UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





FORM 10-Q





(Mark One)





S
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934





For the quarterly period ended June 30, 2010





£
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT





For the transition period from ______________ to _____________





Commission file number: 333-140645





TONGJI HEALTHCARE GROUP, INC. 
 (Exact name of registrant as specified in its charter)





Nevada
None(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer  Identification No.)





No. 5 Beiji Road

Nanning, Guangxi, People’s Republic of China(Address of principal executive offices)
(Zip Code)





011-86-771-2020000


(Registrant’s telephone number, including area code)





(Former name, former address and former fiscal year, if changed since last report)





Indicate by check mark whether the registrant (1) has filed reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes S  No £





Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes   o  No  o




1





Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.





Large accelerated filer
£
Accelerated filer
£Non-accelerated filer
£
Smaller reporting company
S





Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes£NoS








APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY


PROCEEDINGS DURING THE PRECEDING FIVE YEARS





Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes £    No £





APPLICABLE ONLY TO CORPORATE ISSUERS





Indicate the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date:





As of August 12, 2010, there are 15,812,191   shares of $0.001 par value common stock issued and outstanding.
















2





FORM 10-Q


TONGJI HEALTHCARE GROUP, INC.


INDEX





PagePART I.

Financial InformationItem 1.  Financial Statements ( Unaudited)

4Consolidated Balance Sheets as of  June 30, 2010 (Unaudited) and December 31, 2009

4Consolidated Statements of Income for the Three and Six Months Ended June 30, 2010 and 2009 (Unaudited)

5Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2010 and 2009 (Unaudited)

6Notes to Consolidated Financial Statements as of  June 30, 2010 (Unaudited)

7Item 2.  Management’s Discussion and Analysis of Financial Condition or Plan of Operation

17Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

20Item 4.  Controls and Procedures

21PART II.

Other InformationItem 1.  Legal Proceedings

21Item 1A. Risk Factors.

21Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

21Item 3.  Defaults Upon Senior Securities

21Item 4.  (Removed and Reserved).

21Item 5.  Other Information

22Item 6.  Exhibits

22






3


PART I - FINANCIAL INFORMATION





Item 1. Financial Statements (Unaudited)





TONGJI HEALTHCARE GROUP, INC.CONDENSED CONSOLIDATED BALANCE SHEETSJune 30,


December 31,2010


2009ASSETSCurrent AssetsCash and cash equivalent

$
52,487


$
103,909Accounts receivable, net


292,525



310,666Due from related parties


55,692



44,119Medicine supplies


68,514



97,295Prepaid expenses and other current assets


11,032



61,453Total current assets


480,250



617,442Property, Plant, and Equipment, net


526,120



648,591Construction in progress


-



-Long Term Prepayment


4,731,437



4,466,979Capital Lease Deposit


154,665



153,572Total assets

$
5,892,472


$
5,886,584LIABILITIES AND STOCKHOLDERS' EQUITYCurrent LiabilitiesAccounts payable and accrued expenses

$
394,434


$
325,936Due to related parties


5,173,701



4,742,168Other payables


197,345



193,651Deferred gain on sale and lease back


46,393



101,716Capital lease obligations


189,895



340,214Total current liabilities


6,001,768



5,703,685Stockholders' Equity (Deficit)Preferred stock - $0.001 par value, 20,000,000share authorized, no shares outstanding atMarch 31, 2010 or December 31, 2009


-



-Common stock - $0.001 par value, 100,000,000shares authorized, 15,812,391 issued andoutstanding at March 31, 2010 andDecember 31, 2009


15,812



15,812Additional paid in capital


424,968



424,968Statutory reserve


41,812



41,812Retained earnings (deficit)


(667,151
)


(374,869
)Accumulated other comprehensive income


75,263



75,176(109,296
)


182,899Total liabilities and stockholders' equity

$
5,892,472


$
5,886,584See the accompanying notes to the condensed consolidated financial statements.
   4
   TONGJI HEALTHCARE GROUP, INC.CONDENSED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOMEFOR THE THREE AND SIX MONTHS PERIODS ENDED JUNE 30, 2010 AND 2009For the three month


For the six monthperiods ended


periods endedJune 30,


June 30,2010


2009


2010


2009OPERATING REVENUESPatient service revenues

$
310,228


$
160,038


$
431,319


$
316,390Other operating revenues


153,468



283,068



417,144



552,110Total operating revenue


463,696



443,106



848,463



868,500OPERATING EXPENSESSelling, general and administrative expenses


296,118



154,498



491,991



434,853Medicine and supplies


289,584



219,071



543,856



462,638Depreciation expense


35,152



81,392



70,744



178,646Total operating expenses


620,854



454,961



1,106,591



1,076,137(LOSS) FROM OPERATING ACTIVITIES


(157,158
)


