UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended March 31, 2009
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from _____ to _______
Commission File Number: None
TONGJI HEALTHCARE GROUP, INC.
------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Nevada None
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
No. 5 Beiji Road
Nanning, Guangxi, China
-------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number including area code: 0086-771-2020000
N/A
----------------------------------------------------------------------
Former name, former address, and former fiscal year, if changed
since last report
Indicate by check mark whether the registrant (1) filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the past 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definition of "large accelerated filer", "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Larger accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
Indicate by check mark whether registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes [ ] No [X]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 15,812,391 shares outstanding
as of May 12, 2009.
TONGJI HEALTHCARE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2009 AND DECEMBER 31, 2008
(UNAUDITED)
March 31, 2009 December 31, 2008
-------------- -----------------
ASSETS
Current Assets
Cash and cash equivalents $ 62,709 $ 61,826
Accounts receivable, net 261,089 267,574
Due from related parties 54,855 268,815
Medicine supplies 89,173 144,746
Prepaid expenses and other current assets 129,001 128,761
------------- -------------
Total Current Assets 596,827 871,722
Property, Plant and Equipment, net 4,450,953 4,323,445
Capital Lease Deposit 153,383 153,903
------------- -------------
TOTAL ASSETS $ 5,201,163 $ 5,349,070
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses $ 310,240 $ 240,528
Due to related parties 3,678,015 3,367,857
Other payable 196,435 351,499
Deferred gain on sale & lease back 111,170 111,547
Capital lease obiligation-short term 350,233 343,527
------------- -------------
Total Current Liabilities 4,646,093 4,414,958
Long Term Liabilities
Capital lease obligation 252,198 343,922
Deferred gain on sale & lease back 73,799 101,936
------------- -------------
Total Long Term Liabilities 325,997 445,858
------------- -------------
Total Liabilities 4,972,090 4,860,816
STOCKHOLDERS' EQUITY
Preferred stocks; $0.001 par value,
20,000,000 shares authorized and 0
share issued and outstanding - -
Common stocks; $0.001 par value, 100,000,000
shares authorized and 15,812,391 and
15,812,391 shares issued and outstanding
as of March 31, 2009 and December 31, 2008 15,813 15,813
Additional paid in capital 424,967 424,967
Statutory reserve 41,812 41,812
Accumulated Deficit (328,223) (70,727)
Accumulated other comprehensive income 74,704 76,389
------------- -------------
Total Stockholders' Equity 229,073 488,254
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,201,163 $ 5,349,070
============= =============
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
1
TONGJI HEALTHCARE GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME
FOR THE THEREE MONTH PERIODS ENDED MARCH 31, 2009 AND 2008
(UNAUDITED)
2009 2008
-------------- --------------
OPERATING REVENUE:
Patient service revenues $ 156,352 $ 284,558
Other operating revenues 269,042 298,551
------------ -----------
Total operating revenue 425,393 583,109
------------ -----------
OPERATING EXPENSES:
Selling, General and administrative expenses 280,355 240,581
Medicine and supplies 243,567 299,788
Depreciation expenses 97,254 93,236
------------ -----------
Total operating expenses 621,175 633,605
------------ -----------
LOSS FROM OPERATIONS (195,782) (50,496)
OTHER INCOME (EXPENSE)
Other income, net of expense 768 957
Interest expense, net of income (62,482) (85,573)
------------ -----------
Total Other Expense (61,714) (84,616)
------------ -----------
NET LOSS (257,496) (135,112)
------------ -----------
Foreign currency translation gain(loss) (1,684) 17,675
------------ -----------
COMPREHENSIVE INCOME (LOSS) $ (259,180) $ (117,437)
============ ===========
NET INCOME (LOSS) PER BASIC AND DILUTED SHARES $ (0.016) $ (0.009)
============ ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 15,812,391 15,652,557
============ ===========
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
2
TONJI HEALTHCARE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTH PERIODS ENDED MARCH 31, 2009 AND 2008
(UNAUDITED)
2009 2008
-------------- --------------
Cash flows from operating activities:
Net income (loss) $ (257,496) $ (135,112)
Adjustments to reconcile net income (loss) to
Net cash provided by operating activities:
Depreciation and amortization 97,254 93,236
Allowance for doubtful accounts 37,076 -
Increase/(decrease) in assets and liabilities:
Accounts receivable 5,581 50,492
Medicine supplies 55,077 75,589
Prepaid expense and other current assets (37,751) 29,063
Accounts payable and accrued expenses 111,386 36,577
Unearned revenue (27,789) (26,576)
Other payables (144,817) 7,732
-------------- --------------
Total adjustment 96,018 266,113
-------------- --------------
Net Cash Provided By (Used in) Operating
Activities (161,478) 131,001
-------------- --------------
Cash flows from investing activities:
(Acquisitions) of fixed assets (3,359) (1,840)
Disposals of fixed assets 7,303 -
Payments for construction and lease back (243,274) (1,599,385)
Due from related parties 213,022 609,109
-------------- --------------
Net Cash Used in Investing Activities (26,309) (992,116)
-------------- --------------
Cash flows from financing activities:
Payments of capital lease (82,686) (72,252)
Due to related parties 271,564 980,830
-------------- --------------
Net Cash Provided by Financing Activities 188,878 908,578
-------------- --------------
Effects of foreign currency translation (208) 1,929
-------------- --------------
Net Increase (decrease) in Cash and Cash
Equivalents 883 49,392
Cash and Cash Equivalents-Beginning of Period 61,826 23,165
-------------- --------------
Cash and Cash Equivalents-Ending of Period $ 62,709 $ 72,557
============== ==============
Cash Paid During the Year for:
Income taxes $ - $ -
============== ==============
Interest paid $ 62,498 $ 155,818
============== ==============
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
3
TONGJI HEALTHCARE GROUP, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE THEREE MONTH PERIODS ENDED MARCH 31, 2009 AND 2008
(UNAUDITED)
Additional Accumulated Other Total
Number Paid In Statutory Retained Comprehensive Shareholders'
Of Shares Common Stock Capital Reserve Earning Income Equity
--------- ------------ ---------- --------- -------- ------------- -------------
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 - - - - 49,639 32,870 82,509
------------ ------------ ------------ ------------ ------------ ------------ ------------
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 - - - -
Transfer of statutory
reserves - - - - - - -
Net income for the year
ended December 31, 2008 - - - (131,806) 33,214 (98,592)
------------ ------------ ------------ ------------ ------------ ------------ ------------
Balance December 31, 2008 15,812,391 15,813 424,967 41,812 (70,727) 76,388 488,253
Net income for the three
month ended March 31, 2009 (257,496) (1,684) (259,180)
------------ ------------ ------------ ------------ ------------ ------------ ------------
Balance March 31, 2009 15,812,391 $ 15,813 $ 424,967 $ 41,812 $ (328,223) $ 74,704 $ 229,073
============ ============ ============ ============ ============ ============ ============
TONGJI HEALTHCARE GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2009
NOTE 1- ORGANIZATION AND BASIS OF PRESENTATION
Nanning Tongji Hospital, Inc. ("NTH") was established in Nanning in the province
of Guangxi of the Peoples Republic of China ("PRC") by the Nanning Tongji
Medical Co. Ltd. and an individual on October 30, 2003.
NTH is an assigned hospital for medical insurance in City of Nanning and Guangxi
Province. NTH contains specialties in the areas of internal medicine, surgery,
gynecology, pediatrics, emergency medicine, ophthalmology, medical cosmetology,
rehabilitation, dermatology, otolaryngology, traditional Chinese medicine,
medical imaging, anesthesia, acupuncture, physical therapy, health examination,
and prevention.
