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 September 30, 2009
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from _____ to _______
Commission File Number: None
TONGJI HEALTHCARE GROUP, INC.
---------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Nevada None
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
No. 5 Beiji Road
Nanning, Guangxi, China
-----------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number including area code: 0086-771-2020000
N/A
----------------------------------------------------------------------
Former name, former address, and former fiscal year, if changed
since last report
Indicate by check mark whether the registrant (1) filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the past 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definition of "large accelerated filer", "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Larger accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
Indicate by check mark whether registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes [ ] No [X]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 15,812,391 shares outstanding
as of November 10, 2009.
TONGJI HEALTHCARE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2009 AND DECEMBER 31, 2008
(UNAUDITED)
September 30, 2009 December 31, 2008
------------------ -----------------
ASSETS
Current Assets
Cash and cash equivalents $ 16,587 $ 61,826
Accounts receivable, net 269,271 267,574
Due from related parties 76,279 268,815
Medicine supplies 99,165 144,746
Prepaid expenses and other current assets 64,644 128,761
------------- -------------
Total Current Assets 525,947 871,722
Property, Plant and Equipment, net 5,082,907 4,323,445
Capital Lease Deposit 153,563 153,903
------------- -------------
TOTAL ASSETS $ 5,762,416 $ 5,349,070
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses $ 336,883 $ 240,528
Due to related parties 4,669,698 3,367,857
Other payables 195,967 351,499
Deferred gain on sale and lease back 111,300 111,547
Capital lease obligation-short term 368,659 343,527
------------- -------------
Total Current Liabilities 5,682,507 4,414,958
Long Term Liabilities
Capital lease obligation 64,857 343,922
Deferred gain on sale and lease back 18,235 101,936
------------- -------------
Total Long Term Liabilities 83,092 445,858
------------- -------------
Total Liabilities 5,765,599 4,860,816
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 shares issued and
outstanding as of September 30, 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 (560,733) (70,727)
Accumulated other comprehensive income 74,959 76,389
------------- -------------
Total Stockholders' Equity (Deficit) (3,182) 488,254
------------- -------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY (Deficit) $ 5,762,416 $ 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 (LOSS)
FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2009 AND 2008
(UNAUDITED)
For the three month For the nine month
periods ended periods ended
September 30, September 30,
2009 2008 2009 2008
------------ ------------ ------------ ------------
OPERATING REVENUE
Patient service revenue $ 159,602 $ 300,398 $ 475,992 $ 861,290
Other operating revenue 273,730 382,554 825,840 1,116,971
------------ ------------ ------------ ------------
Total operating revenue 433,332 682,952 1,301,832 1,978,261
OPERATING EXPENSES
Selling, general and
administrative expenses 385,856 279,378 820,709 725,063
Medicine and supplies 228,770 276,442 691,408 844,989
Depreciation expenses 42,681 98,772 91,327 288,887
------------ ------------ ------------ ------------
Total operating expenses 657,308 654,592 1,603,445 1,858,939
------------ ------------ ------------ ------------
INCOME (LOSS) FROM OPERATIONS (223,976) 28,360 (301,613) 119,321
OTHER INCOME (EXPENSE)
Other income (expense) 2,836 (3,300) 5,061 (4,098)
Interest expense, net of
income (67,243) (50,756) (193,455) (141,668)
------------ ------------ ------------ ------------
Total Other Expense (64,406) (54,056) (188,393) (145,766)
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME
TAXES (288,382) (25,696) (490,006) (26,444)
Provision for Income Taxes - - - (7,916)
------------ ------------ ------------ ------------
NET INCOME (LOSS) (288,382) (25,696) (490,006) (34,360)
Foreign currency translation
gain (loss) 85 5,355 (1,429) 37,646
------------ ------------ ------------ ------------
COMPREHENSIVE INCOME (LOSS) $ (288,297) $ (20,341) $ (491,435) $ 3,286
============ ============ ============ ============
NET INCOME (LOSS) PER BASIC
AND DILUTED SHARES $ (0.018) $ (0.002) $ (0.031) $ (0.002)
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 15,812,391 15,812,391 15,812,391 15,741,807
============ ============ ============ ============
Basic and diluted weighted average shares outstanding are the same as there is
no anti-dilutive effect.