(11,855
)


(258,128
)


(207,637
)OTHER INCOME (EXPENSE)Other income, net


6,730



1,457



8,498



2,225Interest expense, net of interest income


(19,844
)


(63,730
)


(42,652
)


(126,212
)Total other income (expense)


(13,114
)


(62,273
)


(34,154
)


(123,987
)Net income (loss) before income taxes


(170,272
)


(74,128
)


(292,282
)


(331,624
)PROVISION FOR INCOME TAXES


-



-







-NET INCOME (LOSS)


(170,272
)


(74,128
)


(292,282
)


(331,624
)FOREIGN CURRENCY TRANSLATION GAIN (LOSS)


57



171



87



(1,513
)COMPREHENSIVE INCOME (LOSS)


(170,215
)

$
(73,957
)


(292,195
)


(333,137
)NET INCOME (LOSS) PER SHARE - Basic and diluted

$
(0.011
)

$
(0.005
)


(0.018
)

$
(0.021
)WEIGHTED AVERAGE NUMBER OF COMMON SHARESOUTSTANDING


15,812,391



15,812,391



15,812,391



15,812,391See the accompanying notes to the condensed consolidated financial statements.
 
  5
 TONGJI HEALTHCARE GROUP, INC.CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSFOR THE THREE SIX MONTHS PERIODS ENDED JUNE 30,2010


2009CASH FLOWS FROM OPERATING ACTIVITIESNet income (loss)

$
(292,282
)

$
(331,624
)Adjustments to reconcile net income (loss) tonet cash provided by operating activities:Depreciation and amortization


126,562



178,646Allowance for doubtful accounts


14,845



42,165Change in operating assets and liabilitiesAccounts receivable


20,268



8,987Medicine supplies


29,351



51,038Prepaid expense and other current assets


35,804



(4,517
)Accounts payable and accrued expenses


21,371



180,244Deferred gain


(55,817
)


(55,604
)Other payables


46,839



(146,177
)Net cash used in operating activities


(53,059
)


(206,842
)CASH FLOW FROM INVESTING ACTIVITIES(Acquisition of)  property, plant and equipment


-



(9,046
)Disposal of property, plant and equipment


-



7,306Lease prepayment advances


(231,692
)


(427,545
)Due from related parties


(11,211
)


213,127Net cash used in investing activities


(242,903
)


(216,158
)CASH FLOWS FROM FINANCING ACTIVITIESPrincipal payments on capital lease obligations


(151,671
)


(167,354
)Advances from related parties


396,124



563,781Net cash provided by financing activities


244,453



396,427EFFECTS OF FOREIGN TRANSLATION ADJUSTMENTS


87



(195
)Net increase (decrease) in cash and cash equivalents


(51,422
)


(26,768
)CASH AND CASH EQUIVALENT - Beginning of period


103,909



61,826CASH AND CASH EQUIVALENT - End of period

$
52,487


$
35,058CASH PAID DURING THE YEAR FOR:Income taxes





$
-Interest

$
43,211


$
62,498See the accompanying notes to condensed consolidated financial statements.
 
  
 6
 
 TONGJI HEALTHCARE GROUP, INC.
 
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30, 2010
 
 NOTE 1 - ORGANIZATION
 
 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 a government authorized hospital to accept medical insurance in 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 of 2007, and this license remains valid until the next scheduled renewing date of November, 2020.
 
 Other existing regulations having material effects on the Company's business include those dealing with physician's licensing, usage of medicine and injection, public security in health and medical advertising.
 
 As the Company maintains a facility with an excess of 100 beds, they must have their license renewed at least every three years. The Company is also obligated to provide free service or dispatch their physicians or employees for public assistance. The Company has a very small percentage of their service for this area.
 
 
 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 The accompanying condensed consolidated 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, 2009. The results of the three and six month periods ended June 30, 2010 are not necessarily indicative of the results to be expected for the full fiscal year ending December 31, 2010.
 7
 
 TONGJI HEALTHCARE GROUP, INC.
 
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30, 2010
  NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
  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.
 
 TRANSLATION ADJUSTMENT
 
 The Company's functional currency is the Chinese Renminbi (RMB), while the reporting currency is the US Dollar. Capital accounts of the consolidated financial statements are translated into United States dollars from RMB with their historical exchange rates when the capital transactions occurred. Assets and liabilities are translated with the exchange rates as of the balance sheet date. Income and expenditures are translated using the average exchange rate of the year. The RMB is not freely convertible into foreign currency and all foreign currency exchange transactions must take place through authorized institutions. No representation is made that the RMB amounts could have been, or could be, converted into US dollar at the rates used in translation.
 
