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Clean Vision Corp - Quarter Report: 2011 September (Form 10-Q)

UNITED STATES

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-Q


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

For the quarterly period ended September 30, 2011


[] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ______________


Commission File Number: 000-52489


CHINA VITUP HEALTH CARE HOLDINGS, INC.

(Exact name of registrant as specified in its charter)


Nevada

 

45-0552679

(State or other jurisdiction of incorporation)

 

(IRS Employer Identification Number)

 

108-1 Nashan Road

Zhongshan District

Dalian, P.R.C.

(Address of principal executive offices)

86-411-8265-3668

(Registrant’s telephone number, including area code)


Indicate by check mark whether the registrant (1) has filed all 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 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. [X] Yes [ ] 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).     [X] Yes [ ] No


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See 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 [ ]  (Do not check if a smaller reporting company)

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 [X] No


As of November 10, 2011 the Issuer had 15,000,000 shares of common stock issued and outstanding.



1



PART I-FINANCIAL INFORMATION


ITEM 1.

FINANCIAL STATEMENTS.


The financial statements of China Vitup Health Care Holdings, Inc. (the "Company" or the “Registrant”), a Nevada corporation, included herein were prepared, without audit, pursuant to rules and regulations of the Securities and Exchange Commission.  Because certain information and notes normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America were condensed or omitted pursuant to such rules and regulations, these financial statements should be read in conjunction with the financial statements and notes thereto included in the audited financial statements of the Company in the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2010.



CHINA VITUP HEALTH CARE HOLDINGS, INC. & SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2011

(Unaudited)



 

 

Consolidated Balance Sheets

3 – 4

 

 

Consolidated Statements of Income

5

 

 

Consolidated Statements of Cash Flows

6

 

 

Consolidated Statements of Stockholders’ Equity

7

 

 

Notes to Financial Statements

8 – 20






2



China Vitup Health Care Holdings, Inc.

Consolidated Balance Sheets

As of September 30, 2011 and December 31, 2010

(Stated in US Dollars)




 

 

Note

 

September 30, 2011

 

December 31, 2010

 

 

 

 

[Unaudited]

 

[Audited]

Assets

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash and cash equivalents

 

2D

 

$                   451,633

 

$                    609,397

Accounts receivable, net

 

2E,3

 

489,042

 

417,888

Inventories

 

2F

 

86,244

 

70,071

Related Party Receivable

 

8B

 

-

 

116,412

Other receivable and Prepayments

 

 

 

97,221

 

36,143

Total current assets

 

 

 

1,124,140

 

1,249,911

 

 

 

 

 

 

 

Non-current assets

 

 

 

 

 

 

Plant and equipment, net

 

2G, 4

 

1,537,996

 

1,868,339

Intangible assets

 

2H,5

 

36,190

 

-

Long term prepaid expense for related party

 

8C

 

932,336

 

364,981

Deposit

 

 

 

16,402

 

-

Total non-current assets

 

 

 

2,522,924

 

2,233,320

 

 

 

 

 

 

 

Total Assets

 

 

 

$                3,647,064

 

$                3,483,231

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Account payables

 

 

 

$                   390,261

 

$                    641,836

Customer deposit

 

2J

 

445,020

 

292,008

Income tax payable

 

 

 

38,377

 

46,404

Other payables and accrued liabilities

 

6

 

259,338

 

170,464

Total current liabilities

 

 

 

1,132,996

 

1,150,712

 

 

 

 

 

 

 

Non-current Liabilities

 

 

 

-

 

1,143,672

Total non-current liabilities

 

 

 

-

 

1,143,672

 

 

 

 

 

 

 

Total Liabilities

 

 

 

$                1,132,996

 

$                2,294,384

 

 

 

 

 

 

 


See Accompanying Notes to the Financial Statements.



3



China Vitup Health Care Holdings, Inc.