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 NINE MONTH PERIODS ENDED SEPTEMBER 30, 2009 AND 2008
(UNDAUDITED)
2009 2008
---- ----
Cash flows from operating activities:
Net loss $ (490,006) $ (34,360)
Adjustments to reconcile net loss to
Net cash provided by (used in) operating
activities:
Depreciation and amortization 91,327 288,887
Allowance for doubtful accounts 42,213 -
Increase/(decrease) in assets and liabilities:
Accounts receivable (2,286) (24,598)
Inventory 45,229 8,895
Prepaid expense and other current assets 21,573 (144,295)
Accounts payable and accrued expenses 88,971 64,163
Unearned revenue (83,415) (81,738)
Other payables (146,800) 54,984
----------- -----------
Total adjustment 56,812 166,299
----------- -----------
Net Cash Provided By (Used in) Operating
Activities (433,194) 131,940
----------- -----------
Cash flows from investing activities:
(Acquisitions) of fixed assets (12,212) (25,818)
Disposals of fixed assets 7,307 -
Payments for construction in progress (854,880) (2,002,603)
Due from related parties 191,804 1,178,713
----------- -----------
Net Cash Used in Investing Activities (667,981) (849,708)
----------- -----------
Cash flows from financing activities:
(Payment) proceeds of note payable - (429,620)
Issuance of stock - 76,401
Payments of capital lease (252,234) (227,547)
Due to related parties 1,308,339 1,291,079
----------- -----------
Net Cash Provided by Financing Activities 1,056,105 710,314
----------- -----------
Effects of foreign currency translation (169) 1,508
----------- -----------
Net Increase (decrease) in Cash and Cash
Equivalents (45,239) (5,946)
Cash and Cash Equivalents-Beginning of Period 61,826 23,165
----------- -----------
Cash and Cash Equivalents-Ending of Period $ 16,587 $ 17,219
=========== ===========
Cash Paid During the Year for:
Income taxes $ -- $ 7,916
=========== ===========
Interest paid $ 34,469 $ 84,015
=========== ===========
Supplemental disclosures for non cash
financing activities
Shares issued against subscription receivable $ - $ 77,780
=========== ===========
Shares cancelled $ - $ 18
=========== ===========
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
3
TONGJI HEALTHCARE GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2009
NOTE 1- ORGANIZATION AND BASIS OF PRESENTATION
Nanning Tongji Hospital, Inc. ("NTH") was established in Nanning in the province
of Guangxi of the Peoples Republic of China ("PRC") by the Nanning Tongji
Medical Co. Ltd. and an individual on October 30, 2003.
NTH is an assigned hospital for medical insurance in City of Nanning and Guangxi
Province. NTH contains specialties in the areas of internal medicine, surgery,
gynecology, pediatrics, emergency medicine, ophthalmology, medical cosmetology,
rehabilitation, dermatology, otolaryngology, traditional Chinese medicine,
medical imaging, anesthesia, acupuncture, physical therapy, health examination,
and prevention.
On December 19, 2006, the officers of NTH filed Articles of Incorporation in the
State of Nevada which was approved on December 19, 2006 to create Tongji
Healthcare Group, Inc. a Nevada corporation (the "Company") and also established
Tongji, Inc., a Colorado corporation ("Tongji") a wholly owned subsidiary of the
Company.
On December 27, 2006, Tongji acquired 100% of the equity in NTH pursuant to an
Agreement and Plan of. Pursuant to the acquisition of NTH, it became the wholly
owned subsidiary of Tongji. The Company incorporated with 50,000,000 shares of
common stock and 20,000,000 shares of preferred stock both with a par value of
$0.001. The Company issued 15,652,557 shares of common stock to the shareholders
of NTH in exchange for 100% of the issued and outstanding shares of NTH.
Thereafter and for purposes of these consolidated financial statements the
"Company" and "NTH" are used to refer to the operations of Nanning Tongji
Hospital Co. Ltd.
The acquisition of NTH was accounted for as a reverse acquisition under the
purchase method of accounting since the shareholders of NTH obtained control of
the consolidated entity. Accordingly, the reorganization of the two companies
was recorded as a recapitalization of NTH, with NTH being treated as the
continuing operating entity.
According to the PRC Regulation of Healthcare Institutions, hospitals shall be
subject to register with the Administration of Health of the local government to
obtain their license for hospital service operation. The Company received its
renewed operation license from Nanning's government in November 2007, and this
license remains valid until the next scheduled renewing date which will be in
November 2010 .