On December 19, 2006, the officers of NTH filed Articles of Incorporation in the
State of Nevada which was approved on December 19, 2006 to create Tongji
Healthcare Group, Inc. a Nevada corporation (the "Company") and also established
Tongji, Inc., a Colorado corporation ("Tongji") a wholly owned subsidiary of the
Company.
On December 27, 2006, Tongji acquired 100% of the equity in NTH pursuant to an
Agreement and Plan of. Pursuant to the acquisition of NTH, it became the wholly
owned subsidiary of Tongji. The Company incorporated with 50,000,000 shares of
common stock and 20,000,000 shares of preferred stock both with a par value of
$0.001. The Company issued 15,652,557 shares of common stock to the shareholders
of NTH in exchange for 100% of the issued and outstanding shares of NTH.
Thereafter and for purposes of these consolidated financial statements the
"Company" and "NTH" are used to refer to the operations of Nanning Tongji
Hospital Co. Ltd.
The acquisition of NTH was accounted for as a reverse acquisition under the
purchase method of accounting since the shareholders of NTH obtained control of
the consolidated entity. Accordingly, the reorganization of the two companies
was recorded as a recapitalization of NTH, with NTH being treated as the
continuing operating entity.
According to the PRC Regulation of Healthcare Institutions, hospitals shall be
subject to register with the Administration of Health of the local government to
obtain their license for hospital service operation. The Company received its
renewed operation license from Nanning's government in May of 2005, and this
license remains valid until the next scheduled renewing date of May 2009.
Other existing regulations having material effects on the Company's business
include those dealing with physician's licensing, usage of medicine and
injection, public security in health and medical advertising.
4
TONGJI HEALTHCARE GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2009
As the Company maintains a facility with an excess of 100 beds, they must have
their license renewed at least every three years. The Company is also obligated
to provide free service or dispatch their physicians or employees for public
assistance. The Company has a very small percentage of their service for this
area.
NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited financial statements of the Company have been
prepared in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation have been
included. Operating results for the interim periods are not necessarily
indicative of the results for any future period. These statements should be read
in conjunction with the Company's audited financial statements and notes thereto
for the fiscal year ended December 31, 2008. The results of the three month
period ended March 31, 2009 are not necessarily indicative of the results to be
expected for the full fiscal year ending December 31, 2009.
Principles of Consolidation
The consolidated financial statements include the accounts of Tongji Healthcare
Group, Inc. and its wholly owned subsidiaries Tongji, Inc. and Nanning Tongji
Hospital, Inc. All significant intercompany accounts and transactions have been
eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. On an on-going basis, the Company evaluates its
estimates, including, but not limited to, those related to depreciation, bad
debts, income taxes and contingencies. Actual results could differ from those
estimates.
Foreign Currency Translation
The Company's functional currency is that of the PRC which is the Chinese
Renminbi (RMB). The reporting currency is that of the US Dollar. Capital
accounts of the consolidated financial statements are translated into United
States dollars from RMB at their historical exchange rates when the capital
transactions occurred. Assets and liabilities are translated at the exchange
rates as of the balance sheet date. Income and expenditures are translated at
the average exchange rate of the year. The RMB is not freely convertible into
foreign currency and all foreign currency exchange transactions must take place
5
TONGJI HEALTHCARE GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2009
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
three month period ended March 31, 2009 and 2008, the Company recorded
approximately $(1,684) and $17,675 in transaction gains(loss) as a result of
currency translation.
Revenue Recognition
The Company's revenue recognition policies are in compliance with Staff
Accounting Bulletin (SAB) 104. Sales revenue is recognized at the date of
shipment to customers or services has been rendered when a formal arrangement
exists, the price is fixed or determinable, the delivery is completed, no other
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
6
TONGJI HEALTHCARE GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2009
additional risk. Hospital staff does perform verification of patient coverage
prior to examinations and/or procedures taking place
For any Medicare patient who visits the hospital that is qualified for
acceptance, the hospital will only include the portion that the social insurance
organization in the accounts receivable and collects the self-pay portion in
cash at the time of the service. At times, the pre-determined rate the hospital
will charge may be different than the approved Medicare rate, thus the
likelihood of some bad debt can occur. Management continues to evaluate this
estimate on an ongoing basis.