Consolidated Balance Sheets

As of September 30, 2011 and December 31, 2010

(Stated in US Dollars)




 

 

Note

 

September 30, 2011

 

December 31, 2010

 

 

 

 

[Unaudited]

 

[Audited]

Stockholders’ Equity

 

 

 

 

 

 

Preferred stock, par value $0.001, 10,000,000 share authorized, nil share issued and outstanding as of September 30, 2011 and December 31, 2010

 

 

 



$                               -                                 

 



$                               -

Common stock, par value $0.0001, 500,000,000 shares authorized, 15,000,000 shares issued and outstanding as of September 30, 2011 and December 31, 2010

 

 

 

1,500

 

1,500

Additional paid-in capital

 

 

 

1,214,141

 

167,481

Statutory reserves

 

2K

 

239,261

 

239,261

Equity of VIE

 

 

 

-

 

(97,012)

Retained earnings

 

 

 

793,180

 

660,140

Accumulated other comprehensive income

 

2O

 

265,986

 

217,478

Total stockholders’ equity

 

 

 

2,514,068                  

 

               1,188,848

 

 

 

 

 

 

 

Total Liabilities and Stockholders’ Equity

 

 

 

$               3,647,064

 

$               3,483,231

 

 

 

 

 

 

 




See Accompanying Notes to the Financial Statements.



4



China Vitup Health Care Holdings, Inc.

Consolidated Statements of Income

For the three months and nine months ended September 30, 2011 and 2010

(Stated in US Dollars)




 

Note

Three months ended September 30

 

Nine months ended September 30

 

 

 2011

 

2010

 

2011

 

2010

 

 

 

 

 

 

 

 

 

Revenue

2L

$      1,099,355

 

$       927,985

 

$     3,287,368

 

$     2,286,461

Cost of revenue

2M

685,419

 

405,139

 

2,271,146

 

   1,085,120

Gross profit

 

413,936

 

522,846

 

1,016,222

 

       1,201,341

 

 

 

 

 

 

 

 

 

Selling expenses

 

43,764

 

18,519

 

142,505

 

52,117

General and administrative expenses

 

306,085

 

249,520

 

680,735

 

652,245

Total operating expenses

 

349,849

 

268,039

 

823,240

 

704,362

 

 

 

 

 

 

 

 

 

Operating income

 

64,087

 

254,807

 

192,982

 

496,979

 

 

 

 

 

 

 

 

 

Other income

 

483

 

-

 

74,841

 

-

Other expense

 

(2,620)

 

(727)

 

(17,904)

 

(25,492)

Interest income(expense)

 

680

 

(45)

 

1,145

 

(2,575)

 Total other income/(expense)

 

(1,457)

 

(772)

 

58,082

 

  (28,067)

 

 

 

 

 

 

 

 

 

Pre-tax income

 

62,630

 

254,035

 

251,064

 

         468,912

 

 

 

 

 

 

 

 

 

Provisions for income tax

2N,7

25,196

 

17,762

 

118,024

 

  47,034

 

 

 

 

 

 

 

 

 

Net income

 

$          37,434

 

$          236,273

 

$          133,040

 

$      421,878

 

 

 

 

 

 

 

 

 

Earnings per share

2P,12

 

 

 

 

 

 

 

Basic

 

$             0.002

 

$               0.016

 

$             0.009

 

$             0.028

Diluted

 

$             0.002

 

$               0.016

 

$             0.009

 

$             0.028

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding

 

 

 

 

 

 

 

 

Basic

 

15,000,000

 

15,000,000

 

15,000,000

 

15,000,000

Diluted

 

15,000,000

 

15,000,000

 

15,000,000

 

15,000,000



See Accompanying Notes to the Financial Statements.







5



China Vitup Health Care Holdings, Inc.

Consolidated Statements of Cash Flows

For the three and nine months ended September 30, 2011 and 2010

(Stated in US Dollars)






 

 

 

Nine months ended September 30

 

 

 

2011

 

2010

Net Income

 

 

$                    133,040

 

$                  421,878

Adjustments to reconcile net income to net cash from operations:

 

 

 

 

 

Amortization

 

 

21,506

 

-

Depreciation

 

 

464,248

 

335,365

Provision for bad debt

 

 

4,940

 

-

Changes in operating assets and liabilities:

 

 

 

 

 

Decrease(increase)  in accounts receivable

 

 

(76,094)

 

(221,862)

Decrease(Increase) in inventories

 

 

(16,173)

 

(44,487)

Decrease(Increase) in other receivables and prepayment

 

 

(61,078)

 

1,296

Decrease(Increase) in Long-Term Deposit

 

 

-

 

(15,404)

Increase (Decrease) in Accounts payables

 

 

(51,275)

 

37,885

Increase (Decrease)  in  tax payable

 

 

(1,470)

 

5,435

Increase (Decrease) in customer deposit

 

 

153,015

 