 The Company records these translation adjustments as accumulated other comprehensive income (loss). Gains and losses from foreign currency transactions are included in other income (expense) in the results of operations. For the three and six months periods ended June 30, 2010 and 2009, the Company recorded $338,  $368, $(195), and $2,486 respectively in translation gains and (loss) as a result of currency translation.
 
 REVENUE RECOGNITION
 
 The Company's revenue recognition policy is in compliance with Staff Accounting Bulletin 104 (ASC 605). Sales revenue is recognized at the date services has been rendered, when a formal arrangement exists, the price is fixed or determinable, the service is completed, no other significant obligations of the Company exist and collectability is reasonably assured. Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as unearned revenue.
 
 The Company generates revenue from the individuals as well as third-party payers, including PRC government social insurance programs and insurance providers, under which the hospital is paid based upon several methodologies including established fees, the cost of providing services, predetermined rates per diagnosis, fixed per diem rates or discounts from established fees. Revenues are recorded at net amounts due from patients, third-party payers, and others for the healthcare services provided. Revenues for pharmaceutical drug sales are recognized upon the drug being administered to a patient or at the time a prescription is fulfilled for a patient with an executed prescription slip from a registered physician.
 
 Revenues are recorded at 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 insurance card. There have not been significant differences between the amounts the Company bills the government Medicare funds and the amounts collected from the Medicare funds. The difference between the amount billed to the government Medicare funds and the amount collected from the government Medicare funds are booked into contra revenue account.
 
 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.
 
  8
 
 TONGJI HEALTHCARE GROUP, INC.
 
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30, 2010
  NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
  ACCOUNTS RECEIVABLE - continued
  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 uncollectible of $60,272 and $59,846 as of June 30, 2010 and December 31, 2009, respectively.
 
 INVENTORIES
 
 Inventories (medicine supplies) are valued on a lower of weighted average cost or market basis.   Inventory includes product cost, inbound freight, warehousing costs and vendor allowances not included as a reduction of advertising expense. The management compares the cost of inventories with the market value and allowance is made for writing down their inventories to market value, if it is lower.
 
 PREPAID EXPENSES AND OTHER CURRENT ASSETS
 
 Prepaid expenses and other current assets consisted of the following as of June 30, 2010 and December 31, 2009
 
 June 30, 2010


December 31, 2009Other receivable

$
7,558


$
35,293Advance to suppliers


3,474



26,160Total

$
11,032


$
61,453
 
 ADVERTISING COSTS
 
 The Company expenses the costs associated with advertising as incurred. Advertising expenses (credits) for the three and six month periods ended June 30, 2010 and 2009 of $(11,458), $(8,787), $31,075 and $34,319, 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, for recoverability at least annually or more frequently upon the occurrence of an event or when circumstances indicate that the net carrying amount is greater than its fair value. Assets are grouped and evaluated at the lowest level for their identifiable cash flows that are largely independent of the cash flows of other groups of assets. The Company considers historical performance and future estimated results in its evaluation of potential impairment and then compares the carrying amount of the asset to the future estimated cash flows expected to result from the use of the asset. If the carrying amount of the asset exceeds estimated expected undiscounted future cash flows, the Company measures the amount of impairment by comparing the carrying amount of the asset to its fair value. The estimation of fair value is generally measured by discounting expected future cash flows 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 period ended June 30, 2010.
    9
 
 TONGJI HEALTHCARE GROUP, INC.
 
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30, 2010
  NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
  BASIC AND DILUTED EARNINGS PER SHARE
 
 Earnings per share (EPS) is calculated in accordance with the Statement of financial accounting standards No. 128 (ASC 260). Basic net income (loss) per share is based upon the weighted average number of common shares outstanding. Diluted net income (loss) per share is based on the assumption that all dilutive convertible shares and stock options were converted or exercised. Dilution is computed by applying the treasury stock method. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period.
 
 The Company has not granted any options or warrants during 2010 or 2009, and there are no options or warrants outstanding as of June 30, 2010 and 2009.  Therefore, the basic and diluted EPS are the same.
 
 INCOME TAXES
 
 The Company adopts SFAS No.109 (ASC 740), “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.
 
 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 REPORTING
 
 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.
 
 STATEMENT OF CASH FLOWS
 
 In accordance with Statement of Financial Accounting Standards No. 95 (ASC 230), "Statement of Cash Flows," cash flows from the Company's operations is calculated based upon the local currencies. As a result, amounts related to assets and liabilities reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheet.
  10
 
 TONGJI HEALTHCARE GROUP, INC.
 