The Company has established a reserve for uncollectibles of $59,773 and $59,975
as of March 31, 2009 and December 31, 2008.
Prepaid expenses and other current assets
Prepaid expenses and other current assets consisted of the following as of March
31, 2009 and December 31, 2008:
March 31, 2009 December 31,2008
Other receivable $ 19,950 $ 54,364
Advance to suppliers 1,480 38,486
Prepaid expenses 107,571 35,910
--------- ----------
Total $129,001 $128,761
========= ==========
Prepaid expenses include amounts paid for the business plan and design fees for
the construction of the Company's new hospital.
Advertising Costs
The Company expenses the costs associated with advertising as incurred.
Advertising expenses for the three month periods ended March 31, 2009 and 2008
of $3,244 and $89,131, respectively are included in selling and promotional
expenses in the statements of income. Advertising costs include marketing
brochures and an advertising campaign to the public.
Impairment of Long-Lived Assets
Effective January 1, 2002, the Company adopted Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets" ("SFAS 144"), which addresses financial accounting and reporting for the
impairment or disposal of long-lived assets and supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," and the accounting and reporting provisions of APB Opinion No.
30, "Reporting the Results of Operations for a Disposal of a Segment of a
Business." The Company periodically evaluates the carrying value of long-lived
assets to be held and used in accordance with SFAS 144. SFAS 144 requires
impairment losses to be recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amounts. In
that event, a loss is recognized based on the amount by which the carrying
7
TONGJI HEALTHCARE GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2009
amount exceeds the fair market value of the long-lived assets. Loss on
long-lived assets to be disposed of is determined in a similar manner, except
that fair market values are reduced for the cost of disposal. Based on its
review, the Company believes that, as of March 31, 2009 and December 31, 2008
there were no significant impairments of its long-lived assets.
Earnings (Loss) Per Share of Common Stock
Earnings per share is calculated in accordance with the Statement of financial
accounting standards No. 128 (SFAS No. 128), "Earnings per share". SFAS No. 128
superseded Accounting Principles Board Opinion No.15 (APB 15). Net loss per
share for all periods presented has been restated to reflect the adoption of
SFAS No. 128. Basic net loss per share is based upon the weighted average number
of common shares outstanding. Diluted net loss per share is based on the
assumption that all dilutive convertible shares and stock options were converted
or exercised. Dilution is computed by applying the treasury stock method. Under
this method, options and warrants are assumed to be exercised at the beginning
of the period (or at the time of issuance, if later), and as if funds obtained
thereby were used to purchase common stock at the average market price during
the period.
The Company has not granted any options or warrants during 2009 or 2008, and
there are no options or warrants outstanding as of March 31, 2009 and December
31, 2008.
Income Taxes
The Company utilizes SFAS No. 109, "Accounting for Income Taxes," which requires
the recognition of deferred tax assets and liabilities for the expected future
tax consequences of events that have been included in the financial statements
or tax returns. Under this method, deferred income taxes are recognized for the
tax consequences in future years of differences between the tax bases of assets
and liabilities and their financial reporting amounts at each period end based
on enacted tax laws and statutory tax rates applicable to the periods in which
the differences are expected to affect taxable income. Valuation allowances are
established, when necessary, to reduce deferred tax assets to the amount
expected to be realized.
In accordance with the relevant tax laws and regulations of PRC and US, the
corporation income tax rate would typically be 33% in the PRC. The Company has
received a waiver (duty free certificate) from the taxing authorities in the PRC
for corporate enterprise income tax for the year ended 2004 through 2006.
Effective 2007, the Company will be taxed at the rate of 33%.
Beginning January 1, 2008, the new Enterprise Income Tax (EIT) law will replace
the existing laws for Domestic Enterprises (DES) and Foreign Invested
Enterprises (FIEs). The new standard EIT rate of 25% will replace the 33% rate
currently applicable to both DES and FIEs.
