Clubhouse Media Group, Inc. - FORM 10-Q

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EX-32.1 - 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 - Clubhouse Media Group, Inc.	exhibit_32-1.htm
EX-31.2 - 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 - Clubhouse Media Group, Inc.	exhibit_31-2.htm
EX-31.1 - 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 - Clubhouse Media Group, Inc.	exhibit_31-1.htm
EX-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 - Clubhouse Media Group, Inc.	exhibit_32-2.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2015

o	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		99-0364697
(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		530011
(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 x No o

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 x No o

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	o	Accelerated filer	o

Non-accelerated filer	o	Smaller reporting company	x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

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 o No o

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 July 27, 2015, there were 15,812,191 shares of $0.001 par value common stock issued and outstanding.

FORM 10-Q

TONGJI HEALTHCARE GROUP, INC.

INDEX

		Page

PART I.	Financial Information	4

	Item 1. Financial Statements (Unaudited).	4

	Condensed Consolidated Balance Sheets as of June 30, 2015 (Unaudited) and December 31, 2014.	5

	Condensed Consolidated Statements of Operations and Comprehensive Income (loss) for the Three and Six Months Ended June 30, 2015 and 2014 (Unaudited).	6

	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2015 and 2014 (Unaudited).	7

	Notes to Condensed Consolidated Financial Statements as of June 30, 2015 (Unaudited).	8

	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.	21

	Item 3. Quantitative and Qualitative Disclosures About Market Risk.	27

	Item 4. Controls and Procedures.	27

PART II.	Other Information	29

	Item 1. Legal Proceedings.	29

	Item 1A. Risk Factors.	29

	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.	29

	Item 3. Defaults Upon Senior Securities.	29

	Item 4. Mine Safety Disclosures.	29

	Item 5. Other Information.	29

	Item 6. Exhibits.	30

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

The unaudited condensed consolidated financial statements of registrant as of June 30, 2015 and December 31, 2014 and for the six months ended June 30, 2015 and 2014 follow. The condensed consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. All such adjustments are of a normal and recurring nature.

TONGJI HEALTHCARE GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS


	June 30, 2015			December 31, 2014
	(UNAUDITED)
ASSETS

Current Assets
Cash	$	48,745		$	9,606
Accounts receivable, net		200,553			214,799
Due from related parties		111,139			118,093
Medical supplies		149,040			120,772
Prepaid expenses and other current assets		5,241			8,155

Total Current Assets		514,718			471,425

Equipment, net		1,134,130			1,173,012

Construction in progress		15,337,178			15,221,811

Deposits		183,882			183,746

Intangible assets, net		63,333			68,283

TOTAL ASSETS	$	17,233,241		$	17,118,277

LIABILITIES AND STOCKHOLDERS' DEFICIT

Current Liabilities
Accounts payable and accrued expenses	$	970,215		$	869,924
Due to related parties		16,182,205			15,988,370
Other payable		582,206			650,714
Current portion of capital lease payable		617,007			432,197

Total Current Liabilities		18,351,633			17,941,205

Settlement payable		1,383,401			1,334,209

Capital lease payable		62,372			246,678

Total Liabilities		19,797,406			19,522,092

STOCKHOLDERS' DEFICIT
Preferred stock; $0.001 par value, 20,000,000 shares authorized and none issued and outstanding		-			-
Common stock; $0.001 par value, 50,000,000 shares authorized and 15,812,191 shares issued and outstanding as of June 30, 2015 and December 31, 2014 respectively		15,812			15,812
Additional paid in capital		440,368			440,368
Accumulated deficit		(3,135,083	)		(2,977,005	)
Accumulated other comprehensive income		114,738			117,010

Total Stockholders' Deficit		(2,564,165	)		(2,403,815	)

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT	$	17,233,241		$	17,118,277


The accompanying notes are an integral part of these condensed consolidated financial statements.

TONGJI HEALTHCARE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(UNAUDITED)

	For the Three Months Ended June 30						For the Six Months Ended June 30
	2015			2014			2015			2014

OPERATING REVENUE
In-patient service revenue	$	240,372		$	315,426		$	463,390		$	578,602
Out-patient service revenue		407,920			354,334			735,684			632,111
Total operating revenue		648,292			669,760			1,199,074			1,210,713

OPERATING EXPENSES
Administrative expenses		115,144			48,294			166,713			98,234
Depreciation and amortization expenses		22,293			22,059			44,616			45,343
Medicine and supplies		317,367			309,209			555,539			540,532
Other operating expenses		79,262			84,572			154,154			159,562
Salary and fringes		164,765			188,320			358,293			371,583
Total operating expenses		698,831			652,454			1,279,315			1,215,254

LOSS FROM OPERATIONS		(50,539	)		17,306			(80,241	)		(4,541	)

OTHER INCOME (EXPENSE)
Other income		12,314			8,461			19,833			17,925
Interest expense, net		(49,657	)		(44,750	)		(97,670	)		(95,380	)
Total Other Expense		(37,343	)		(36,289	)		(77,837	)		(77,455	)

LOSS BEFORE INCOME TAXES		(87,882	)		(18,983	)		(158,078	)		(81,996	)

Provision for income taxes		-						-			-

NET LOSS		(87,882	)		(18,983	)		(158,078	)		(81,996	)

OTHER COMPREHENSIVE INCOME
Foreign currency translation gain (loss)		319			(4,687	)		(2,272	)		48,629

NET COMPREHENSIVE LOSS		(87,563	)	$	(23,670	)	$	(160,350	)	$	(33,367	)

Net loss per common stock-Basic and Diluted		(0.01	)		(0.00	)	$	(0.01	)	$	(0.00	)


Weighted average common stock outstanding
Basic and Diluted		15,812,191			15,812,191			15,812,191			15,812,191


The accompanying notes are an integral part of these condensed consolidated financial statements.

TONJI HEALTHCARE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS PERIOD ENDED JUNE 30,
(UNAUDITED)

	2015			2014
Operating activities:
Net loss	$	(158,078	)	$	(81,996	)
Adjustments to reconcile net loss to
Net cash provided by (used in) operating activities:
Depreciation expense		44,615			45,343
Stock option expense		-			2,545
Increase/(decrease) in operating assets and liabilities:
Accounts receivable		14,361			117,610
Medical supplies		(28,092	)		71,404
Prepaid expense and other current assets		2,909			10,489
Deposit		2			2,213
Accounts payable and accrued expenses		99,337			101,323
Other payables		(68,778	)		(90,695	)
Contingent liability		48,052			48,450

Net Cash Provided by Operating Activities		(45,672	)		226,686

Investing activities:
Acquisitions of equipment		-			(2,416	)
Construction in progress		(103,751	)		(1,356,574	)
Due from related parties		7,020			(336	)

Net Cash Used in Investing Activities		(96,731	)		(1,359,326	)

Financing activities:
Payments of capital lease		-			(192,565	)
Due to related parties		181,411			1,351,097

Net Cash Provided by Financing Activities		181,411			1,158,532

Effects of foreign currency translation		131			(340	)

Net increase in Cash		39,139			25,552

Cash-Beginning of Period		9,606			7,793

Cash-Ending of Period	$	48,745		$	33,345

Cash Paid During the Year for:
Income taxes	$	-		$	-
Interest paid	$	30,828		$	48,514


The accompanying notes are an integral part of these consolidated financial statements.