-

Increase (Decrease) in Deferred Revenue

 

 

-

 

(771)

Increase (Decrease) in other payables and accrued liabilities

 

 

(117,984)

 

(151,612)

Net cash provided by operating activities

 

 

452,675

 

367,723

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

Payments for purchases and construction of plant and equipment

 

 

(191,046)

 

(114,975)

Payment for deposits

 

 

(16,244)

 

(105,886)

Net cash used in investing activities

 

 

(207,290)

 

(220,861)

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

Borrow from (payment to) related parties

 

 

(450,943)

 

(423,912)

Net cash used in financing activities

 

 

(450,943)

 

(423,912)

 

 

 

 

 

 

Net decrease of cash and cash equivalents

 

 

(205,558)

 

(277,050)

 

 

 

 

 

 

Effect of foreign currency translation on cash

 

 

47,794

 

5,562

 

 

 

 

 

 

Cash & cash equivalents at beginning of period

 

 

609,397

 

504,676

 

 

 

 

 

 

Cash & cash equivalents at end of period

 

 

$                   451,633

 

$                  233,188

 

 

 

 

 

 

Supplementary information

 

 

 

 

 

Interest paid

 

 

$                             16

 

$                               -

Income taxes paid

 

 

$                   127,272

 

$                    55,317

See Accompanying Notes to the Financial Statements.



6



China Vitup Health Care Holdings, Inc.

Consolidated Statements of Stockholders’ Equity

As of September 30, 2011 and December 31, 2010

(Stated in US Dollars)




 

 

 

 

 

 

 

Accumulated

 

 

Number

 

Additional

 

 

 

other

 

 

Of

Common

paid in

Statutory

Equity

Retained

comprehensive

 

 

shares

stock

capital

Reserve

of VIE

Earnings

income

Total

Balance at January 1, 2010

15,000,000

$         1,500

$     167,481

$     239,261

$    (97,012)

$        686,895

$            132,495

$     1,130,620

Net income

-

-

-

-

-

(26,755)

-

(26,755)

Foreign currency translation adjustment

-

-

-

-

-

-

84,983

84,983

Balance at December 31, 2010

15,000,000

$         1,500

$     167,481

$     239,261

$    (97,012)

$        660,140

$            217,478

$     1,188,848

 

 

 

 

 

 

 

 

 

Balance at January 1, 2011

15,000,000

$         1,500

$     167,481

$     239,261

$    (97,012)

$        660,140

$            217,478

$     1,188,848

Prior year adjustment

-

-

1,046,660

-

97,012

-

-

1,143,672

Net income

-

-

-

-

-

133,040

-

133,040

Foreign currency translation adjustment

-

-

-

-

-

-

48,508

48,508

Balance at September 30, 2011

15,000,000

$         1,500

$  1,214,141

$     239,261

$                  -

$        793,180

$           265,986

$     2,514,068

 

 

 

 

 

 

 

 

 


 

 

Comprehensive Income

 

 

September 30, 2011

 

December 31

2010

 

Accumulated

Total

Net income

 

$                133,040

 

$                 (26,755)

 

$                   106,285

Foreign currency translation adjustment

 

48,508

 

84,983

 

133,491

 

 

$                181,548

 

$                    58,228

 

$                   239,776


See Accompanying Notes to the Financial Statements.



7



China Vitup Health Care Holdings, Inc.

Notes to Financial Statements

As of September 30, 2011 and December 31, 2010

(Stated in US Dollars)




1.

The Company and Principal Business Activities


A.

Organization and Structure


I.

Ultimate Holding Company

a.)

China Vitup Health Care Holdings, Inc. (the “Company”) was incorporated under the laws of Canada as Second Bavarian Mining Consulting Services, Inc. on February 24, 2003.  On August 10, 2004, it amended and restated the Articles of Incorporation to change its name to Tubac Holdings, Inc., and to change its domicile to the State of Wyoming.  On September 15, 2006, the Company formed a wholly-owned subsidiary in Nevada called China Vitup Health Care Holdings, Inc. (“China Vitup Nevada”).  On October 2, 2006, through the completion of a merger with China Vitup Nevada, the Company changed its domicile to the State of Nevada.  As a result of the merger, China Vitup Nevada continued as the surviving company and changed its name to current China Vitup Health Care Holdings, Inc.


II.

Intermediary Holding Companies

a.)