8
TONGJI HEALTHCARE GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2009
In addition, companies in the PRC are required to pay business taxes consisting
of 5% of income they derive from providing medical treatment and city
construction taxes, and educational taxes are based on 7% and 3% of the business
taxes, and the Company had accrued these taxes for 2005. Although the Company
received notification that it was exempt from these taxes for the years ending
2006 through 2008, the Company is required to pay these taxes in 2009 and in
subsequent years.
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". This Statement amends ARB 51 to establish
accounting and reporting standards for the noncontrolling (minority) interest in
a subsidiary and for the deconsolidation of a subsidiary. It 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. SFAS No. 160 is effective for the Company's fiscal year
beginning January 1, 2009. Management does not believe this pronouncement will
have a material effect on the Company's financial statements.
In December 2007, the FASB issued SFAS No. 141(R), "Business Combinations". This
Statement replaces SFAS No. 141, Business Combinations. This Statement retains
the fundamental requirements in Statement 141 that the acquisition method of
accounting (which Statement 141 called the purchase method) be used for all
business combinations and for an acquirer to be identified for each business
combination. This Statement also establishes principles and requirements for how
the acquirer: a) recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, and any noncontrolling
interest in the acquiree; b) recognizes and measures the goodwill acquired in
the business combination or a gain from a bargain purchase and c) determines
what information to disclose to enable users of the financial statements to
evaluate the nature and financial effects of the business combination. SFAS No.
141(R) will apply prospectively to business combinations for which the
acquisition date is on or after Company's fiscal year beginning January 1, 2009.
The Company will be required to expense costs related to any acquisitions after
9
TONGJI HEALTHCARE GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2009
December 31, 2008. Management does not believe this pronouncement will have a
material effect on the Company's financial statements.
In May of 2008, the 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.
NOTE 3- PROPERTY & EQUIPMENT
Property & equipment as of March 31, 2009 and December 31, 2008 comprised of
following:
Estimated March 31, December 31,
Useful Lives 2009 2008
------------ ---------- ------------
(Years)
Office equipment 5-10 $ 72,746 $ 80,320
Medical equipment 5 1,103,131 1,103,494
Fixtures 10 105,994 106,353
Vehicles 5 40,674 40,813
Construction in Progress 3,775,447 3,544,097
--------- ---------
$5,097,992 $4,875,077
Less: accumulated depreciation (647,039) (551,632)
---------- ----------
Property and equipment, net $4,450,953 $4,323,445
========== ==========
Depreciation expense charged to operations was $97,254 and $93,236 for the three
month periods ended March 31, 2009 and 2008, respectively.
NOTE 4- MEDICINE SUPPLIES
Medicine supplies consisted of the following as of March 31, 2009 and December
31, 2008, 2007:
March 31, 2009 December 31, 2008
-------------- -----------------
Western medicine $68,061 $ 3,543
Traditional Chinese medicine 21,112 141,203
-------- ---------
Total $89,173 $144,746
======= ========
10
TONGJI HEALTHCARE GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2009
NOTE 5 - MAJOR CUSTOMERS AND SUPPLIERS
The Company had three suppliers that accounted for 55%, 14% and 12% of purchase
for the three month periods ended March 31, 2009. Accounts payable from these
major suppliers were $0, $21,923 and $29,279 as of March 31, 2009.
The Company does not have any major customers for the three month periods ended
March 31, 2009 as the customers are mostly patients.
NOTE 6- CAPITAL LEASE OBLIGATIONS:
Lease Deposit
The lease deposit as of March 31, 2009 and December 31, 2008 and were $153,383
and $153,903 respectively. It is due in November 2010.
Deferred Gain on Sale and Lease Back
The total gain on sale and lease back was $333,510. According to SFAS 13
"Accounting for Leases" this gain is deferred and amortized over the Lease term
of 36 months. Accordingly, $27,786 and $26,576 were amortized for the three
month periods ended March 31, 2009 and 2008 respectively.
