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 September 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 November 15, 2010, there are 15,812,391  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)

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

4Condensed Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2010 and 2009 (Unaudited)

5Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2010 and 2009 (Unaudited)

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

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

15Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

19Item 4.  Controls and Procedures

19PART II.

Other Information

19Item 1.  Legal Proceedings

19Item 1A. Risk Factors.

19Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

19Item 3.  Defaults Upon Senior Securities

20Item 4.  (Removed and Reserved).

20Item 5.  Other Information

20Item 6.  Exhibits

20


3







PART I - FINANCIAL INFORMATION





Item 1. Financial Statements (Unaudited)





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


December 31,2010


2009ASSETS

(Unaudited)Current AssetsCash and cash equivalent

$
48,471


$
103,909Accounts receivable, net


304,938



310,666Due from related parties


43,146



44,119Medicine supplies


77,620



97,295Prepaid expenses and other current assets


2,131



61,453Total current assets


476,306



617,442Property, Plant, and Equipment, net


549,610



648,591Long Term Prepayment


4,876,947



4,466,979Capital Lease Deposit


-



153,572Total assets

$
5,902,863


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

$
319,220


$
325,936Due to related parties


5,327,224



4,742,168Other payables


206,614



193,651Deferred revenue


18,616



101,716Capital lease obligations


-



340,214Total current liabilities


5,871,674



5,703,685Stockholders' EquityPreferred stock - $0.001 par value, 20,000,000share authorized, no shares outstanding atSeptember 30 or December 31, 2009


-



-Common stock - $0.001 par value, 100,000,000shares authorized, 15,812,391 issued andoutstanding at September 30, 2010 andDecember 31, 2009


15,812



15,812Additional paid in capital


424,968



424,968Statutory reserve


41,812



41,812Accumulated deficit


(527,637
)


(374,869
)Accumulated other comprehensive income


76,234



75,17631,189



182,899Total liabilities and stockholders' equity

$
5,902,863


$
5,886,584See the accompanying notes to the unaudited condensed consolidated financial statements.




4






TONGJI HEALTHCARE GROUP, INC.CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOMEFor the three month


For the nine monthperiods ended


periods endedSeptember 30,


September 30,2010


2009


2010


2009(Unaudited)


(Unaudited)


(Unaudited)


(Unaudited)OPERATING REVENUESPatient service revenues

$
281,272


$
159,602


$
712,591


$
475,992Other operating revenues


217,324



273,730



634,468



825,840Total operating revenue


498,596



433,332



1,347,059



1,301,832OPERATING EXPENSESSelling, general and administrative expenses


56,516



385,856



548,507



820,709Medicine and supplies


233,845



228,770



777,701



691,408Depreciation expense


52,007



42,681



122,751



91,327Total operating expenses


342,368



657,307



1,448,959



1,603,444INCOME (LOSS) FROM OPERATING ACTIVITIES


156,228



(223,975
)


(101,900
)


(301,612
)OTHER INCOME (EXPENSE)Other income, net


2,867



2,836



11,365



5,061Interest expense, net of interest income


(19,581
)


(67,243
)


(62,233
)


(193,455
)Total other income (expense)


(16,714
)


(64,407
)


(50,868
)


(188,394
)Net income (loss) before income taxes


139,514



(288,382
)


(152,768
)


(490,006
)PROVISION FOR INCOME TAXES


-



-



-



-NET INCOME (LOSS)


139,514



(288,382
)


(152,768
)


(490,006
)FOREIGN CURRENCY TRANSLATION GAIN (LOSS)


971



85



1,058



(1,429
)COMPREHENSIVE INCOME (LOSS)


140,485


$
(288,297
)


(151,710
)


(491,435
)NET INCOME (LOSS) PER SHARE - Basic and diluted

$
0.009


$
(0.018
)


(0.010
)

$
(0.031
)WEIGHTED AVERAGE NUMBER OF COMMON SHARESOUTSTANDING


15,812,391



15,812,391



15,812,391



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


2009CASH FLOWS FROM OPERATING ACTIVITIES

(Unaudited)


(Unaudited)Net  (loss)

$
(152,768
)

$
(490,006
)Adjustments to reconcile net (loss) tonet cash provided by operating activities:Depreciation and amortization


122,751



91,327Allowance for doubtful accounts


-



42,213Change in operating assets and liabilitiesAccounts receivable


12,180



(2,286
)Medicine supplies


21,696



45,229Prepaid expense and other current assets


60,599



21,573Accounts payable and accrued expenses


(58,809
)


88,971Deferred gain


(85,214
)


(83,415
)Other payables


54,265



(146,800
)Net cash used in operating activities


(25,299
)