TONGJI HEALTHCARE GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2015

(UNAUDITED)

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" or “China”) by the Nanning Tongji Medical Co. Ltd. and an individual on October 30, 2003.

NTH is a designated hospital for medical insurance in the city of Nanning and Guangxi province. NTH specializes 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, NTH filed the Articles of Incorporation in the State of Nevada to establish Tongji Healthcare Group, Inc. (the "Company"). On the same day, Tongji, Inc., a wholly owned subsidiary of the Company, was incorporated in the State of Colorado. Tongji Inc. was later dissolved on March 25, 2011.

On December 27, 2006, Tongji Inc. acquired 100% of the equity in NTH pursuant to an Agreement and Plan of Merger, pursuant to which NTH became a wholly owned subsidiary of Tongji Inc. Pursuant to the Agreement and Plan of Merger, the Company issued 15,652,557 shares of common stock to the stockholders of NTH in exchange for 100% of the issued and outstanding shares of common stock of NTH. Thereafter and for purposes of these consolidated financial statements the "Company" and "NTH" are used to refer to the operations of NTH. The acquisition of NTH was accounted for as a reverse acquisition under the purchase method of accounting since the stockholders 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.

The Company is authorized to issue 50,000,000 shares of common stock, par value $0.001 per share and 20,000,000 shares of preferred stock, par value $0.001 per share.

According to the PRC Regulation of Healthcare Institutions, hospitals are subject to registration with the health department of the local government to obtain business license for hospital services. We received our renewed business license from Nanning municipal government in November 2007, and this license is valid until November, 2020. Other existing regulations having material effects on our business include regulations dealing with physician's licensing, usage of medicine and injection, and public security in health and medical advertising.

NTH must register with and maintain an operating license from the local health department, due to the fact that NTH currently maintains a facility with over 100 beds. NTH is subject to review by the local health department at least once every three years. If NTH fails to meet their standards, NTH’s business license may be revoked. NTH is also obligated to provide free services or dispatch our physicians or other employees in the event of a need for public assistance. NTH dedicates a very small percentage of its resources to providing free public services.

TONGJI HEALTHCARE GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2015

(UNAUDITED)

NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying unaudited condensed consolidated financial statements have been prepared by management without audit pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted as allowed by such rules and regulations, and management believes that the disclosures are adequate to make the information presented not misleading. These condensed consolidated financial statements include all of the adjustments, which, in the opinion of management, are necessary to a fair presentation of financial position and results of operations. All such adjustments are of a normal and recurring nature. Interim results are not necessarily indicative of results for a full year. The condensed consolidated balance sheet information as of December 31, 2014 was derived from the audited consolidated financial statements included in the Form 10-K. These condensed consolidated financial statements should be read in conjunction with the audited financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended on December 31, 2014 (“Form 10-K”), filed with the Commission on April 10, 2015.

This summary of significant accounting policies of the Company is presented to assist in understanding the Company’s consolidated financial statements. The consolidated financial statements and notes are representations of the Company’s management, which is responsible for their integrity and objectivity. These accounting policies conform to generally accepted accounting principles and have been consistently applied in the preparation of the condensed consolidated financial statements and the Form 10-K.

BASIS OF PRESENTATION AND CONSOLIDATION

These financial statements present the Company’s results of operations, financial position and cash flows on a consolidated basis. The consolidated financial statements include the Company and its wholly owned subsidiaries. Intercompany transactions and accounts have been eliminated in consolidation. Our policy is to consolidate all subsidiaries in which a greater than 50% voting interest is owned. The Company operates in one segment in accordance with the accounting guidance FASB ASC topic 280, “Segment Reporting”.

CASH AND CASH EQUIVALENTS

For purposes of the statements of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. A substantial amount of the Company’s cash is held in bank accounts in the PRC and is not protected by Federal Deposit Insurance Corporation (FDIC) insurance or any other similar insurance. Cash held in China amounted to $48,745 as of June 30, 2015. Given the current economic environment and the financial condition of the banking industry, there is a risk that the deposits may not be readily available or covered by such insurance. The Company has had no loss of cash in domestic or foreign banks in past years.

USE OF ESTIMATES

The preparation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported assets and liabilities, disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of net revenues and expenses during the reporting period. Actual results may differ from those estimates and such differences may be material. The more significant estimates and assumptions by management include, among others, useful lives and residual values of fixed assets, valuation of inventories, accounts receivable, stock based compensation, and allowance for bad debt. The current economic environment has increased the degree of uncertainty inherent in these estimates and assumptions.

TONGJI HEALTHCARE GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2015

(UNAUDITED)

NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

TRANSLATION ADJUSTMENT

The Company's functional currency is the Chinese Renminbi (RMB). The reporting currency is that of the US Dollar. Capital accounts of the consolidated financial statements are translated into United States dollars from RMB at their historical exchange rates when the capital transactions occurred. Assets and liabilities are translated at the exchange rates as of the balance sheet date. Income and expenditures are translated at the average exchange rate of the year. The RMB is not freely convertible into foreign currency and all foreign currency exchange transactions must take place through authorized institutions. No representation is made that the RMB amounts could have been, or could be, converted into US dollar at the rates used in translation.

The exchange rates used to translate amounts in RMB into USD for the purposes of preparing the financial statements were as follows:

June 30, 2015
Balance sheet	RMB 6.20 to US $1.00
Statement of income and other comprehensive income	RMB 6.22 to US $1.00

December 31, 2014
Balance sheet	RMB 6.20 to US $1.00
Statement of income and other comprehensive income	RMB 6.16 to US $1.00

June 30, 2014
Statement of income and other comprehensive income	RMB 6.17 to US $1.00

RECLASSIFICATIONS

Certain items previously reported under specific financial statement captions have been reclassified to conform to the current year presentation.

REVENUE RECOGNITION

The Company's revenue recognition policies are in compliance with Staff Accounting Bulletin 104 (ASC 605). Service revenue is recognized on the dates services were rendered. When a formal arrangement exists, the price is fixed or determinable. When 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.

TONGJI HEALTHCARE GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2015

(UNAUDITED)

NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

The Company generates revenue from individual patients as well as third-party payers, including PRC government programs and insurance providers, under which the hospital is paid based upon government established charges. Revenues for pharmaceutical drug sales are recognized upon the drug being administered to a patient.

Patient revenues are recorded based on pre-established rates set by the local government. The Company bills for services provided to Medicare patients through a medical card (the US equivalent of an insurance card). There have not been significant differences between the amounts the Company has billed the government Medicare funds and the amounts collected from the Medicare funds.