The deferred revenue outstanding as of March 31, 2009 and December 31, 2008 were
as follows:
March 31, 2009 December 31, 2008
------------- -----------------
Current $ 111,170 $ 111,547
Long term 73,799 101,936
----------- ----------
$ 184,969 $ 213,483
========= =========
Capital Lease Obligations
In 2007, the Company leased various equipments under capital leases expiring in
2010. The assets and liabilities under capital leases are recorded at the lower
of the present value of the minimum lease payments or the fair value of the
asset. The assets are depreciated over the lesser of their related lease terms
or their estimated productive lives. Depreciation of assets under capital leases
was included in depreciation expense for the three month periods ended March 31,
2009.
Aggregate minimum future lease payments under capital leases for next five years
after March 31, 2009 are as follows:
11
TONGJI HEALTHCARE GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2009
2009 $ 390,775
2010 260,517
Total $ 651,292
===========
Capital lease obligations represent the following at March 31, 2009 and December
31, 2008:
March 31, 2009 December 31, 2008
-------------- -----------------
Total minimum lease payments $ 651,292 $ 751,521
Less : Interest expense relating to
future periods (48,861) (64,073)
----------- -----------
Present value of the minimum lease payments 602,431 687,448
Less: current portion 350,233 (343,526)
----------- -----------
Non-current portion $ 252,198 $ 343,922
=========== ===========
Following is a summary of fixed assets held under capital leases at March 31,
2009 and December 31, 2008:
March 31, 2009 December 31, 2008
-------------- -----------------
Medical Equipment $ 1,022,555 $1,026,017
Less: accumulated depreciation (462,401) (376,977)
------------ -----------
Capital leased fixed assets, Net $ 560,154 $ 649,040
============ ===========
NOTE 7- OTHER PAYABLE
Other payable as of March 31, 2009 and December 31, 2008 consists of the
following:
March 31, 2009 December 31, 2008
Advance from customers $ 6,467 $ 5,397
Welfare payable 81,448 84,161
Other payable 108,520 261,941
--------- ----------
Total $ 196,435 $ 351,499
========= ==========
12
TONGJI HEALTHCARE GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2009
NOTE 8- STOCKHOLDERS' EQUITY
Common Stock
As of March 31, 2009 and December 31, 2008, the Company has 100,000,000 shares
of common stock authorized with a par value of $0.001.
During the period ended December 31, 2008, the Company issued 177,834 shares for
$77,780.and cancelled 18,000 previously issued shares issued in error. The
Company did not issue any shares during the three month period ended March 31,
2009.
The Company has not granted any options or warrants during 2009 or 2008, and
there are no options or warrants outstanding as of March 31, 2009 and December
31, 2008.
Preferred Stock
As of March 31, 2009 and December 31, 2008, the Company had 20,000,000 shares of
preferred stock authorized with a par value of $0.001. As of March 31, 2009 no
preferred shares were 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;
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.
13
TONGJI HEALTHCARE GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2009
The Company did not appropriate reserve for the statutory surplus reserve for
the three month periods ended March 31, 2009, and 2008.
NOTE 9- PROVISION FOR INCOME TAXES
In accordance with the relevant tax laws and regulations of PRC, the corporate
income tax rate is 25%. As noted, the corporate income tax for 2004 through 2006
was 0% due to the Company's receipt of a waiver (tax relief) from the PRC
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 three month period ended March 31, 2009 and 2008 is
summarized as follows:
2009 2008
----------- -----------
U.S. Federal and State Current $ -- $ --
U.S. Federal and State Deferred -- --
PRC - Current -- --
----------- -----------
PRC - Deferred -- 46,000
----------- -----------
Less: Valuation allowance -- (46,000)
----------- -----------
Income tax expense (benefit) $ -- $ --
=========== ===========
A reconciliation of the effective income tax rate is as follows:
2009 2008
---------- ----------
Tax at U.S. Federal rate 34% 34%
U.S. tax exemption (34)% (34)%
------- ------
0% 0%
PRC Tax rate 25% 25%
Valuation allowance (25)% (25)%
------- ------
Current tax provision 0% 0%
The Company does not have any significant deferred tax asset or liabilities in
the PRC tax jurisdiction as of March 31,2009.