(433,194
)CASH FLOW FROM INVESTING ACTIVITIESAcquisition of  property, plant and equipment


(10,301
)


(12,212
)Disposal of property, plant and equipment


-



7,307Lease prepayment advances


(317,166
)


(854,880
)Due from related parties


1,888



191,804Net cash used in investing activities


(325,579
)


(667,981
)CASH FLOWS FROM FINANCING ACTIVITIESPrincipal payments on capital lease obligations


(195,160
)


(252,234
)Advances from related parties


486,576



1,308,339Net cash provided by financing activities


291,416



1,056,105EFFECTS OF FOREIGN TRANSLATION ADJUSTMENTS


4,024



(169
)Net decrease in cash and cash equivalents


(55,438
)


(45,239
)CASH AND CASH EQUIVALENT - Beginning of period


103,909



61,826CASH AND CASH EQUIVALENT - End of period

$
48,471


$
16,587CASH PAID DURING THE YEAR FOR:Income taxes

$
-


$
-Interest

$
62,709


$
34,649See the accompanying notes to unaudited condensed consolidated financial statements.





6
 
 TONGJI HEALTHCARE GROUP, INC.
 
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 September 30, 2010


NOTE 1- ORGANIZATION





Nanning Tongji Hospital, Inc. ("NTH") was established in Nanning in the province of Guangxi of the People’s 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.





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 nine month periods ended September  30, 2010 are not necessarily indicative of the results to be expected for the full fiscal year ending December 31, 2010.





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.


7
 
 TONGJI HEALTHCARE GROUP, INC.
 
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 September 30, 2010


NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued





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 nine months periods ended September 30, 2010 and 2009, the Company recorded $971,  $1,058, $85 and $(1,429) 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 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 September 30, 2010


NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - 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 $61,089 and $59,846 as of September 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 September 30, 2010 and December 31, 2009





September 30, 2010


December 31, 2009Other

$
-


$
35,293Advance to suppliers


2,131



26,160Total

$
2,131


$
61,453





ADVERTISING COSTS





The Company expenses the costs associated with advertising as incurred. Advertising expenses (credits) for the three and nine month periods ended September 30, 2010 and 2009 of $(5,818), $(14,605), $34,560 and $68,879 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 September 30, 2010.


9
 
 TONGJI HEALTHCARE GROUP, INC.
 
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 September 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 September 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 is 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 does not accrue United States income taxes on unremitted earnings from foreign operations, as it is the Company’s intention to invest these earnings in the foreign operations indefinitely.





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.


10
 
 TONGJI HEALTHCARE GROUP, INC.
 
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 September 30, 2010


NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued





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.





RECENT ACCOUNTING PRONOUNCEMENTS





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 August 2010, ASU 2010-23 was issued.  This amends ASC 954 to require the disclosure of charity care be disclosed at cost.  The Company does not provide material amounts of charity care at this time.





In August 2010, Accounting Standards Update (“ASU”) 2010-24 was issued.  This update amends ASC 954-450 to require that anticipated insurance settlements from malpractice claims not be offset against the accrual for the malpractice claim.  The Company has not accrued for any anticipated malpractice claims as of September 30, 2010.





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 $(527,637) as of September 30, 2010.  In view of the accumulated losses, 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.





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 September 30, 2010 and December 31, 2009 comprised of the following:





Estimated Useful Lives (Years)

September 30, 2010


December 31,2009Office equipment
5-10

$
74,922


$
73,398Medical equipment
5


1,127,906



1,104,958Fixtures
10


116,313



113,947Vehicles
5


41,570



40,725Total property and equipments



1,360,711



1,333,028Less accumulated depreciation



(811,101)



(684,437)Property and equipment, net


$
549,610


$
648,591




Depreciation expense charged to operations was $52,007, $122,751, $42,681 and $91,327 respectively for the three and nine month periods ended September 30, 2010 and 2009, respectively.




11
 TONGJI HEALTHCARE GROUP, INC.
 
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 September 30, 2010





NOTE 4- LONG TERM PREPAYMENT





As of September 30, 2010 and December 31, 2009, the Company had long term prepayment amounted to $4,876,947 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 September 30, 2010 and December 31, 2009:




September 30, 2010

December 31,2009Western medicine

$
67,916


$
82,840Traditional Chinese medicine


9,704



14,455Total

$
77,620


$
97,295








NOTE 6 - MAJOR SUPPLIERS AND CUSTOMERS





The Company had one supplier that accounted for 82% of purchase for the nine-month period ended September 30, 2010. Accounts payable from this major supplier was $905,850 as of September 30, 2010.





