis contains forward-looking statements that involve risks and
uncertainties. Actual results could differ materially from those projected in
the forward-looking statements.
Overview
We were organized as a Nevada corporation on December 19, 2006. On December 27,
2006 we issued 15,652,557 shares of our common stock to acquire all outstanding
shares of Nanning Tongji Hospital Co., Ltd., which we refer to as "Tongji
Hospital," a PRC company which was formed in October 30, 2003. The purpose of
the transaction was to redomicile us as a Nevada corporation. Unless otherwise
indicated, all references to us throughout this filing include 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 prospectus.
Results of Operation
Material changes of items in our Statement of Operations for the three and nine
month periods ended September 30, 2008, as compared to the nine month periods
ended September 30, 2007, 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, and a change in our
patient mix Generally, we receive greater revenue from an inpatient, as opposed
to an outpatient, due to the length of the stay and the services provided to an
inpatient.
Gross profit: Our gross profit, as a percentage of our gross revenue, was 57%
during the nine month period ended September 30, 2008, as compared to our gross
profit percentage of 43% during nine month period ended September 30, 2007.
Operating Expenses: Selling expenses increased mainly because the salary expense
was recorded as selling expense in 2008 but was recorded as cost of revenue in
2007. Also we spent more amounts on repairing our medical equipment. General and
administrative expenses increased due to increased professional fees.
Depreciation, amortization expenses increased mainly due to the depreciation and
amortization of new leased medical equipments.
1
Trends, Events and Uncertainties
The China Ministry of Health, as well as other related agencies, has proposed
changes to the prices we can charge for medical services, drugs and medications.
We cannot predict the impact of these proposed changes since the changes are not
fully defined and we do not know whether those proposed changes will ever be
implemented or when they may take effect.
In accordance with the relevant laws and regulations of PRC our income tax rate
would typically be 33%. However we have received a waiver from the taxing
authorities in the PRC for corporate income tax for the years ended 2004, 2005
and 2006. Beginning in 2007, we are taxed at the normal rate of 33%. Commencing
2008, the corporate income tax rate is 25%.
In addition, we would normally be required to pay a business 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.
2
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 payers, 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
payer arrangements are based upon the payment terms specified in the related
contractual agreements. Third-party payer 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 payers, 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
Our material sources and (uses) of cash during the nine month period ended
September 30, 2008 and 2007 were presented as follows:
2008 2007
---- ----
Cash provided by operations $ 131,940 $156,278
Collections from (advances to) related parties 1,178,713 (298,261)
Construction costs of new hospital and cost of
new medical equipment (2,002,603) -
Payments of Notes Payable (429,620) -
Loan from third parties - 394,755
Payments toward capitalized leas obligations (227,547) -
Advances(from (to) related parties 1,291,079 (225,124)
3
Future payments due on our material contractual obligations as of September 30,
2008 are as follows:
Item Total 2009 2010 2011 Thereafter
Capital Leases $853,625 $393,981 $393,981 $65,663 -
Except as shown above, as of September 30, 2008 we did not have any material
capital requirements.
Virtually all of our accounts receivable at September 30, 2008 were due from the
Nanning and Guangxi Medicare agencies. The age of our accounts receivable as of
September 30, 2008 and December 31, 2007 is shown below:
September 30, 2008 December 31, 2007
Less than 30 days old 26% 37%
31 to 60 days old 25% 26%
61 to 90 days old 24% 21%
Over 90 days old 24% 16%
A receivable is recorded as a bad debt and is written off if it is more than 90
days old and we consider it to be uncollectible. During the nine month periods
ended September 30, 2008 and 2007 we did not write off any bad debts.
Income from our operations has been, and is expected to be in the future, our
primary source of cash.
We do not have any off-balance sheet items reasonably likely to have a material
effect on our financial condition.
ITEM 4T. CONTROLS AND PROCEDURES
Yun-Hui Yu, our Principal Executive Officer, and Wei-Dong Huang, our Principal
Financial Officer, evaluated the effectiveness of our disclosure controls and
procedures as of the end of the period covered by this report; and in their
opinion our disclosure controls and procedures were effective.
Our management is responsible for establishing and maintaining adequate internal
control over financial reporting as required by Sarbanes-Oxley (SOX) Section
404.A. Our internal control over financial reporting is a process designed under
the supervision of its Chief Executive and Financial Officer to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of our financial statements for external purposes in accordance with
Generally Accepted Accounting Principles.
As of the end of the period covered by this report, our management assessed the
effectiveness of our internal control over financial reporting based on the
criteria for effective internal control over financial reporting established in
Internal Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission ("COSO") and SEC guidance on conducting
such assessments. Based on that evaluation, our management concluded that during
the period covered by this report our internal controls and procedures were
effective.
4
There were no changes in our internal controls over financial reporting that
occurred during the quarter ended September 30, 2008 that have affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
PART II
OTHER INFORMATION
Item 6. Exhibits
Exhibit
Number Exhibit Name
31 Rule 13a-14(a) Certifications
32 Section 1350 Certifications
5
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.
TONGJI HEALTHCARE GROUP, INC.
October 31, 2008 By: /s/ Yun-hui Yu
------------------------------
Yun-hui Yu, Principal Executive Officer
October 31, 2008 By: /s/ Wei-dong Huang
------------------------------
Wei-dong Huang, Principal Financial and
Accounting Officer