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30, 2010
  NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
  RECENT ACCOUNTING PRONOUNCEMENTS
 
 Effective January 1, 2010, the Company adopted the amendment to ASC Topic 820, “Measuring Liabilities at Fair Value”, with respect to the fair value measurement of liabilities. Amended ASC Topic 820 provides clarification that in circumstances in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using one or more of the following techniques: (1) the quoted price of the identical liability when traded as an asset, (2) the quoted prices for similar liabilities or similar liabilities when traded as assets, and (3) another valuation technique (e.g., a market approach or income approach) including a technique based on the amount an entity would pay to transfer the identical liability, or a technique based on the amount an entity would receive to enter into an identical liability. The adoption of this topic does not have a material effect on the Company’s financial statements.
 
 Effective January 1, 2010, the Company adopted the amendment to ASC Topic 860, “Accounting for Transfers of Financial Assets - an amendment of FASB Statement No. 140” (formerly SFAS No. 166). Amended ASC Topic 860 amends the de-recognition accounting and disclosure guidance relating to SFAS 140. Amended ASC Topic 860 eliminates the exemption from consolidation for qualifying special-purpose entity (“QSPE”), it also requires a transferor to evaluate all existing QSPE to determine whether it must be consolidated in accordance with amended ASC Topic 810. The adoption of this topic does not have a material effect on the Company’s financial statements.
 
 Effective January 1, 2010, the Company adopted the amendment to ASC Topic 810, “Amendments to FASB Interpretation No. 46(R)” (formerly SFAS No. 167), which amends FASB Interpretation No. 46 (revised December 2003) to address the elimination of the concept of a qualifying special purpose entity. Amended ASC Topic 810 also replaces the quantitative-based risks and rewards calculation for determining which enterprise has a controlling financial interest in a variable interest entity with an approach focused on identifying which enterprise has the power to direct the activities of a variable interest entity and the obligation to absorb losses of the entity or the right to receive benefits from the entity. Additionally, amended ASC Topic 810 provides more timely and useful information about an enterprise’s involvement with a variable interest entity. The adoption of this topic does not have a material effect on the Company’s financial statements.
 
 In April 2010, the FASB issued the amendment to ASC Topic 718, “Compensation – Stock Compensation”, which provides clarification that an employee share-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the entity’s equity securities trade should not be considered to contain a condition that is not a market, performance, or service condition. As a result, an entity would not classify such an award as a liability if it otherwise qualifies as equity. This topic will be effective for periods beginning on or after December 15, 2010. The Company has not elected to early adopt this topic and is evaluating the impact that this topic will have on the Company’s financial statements.
 
 In April 2010, the FASB issued the amendment to ASC Topic 310, “Receivables”. Amended ASC Topic 310 addresses that modification of loans under within a pool under the existing ASC do not result in the removal of those loans from the pool even the modification of those loans would otherwise be considered a troubled debt restructuring. Effective for modifications of loans accounted for within pools under Subtopic 310-30 occurring in the first interim or annual period ending on or after July 15, 2010 with early adoption permitted. This topic is to be applied prospectively. The Company has not elected to early adopt this topic and is evaluating the impact that this topic will have on the Company’s 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 an accumulated deficit of $667,151 as of June 30, 2010 and the Company is in default of the terms of Senior Security Note as of June 30, 2010.  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.
 
  11
 
 TONGJI HEALTHCARE GROUP, INC.
 
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30, 2010
  NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
  GOING CONCERN - continued
  Management has taken certain restructuring steps to provide the necessary capital to continue its operations. These steps included: 1) acquire profitable operations; and 2) to continue actively seeking additional funding and 3) may see to cut the operating expenses.
 
 
 NOTE 3 - PROPERTY & EQUIPMENT
 
 Property & equipment as of June 30, 2010 and December 31, 2009 comprised of the following:
 
 Estimated Useful Lives (Years)

June 30, 2010


December 31,2009Office equipment
5-10

$
73,921


$
73,398Medical equipment
5


1,112,824



1,104,958Fixtures
10


112,044



113,947Vehicles
5


41,015



40,725Total property and equipments



1,339,804



1,333,028Less accumulated depreciation



(813,684)



(684,437)Property and equipment, net


$
526,120


$
648,591
 
 Depreciation expense charged to operations was $35,152, $70,744, $81,392 and $178,646 respectively for the three and six month periods ended June 30, 2010 and 2009, respectively.  Depreciation totaling $56,057 included as a component of Medicine and supplies expense for the six months ended June 30, 2010.
 
 
 NOTE 4 - LONG TERM PREPAYMENT
 
 As of June 30, 2010 and December 31, 2009, the Company had long term prepayment amounted to $4,731,437 and $4,466,979 respectively. It is a prepayment for leasing of a new constructing hospital. The new hospital is expected to be finished by 2012.
 
 The company will amortize the long-term prepayment after the hospital is constructed and the company leases the hospital building.
 