China Vitup Healthcare Holdings, Inc., (“China Vitup BVI”) is an investment holding company that was incorporated under the laws of British Virgin Islands (“BVI”) on June 29, 2006.


b.)

On August 30, 2006, under the laws of the People’s Republic of China (“PRC”), Dalian Vitup Management Holdings Co., Ltd. (“Dalian Vitup Management” or “WFOE”) was incorporated as a wholly-foreign owned entity. WFOE is wholly-owned by China Vitup BVI.


Dalian Vitup Management is a holding company which was established for the purposes of facilitating business operations in the PRC. Due to PRC laws governing foreign ownership and investment in medical clinics in the PRC, Dalian Vitup Management does not directly own the entities in China through which the Company’s business operations are conducted.  Instead, Dalian Vitup Management controls those entities and their business operations through a series of exclusive contractual agreements.


III.

Operating Entity


All of the Company’s operations are located in the PRC, and are conducted through its operating entity Dalian Vitup Healthcare Management Co. Ltd. (“Dalian Vitup Healthcare”).


Dalian Vitup Healthcare was incorporated under the laws of the PRC on March 4, 2004. Dalian Vitup Healthcare is located in Dalian city Liaoning Province of PRC. It provides medical clinic service and heath club service, including outpatient care, diagnosis of health problems, physical checkup, and instruction or remedial work.


B.

Variable Interest Entity


On September 1, 2006, Dalian Vitup Management entered into six contractual arrangements that for accounting purposes will collectively known as the variable interest entity (“VIE”) agreement with the Dalian Vitup Healthcare. The Company accounted for the VIE agreement, in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810-10, by consolidating Dalian Vitup Healthcare as operating entity (similar to a subsidiary) of both Dalian Vitup Management and the Company, because the Company: i) exert effective control over Dalian Vitup Healthcare; ii) receive all the economic benefits derived from the business operations of Dalian Vitup Healthcare; and iii) have an exclusive option to purchase all or part of the equity interests in Dalian Vitup Healthcare.






8


China Vitup Health Care Holdings, Inc.

Notes to Financial Statements

As of September 30, 2011 and December 31, 2010

(Stated in US Dollars)



C.

Share Exchange Agreement


On November 15, 2006, the Company completed a Share Exchange Agreement with China Vitup BVI and the shareholders of China Vitup BVI.  Pursuant to the agreement, the Company issued a total of 13,460,202 shares of its common stock in exchange for 50,000 shares of China Vitup BVI, representing 100% of the issued and outstanding common stock of China Vitup BVI. Upon the completion of Share Exchange, China Vitup BVI became a wholly owned subsidiary of the Company.   


The share exchange transaction has been accounted for as a recapitalization of China Vitup BVI where the Company (the legal acquirer) is considered the accounting acquiree and China Vitup BVI (the legal acquiree) is considered the accounting acquirer.  As a result of this transaction, the Company is deemed to be a continuation of the business of China Vitup BVI. Accordingly, the financial data, included in the accompanying consolidated financial statements for all periods prior to November 15, 2006, is that of the accounting acquirer, Dalian Vitup BVI.  The historical stockholders’ equity of the accounting acquirer prior to the share exchange has been retroactively restated as if the share exchange transaction occurred as of the beginning of the first period presented.


2.

Significant Accounting Policies


A.

Method of accounting


The Company maintains its general ledger and journals with the accrual method of accounting in accordance to PRC generally accepted accounting principles (“GAAP”).  For financial statement reporting purposes, the Company has converted its PRC GAAP financial statements to financial statements that are presented in accordance to generally accepted accounting principles in the United States of America.  The conversion of the Company’s financial statements from presentation in accordance with PRC GAAP to US GAAP did not result in any reconciling items on the accompanying financial statements.


The financial statements and accompanying notes are representations of management.


B.

Principles of consolidation


The consolidated financial statements include the accounts of the Company and its subsidiaries.  All significant inter-company balances such as due to/due from, investment in subsidiaries, and subsidiaries’ capitalization have been eliminated.


C.

 Use of estimates


The preparation of the financial statements in conformity with generally accepted accounting principles 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 periods.  Significant estimates and assumptions are used for, but not limited to: (1) allowance for trade receivables, (2) economic lives of property, plant and equipment, (3) asset impairments, and (4) contingency reserves. Management makes these estimates using the best information available at the time the estimates are made; however actual results could differ materially from those estimates


D.