ACCOUNTS RECEIVABLE

Accounts receivable are recorded at the estimated net realizable amounts from government fund, insurance companies and patients. Collections have not been considered an area that exposes the Company to additional risk. Hospital staff verifies patient coverage prior to examinations and/or procedures.

For any Medicare patient who visits the hospital and is qualified for acceptance, the hospital will only include the portion that the social insurance organization will pay in the accounts receivable and collects the self-pay portion in cash at the time of service. Management continues to estimate the likelihood of bad debt on an ongoing basis.

The Company has estimated a bad debt allowance of approximately $31,020 and $31,000 as of June 30, 2015 and December 31, 2014.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company applies the provisions of FASB ASC Topic 825, which requires all entities to disclose the fair value of financial instruments, both assets and liabilities recognized and not recognized on the balance sheet, for which it is practicable to estimate fair value, and defines fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties. As of June 30, 2015 and December 31, 2014 the fair value of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, notes payable and other payables approximated the carrying value due to the short maturity of the instruments, quoted market prices or interest rates which fluctuate with market rates except for related party debt or receivables for which it is not practicable to estimate fair value.

FAIR VALUE MEASUREMENTS

FASB ASC Topic 820, “Fair Value Measurements and Disclosures”, establishes a framework for measuring fair value and requires additional disclosures about the use of fair value measurements.

Various inputs are considered when determining the fair value of the Company’s investments, and long-term debt. The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing in these securities. These inputs are summarized in the three broad levels listed below.

●		Level 1 – observable market inputs that are unadjusted quoted prices for identical assets or liabilities in active markets.
●		Level 2 – other significant observable inputs (including quoted prices for similar securities, interest rates, credit risk, etc.).
●		Level 3 – significant unobservable inputs (including the Company’s own assumptions in determining the fair value of investments).

TONGJI HEALTHCARE GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2015

(UNAUDITED)

NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

The carrying value of financial assets and liabilities recorded at fair value is measured on a recurring or non-recurring basis. Financial assets and liabilities measured on a non-recurring basis are those that are adjusted to fair value when a significant event occurs. The Company had no financial assets or liabilities carried and measured on a nonrecurring basis during the reporting periods. Financial assets and liabilities measured on a recurring basis are those that are adjusted to fair value each time a financial statement is prepared. The Company had no financial assets and liabilities carried at fair value on a recurring basis.

The availability of inputs observable in the market varies from instrument to instrument and depends on a variety of factors including the type of instrument, whether the instrument is actively traded, and other characteristics particular to the transaction. For many financial instruments, pricing inputs are readily observable in the market, the valuation methodology used is widely accepted by market participants, and the valuation does not require significant management discretion. For other financial instruments, pricing inputs are less observable in the market and may require management judgment.

CONCENTRATIONS, RISKS, AND UNCERTAINTIES

All of the Company’s operations are located in the PRC. There can be no assurance that the Company will be able to successfully continue to operate and failure to do so would have a material adverse effect on the Company’s financial position, results of operations and cash flows. In addition, the success of the Company’s operations is subject to numerous contingencies, some of which are beyond management’s control. These contingencies include general economic conditions, the price of medicine, competition, governmental and political conditions, and changes in regulations. Because the Company is dependent on the domestic market of the PRC, the Company is subject to various additional political, economic and other uncertainties. Among other risks, the Company’s operations will be subject to risk of restrictions on the transfer of funds, domestic policy changes, changing taxation policies, foreign exchange restrictions, and political and governmental regulations.

CONTINGENCIES

Certain conditions may exist as of the date the consolidated financial statements are issued. These conditions may result in a future loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company’s management and legal counsel assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought.

If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material would be disclosed. Loss contingencies considered to be remote by management are generally not disclosed unless they involve guarantees, in which case the guarantee would be disclosed.

TONGJI HEALTHCARE GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2015

(UNAUDITED)

NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

MEDICAL SUPPLIES

Medical supplies include both western and traditional Chinese medicine, are valued on the lower of weighted average cost or market basis. Inventory includes product cost and inbound freight. Management compares the cost of medical supplies with the market value and allowance is made for writing down their inventories to market value, if such value is lower.

EQUIPMENT

Equipment is recorded at cost. Depreciation is computed over the estimated useful lives of the related asset type using the straight-line method. Maintenance and repairs are expensed as incurred and the costs of additions and betterments that increase the useful lives of the assets are capitalized. When equipment is disposed, the cost and related accumulated depreciation are removed from the accounts and any gain or loss is included in other income or expenses.

CONSTRUCTION-IN-PROGRESS

A hospital facility currently under development is accounted for as construction-in-progress. Construction-in-progress is recorded at acquisition cost, including land rights cost, development expenditure, and professional fees capitalized during the course of construction for the purpose of financing the project. Upon completion of the project, the cost of construction-in-progress will be transferred to fixed assets, at which time depreciation will commence.

CAPITALIZATION OF INTEREST

Interest cost is capitalized for qualifying assets when the portion of the interest cost incurred during the assets' acquisition periods could have been avoided if expenditures for the assets had not been made. The amount capitalized in an accounting period is determined by applying the capitalization rate to the average amount of accumulated expenditures for the asset during the period. The capitalization rates used in an accounting period is based on the rates applicable to borrowings outstanding during the period (also see Note 4).

Capitalization period covers the duration of the activities required to get the asset ready for its intended use, provided that expenditures for the asset have been made and interest cost is being incurred. Interest capitalization continues as long as those activities and the incurrence of interest cost continue.

IMPAIRMENT OF LONG-LIVED ASSETS

The Company’s long-lived assets are reviewed for impairment in accordance with the guidance of FASB Topic ASC 360, “Property, Plant, and Equipment”, and FASB ASC Topic 205 “Presentation of Financial Statements”. The Company tests for impairment losses on long-lived assets used in operations whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. 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 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 at 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 six months ended June 30, 2015 and 2014.

TONGJI HEALTHCARE GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2015

(UNAUDITED)

NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

BASIC AND DILUTED EARNINGS PER SHARE

Earnings per share (EPS) is calculated in accordance with the FASB ASC Topic 260, “Earnings Per Share.” 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. Potentially dilutive securities to purchase 100,000 shares of common stock were not included in the calculation of the diluted earnings per share as their effect would be anti-dilutive for the six months ended June 30, 2015. During the six month period ended June 30, 2015, the average market price of the common stock was less than the exercise price of the stock options and the Company was in net loss position. Accordingly, the stock options were anti-dilutive and have not been included in the calculation of diluted earnings per share.

INCOME TAXES

FASB ASC Topic 740, "Income Taxes” 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 ASC Topic 740-10, “Accounting for Uncertainty in Income Taxes — An Interpretation of FASB ASC Topic 740” , which requires income tax positions to meet a more-likely-than-not recognition threshold to be recognized in the financial statements. Tax positions that previously failed to meet the more-likely-than-not threshold should be recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not threshold should be derecognized in the first subsequent financial reporting period in which that threshold is no longer met.