14
TONGJI HEALTHCARE GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2009
NOTE 10- RELATED PARTY TRANSACTIONS
Due from/to Related Parties
The Company has entered into agreements with Nanning Tongji Chain Pharmacy Co.
Ltd. and Guangxi Tongji Medicine Co. Ltd. whereby the Company from time to time
will advance amounts to assist them in their operations. The three companies
have common major shareholders. The advanced amounts accrue interest at a rate
of 6% per annum. The amount of receivable as of March 31, 2009 and December 31,
2008 were $54,855 and $268,815. Interest income for the three months ended March
31, 2009 and 2008 was $0 and $13,253, 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 March 31, 2009 and December 31, 2008, $3,678,015, and
$3,367,857 were payable to their Chairman, shareholder and Guangxi Tongji
Medicine Co. Ltd. respectively. Interest expenses for the three month periods
ended March 31, 2009 and 2008 were $49,913 and $41,338, respectively.
Rental
The Company has entered into a lease agreement for their hospital with Guangxi
Tongji Medicine Co. Ltd that expires December 2008. The Company renewed the
lease for additional 5 years at monthly rate of $2,366 (RMB16,439). Based on the
exchange rate at March 31, 2009, minimum future 5 years lease payments are as
follows:
2010 $ 28,812
2011 28,812
2012 28,812
2013 28,812
----------
Total $ 115,249
==========
15
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation
You should read the following discussion and analysis of our financial
condition and results of operations in conjunction with our financial statements
and the related notes included elsewhere in this report. Our financial
statements have been prepared in accordance with U.S. GAAP. In addition, our
financial statements and the financial data included in this report reflect our
reorganization and have been prepared as if our current corporate structure had
been in place throughout the relevant periods. The following discussion and
analysis contains forward-looking statements that involve risks and
uncertainties. Actual results could differ materially from those projected in
the forward-looking statements.
Overview
We were organized as a Nevada corporation on December 19, 2006. On
December 27, 2006 we issued 15,652,557 shares of our common stock to acquire all
outstanding shares of Nanning Tongji Hospital Co., Ltd., which we refer to as
"Tongji Hospital," a PRC company which was formed in October 30, 2003. The
purpose of the transaction was to redomicile us as a Nevada corporation. Unless
otherwise indicated, all references to us throughout this report includes the
operations of Tongji Hospital.
Our critical accounting policies, as well as recent accounting
pronouncements which apply to us, are described in Note 2 to our financial
statements which are included as part of this report.
Results of Operation
- --------------------
Material changes of items in our Statement of Operations for the three
months ended March 31, 2009, as compared to the three months ended March 31,
2007, are discussed below.
Patient Service Revenue: The decrease in revenues was primarily the result
of road construction near our hospital which reduced patient visits.
Gross profit: The decline in our gross profit percentage during the three
months ended March 31, 2009 was the primary result of salary being recorded as
cost of revenue for three months ended March 31, 2009 as opposed to being
recorded as selling expenses for the three months ended March 31, 2008. An
increase in the cost of drugs also contributed to the decrease in our gross
profit percentage.
Operating Expenses: Selling expenses declined during the three months
ended March 31, 2009 primarily due to the fact that legal and accounting fees
were recorded in this category in 2008, as opposed to being recorded as general
and administrative expenses. General and administrative expenses increased since
legal and accounting expenses were recorded in this category during the three
months ended March 31, 2009 as opposed to being recorded as selling expenses in
2008. An increase in our reserves for bad debts during the period also
contributed to the increase.