Cash and cash equivalents


The Company classifies the following instruments as cash and cash equivalents: cash on hand, unrestricted bank deposits, and all highly liquid investments purchased with original maturities of three months or less.




9


China Vitup Health Care Holdings, Inc.

Notes to Financial Statements

As of September 30, 2011 and December 31, 2010

(Stated in US Dollars)



E.

Accounts receivable


Accounts receivable are disclosed at the net value of all outstanding invoice amounts less management’s estimate for doubtful accounts. Management regularly reviews outstanding accounts and provides an allowance for doubtful accounts. Management’s allowance for doubtful accounts at September 30, 2011 was 1% of gross accounts receivables.


In regards to the Company’s allowance for doubtful accounts, we keep one general reserve, the amount of which equals 1% of gross account receivables. We have no specific reserve, as we believe adequate provisions for doubtful accounts have been provided through our general reserve. When estimating the allowance for doubtful accounts, we take into consideration: 1) our track record of payment collection, which shows zero experience of any material delinquent accounts that were uncollectible and that we have not written off material balance; 2) the enhanced measures we currently take to minimize failure of collection, which include having internal staff call for payment, filing legal pledge, collecting agent to collect the outstanding balance, etc. If the collection is no longer probable, the Company will write off the balance against the allowance for doubtful accounts.


F.

Inventories


Inventories mainly consist of medicines, medical devices and consumables purchased from third parties. Inventories are valued at the lower of cost, as determined on a first-in first-out basis, or market. Market value is determined by reference to selling prices after the balance sheet date or to management’s estimates based on prevailing market conditions. Management writes down the inventories to market value if it is below cost. Management also regularly evaluates the composition of its inventories to identify slow-moving and obsolete inventories to determine if valuation allowance is required.


G.

Plant and equipment


Plant and equipment are carried at cost less accumulated depreciation. Depreciation is provided over their estimated useful lives, using the straight-line method. Estimated useful life of plant and equipment is as follows:



 

Estimated Useful Lives

Leasehold improvements

5 years

Medical equipments

5 years

Motor vehicles

10 years

Furniture, fixtures and equipments

5 years


The cost and related accumulated depreciation of assets sold or otherwise retired are eliminated from the accounts and any gain or loss is included in the statement of income. The cost of maintenance and repairs is charged to income as incurred, whereas significant renewals and betterments are capitalized.  


H.

Intangible assets


The Company individually tracks and accounts for each intangible asset.  Each intangible asset is carried at its original acquisition cost less accumulated amortization. The Company provides amortization for each intangible asset using the straight line method over its estimated useful life.


I.

Accounting for impairment of long lived Assets


The Company has adopted Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”), ASC 360-10-35.  The Company evaluates its long



10


China Vitup Health Care Holdings, Inc.

Notes to Financial Statements

As of September 30, 2011 and December 31, 2010

(Stated in US Dollars)



lived assets for impairment when indicators of impairment are present or annually, whichever occurs sooner.  In the event that there are indications of impairment, the Company will record a loss to statements of income equal to the difference between the carrying value and the fair value of the long lived asset.  The Company typically, but not exclusively uses the expected future discounted flows method to determine fair value of long lived asset subject to impairment.  The fair value of long lived assets that held for disposition will include the cost of disposal.


The Company’s long-lived assets are grouped by their presentation on the consolidated balance sheets, and further segregated by their operating and asset type.  Long-lived assets subject to impairment include equipment, vehicles and software licenses. The Company makes its determinations based on various factors that impact those assets.


The Company assessed its buildings, equipment, vehicles, and software licenses for production. At September 30, 2011, the Company has concluded that its long-lived assets have not experienced any impairment losses because the Company’s long lived assets have enabled the Company to experience profit during the periods ended September 30, 2011.


J.

Customer deposit


Customer deposit consists primarily of payments received in advance from customers.


K.

Statutory reserves


Statutory reserves are referring to the amount appropriated from the net income in accordance with laws or regulations, which can be used to recover losses and increase capital, as approved, and are to be used to expand production or operations.


L

Revenue recognition


The Company recognizes its revenues, as the related services are rendered to the customer and are net of allowances and discounts, and its related business taxes. The Company recognizes revenue when persuasive evidence of an arrangement exists, transfer of title has occurred or services have been rendered, the selling price is fixed or determinable and collectible is reasonably assured. The Company, through its VIE, offers medical clinic services and health club services to its customers.