The application of tax laws and regulations is subject to legal and factual interpretation, judgment and uncertainty. Tax laws and regulations themselves are subject to change as a result of changes in fiscal policy, changes in legislation, the evolution of regulations and court rulings. Therefore, the actual liability may be materially different from our estimates, which could result in the need to record additional tax liabilities or potentially reverse previously recorded tax liabilities or deferred tax asset valuation allowance.

The Company has made a comprehensive review of its portfolio of tax positions in accordance with recognition standards established by ASC 740-10 and has not recognized any material uncertain tax positions.

In addition, companies in the PRC are required to pay business taxes consisting of 5% of income they derive from providing medical treatment, as well as city construction taxes and educational taxes which are 7% and 3%, respectively, of the business taxes. In April 2010, the Company was granted an exemption from these taxes until further notice from the tax bureau.

The Company had accrued approximately $40,000 for failure to file US tax returns and Form 5472 between the years 2006 to 2009. The Company is current with its required filings. In addition, 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.

TONGJI HEALTHCARE GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2015

(UNAUDITED)

NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

STATEMENT OF CASH FLOWS

In accordance with FASB ASC Topic 230, "Statement of Cash Flows," cash flows from the Company's operations are 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.

EMPLOYEE BENEFIT COSTS

The Company contributes to a defined contribution retirement plan organized by the municipal government in the province in which the Company’s subsidiary is registered. The Company makes contributes for qualified employees that are eligible to participate in the plan. Contributions to the plan are calculated at 30% of the employees’ salaries above a fixed threshold amount; employees contribute 8% and the Company’s subsidiary contributes the balance of 22%. The Chinese government is responsible for the benefit liability to retired employees. The Company has no other material obligation for the payment of retirement beyond the annual contribution.

STOCK-BASED COMPENSATION

For purposes of determining the variables used in the calculation of stock compensation expense under the provisions of FASB ASC Topic 505, “Equity” and FASB ASC Topic 718, “Compensation — Stock Compensation,” we perform an analysis of current market data and historical Company data to calculate an estimate of implied volatility, the expected term of the option and the expected forfeiture rate. With the exception of the expected forfeiture rate, which is not an input, we use these estimates as variables in the Black Scholes model. Depending upon the number of stock options granted, any fluctuations in these calculations could have a material effect on the results presented in our consolidated statement of operations. In addition, any differences between estimated forfeitures and actual forfeitures could also have a material impact on our financial statements.

Stock-based compensation costs that have been included in operating expenses amounted to $0 and $2,545, for the six month periods ended June 30, 2015 and 2014, respectively.

COMPREHENSIVE INCOME

The Company reports comprehensive income in accordance with FASB ASC Topic 220 “Comprehensive Income," which established standards for reporting and displaying comprehensive income and its components in a financial statement that is displayed with the same prominence as other financial statements.

Total comprehensive income is defined as all changes in stockholders' equity during a period, other than those resulting from investments by and distributions to stockholders (i.e., issuance of equity securities and dividends). Generally, for the Company, total comprehensive income (loss) equals net income (loss) plus or minus adjustments for currency translation. Total comprehensive income (loss) represents the activity for a period net of related tax and was a loss of $87,563 and $23,670 for the three month periods ended June 30, 2015 and 2014, respectively. Total comprehensive income (loss) represents the activity for a period net of related tax and was a loss of $160,350 and $33,367 for the six month periods ended June 30, 2015 and 2014, respectively.

While total comprehensive income is the activity in a period and is largely driven by net earnings in that period, accumulated other comprehensive income or loss (“AOCI”) represents the cumulative balance of other comprehensive income as of the balance sheet date. For the Company, AOCI is primarily the cumulative balance related to the currency adjustments and increased overall equity by $114,738 and $117,010 as of June 30, 2015 and December 31, 2014, respectively.

TONGJI HEALTHCARE GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2015

(UNAUDITED)

NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

RECENT ACCOUNTING PRONOUNCEMENTS

Recent accounting pronouncements issued by the FASB, the AICPA and the SEC did not, or are not believed by management to, have a material effect on the Company’s present or future consolidated financial statements.

GOING CONCERN

The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles, which contemplate continuation of the Company as a going concern. However, the Company has negative working capital of $17,836,915, an accumulated deficit of $3,135,083, and a stockholders’ deficit of $2,564,165 as of June 30, 2015. The Company’s ability to continue as a going concern ultimately is dependent on the management’s ability to obtain equity or debt financing, attain further operating efficiencies, and achieve profitable operations. The consolidated 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 not be able 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) plan to convert existing related party loans into equity, 2) plan to complete construction of the new hospital and begin generating revenue by the March of 2016, 3) plan to increase sales revenue with additional medical equipment, 4) plan to obtain more funding from related party entity, that is controlled by the CEO to complete the construction of the new hospital. No assurances can be given that the steps taken will provide necessary capital for the Company to continue its operations.

NOTE 3- EQUIPMENT

Equipment as of June 30, 2015 and December 31, 2014 comprised the following:

	Estimated Useful Lives (Years)	June 30, 2015			December 31, 2014
Office equipment	5-10	$	86,885		$	86,821
Medical equipment	5		1,372,505			1,371,485
Capital lease equipment			1,815,237			1,813,892
Fixtures	10		114,279			114,194
Vehicles	5		44,910			44,877
Total equipments			3,433,816			3,431,269

Less accumulated depreciation			(1,624,606	)		(1,583,285	)
Less impairment of the equipment			(675,080	)		(674,972	)

Property and equipment, net		$	1,134,130		$	1,173,012

Depreciation expense charged to operations was $22,293 and $22,059 for the three months periods ended June 30, 2015 and 2014. Depreciation expense charged to operations was $44,616 and $45,343 for the six months periods ended June 30, 2015 and 2014.

TONGJI HEALTHCARE GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2015

(UNAUDITED)

NOTE 4- CONSTRUCTION IN PROGRESS

The Company is constructing a new hospital building on leased land. The hospital building is being constructed by Guangxi Construction Engineering Corporation Langdong 8th Group (“Langdong 8th Group”). Costs capitalized primarily consists of payments for construction costs, acquisition cost, land rights cost, development expenditure, professional fees, and capitalized interest. The Company is required to make payments for construction costs of approximately $7,870,000 and any excess construction cost payments incurred during the construction phase. As of June 30, 2015, the Company had paid approximately $15,337,000 for the construction of the hospital. In addition to what it had paid for the hospital construction, we estimate the additional costs to complete the project to be $10,950,000. The land lease term will start upon completion of the new hospital construction. The new hospital is expected to be completed by March of 2016.

The Company will amortize the cost of the hospital building over the life of the land lease of twenty years. Capitalized interest was approximately $645,252 as of June 30, 2015.