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
SEPTEMBER 30, 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 nine month
period ended September 30, 2009 are not necessarily indicative of the results to
be expected for the full fiscal year ending December 31, 2009.
Principles of Consolidation
The consolidated financial statements include the accounts of Tongji Healthcare
Group, Inc. and its wholly owned subsidiaries Tongji, Inc. and Nanning Tongji
Hospital, Inc. All significant intercompany accounts and transactions have been
eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. On an on-going basis, the Company evaluates its
estimates, including, but not limited to, those related to depreciation, bad
debts, income taxes and contingencies. Actual results could differ from those
estimates.
Foreign Currency Translation
The Company's functional currency is that of the PRC which is the Chinese
Renminbi (RMB). The reporting currency is that of the US Dollar. Capital
accounts of the consolidated financial statements are translated into United
States dollars from RMB at their historical exchange rates when the capital
transactions occurred. Assets and liabilities are translated at the exchange
rates as of the balance sheet date. Income and expenditures are translated at
the average exchange rate of the year. The RMB is not freely convertible into
foreign currency and all foreign currency exchange transactions must take place
through authorized institutions. No representation is made that the RMB amounts
could have been, or could be, converted into US dollar at the rates used in
translation.
5
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, 2009 and 2008, the Company recorded
approximately $(1,429) and $37,646 respectively in translation gains (loss) as a
result of currency translation.
Revenue Recognition
The Company's revenue recognition policies are in compliance with Staff
Accounting Bulletin 104 (ASC 605). 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
additional risk. Hospital staff does perform verification of patient coverage
prior to examinations and/or procedures taking place
6
TONGJI HEALTHCARE GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2009
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 $59,843 and $59,975
as of September 30, 2009 and December 31, 2008. Prepaid expenses and other
current assets Prepaid expenses and other current assets consisted of the
following as of September 30, 2009 and December 31, 2008:
September 30, 2009 December 31,2008
Other receivable $ 15,737 $ 54,364
Advance to suppliers 10,792 38,486
Prepaid expenses 38,115 35,910
--------- ---------
Total $ 64,644 $128,761
Prepaid expenses include amounts paid for the business plan and design fees for
a new hospital under construction.
Advertising Costs
The Company expenses the costs associated with advertising as incurred.
Advertising expenses for the nine month periods ended September 30, 2009 and
2008 of $68,879 and $165,850, 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
The Company applies the provisions of Statement of Financial Accounting Standard
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (ASC
360), issued by the Financial Accounting Standards Board ("FASB"). FAS No. 144
(ASC 360) requires that long-lived assets be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable through the estimated undiscounted cash flows expected to
result from the use and eventual disposition of the assets. Whenever any such
impairment exists, an impairment loss will be recognized for the amount by which
the carrying value exceeds the fair value.
The Company tests long-lived assets, including property, plant and equipment and
intangible assets subject to periodic amortization, for recoverability at least
annually or more frequently upon the occurrence of an event or when
circumstances indicate that the net carrying amount is greater than its fair
7
TONGJI HEALTHCARE GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2009
value. Assets are grouped and evaluated at the lowest level for their
identifiable cash flows that are largely independent of the cash flows of other
groups of assets. The Company considers historical performance and future
estimated results in its evaluation of potential impairment and then compares
the carrying amount of the asset to the future estimated cash flows expected to
result from the use of the asset. If the carrying amount of the asset exceeds
estimated expected undiscounted future cash flows, the Company measures the
amount of impairment by comparing the carrying amount of the asset to its fair
value. The estimation of fair value is generally measured by discounting
expected future cash flows as the rate the Company utilizes to evaluate
potential investments. The Company estimates fair value based on the information
available in making whatever estimates, judgments and projections are considered
necessary. There was no impairment of long-lived assets for the nine months
ended September 30, 2009.
Earnings (Loss) Per Share of Common Stock
Earnings per share is calculated in accordance with the Statement of financial
accounting standards No. 128 (ASC 260). 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 September 30, 2009 and
December 31, 2008.
Income Taxes
The Company has adopted ASC 140 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%.
8
TONGJI HEALTHCARE GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2009
Beginning January 1, 2008, the new Enterprise Income Tax (EIT) law will replace
the existing laws for Domestic Enterprises (DES) and Foreign Invested
Enterprises (FIEs). The new standard EIT rate of 25% will replace the 33% rate
currently applicable to both DES and FIEs.