 
 NOTE 5 - MEDICINE SUPPLIES
 
 Medicine supplies consisted of the following as of June 30, 2010 and December 31, 2009:
 
 June 30, 2010


December 31,2009Western medicine

$
66,382


$
82,840Traditional Chinese medicine


2,132



14,455Total

$
68,514


$
97,295
 
 
  12
 
 TONGJI HEALTHCARE GROUP, INC.
 
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30, 2010
 NOTE 6 - MAJOR SUPPLIERS AND CUSTOMERS
 
 The Company had two suppliers that accounted for 58.91% and 15.91% of purchase for the six-month period ended June 30, 2010. Accounts payable from the two major suppliers were $505,592 and 70,576 as of June 30, 2010.
 
 The Company had one supplier that accounted for 67% of purchases during the six month period ended June 30, 2009.  Accounts payable due to this supplier at June 30,2009 totaled $109,047.
 
 The Company had two major customers for the six-month periods ended June 30, 2010: Nanning Social Insurance Center and Guangxi Province Social Insurance Center. Nanning Social Insurance Center accounted for 71% and 20% of revenue for the six-month periods ended June 30, 2010.
 
 There were no major customers during the three and six months periods ended June 30, 2009.
 
 
 NOTE 7 - CAPITAL LEASE OBLIGATIONS
 
 Lease Deposit
 
 The lease deposit as of June 30, 2010 and December 31, 2009 were $154,665 and $153,572 respectively. It will be due in November 2010.
 
 Deferred Gain on Sale and Lease Back
 
 The total gain on sale and lease back was $333,974. According to SFAS 13 (ASC 840) "Accounting for Leases" this gain is deferred and amortized over the Lease term of 36 months. Accordingly, $27,986, $55,817, and $27,818 and $55,604 respectively were amortized for the three and six month period ended June 30, 2010 and 2009 respectively.
 
 The deferred revenue outstanding as of June 30, 2010 and December 31, 2009 were $46,393 and $101,716, respectively.
 
 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 year ended December 31, 2009.
 
 Aggregate minimum future lease payments under capital leases for the lease term after June 30, 2010 is as follows:
 
 2010

$
189,895Total

$
189,895
 
 Capital lease obligations represent the following at June 30, 2010 and December 31, 2009:
 
 June 30, 2010


December 31, 2009Total minimum lease payments

$
192,111


$
351,124Less: Interest expense relating to future periods


(2,216
)


(10,910
)Present value of the minimum lease payments


189,895



340,214Less: current portion


(189,895
)


(340,214
)Non-current portion

$
-


$
-
 
 
  13
 
 TONGJI HEALTHCARE GROUP, INC.
 
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30, 2010
  NOTE 7 - CAPITAL LEASE OBLIGATIONS - continued
 The following is a summary of fixed assets held under capital leases at June 30, 2010 and December 31, 2009:
 
 June 30, 2010


December 31, 2009Medical Equipment

$
1,030,809


$
1,023,811Less: accumulated depreciation


(577,562
)


(471,264
)Capital leased fixed assets, Net

$
453,247


$
552,547
 
 
 NOTE 8 - OTHER PAYABLE
 
 Other payable as of June 30, 2010 and December 31, 2009 consists of the following:
 
 June 30, 2010


December 31,2009Advance from customers

$
39,591


$
6,083Welfare payable


72,086



73,687Other payable


85,668



113,881Total

$
197,345


$
193,651
 
 
 NOTE 9 - STOCKHOLDERS' EQUITY
 
 Common Stock
 
 As of June 30, 2010 and December 31,2009, the Company has 100,000,000 shares of common stock authorized with a par value of $0.001.
 
 The Company has not granted any options or warrants during 2010 or 2009, and there are no options or warrants outstanding as of June 30, 2010 or December 31, 2009.
 
 Preferred Stock
 
 As of June 30, 2010 and December 12, 2009, 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 June 30, 2010.
 
 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 fundamounts to 50% of the Company’s registered capital;
 
 iii.
Allocations of 5-10% of income after tax, as determined under PRCaccounting rules and regulations, to the Company’s “Statutory common welfarefund”, which is established for the purpose of providing employee facilities andother collective benefits to the Company’s employees; and
 
 iv.
Allocations to the discretionary surplus reserve, if approved in thestockholders’ 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 three or six months period ended June 30, 2010.
 
  14
 
 TONGJI HEALTHCARE GROUP, INC.
 
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30, 2010
 
 NOTE 10 - 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%.
 