16
Trends, Events and Uncertainties
The China Ministry of Health, as well as other related agencies, have
proposed changes to the prices we can charge for medical services, drugs and
medications. We cannot predict the impact of these proposed changes since the
changes are not fully defined and we do not know whether those proposed changes
will ever be implemented or when they may take effect.
In accordance with the relevant laws and regulations of PRC our income tax
rate is typically be 33%.
We are required to pay a tax of 5% of the income derived from providing
medical treatment plus city construction and educational taxes equal to 7% and
3% respectively, of the business tax. We were exempt from these taxes in 2008.
We are building a new 600-bed hospital in Nanning, China. We expect the
new hospital to be completed by January 2011. The hospital is being built by
Guangxi Construction Engineering Group Corporation and, when completed, will be
leased by us for a twenty-year term. The lease payment will be $381,000 during
the first year of the lease. The annual lease payments will gradually increase
each year such that, during the final year of the lease, our lease payments will
be $801,783, based upon current exchange rates. Our agreement with Langdong 8th
Group requires us to make payments of approximately $5,600,000 to Langdong 8th
Group during the construction phase. As of March 31, 2009 we had paid $3,775,447
towards this amount.
Other than the factors listed above we do not know of any trends, events
or uncertainties that have had or are reasonably expected to have a material
impact on our net sales or revenues or income from continuing operations. Our
business is not seasonal in nature.
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
17
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
- -------------------------------
The following shows our material sources and (uses) of cash during the
periods presented:
Three Months Ended March 31,
2009 2008
Cash (used in) provided by operations $(161,478) $131,003
Purchase of medical equipment (3,359) (1,840)
Sale of equipment 7,303 --
Construction of new hospital (243,274) (1,599,385)
Net advances from related parties 484,586 1,589,939
Capital lease payments (82,686) (72,252)
Other (208) 1,929
Future payments due on our material contractual obligations as of March 31, 2009
are as follows:
Item Total 2009 2010 2011 2012 2013 Thereafter
- ---- ----- ---- ---- ---- ---- ---- ----------
Medical Building Lease $ 113,572 $ -- $ 28,393 $ 28,393 $ 28,393 $ 28,393 $ --
Capital Leases $ 336,167 $ -- $336,167 -- -- -- $ --
Lease on New Hospital $1,187,248 $ -- -- $381,092 $395,749 $410,407 $ --
18
Except as shown above, as of March 31, 2009 we did not have any material
capital requirements.
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 uncollectable. During the three months
ended March 31, 2009 and the years ended December 31, 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 4. Controls and Procedures.
(a) Tongji maintains a system of controls and procedures designed to
ensure that information required to be disclosed in reports filed or submitted
under the Securities Exchange Act of 1934, as amended ("1934 Act"), is recorded,
processed, summarized and reported, within time periods specified in the SEC's
rules and forms and to ensure that information required to be disclosed by
Tongji in the reports that it files or submits under the 1934 Act, is
accumulated and communicated to Tongji's management, including its Principal
Executive Officer and Principal Financial Officer, as appropriate to allow
timely decisions regarding required disclosure. As of March 31, 2009, Tongji's
Principal Executive Officer and Principal Financial Officer evaluated the
effectiveness of the design and operation of Tongji's disclosure controls and
procedures. Based on that evaluation, the Principal Executive Officer and
Principal Financial Officer concluded that Tongji's disclosure controls and
procedures were effective.
(b) Changes in Internal Controls. There were no changes in Tongji's
internal control over financial reporting during the quarter ended March 31,
2009, that materially affected, or are reasonably likely to materially affect,
its internal control over financial reporting.
PART II
Item 6. Exhibits
Exhibits
31.1 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TONGJI HEALTHCARE GROUP, INC.
May 13, 2009 By: /s/ Yun-hui Yu
------------------------------------
Yun-hui Yu, Principal Executive Officer
May 13, 2009 By: /s/ Wei-dong Huang
------------------------------------
Wei-dong Huang, Principal Financial and
Accounting Officer