The Company had one supplier that accounted for 54% of purchases during the nine month period ended September 30, 2009.  Accounts payable due to this supplier at September 30, 2009 totaled $219,158.





The Company had two major customers for the nine-month periods ended September 30, 2010: Nanning Social Insurance Center and Guangxi Province Social Insurance Center. They accounted for 86% and 14 % of Accounts receivable for the nine-month periods ended September 30, 2010.





The Company had two major customers for the nine-month periods ended September 30, 2009: Nanning Social Insurance Center and Guangxi Province Social Insurance Center. They accounted for 83% and 17 % of Accounts receivable for the nine-month periods ended September 30, 2009.








NOTE 7- CAPITAL LEASE OBLIGATIONS:





Lease Deposit





The lease deposit as of September 30, 2010 and December 31, 2009 were $-0- and $153,572 respectively. Capital lease was paid in full prior to September 30, 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, $29,397, $85,214, and $27,811 and  $83,415 respectively were amortized for the three and nine month period ended September 30, 2010 and 2009 respectively. 
 The deferred revenue outstanding as of September 30, 2010 and December 31, 2009 was $18,616 and $101,716 respectively.


12
 
 TONGJI HEALTHCARE GROUP, INC.
 
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 September 30, 2010


NOTE 8- OTHER PAYABLE





Other payable as of September 30, 2010 and December 31, 2009 consists of the following:





September 30, 2010


December 31,2009Advance from customers

$
30,607


$
6,083Welfare payable


70,156



73,687Other payable


105,851



113,881Total

$
206,614


$
193,651








NOTE 9- STOCKHOLDERS' EQUITY





Common Stock





As of September 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 September 30, 2010 or December 31, 2009.





Preferred Stock





As of September 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 September 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 nine months period ended September 30, 2010.


13
 
 TONGJI HEALTHCARE GROUP, INC.
 
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 September 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


2009PRC Tax rate


25
%


25
%Valuation allowance


(25
%)


(25
%)Current tax provision


0
%


0
%








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 September 30, 2010 and December 31, 2009 was $43,146 and $44,119 respectively. Interest income for the three and nine months periods ended September 30, 2010 and 2009 were $63, $476, $4,747, and $5,160, 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 September 30, 2010 and December 31, 2009, $5,327,224 and $4,742,168 were payable to these related parties respectively.  Interest expenses for the three and nine month periods ended September 30, 2010 and 2009 were $27,006, $62,709, $61,596 and $164,204 respectively.





Currently, the Chairman and CEO Mr. Yu, Yunhui and CFO Weidong Huang are not paid by the Company, and they only receive payment from Guangxi Tongji Medicine Co. Ltd. This may change when the Company starts to produce income instead of losses.





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 $2,454 (RMB16, 439). The company also in the process of cooperating with Guangxi Construction Engineering Corporation Langdong 8th Group in building a new 600-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

$
21,6422011


28,8572012


409,1952013


423,8232014


438,452Total

$
1,321,969








NOTE 12 – SUBSEQUENT EVENTS





Event subsequent to September 30, 2010 have been evaluated through November 9, 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 September 30, 2010 financial statements.





14





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 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 September  30, 2010 financial statements.





Results of Operation  - Three months ended September 30, 2010





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





15


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




Results of Operation  - Three months ended September 30, 2010 - continued
  Operating Revenues –Operating revenue for the three months ended September 30, 2010, which resulted primarily from patient services revenue and other operating revenue (out-patient service and pharmaceutical drug sales), were $498,596, an increase of 15% as compared with the operating revenue of $433,332 in the same period of prior year. The increase was mainly from the patient services sector, where the average daily in patient services revenue per patient increased to $70 from $35 for the three months ended September 30, 2010 and 2009 respectively.  This was offset in part by a decrease in the number of in patient days to 4,026 from 4,595 for the three months periods ended September 30, 2010 and 2009 respectively. Other operating revenue from out-patient service and pharmaceutical drug sales of $217,324 during the quarter ended September 30, 2010 represents a 20% decrease from the comparable period in 2009.  This decrease was attributable 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 decreased by $329,340 or 85% from $385,856 for the three-month period ended September 30, 2009 compared to $56,516 for the three-month period ended September 30, 2010.  This decrease was due to significant expense reduces in advertising, maintenance, and office expenses.





Medicine and supplies costs - Medicine and supplies costs increased by $5,075 or 2% from $228,770 during the three months ended September 30, 2009 to $233,845 during the three months ended September 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.





Depreciation Expense –Depreciation expense increased to $52,007 from $42,681 during the three month periods ended September 30, 2010 and 2009, respectively.