 A reconciliation of the effective income tax rate is as follows:
 
 2010

2009Tax 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
%
 
 Deferred tax assets as of June 30, 2010 and December 31,2009 are as following:
 
 June 30,2010


December 31,2009Net Operating Loss Carry forwards

$
462,506


$
170,224Total deferred tax assets


115,626



42,556Less: Valuation Allowance


(115,626
)


(42,556
)Net Deferred Tax Assets

$
-


$
-
 
 The company had a net operating loss ("NOL") carry forwards of approximately $462,506 and $170,224 as of June 30, 2010 and December 31, 2009, respectively. A 100% valuation allowance has been recorded for the deferred tax asset due to the uncertainty of its realization.
 
 
 NOTE 11 - RELATED PARTY TRANSACTIONS AND COMMITMENTS
 
 Due from/to Related Parties
 
 The Company has entered into agreements with Nanning Tongji Chain Pharmacy Co. Ltd. ,Guangxi Tongji Medicine Co. Ltd. and Nanning Switch Factory whereby the Company from time to time will advance amounts to assist them in their operations. The three companies have common major shareholders. The advanced amounts accrue interest at a rate of 1.5% per annum. The amount of receivable as of June 30, 2010 and December 31, 2009 was $55,691 and $44,119 respectively. Interest income for the three and six months periods ended June 30, 2010 and 2009 were $252, $413, $0, and $0, respectively.
 
 The Company has entered into an agreement with the Chairman and the shareholder of the Company, Nanning Tongji Chain Pharmacy Co. Ltd. ,Guangxi Tongji Medicine Co. Ltd. and Nanning Tongji Electric Coating Factory, whereby the Company from time to time will be advanced amounts to assist them in their operations. The advanced amounts accrue interest at a rate of 1.5% per annum. As of June 30, 2010 and December 31, 2009, $5,173,701 and $4,742,168 were payable to these related parties respectively.  Interest expenses for the three and six month periods ended June 30, 2010 and 2009 were $17,852, $35,320, $63,730 and $126,212 respectively.
 
 Rental Commitments
 
 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 6 years at monthly rate of $2,405 (RMB16, 439). The company also in the process of cooperating with Guangxi Construction Engineering Corporation Langdong 8th Group in building a new 800-bed hospital in Nanning, China. It expects the new hospital to be completed by January 2012. The hospital is being constructed by Guangxi Construction Engineering Corporation Langdong 8th Group and, when completed, will be leased by the company for a twenty-year term.  The lease payment will be $380,338 during the first year of the lease. The annual lease payments will gradually increase each year. Based on the exchange rate at December 31, 2009, minimum future 5 years lease payments are as follows:
 
 2010

$
21,6432011


28,8572012


409,1952013


423,8232014


438,451Total

$
1,321,969
   15
 
 TONGJI HEALTHCARE GROUP, INC.
 
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30, 2010
 NOTE 12 – LITIGATION AND SETTLEMENT FEES
 
 During June of 2010, the Company settled a claim and related lawsuit for approximately $68,000 inclusive of court fees.  This settlement relieved the Company from all claims from a third party who invested in the hospital facility, which the Company intends to lease upon its completion.  This settlement cost is included in general and administrative expenses for the three months ended June 30, 2010.
 
 NOTE 13 – SUBSEQUENT EVENT
 
 Event subsequent to June 30, 2010 have been evaluated through August 16, 2010, the date these statement were available to be issued, to determine whether any should be disclosed to keep the financial statements from being misleading. Management found no subsequent events which it believes should be disclosed in the June 30, 2010 financial statements.
       
 16
 Item 2.  Management’s Discussion and Analysis or Plan of Operation.





You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our condensed consolidated financial statements and the related condensed notes included elsewhere in this report. Our financial statements have been prepared in accordance with U.S. GAAP. 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 acquired 100% of the equity in Nanning Tongji Hospital, Inc. (“Tongji Hospital”) pursuant to an Agreement and Plan of Merger. We issued 15,652,557 shares of common stock to the shareholders of Tongji Hospital in exchange for 100% of the issued and outstanding shares of Tongji Hospital. Accordingly,  Tongji Hospital became our wholly owned subsidiary.





Unless otherwise indicated, all references to us throughout this report include the operations of Tongji Hospital.





We operate Tongji Hospital, a general hospital with 105 licensed beds. Tongji Hospital offers care and treatment 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, prevention, and emergency care. Our emergency room is open 24 hours a day and all of our rooms are air-conditioned.





Tongji Hospital is certified as a provider of Medicare services by the Nanning municipal government and the Guangxi provincial government. Our Medicare agreements with the Nanning municipal government and the Guangxi provincial government require that we adhere to prescribed standards for patient care and treatment. Maintaining the qualifications for acceptance of Medicare patients is very important as revenue from Medicare patients accounted for about 40% of total hospital income in the past year. The Medicare accreditation is valid for only one year and must be renewed on an annual basis.