NOTE 5- LAWSUIT SETTLEMENT PAYABLE

In September 2009, Guangxi Nanning Tingyouyuxiang Commercial Co., Ltd. (“Tingyouyuxiang”) filed a civil suit against NTH in the People’s Court. In the complaint, Tingyouyuxiang asserted a breach of contract claim against NTH, alleging that NTH had failed to make timely and total payment of RMB 5,050,000 (approximately $800,000) under certain Supplement Agreement by and among NTH, Tingyouyuxiang and the Eighth Group of Langdong Village Committee, Nanhu Community Office, Qingxiu District, Nanning City (the “Village Committee”). On December 30, 2009, the People’s Court ruled that NTH shall pay to Tingyouyuxiang damages of RMB 5,050,000 (approximately $800,000) plus interest and the court hearing fee approximately $320,000. On March 9, 2013, NTH appealed to the Intermediate Court, alleging, among other things, that NTH was never served. On June 6, 2013, the Intermediate Court remanded the case to the People’s Court. On April 16, 2014, the Intermediate Court dismissed Tingyouyuxiang’s appeal and affirmed the decision of the People’s Court. Upon settlement of the lawsuit, the Company had accrued approximately $1,383,000 in settlement payable as of June 30, 2015.

NOTE 6- MAJOR SUPPLIERS AND CUSTOMERS

The Company had three major suppliers for the six month period ended June 30, 2015: Guangxi Sunshine Pharmaceutical Co., Ltd., Guangxi Kyushu Pharmaceutical Group Co., Ltd., and Xi'an Algae Exposed Tang Pharmaceutical Group Huashi Pharmaceutical Co., Ltd. Medicine purchased from these three suppliers accounted for 31%, 29% and 22% respectively. As of June 30, 2015, total amount due to Guangxi Sunshine Pharmaceutical Co., Ltd., Guangxi Kyushu Pharmaceutical Group Co., Ltd., and Xi'an Algae Exposed Tang Pharmaceutical Group Huashi Pharmaceutical Co., Ltd were approximately $126,000, $119,000, and $90,000, respectively. The rest are from around 17 different suppliers, one of which is a related party with one common major stockholder which accounted for 1% total medicine purchase for the six month periods ended June 30, 2015. The Company had two major suppliers for the six month period ended June 30, 2014: Guangxi Sunshine Pharmaceutical Co., Ltd. and Guangxi Tongji Medicine Co. Ltd., a related party with common major stockholders. Medicine purchased from Guangxi Sunshine Pharmaceutical Co., Ltd. and Guangxi Tongji Medicine Co. Ltd. accounted for 31% and 14% of all medicine purchases for six month period ended June 30, 2014. As of June 30, 2014, total amount due to Guangxi Sunshine Pharmaceutical Co., Ltd., and Guangxi Tongji Medicine Co. Ltd were $94,484 and $986,456, respectively.

The Company had two major customers for the six month periods ended June 30, 2015 and 2014. Nanning Social Insurance Center accounted for 16% and 20% of revenue for the six month periods ended June 30, 2015 and 2014, respectively. China UMS accounted for 9% and 6% of revenue for the six month periods ended June 30, 2015 and 2014, respectively. As of June 30, 2015, accounts receivable due from Nanning Social Insurance Center and China UMS was approximately $228,869 and $1,512, respectively.

TONGJI HEALTHCARE GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2015

(UNAUDITED)

NOTE 7- CAPITAL LEASE OBLIGATIONS

Sale and Lease Back

On March 25, 2011, the Company completed a financing arrangement with an independent third party to sell and leaseback certain machinery and equipment. The net carrying value of the machinery and equipment sold was $262,683. The machinery and equipment was sold for $371,517, of which $334,365 was received in cash and $37,152 was held as refundable deposit. The transaction has been accounted for as a financing arrangement, wherein the property remains on the Company’s books and will continue to be depreciated. A financing obligation in the amount of $371,517, representing the proceeds, has been recorded under “Capital Lease Payable” in the Company’s Balance Sheet, and is being reduced based on payments under the lease. Capital Lease Payable was approximately $125,000 as of June 30, 2015. The lease does not contain an option to renew. There is also no contingent rent or concessions, or any leasehold improvement incentives.

The lease has a term of 5 years and requires minimum annual rental payments including principal and interest as follows:

Year Ending December 31	Amount
2015	$	101,329
2016		33,777
Total minimum lease payments		135,106
Less: interest payments		9,546
PV of minimum capital lease payments		125,560
Less: current obligations under capital lease		125,560
Long term capital lease obligation	$	0

In October 2011, the Company entered into an agreement to lease certain machinery and equipment that are classified as capital leases. The cost of equipment under capital leases of approximately $1,430,000 is included in the Balance Sheet as property, plant, and equipment at December 31, 2014. Those equipment are to be placed in service upon usage approval from the Chinese government and hiring qualified personnel. As of June 30, 2015, the Company still has not received the approval. Accumulated depreciation and impairment loss of the leased equipment at June 30, 2015 was approximately $1,294,502. Capital Lease Payable was approximately $554,000 as of June 30, 2015.

The lease has a term of 5 years and requires minimum annual rental payments including principal and interest as follows:

Year Ending December 31	Amount
2015	$	378,038
2016		220,522
Total minimum lease payments		598,560
Less: interest payments		44,741
PV of minimum capital lease payments		553,819
Less: current obligations under capital lease		491,447
Long term capital lease obligation	$	62,372

On June 10, 2015, the Company received a late payment notice from the lender that the Company has an approximately of $183,000 overdue balance. The Company is actively negotiating the possible solution to resolve the issue.

TONGJI HEALTHCARE GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2015

(UNAUDITED)

NOTE 8- OTHER PAYABLE

Other payable as of June 30, 2015 and December 31, 2014 consists of the following:

	June 30, 2015		December 31, 2014
Advance from customers	$	48,789	$	29,166
Welfare payable		61,213		8,517
Capital lease deposits paid by third party		351,806		350,491
Other payables		120,398		262,540
Total	$	582,206	$	650,714

NOTE 9- STOCKHOLDERS' EQUITY

Preferred Stock

As of June 30, 2015 and December 31, 2014, 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, 2015.

Common Stock

As of June 30, 2015 and December 31, 2014, the Company has 50,000,000 shares of common stock authorized with a par value of $0.001.

Statutory Reserves

As stipulated by the Company Law of the PRC, net income after taxation can only be distributed as dividends after appropriation has been made for the following:

i.	Making up cumulative prior years’ losses, if any;

ii.	Allocations to the “Statutory surplus reserve” of at least 10% of income after tax, as determined under PRC accounting rules and regulations, until the fund amounts to 50% of the Company’s registered capital;

iii.	Allocations to the discretionary surplus reserve, if approved in the stockholders’ general meeting.

As of June 30, 2015, the Company had accumulated deficit of $3,135,083. Therefore, the Company did not appropriate any fund for the statutory surplus reserve for the six month period ended June 30, 2015.