In addition, companies in the PRC are required to pay business taxes consisting
of 5% of income they derive from providing medical treatment and city
construction taxes, and educational taxes are based on 7% and 3% of the business
taxes, and the Company had accrued these taxes for 2005. The Company has
received notification that they are exempt from these taxes for the years ending
2006 through 2008. The company become normal taxpayer in 2009 and need to pay
the above taxes.
Segment Information
Statement of Financial Accounting Standards No. 131 (ASC 280), "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 (ASC 280) 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 June 2009, the FASB issued ASC 105 (previously SFAS No. 168, The FASB
Accounting Standards Codification and the Hierarchy of Generally Accepted
Accounting Principles ("GAAP") - a replacement of FASB Statement No. 162), which
will become the source of authoritative accounting principles generally accepted
in the United States recognized by the FASB to be applied to nongovernmental
entities. The Codification is effective in the third quarter of 2009, and
accordingly, the Quarterly Report on Form 10-Q for the quarter ending September
30, 2009 and all subsequent public filings will reference the Codification as
the sole source of authoritative literature. The Company does not believe that
this will have a material effect on its consolidated financial statements.
In June 2009, the FASB issued amended standard ASC 810 (previously SFAS No. 167)
for determining whether to consolidate a variable interest entity. These amended
standards eliminate a mandatory quantitative approach to determine whether a
variable interest gives the entity a controlling financial interest in a
variable interest entity in favor of a qualitatively focused analysis, and
require an ongoing reassessment of whether an entity is the primary beneficiary.
These amended standards are effective for us beginning in the first quarter of
fiscal year 2010 and we are currently evaluating the impact that adoption will
have on our consolidated financial statements.
9
TONGJI HEALTHCARE GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2009
In June 2009, the FASB issued ASC 855 (previously SFAS No. 165, Subsequent
Events), which establishes general standards of accounting for and disclosures
of events that occur after the balance sheet date but before the financial
statements are issued or available to be issued. It is effective for interim and
annual periods ending after June 15, 2009. There was no material impact upon the
adoption of this standard on the Company's consolidated financial statements.
In August 2009, the FASB issued Accounting Standards Update ("ASU") 2009-05,
which amends ASC Topic 820, Measuring Liabilities at Fair Value, which provides
additional guidance on the measurement of liabilities at fair value. These
amended standards clarify that in circumstances in which a quoted price in an
active market for the identical liability is not available, we are required to
use the quoted price of the identical liability when traded as an asset, quoted
prices for similar liabilities, or quoted prices for similar liabilities when
traded as assets. If these quoted prices are not available, we are required to
use another valuation technique, such as an income approach or a market
approach. These amended standards are effective for us beginning in the fourth
quarter of fiscal year 2009 and are not expected to have a significant impact on
our consolidated financial statements.
GOING CONCERN
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles which contemplate
continuation of the company as a going concern. However, the Company has a
retained earnings (accumulated deficit) of ($560,733) and ($70,727) as of
September 30, 2009 and December 31, 2008, and the Company is in default of the
terms of Senior Security Note as of September 30, 2009. In view of the matters
described above, recoverability of a major portion of the recorded asset amounts
shown in the accompanying consolidated balance sheet is dependent upon continued
operations of the company, which in turn is dependent upon the Company's ability
to raise additional capital, obtain financing and succeed in its future
operations, The financial statements do not include any adjustments relating to
the recoverability and classification of recorded asset amounts or amounts and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.
NOTE 3- PROPERTY & EQUIPMENT
Property & equipment as of September 30, 2009 and December 31, 2008 comprised of
following:
Estimated Useful September 30, December 31,
Lives (Years) 2009 2008
Office equipment 5-10 $ 73,394 $ 80,320
Medical equipment 5 1,104,893 1,103,494
Fixtures 10 111,245 106,353
Vehicles 5 40,722 40,813
Construction in Progress 4,394,460 3,544,097
----------- -----------
5,724,714 4,875,077
10
TONGJI HEALTHCARE GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2009
Less: accumulated depreciation (641,807) (551,632)
----------- -----------
Property and equipment, net $5,082,907 $4,323,445
=========== ===========
Depreciation expense charged to operations was $91,327 and $288,887 for the nine
month periods ended September 30, 2009 and 2008, respectively.