We generate revenues from providing both medical treatment and the sale of drugs and medications.





Revenue is generated from the individuals as well as third-party payers, including PRC government programs and insurance providers, under which our 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 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.





Our critical accounting policies, as well as recent accounting pronouncements which may apply to us, are described in Note 2 to our June 30, 2010 financial statements.





Results of Operation





Three months ended June 30, 2010 and June 30, 2009





Material changes of items in our Statement of Operations for the three months ended June 30, 2010, as compared to the three months ended June 30, 2009, are discussed below.




17




Item 2.  Management’s Discussion and Analysis or Plan of Operation. - continued




Three months ended June 30, 2010 and June 30, 2009 - continued




Operating Revenues –Operating revenue for the three months ended June 30, 2010, which resulted primarily from in-patient service revenue and other operating revenue (out-patient service and pharmaceutical drug sales), were $463,696, an increase of approximately 5% as compared with the operating revenue of $443,106 in the same period of prior year. The increase was mainly from in-patient service sector, where the number of in- patient days increased by 21% to 4,547 during the three months ended June 30, 2010 as compared to 3,760 for the same period in 2009. Other operating revenue from out-patient service and pharmaceutical drug sales of $153,468 during the quarter ended June 30, 2010 represents an approximate 46% decrease from  $283,068 for the comparable period in 2009.  This decrease was attributable primarily  to the Company’s policy change to emphasize the more profitable in-patient services instead of out-patient services and pharmaceutical drug sales. We stopped operating a few out-patient service departments this year . We expect this trend will continue in the future, with more revenue being generated from in-patient services instead of out-patient service and pharmaceutical drug sales.





Selling, general and administrative expenses –Selling, general and administrative expenses increased by $141,620 or 92% from $154,498 for the three-month period ended June 30, 2009 to $296,118 for the three-month period ended June 30, 2010.  This increase was due to an increase in advertising expenses, and accounting adjustments related to litigation and settlement fees included in general expenses. See Note 12 – Litigation and Settlement Fees for further information.





Medicine and supplies costs- Medicine and supplies costs increased by $70,513 or 32% from $219,071 during the three months ended June 30, 2009 to $289,584 during the three months ended June 30, 2010.   This increase was due to increased inpatient services and increases in the cost of medicine, offset in part by a decrease in outpatient services.





Depreciation Expense –Depreciation expense decreased by $46,240 or 57% from $81,392 for the three-month period ended June 30, 2009 to $35,152 for the three-month period ended June 30, 2010. The decrease was due to some medical equipment being fully depreciated within the past year.





Interest Expense –Interest expense decreased by $43,886 or 69% from $63,730 for the three-month period ended June 30, 2009 to $19,844 for the three-month period ended June 30, 2010.  This decrease was due primarily to repayments of substantial portions of the capital lease obligation between June 30, 2009 and June 30, 2010.





As a result of forgoing, the Company had a net loss of $170,272 during the second quarter of 2010, compared to the loss of $74,128 for the second quarter of a year ago.








Six months ended June 30, 2010 and June 30, 2009





Material changes of items in our Statement of Operations for the six months ended June 30, 2010, as compared to the six months ended June 30, 2009, are discussed below.





Operating Revenues –Operating revenue for the six months ended June 30, 2010, which resulted primarily from in-patient service revenue and other operating revenue (out-patient service and pharmaceutical drug sales), were $848,463, a decrease of 2% as compared with the operating revenue of $868,500 in the same period of prior year. The decrease was due primarily to a decrease of $134,966 in out-patient service and pharmaceutical drug sales offset in part by an $114,929 increase in-patient services revenues.  This was due primarily to more emphasis being placed on in patient services as compared with out -patient service and pharmaceutical drug sales.





Selling, general and administrative expenses –Selling, general and administrative expenses increased by $57,138 or 13% from $434,583 for the six-month period ended June 30, 2009 to $491,991 for the six-month period ended June 30, 2010.  This increase was due to increase in advertising expenses and some accounting adjustments related to litigation and settlement fees included in general expenses incurred in the second quarter of 2010. See Note 12 – Litigation and Settlement Fees for further information.





Medicine and supplies costs- Medicine and supplies costs increased by $81,218 or 18% from $462,638 during the six months ended June 30, 2009 to $543,856 during the six months ended June 30, 2010.   This increase was due to increased inpatient services and increases in the cost of medicines, offset in part by a decrease in outpatient services.





18




Item 2.  Management’s Discussion and Analysis or Plan of Operation. - continued
  Six months ended June 30, 2010 and June 30, 2009 - continued
  Depreciation Expense –Depreciation expense decreased by $107,902 or 60% from $178,646 for the six-month period ended June 30, 2009 to $70,744 for the six-month period ended June 30, 2010, primarily due to some medical equipment being fully depreciated within the past year.