TONGJI HEALTHCARE GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2015

(UNAUDITED)

NOTE 9- STOCKHOLDERS' EQUITY - continued

Stock Option

Stock-based compensation amounted to $0 and $2,545 for the six month periods ended June 30, 2015 and 2014, respectively.

The following table summarizes stock option activity in the Company's stock-based compensation plans for the six month period ended June 30, 2015.

Number of Shares		Weighted Average Exercise Price		Aggregate Intrinsic Value (in thousands)
Outstanding at January 1, 2015	100,000	$	0.24	$	-
Granted	-		-		-
Exercised	-		-		-
Cancelled/expired	-		-		-
Exercisable at June 30, 2015	100,000	$	0.24	$	-
Vested at June 30, 2015	100,000	$	0.24	$	-
Outstanding at June 30, 2015	100,000	$	0.24	$	-

There were no options granted, exercised or cancelled/expired during the six month period ended June 30, 2015.

NOTE 10- 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 funds to assist them with their operations. The three companies have common major stockholders. The advanced amounts accrue interest at a rate of 1.5% per annum. The amount receivable as of June 30, 2015 and December 31, 2014 was $44,616 and $44,538, respectively. Interest income for the three month periods ended June 30, 2015 and 2014 was approximately $168 and $168, respectively. Interest income for the six month periods ended June 30, 2015 and 2014 were approximately $334 and $336, respectively.

The Company has entered into an agreement with the Chairman and a stockholder 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 funds to for its operations. The advanced amounts accrue interest at a rate of 1.5% per annum. As of June 30, 2015 and December 31, 2014, $13,276,299 and $12,964,815 were payable to these related parties, respectively. Interest expense for the three month periods ended June 30, 2015 and 2014 was $61,928 and $46,063 respectively. Interest expense for the six month periods ended June 30, 2015 and 2014 were $122,873 and $91,706, respectively.

Rental Commitments

On March 1, 2015, the Company renewed the lease agreement for their hospital with Guangxi Tongji Medicine Co. Ltd that expired in December 2014. Monthly lease payment under the new lease is approximately $4,800. The lease will expire on February 28, 2018. The Company is also in the process of building a new 600-bed hospital in Nanning, China. It expects the new hospital to be completed by March of 2016. The hospital is being constructed by Guangxi Construction Engineering Corporation Langdong 8th Group and, when completed, the land on which the hospital is located will be leased by the Company for a twenty-year term. The annual lease payments will gradually increase each year. Based on the exchange rate at June 30, 2015, minimum future lease payments are as follows:

	Related Party		Non-Related Party		Total
1-5 years	$	154,839	$	2,758,737	$	2,913,575
6-10 years		-		3,161,962		3,161,962
11-15 years		-		3,553,763		3,553,763
16-20 years		-		1,467,742		1,467,742
Total	$	154,839	$	10,942,204	$	11,097,043

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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

Nanning Tongji Hospital, Inc. ("NTH" or “Tongji Hospital”) was established in Nanning city Guangxi province of the Peoples’ Republic of China ("PRC") by the Guangxi Tongji Medical Co. Ltd. and an individual on October 30, 2003.

On December 27, 2006, we, through our wholly-owned subsidiary, Tongji, Inc., a Colorado company, acquired 100% of the equity in NTH pursuant to an Agreement and Plan of Merger. We 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. Accordingly, NTH became a wholly owned subsidiary of Tongji, Inc. We have been in the business of operating hospitals and providing healthcare services in Nanning, Guangxi province of the PRC.

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. We treated NTH as the continuing operating entity. We have two sources of operating revenues: in-patient service revenues and out-patient service revenues. In addition to provide services to our patients, we also sell pharmaceutical drugs to our patients. Revenues from such sales are included in either our in-patient service revenues or our out-patient service revenues. Our revenues come from individuals as well as third-party payers, including PRC government programs and insurance providers, under which the hospital is paid based upon local government established charges. Revenues are recorded at estimated net amounts due from patients or third-party payers. Revenues from pharmaceutical drug sales are recognized upon the drug being administered to a patient or at the time a prescription by a registered physician is filled.

Patient revenues are recorded based on pre-established rates set by the local government. The Company bills for services provided to Medicare patients through a medical card (the US equivalent of an insurance card). Historically, there have been no significant differences between the amounts the Company has billed the government Medicare funds and the amounts collected from the Medicare funds.

We had two major customers for the six month periods ended June 30, 2015 and 2014: Nanning Social Insurance Center accounted for 16% and 20% of revenue for the six month periods ended June 30, 2015 and 2014, respectively. China UMS accounted for 9% and 6% of revenue for the six month periods ended June 30, 2015 and 2014, respectively. As of June 30, 2015, accounts receivable due from Nanning Social Insurance Center and China UMS was approximately $228,869 and $1,512, respectively.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - continued

The Company had three major suppliers for the six month period ended June 30, 2015: Guangxi Sunshine Pharmaceutical Co., Ltd., Guangxi Kyushu Pharmaceutical Group Co., Ltd., and Xi'an Algae Exposed Tang Pharmaceutical Group Huashi Pharmaceutical Co., Ltd. Medicine purchased from these three suppliers accounted for 31%, 29% and 22% respectively. As of June 30, 2015, total amount due to these three suppliers were approximately $126,000, $119,000, and $90,000, respectively. The rest are from around 17 different suppliers, one of which is a related party with one common major stockholder which accounted for 1% total medicine purchase for the six month periods ended June 30, 2015. The Company had two major suppliers for the six month period ended June 30, 2014: Guangxi Sunshine Pharmaceutical Co., Ltd. and Guangxi Tongji Medicine Co. Ltd., a related party with common major stockholders. Medicine purchased from Guangxi Sunshine Pharmaceutical Co., Ltd. and Guangxi Tongji Medicine Co. Ltd. accounted for 31% and 14% of all medicine purchases for six month period ended June 30, 2014. As of June 30, 2014, total amount due to Guangxi Sunshine Pharmaceutical Co., Ltd., and Guangxi Tongji Medicine Co. Ltd were $94,484 and $986,456, respectively.

Difference in the Medical System between the U.S. and China

In the United States most hospitals have contracts with health insurance companies that provide reduced rates for healthcare services for patients with health insurance. Medicare and Medicaid patients also receive reduced rates. Functionally, the patient is billed for health services at the higher rate normally charged to patients without insurance. The amount billed is then 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 that the hospital estimates it will receive from Medicare, Medicaid and insurance companies.

For financial reporting purposes, hospitals in the United States record revenues based upon established billing rates less adjustment for contractual allowances. Revenues are recorded based upon the amounts due from the patients and third-party payers, including federal and state agencies (under the Medicare and Medicaid programs) managed care health plans, health insurance companies, and employers. Estimates of contractual allowances under third-party payer arrangements are based upon the payment terms specified in the related contractual agreements. Third-party payer contractual payment terms are generally based upon predetermined rates per diagnosis, per diem rates, or discounted fee-for-service rates.