Revenue from medical clinic services is recognized when service is performed and billed to patients and the collectability is reasonably assured. Medical clinic services include outpatient service, diagnosis of health problems, prescription and instruction or remedial work.


Health club services are generally offered to various groups of customers, including individuals, corporations and government agencies. These customers are enlisted in the health club services, which include the initial physical checkup services and the subsequent club services, for a certain period of time after paying a non-refundable fee to the Company in advance under several membership packages. The Company immediately records these advanced payments as deferred revenue and recognizes such revenue during the contractual service period when services are performed and rendered.


Revenues from physical checkup services are recognized at fair value when the services are rendered, net of business tax. Revenue from the subsequent club services, from which members get healthcare information and telephone consulting service and attend healthcare conference, are recognized over the period when the membership is valid. It is valid usually at a maximum of one year, while some membership expires soon after the initial physical check depending on the prepaid amount.


As a multiple element arrangement, total advanced payment is allocated to each element based on vendor-specific objective evidence of fair value for each element or using the residual method, when



11


China Vitup Health Care Holdings, Inc.

Notes to Financial Statements

As of September 30, 2011 and December 31, 2010

(Stated in US Dollars)



applicable. Vendor specific fair value (“VSOE”) is established based on the sales price when the same element is sold separately. If VSOE of the undelivered elements exists but VSOE for one or more delivered elements does not exist, revenue is recognized using the residual method. Under the residual method, the fair value of the undelivered elements is deferred and the remaining portion of the advanced payment is recognized as revenue.

 

Under all circumstances, the Company records revenues net of any estimated contractual allowances for potential adjustments resulting from a failure to meet related performance or staffing criteria. If necessary, the Company revises its estimates for such adjustments in future periods when the actual amount of the adjustment is determined. For the nine months ended September 30, 2011, the Company has determined no reserve for these potential adjustments.


M.

Cost of revenue


Cost of goods sold primarily includes purchase of raw materials, sub-contracting charges, depreciation on medical equipments and direct overhead.


N.

Income taxes


The Company uses the accrual method of accounting to determine income taxes for the year.  The Company has implemented FASB ASC 740 Accounting for Income Taxes.  Income tax liabilities computed according to the United States, People’s Republic of China (PRC), and British Virgin Islands tax laws provide for the tax effects of transactions reported in the financial statements and consists of taxes currently due, plus deferred taxes, related primarily to differences arising from the recognition of expenses related to the depreciation of plant and equipment, amortization of intangible assets, and provisions for doubtful accounts between financial and tax reporting. The deferred tax assets and liabilities represent the future tax return consequences of those differences, which will be either taxable or deductible when the assets and liabilities are recovered or settled.  Deferred taxes also are recognized for operating losses that are available to offset future income taxes.


A valuation allowance is recognized for deferred tax assets if it is more likely than not, that the deferred tax assets will either expire before the Company is able to realize that tax benefit, or that future realization is uncertain.


O.

Comprehensive income


Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners.  The Company presents components of comprehensive income with equal prominence to other financial statements.  The Company’s current component of other comprehensive income is the foreign currency translation adjustment.


P.

Earnings per share


The Company computes earnings per share (“EPS”) in accordance with FASB ASC 260 “Earnings per share”.  SFAS No. 128 requires companies with complex capital structures to present basic and diluted EPS. Basic EPS is measured as the income or loss available to common shareholders divided by the weighted average common shares outstanding for the period. Diluted EPS is similar to basic EPS but presents the dilutive effect on a per share basis of potential common shares (e.g., contingent shares, convertible securities, options, and warrants) as if they had been converted at the beginning of the periods presented, or issuance date, if later. Potential common shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS.



12


China Vitup Health Care Holdings, Inc.

Notes to Financial Statements

As of September 30, 2011 and December 31, 2010

(Stated in US Dollars)




Q.

Foreign currency translation


The accompanying financial statements are presented in United States dollars. The functional currency of the Company is the Renminbi (RMB).  The financial statements are translated into United States dollars from RMB at year-end exchange rates as to assets and liabilities and average exchange rates as to revenues and expenses. Capital accounts are translated at their historical exchange rates when the capital transactions occurred.


Exchange Rates

 

September 30, 2011

 

December 31, 2010

Year-end RMB : US$ exchange rate

 

     6.40180

 

6.61180

Average twelve-month RMB : US$ exchange rate

 

6.50601

 

6.77875



The RMB is not freely convertible into foreign currency and all foreign 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.