Interest Expense –Interest expense decreased by $83,560 or 66% from $126,212 for the six-month period ended June 30, 2009 to $42,652 for the six-month period ended June 30, 2010.  This decrease was due primarily to repayments of substantial portions of the capital lease obligation between June 30, 2009 and June 30, 2010.





As a result of forgoing, net loss was at $292,282 for the first six months of the year 2010, dropping 12.0% from a net loss of $331,624for  the same  period last year.





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 25%.  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 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 $380,338 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 $658,277, 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 June 30, 2010 we had paid $4,731,437 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 fewer adjustments for contractual allowances. Revenues are recorded based upon the estimated amounts due from the patients and third-party payors, including federal and state agencies (under the Medicare and Medicaid programs) managed care health plans, health insurance companies, and employers. Estimates of contractual allowances under third-party payor arrangements are based upon the payment terms specified in the related contractual agreements. Third-party payor contractual payment terms are generally based upon predetermined rates per diagnosis, per diem rates, or discounted fee-for-service rates.





Due to the complexities involved in determining amounts ultimately due under reimbursement arrangements with a large number of third-party payors, which are often subject to interpretation, the reimbursement actually received by U.S. hospitals for health care services is sometimes different from their estimates.


19




Item 2.  Management’s Discussion and Analysis or Plan of Operation. - continued
  Accounting Estimates - continued
  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: Six Month Periods Ended June 30, 2010 and 2009:


June 30, 2010


June 30, 2009Cash used in operating activities

$
(53,059
)

$
(206,842)Cash used in investing activities

$
(242,903
)

$
(216,158)Cash provided by financing activities

$
244,453


$
396,427





By carefully reducing expenses, the Company substantially reduced the amount of cash being used to fund operating activities.  However, substantial funds have been required to fund the prepaid lease obligation on the new hospital, which is now under construction.  Financing of operations has come primarily from advances from related parties.  We are dependent on related parties to provide working capital until such time as we reach a profitable level of operations.  There can be no assurances that related parties will continue to provide additional working capital.  Without additional working capital, we may be forced to cease operations and liquidate.





Based on the June 30, 2010 exchange rates, future payments due on our material contractual obligations as of June 30, 2010 are as follows:





Fiscal Year Ended

Operating lease commitments2010

$
21,6432011


28,8572012


409,1952013


423,8232014


438,452Total

$
1,321,969





Off-Balance Sheet Arrangements





We do not have any off-balance sheet items reasonably likely to have a material effect on our financial condition.








Item 3.Quantitative and Qualitative Disclosures About Market Risk.





Not applicable.


20


Item 4.  Controls and Procedures.





Evaluation of our Disclosure Controls





As of the end of the period covered by this Quarterly Report on Form 10-Q, our principal executive officer and principal financial officer have evaluated the effectiveness of our “disclosure controls and procedures” (“Disclosure Controls”). Disclosure Controls, as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are procedures that are designed with the objective of ensuring that information required to be disclosed in our reports filed under the Exchange Act, such as this Quarterly Report, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure Controls are also designed with the objective of ensuring that such information is accumulated and communicated to our management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. Our management, including the CEO and CFO, does not expect that our Disclosure Controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.





Based upon their controls evaluation, our CEO and CFO have concluded that our Disclosure Controls are effective at a reasonable assurance level.





Changes in internal control over financial reporting





There have been no changes in our internal controls over financial reporting during our second fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.








PART II - OTHER INFORMATION





Item 1.
Legal Proceedings.





There is no material legal proceeding pending against us.








Item 1A.
Risk Factors





Not Applicable.






Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds





None.






Item 3.
Defaults Upon Senior Securities





None.






Item 4.
(Removed and Reserved).







21





Item 5.
Other Information





Not applicable.







Item 6.
Exhibits





Copies of the following documents are included as exhibits to this report pursuant to Item 601 of Regulation S-K.





Exhibit No.
SEC Ref. No.
Title of Document1
31.1
Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 20022
31.2
Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 20023
32.1
Certification of the Principal Executive Officer pursuant to U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*4
32.2
Certification of the Principal Financial Officer pursuant to U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*





*The Exhibit attached to this Form 10-Q shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934 (the "Exchange Act") or otherwise subject to liability under that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as expressly set forth by specific reference in such filing.










22





SIGNATURES





In accordance with the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned thereunto duly authorized.








Date: August 17, 2010








TONGJI HEALTHCARE GROUP. INC.By:
/s/ Yunhui YuYunhui Yu

President and Chief Executive Officer

(Principal Executive Officer)











By:
/s/ Weidong HuangWeidong Huang

Chief Financial Officer

(Principal Financial Officer)















23