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

The medical system in the PRC is different from that in the United States. Private medical insurance is not generally available to the PRC’s population and as a result services and medications provided by our hospital are usually paid by cash or by the Medicare agencies of the Nanning municipal government and the Guangxi provincial government. Our billing system automatically calculates the reimbursements that we are entitled to base upon regulations promulgated by these government agencies. We bill the Medicare agencies directly for services provided to patients covered by these Medicare programs. In addition, due to the fact that rates are established by the government, there is no difference between rates for patients covered by Medicare and patients who pay cash.

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.

Results of Operation - Three Months Ended June 30, 2015 and 2014

Material changes of items in our Statement of Operations for the three months ended June 30, 2015, as compared to the three months ended June 30, 2014, are discussed below.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - continued

Operating Revenues – Operating revenue for the three month period ended June 30, 2015, which resulted primarily from in-patient services and out-patient services, was $648,292, a slight decrease of $21,468 or 3%, as compared with the operating revenue of $669,760 for the same period of 2014. Our in-patient service revenue was $240,372 for the three month period ended June 30, 2015, as compared to $315,426 for the same period in 2014, a decrease of $75,054 or 24%. The decrease in the in-patient service revenue was primarily due to the downsizing of an in-patient department. Our out-patient service revenue was $407,920 for the three month period ended June 30, 2015, an increase of $53,586 or 15% as compared to $354,334 for the same period in 2014. The increase in the out-patient service revenue was primarily due to extended service hours offered in some of our out-patient service department.

Operating Expenses – Operating expenses were $698,831 for the three month period ended June 30, 2015, an increase of 7% as compared to $652,454 for the same period of 2014, which was primarily due to the increase in salary, insurance and professional fee expenses.

Loss from Operations - Operating loss was $50,539 for the three month period ended June 30, 2015, an increase of $67,845 or 392% as compared to an operating gain of $17,306 for the same period of 2014. The primary reason for the increased operating loss is the aforementioned changes.

Interest Expense – Interest expense for the three month period ended June 30, 2015 was $49,657 as compared to $44,750 for the three month period ended June 30, 2014, an increase of $4,907 or 11%. The increase was primarily due to the increase in related party borrowings to fund the new hospital construction.

Net Loss - As a result of the forgoing, the Company had a net loss of $87,882 during the quarter ended June 30, 2015, compared to a net loss of $18,983 for the comparative period in 2014, an increase of $68,899 or 363%.

Results of Operation - Six Months Ended June 30, 2015 and 2014

Material changes of items in our Statement of Operations for the six months ended June 30, 2015, as compared to the six months ended June 30, 2014, are discussed below.

Operating Revenues – Operating revenue for the six month period ended June 30, 2015, which resulted primarily from in-patient service and out-patient service, was $1,199,074, a slight decrease of $11,639 or 1%, as compared with the operating revenue of $1,210,713 for the same period of 2014. Our in-patient service revenue was $463,390 for the six month period ended June 30, 2015, as compared to $578,602 for the same period in 2014, a decrease of $115,212 or 20%. [The decrease in the in-patient service revenue was primarily due to the downsizing of an in-patient department.] Our out-patient service revenue was $735,684 for the six month period ended June 30, 2015, an increase of $103,573or 16% as compared to $632,111 for the same period in 2014. The increase in the out-patient service revenue was primarily a result of our marketing effort and extended service hours offered in some of our out-patient service department.

Operating Expenses – Operating expenses were $1,279,315 for the six month period ended June 30, 2015, an increase of 5% as compared to $1,215,254 for the same period of 2014. The increase was primarily due to the increase in salary, insurance and professional fee expenses.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - continued

Loss from Operations - Operating loss was $80,241 for the six month period ended June 30, 2015, an increase of $75,700 or 1667% as compared to an operating loss of $4,541 for the same period of 2014. The primary reason for the increase is the aforementioned changes.

Interest Expense – Interest expense for the six month period ended June 30, 2015 was $97,670 as compared to $95,380 for the six month period ended June, 2014, a slight increase of $2,290 or 2%.

Net Loss - As a result of the forgoing, the Company had a net loss of $158,078 during the six month period ended June 30, 2015, compared to a net loss of $81,996 for the comparative period in 2014, an increase of $76,082 or 93%.

Trends, Events and Uncertainties

The China Ministry of Health, as well as other related agencies, has proposed changes to the price limit 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 be implemented or when they may take effect.

We are in the process of building a new 600-bed hospital building in Nanning city on leased land. We expect the new hospital building to be completed by March of 2016. The hospital building is being constructed by Guangxi Construction Engineering Corporation Langdong 8th Group (“Langdong 8th Group”). The lease payments for the land will start after the construction is completed. Annual lease payments for the land will increase every year. Our agreement with Langdong 8th Group obligates us to pay approximately $7,870,000 for construction related costs. In addition, we are responsible for any additional costs necessary to complete the project. As of June 30, 2015, we had paid approximately $15,337,000 for the construction of the hospital. We borrowed most of the funds from our related company Guangxi Tongji Medicine Co., Ltd. In addition to what we had paid for the hospital building construction, we estimate the additional costs to complete the project to be $10,950,000. We expect to obtain the additional funding through borrowing from bank and sales of some company owned properties. We will continue to operate in our existing hospital buildings after the completion of the new hospital building.

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

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - continued

The medical system in the PRC is different from that in the United States. Private medical insurance is not generally available to the PRC’s 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 that we are entitled to base upon regulations promulgated by theses government agencies. We bill the Medicare agencies directly for services provided to patients covered by theses Medicare programs. In addition, due to the fact that rates are established by the government, there is no difference between rates for patients covered by Medicare and patients who only use cash.

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

We generally finance our operations through our operating profits and borrowings from related parties. As of the date of this report, we have not experienced any difficulty in raising funds from related parties, and we have not experienced any liquidity problems in settling our payables in our ordinary course of business. We believe that we have adequate funds and capital with respect to conducting its business over the next twelve months.

The following shows our material sources and uses of cash during the six month periods ended June 30, 2015 and 2014:

	2015		2014
Cash provided by (used in) operating activities	$	(45,672)	$	226,686

Cash (used in) investing activities	$	(96,731)	$	(1,356,574)

Cash provided by financing activities	$	181,411	$	1,158,532

The Company carefully monitors and controls the amount of cash used to fund operating activities. However, substantial funds are required to fund the construction costs on the new hospital building and a lawsuit settlement (see Note 5 to the Financial Statements accompanying this Report). Financing of operations has come primarily from advances from related parties. We are dependent on related parties to provide working capital and pay our management team until such time as our operations are profitable. There can be no assurances that related parties will continue to provide additional capital. Without additional capital, we may be forced to cease operations and liquidate.

Operating Activities

Net cash used in operating activities primarily consists of net loss, as adjusted by depreciation, stock option, and changes in operating assets and liabilities such as accounts receivable, medical supplies, capital lease deposits, prepaid expense and other current assets, accounts payables and accrued liabilities and other payables.