NOTE 4- MEDICINE SUPPLIES
Medicine supplies consisted of the following as of September 30, 2009 and
December 31, 2008:
September 30, 2009 December 31,2008
Western medicine $ 96,680 $ 3,543
Traditional Chinese medicine 2,485 141,203
---------- ---------
Total $ 99,165 $144,746
======== ========
NOTE 5 - MAJOR CUSTOMERS AND SUPPLIERS
The Company had one supplier that accounted for 54% of purchase for the nine
month periods ended September 30, 2009. Accounts payable from this major
supplier was $219,158 as of September 30, 2009.
The Company does not have any major customers for the nine month periods ended
September 30, 2009 as the customers are mostly patients.
NOTE 6- CAPITAL LEASE OBLIGATIONS:
Lease Deposit
The lease deposit as of September 30, 2009 and December 31, 2008 and were
$153,563 and $153,903 respectively. It will be due in November 2010.
Deferred Gain on Sale and Lease Back
The total gain on sale and lease back was $333,901. According to SFAS 13 (ASC
840) "Accounting for Leases" this gain is deferred and amortized over the Lease
term of 36 months. Accordingly, $83,415 and $81,738 were amortized for the nine
month periods ended September 30, 2009 and 2008 respectively.
11
TONGJI HEALTHCARE GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2009
The deferred revenue outstanding as of September 30, 2009 and December 31, 2008
were as follows:
September 30, 2009 December 31,2008
Current $ 111,300 $111,547
Long term 18,235 101,936
----------- ---------
$129,535 $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 nine month periods ended September
30, 2009.
Aggregate minimum future lease payments under capital leases for next five years
after September 30, 2009 are as follows
2009 $ 392,952
2010 65,205
-----------
Total $ 458,157
=========
Capital lease obligations represent the following at September 30, 2009 and
December 31, 2008:
September 30, 2009 December 31, 2008
Total minimum lease payments $ 458,157 $ 751,521
Less : Interest expense relating
to future periods (24,641) (64,073)
------------ ------------
Present value of the minimum lease
payments 433,516 687,448
Less: current portion (368,659) (343,526)
------------ ------------
Non-current portion $ 64,857 $ 343,922
============ ============
The following is a summary of fixed assets held under capital leases at
September 30, 2009 and December 31, 2008:
September 30, 2009 December 31,2008
Medical Equipment $ 1,023,751 $1,026,017
Less: accumulated depreciation (437,543) (376,977)
------------ -----------
Capital leased fixed assets, Net $ 586,208 $ 649,040
12
TONGJI HEALTHCARE GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2009
NOTE 7- OTHER PAYABLES
Other payables as of September 30, 2009 and December 31, 2008 consists of the
following:
September 30, 2009 December 31, 2008
------------------ -----------------
Advance from customers $ 4,404 $ 5,397
Welfare payable 75,281 84,161
Other payable 116,282 261,941
--------- ---------
Total $ 195,967 $ 351,499
========= =========
NOTE 8- STOCKHOLDERS' EQUITY
Common Stock
As of September 30, 2009 and December 31, 2008, the Company has 100,000,000
shares of common stock authorized with a par value of $0.001.
During the period ended December 31, 2008, the company issued 177,834 shares for
$77,780 and cancelled 18,000 previously issued shares issued in error. The
company did not issue any shares during the nine-month periods ended September
30, 2009.
The Company has not granted any options or warrants during 2009 or 2008, and
there are no options or warrants outstanding as of September 30, 2009 and
December 31, 2008.
Preferred Stock
As of September 30, 2009 and December 31, 2008, the Company has 20,000,000
shares of preferred stock authorized with a par value of $0.001. There are no
shares issued and outstanding as of September 30, 2009.
Statutory Reserves
As stipulated by the Company Law of the People's Republic of China (PRC), net
income after taxation can only be distributed as dividends after appropriation
has been made for the following:
i. Making up cumulative prior years' losses, if any;
ii. Allocations to the "Statutory surplus reserve" of at least 10% of
income after tax, as determined under PRC accounting rules and
regulations, until the fund amounts to 50% of the Company's
registered capital;
iii.