Interest Expense –Interest expense decreased by $47,662 or 71% from $67,243 for the three-month period ended September 30, 2009 to $19,581 for the three-month period ended September 30, 2010.  This decrease was due primarily to repayments of a capital lease obligation between September 30, 2009 and September 30, 2010.





As a result of forgoing, the Company had a net income of $139,514 during the third quarter of 2010, compared to a net loss of $288,382 for the third quarter of a year ago.








Results of Operation - Nine months ended September 30, 2010





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





Operating Revenues –Operating revenue for the nine months ended September 30, 2010, which resulted primarily from patient service revenue and other operating revenue (out-patient service and pharmaceutical drug sales), were $1,347,059, an increase of 3% as compared with the operating revenue of $1,301,832 for the same period in the prior year. The increase was mainly from the patient service sector, where the average daily in patient service revenue per patient increased to $57 from $39 for the nine months ended September 30, 2010 and 2009 respectively.  In addition, the number of in-patient days increased to 12,440 from 12,079 for the nine months periods ended September 30, 2010 and 2009 respectively. Other operating revenue from out-patient service and pharmaceutical drug sales of $634,468 during the nine months ended September 30, 2010 represents a 23% decrease from the comparable period in 2009.  The decrease in other operating revenues was due 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 decreased by $272,202 or 33% from $820,709 for the nine-month period ended September 30, 2009 to $548,507 for the nine-month period ended September 30, 2010.  This decrease was mainly due to the cut in advertising expenses and the control on administrative expenses.


16


Item 2.       Management’s Discussion and Analysis or Plan of Operation - continued
  Results of Operation - Nine months ended September 30, 2010 - continued
  Medicine and supplies costs- Medicine and supplies costs increased by $86,293 or 12% from $691,408 during the nine months ended September 30, 2009 to $777,701 during the nine months ended September 30, 2010.   This increase was due to increased in-patient services and increases in the cost of medicines, offset in part by a decrease in out-patient services.





Depreciation Expense –Depreciation expense increased by $31,424 or 34% from $91,327 for the nine-month period ended September 30, 2009 to $122,751 for the nine-month period ended September 30, 2010.





Interest Expense –Interest expense decreased by $131,222 or 68% from $193,455 for the nine-month period ended September 30, 2009 to $62,233 for the nine-month period ended September 30, 2010.  This decrease was due primarily to repaying a capital lease obligation between September 30, 2009 and September 30, 2010.





As a result of forgoing, the Company had a net loss was at $152,768 for the first nine months of the year 2010, dropping 68.8% from a net loss of $490,006 for  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 have agreed to lease a new 600-bed hospital in Nanning, China. We expect the new hospital to be completed by January 2012. 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 September 30, 2010 we had paid $4,876,947 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.


17


Item 2.       Management’s Discussion and Analysis or Plan of Operation - continued
  Results of Operation - Nine months ended September 30, 2010 - continued
  Due to the complexities involved in determining amounts ultimately due under reimbursement arrangements with a large number of third-party payors, which are often subject to interpretation, the reimbursement actually received by U.S. hospitals for health care services is sometimes different from their estimates.





The medical system in China is different than that in the United States. Private medical insurance is not generally available to the Chinese population and as a result services and medications provided by our hospital are usually paid for in cash or by the Medicare agencies of the Nanning municipal government and the Guangxi provincial government. Our billing system automatically calculates the reimbursements to which we are entitled based upon regulations promulgated by the Medicare agencies. We bill the Medicare agencies directly for services provided to patients coved by the Medicare programs. Since we bill the Medicare agencies directly, our gross revenues are not reduced by contractual allowances.





Since we only deal with the Nanning municipal and the Guangxi provincial Medicare agencies we are familiar with their regulations pertaining to reimbursements. As a result, there is normally no material difference between the amounts we bill and the amounts we receive for services provided to Medicare patients.








Liquidity and Capital Resources





The following shows our material sources and (uses) of cash during the periods presented: Nine Month Periods Ended September 30, 2010 and 2009:





September 30, 2010


September 30, 2009Cash (used in) operating activities

$
(25,299)


$
(433,194)Cash (used in) investing activities

$
(325,579)


$
(667,981)Cash provided by financing activities

$
291,416


$
1,056,105





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 and pay for the Company’s management team 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 September 30, 2010 exchange rates, future payments due on our material contractual obligations as of September 30, 2010 are as follows:




Fiscal Year Ended

Operating lease commitments2010

$
21,6422011


28,8572012


409,1952013


423,8232014


438,452Total

$
1,321,969





18


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





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.





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.







19




Item 3.
Defaults Upon Senior Securities





None.





Item 4.
(Removed and Reserved).





None.





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.








20





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: November 15, 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)



















21