Net cash used in operating activities was $45,672 for the six months ended June 30, 2015, an increase of $272,358 or 120%, as compared with the net cash provided by operating activities of $226,686 for the same period in 2014. The increase in net cash used in operating activities was primarily due a decrease of $21,917 in other payable, a decrease of $1,986 in accounts payable and accrued expenses, and a decrease of $103,249 in accounts receivable, offset by a decrease of $99,496 in medical supply purchases.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - continued

Investing Activities

Net cash used in investing activities was $96,731 for the six months ended June 30, 2015, a decrease of $1,262,595 or 94%, as compared with the net cash used in investing activities of $1,359,326 for the same period in 2014. The decrease in net cash used in investing activities was primarily due to a decrease of approximately $1,252,823 in construction in progress.

Financing Activities

Net cash provided by financing activities primarily consists of proceeds from related party loans.

Net cash provided by financing activities was $181,411 for the six months ended June 30, a decrease of $977,121 or 84%, as compared with the net cash provided by financing activities of $1,158,532 for the same period in 2014. The decrease was primarily attributable to decrease in fund advanced by related parties for the construction of the new hospital building.

Working Capital

Our working capital was negative $17,836,915 as of June 30, 2015, as compared with negative $17,469,780 as of December 31, 2014, an increase of $297,741, which is primarily attributable to the related party loan of approximately $193,000 to fund the construction of the new hospital and payment of payables.

Rental Commitments

	Related Party		Non-Related Party		Total
1-5 years	$	154,839	$	2,758,737	$	2,913,575
6-10 years		-		3,161,962		3,161,962
11-15 years		-		3,553,763		3,553,763
16-20 years		-		1,467,742		1,467,742
Total	$	154,839	$	10,942,204	$	11,097,043

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - continued

Going Concern

Management has taken certain restructuring steps to provide the necessary capital to continue its operations. These steps included: 1) plan to convert existing related party loans into equity, 2) plan to complete construction of the new hospital and begin generating revenue by the March of 2016, 3) plan to increase sales revenue with additional medical equipment, 4) plan to obtain more funding from related party entity that is controlled by the CEO to complete the construction of the new hospital. No assurances can be given that the steps taken will provide necessary capital for the Company to continue its operations.

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 Disclosure Controls

Our management maintains disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to provide reasonable assurance that the material information required to be disclosed by us in our periodic reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

As of June 30, 2015, our management, under the supervision of and with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as required by Rules 13a-15(b) and 15d-15(b) under the Exchange Act. Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of June 30, 2015 as a result of the material weaknesses identified in our internal control over financial reporting, which are discussed below. Our management considers our internal control over financial reporting to be an integral part of our disclosure controls and procedures.

Item 4. Controls and Procedures - continued

Specifically, our management identified certain matters involving internal control and our operations that it considered to be material weaknesses. As defined in the Exchange Act, a material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the registrant's annual or interim financial statements will not be prevented or detected on a timely basis. The material weaknesses identified by our management as of June 30, 2015, are described below:

●

We did not design, implement, or maintain effective entity-level controls related to our control environment, resulting in the following significant control deficiencies:

The Code of Business Conduct and Ethics, which was specifically designed for public company applicability, has yet to be formally acknowledged by members of management and the finance department.

There is an absence of independence and financial expertise on the Board of Directors, and we do not have an Audit Committee or a formalized internal audit function, limiting its ability to provide effective oversight of our management.

The full implementation of, and related training for, our newly-formalized IT policies and procedures were still in process at year-end. Accordingly, we lacked sufficiently-trained personnel to provide for adequate segregation of duties within the accounting system and effective oversight of controls over access, change, data, and security management.

Our management believes that the pervasive nature of these control deficiencies, when aggregated, impact all significant accounts and disclosures and rise to the level of material weakness.

Our management will continue to monitor and evaluate the effectiveness of its disclosure controls and procedures, as well as its internal control over financial reporting, on an ongoing basis, and is committed to taking further action and implementing additional improvements, as necessary and as funds allow. However, our management cannot guarantee that the measures taken or any future measures will remediate the material weaknesses identified or that any additional material weaknesses or significant deficiencies will not arise in the future due to a failure to implement and maintain adequate internal control over financial reporting.

Notwithstanding the material weaknesses described above, our management believes that there are no material inaccuracies or omissions of material fact and, to the best of its knowledge, believes that the consolidated financial statements included in this annual report present fairly, in all material respects, our financial position, results of operations, and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States.

Changes in Internal Control over Financial Reporting

No changes in the Company's internal control over financial reporting has come to management's attention during the Company's last fiscal quarter that have materially affected, or are likely to materially affect, the Company's internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1.

Legal Proceedings.

In September 2009, Guangxi Nanning Tingyouyuxiang Commercial Co., Ltd. (“Tingyouyuxiang”) filed a civil suit against Nanning Tongji Hospital, Inc. (“NTH”), a subsidiary of the Company in the People’s Court. In the complaint, Tingyouyuxiang asserted a breach of contract claim against NTH, alleging that NTH had failed to make timely and total payment of RMB 5,050,000 (approximately $800,000) under certain Supplement Agreement by and among NTH, Tingyouyuxiang and the Eighth Group of Langdong Village Committee, Nanhu Community Office, Qingxiu District, Nanning City (the “Village Committee”). One December 30, 2009, the People’s Court ruled that NTH shall pay to Tingyouyuxiang damages of RMB 5,050,000 (approximately $800,000) plus interest and the court hearing fee approximately $320,000. On March 9, 2013, NTH appealed to the Intermediate Court, alleging, among other things, that NTH was never served. On June 6, 2013, the Intermediate Court remanded the case to the People’s Court. On April 16, 2014, the Intermediate Court dismissed Tingyouyuxiang’s appeal and affirmed the decision of the People’s Court. Upon settlement of the lawsuit, the Company had accrued approximately $1,383,000 in settlement payable as of June 30, 2015.

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.

Mine Safety Disclosures.

Not applicable.

Item 5.

Other Information.

None.

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.	Title of Document
31.1	Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
31.2	Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
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 **
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 **
101.INS	XBRL Instance Document*
101.SCH	XBRL Taxonomy Extension Schema Document*
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document*
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document*
101.LAB	XBRL Taxonomy Extension Label Linkbase Document*
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document*

* Filed herewith.

** Furnished herewith.

(1) Incorporated by reference to the same exhibit filed with our registration statement on Form SB-2 (File No. 333-140645).

SIGNATURES

Pursuant to the requirements of the securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	TONGJI HEALTHCARE GROUP, INC.

Date: August 14, 2015	By:	/s/ Yunhui Yu
		Yunhui Yu President and Chief Executive Officer (Principal Executive Officer)

Date: August 14, 2015	By:	/s/ Eric Zhang
		Eric Zhang Chief Financial Officer (Principal Financial Officer)

Clubhouse Media Group, Inc. - FORM 10-Q - August 14, 2015

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Clubhouse Media Group, Inc. Reports