Allocations of 5-10% of income after tax, as determined under PRC
accounting rules and regulations, to the Company's "Statutory common
welfare fund", which is established for the purpose of providing
13
TONGJI HEALTHCARE GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2009
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, 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 nine-month period ended September 30, 2009 and 2008 is
summarized as follows:
2009 2008
---- ----
U.S. Federal and State Current $ -- $ --
U.S. Federal and State Deferred -- --
PRC - Current -- 7,916
--------- ---------
PRC - Deferred -- --
--------- ---------
Less: Valuation allowance -- --
--------- ---------
Income tax expense (benefit) $ -- $ 7,916
========= =========
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)% -
Current tax provision 0% 25%
The Company does not have any significant deferred tax asset or liabilities in
the PRC tax jurisdiction as of September 30,2009.
14
TONGJI HEALTHCARE GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2009
NOTE 10- RELATED PARTY TRANSACTIONS
Due from/to Related Parties
The Company has entered into agreements with Nanning Tongji Chain Pharmacy Co.
Ltd. and Guangxi Tongji Medicine Co. Ltd. whereby the Company from time to time
will advance amounts to assist them in their operations. The three companies
have common major shareholders. The advanced amounts accrue interest at a rate
of 6% per annum. The amount of receivable as of September 30, 2009 and December
31, 2008 were $76,279 and $268,815. Interest income for the nine-month periods
ended September 30, 2009 and 2008 were $5,160 and $46,015, 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, 2009 and December 31, 2008, $4,669,698 and
$3,367,857 were payable to their Chairman, shareholder and Guangxi Tongji
Medicine Co. Ltd. respectively. Interest expenses for the nine month periods
ended September 30, 2009 and 2008 were $164,204 and $105,478, 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 $2,402 (RMB 16,439). Based on
the exchange rate at September 30, 2009, minimum future 5 years lease payments
are as follows:
2010 $ 28,850
2011 28,850
2012 28,850
2013 28,850
----------
Total $115,400
==========
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 are discussed
below.
Three and Nine Months Ended September 30, 2009
Patient Service Revenue decreased primarily as the result of road
construction near our hospital as well as the rainy season which reduced patient
visits.
Other Operating Revenue decreased as the result of reduced sales of
medicine due to a decline in patients.
Operating Expenses: Selling, General and Administrative expenses
increased primarily due to the higher accounting and legal expenses. Our costs
for Medicine and Supplies decreased in line with the decline in revenue from
patients during the nine months ended September 30, 2009. An increase in the
reserve for bad debts during the period also contributed to higher operating
expenses.
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 September 30, 2009 we had paid
approximately $4,392,000 towards this amount.
Other than the factors listed above we do not know of any trends, events
or uncertainties that have had or are reasonably expected to have a material
impact on our net sales or revenues or income from continuing operations. Our
business is not seasonal in nature.
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
Refer to the Consolidated Statements of Cash Flows included with this
report for information concerning our sources and uses of cash during the nine
months ended September 30, 2009.
Future payments due on our material contractual obligations as of
September 30, 2009 are as follows:
Item Total 2009 2010 2011 2012 2013 Thereafter
- ---- ----- ---- ---- ---- ---- ---- ----------
Medical Building Lease $ 113,572 $ -- $ 28,393 $ 28,393 $ 28,393 $ 28,393 $ --
Capital Leases $ 336,167 $ -- $ 336,167 -- -- -- $ --
Lease on New Hospital $1,187,248 $ -- -- $ 381,092 $ 395,749 $ 410,407 $ --
Except as shown above, as of September 30, 2009 we did not have any
material capital requirements.
Income from our operations has been, and is expected to be in the future,
our primary source of cash.
We do not have any off-balance sheet items reasonably likely to have a
material effect on our financial condition.
18
Item 4. Controls and Procedures.
(a) We maintain 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 us in
the reports that we file or submit under the 1934 Act, is accumulated and
communicated to our management, including our Principal Executive Officer and
Principal Financial Officer, as appropriate to allow timely decisions regarding
required disclosure. As of September 30, 2009, our Principal Executive Officer
and Principal Financial Officer evaluated the effectiveness of the design and
operation of our disclosure controls and procedures. Based on that evaluation,
the Principal Executive Officer and Principal Financial Officer concluded that
our disclosure controls and procedures were effective.
(b) Changes in Internal Controls. There were no changes in our internal
control over financial reporting during the quarter ended September 30, 2009,
that materially affected, or are reasonably likely to materially affect, our
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.
November 11, 2009 By: /s/ Yun-hui Yu
------------------------------------
Yun-hui Yu, Principal Executive Officer
November 11, 2009 By: /s/ Wei-dong Huang
------------------------------------
Wei-dong Huang, Principal Financial and
Accounting Officer