R.

Commitments and contingencies


Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated.


S.

Subsequent events


The Company evaluates subsequent events that have occurred after the consolidated balance sheet date but before the consolidated financial statements are issued. There are two types of subsequent events:  (1) recognized, or those that provide additional evidence with respect to conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements, and (2) non-recognized, or those that provide evidence with respect to conditions that did not exist at the date of the balance sheet but arose subsequent to that date. The Company has evaluated subsequent events, and based on this evaluation, the Company did not identify any recognized or non-recognized subsequent events that would have required adjustments to the consolidated financial statements.


T.

Recent accounting pronouncements


In January 2011, the FASB issued an Accounting Standard Update (“ASU”) No. 2011-01, “Receivables Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses, to be concurrent with the effective date of the guidance for determining what constitutes a troubled debt restructuring, as presented in proposed Accounting Standards Update, Receivables (Topic 310): Clarifications to Accounting for Troubled Debt Restructurings by Creditors. The amendments in this Update apply to all public-entity creditors that modify financing receivables within the scope of the disclosure requirements about troubled debt restructurings in Update 2010-20. Under the existing effective date in Update 2010-20, public- entity creditors would have provided disclosures about troubled debt restructurings for periods beginning on or after December 15, 2010. The amendments in this Update temporarily defer that effective date, enabling public-entity creditors to provide those disclosures after the Board clarifies the guidance for determining what constitutes a troubled debt restructuring. The deferral in this Update will result in more consistent disclosures about troubled debt restructurings. This amendment does not defer the effective date of the other disclosure requirements in Update 2010-20. In the proposed Update for determining what constitutes a troubled debt restructuring, the Board proposed that the clarifications would be effective for interim and annual periods ending after June 15, 2011. For the new disclosures about troubled debt



13


China Vitup Health Care Holdings, Inc.

Notes to Financial Statements

As of September 30, 2011 and December 31, 2010

(Stated in US Dollars)



restructurings in Update 2010-20, those clarifications would be applied retrospectively to the beginning of the fiscal year in which the proposal is adopted. This new accounting is not expected to have a material impact on the Company’s consolidated financial position or results of the operations.

        

In June 2011, the FASB issued an Accounting Standard Update (“ASU” No. 2011-05, “Comprehensive Income (Topic 220). Under the amendments to Topic 220, Comprehensive Income, entities have the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. This Update eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders' equity. The amendments in this Update should be applied retrospectively. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. For nonpublic entities, the amendments are effective for fiscal years ending after December 15, 2012, and interim and annual periods thereafter. This new accounting is not expected to have a material impact on the Company’s consolidated financial position or results of the operations



3.

Accounts Receivable


Accounts receivable at September 30, 2011 consisted of the following:


 

 

September 30, 2011

 

December 31, 2011

Accounts receivable

 

$                    493,982

 

$                   417,888

Less: Allowance for doubtful accounts

 

4,940

 

-

Accounts receivable, net

 

$                   489,042

 

$                   417,888

 

 

 

 

 

Allowance for doubtful accounts

 

 

 

 

Beginning balance

 

$                                -

 

$                                -

Allowance provided

 

4,940

 

-

Charged against allowance

 

-

 

-

Reversals

 

-

 

-

Ending balance

 

$                        4,940

 

$                                -


Accounts receivable aging analysis:-


 

 

September 30, 2011

1-30 Days

 

$                         166,767

30-60 Days

 

67,017

60-120 Days

 

116,793

121-365 Days

 

50,704

Over 365 Days

 

92,701

Total

 

$                          493,982


The Company believes it has provided adequate provisions for doubtful accounts. In a situation, the Company uses all its efforts, such as having internal staff call for payment, filing legal pledges, or even hiring collecting agents to collect the outstanding balance, but the collection is no longer probable. The Company will write off the balance against the allowance for doubtful accounts. In the event that previously written off receivables are collected, the Company will re-establish the allowance of bad debt.


From the inception of business, the Company has not experienced any material delinquent accounts that were uncollectible, and has not written off material balance against the allowance for doubtful accounts.




14


China Vitup Health Care Holdings, Inc.

Notes to Financial Statements

As of September 30, 2011 and December 31, 2010

(Stated in US Dollars)



4.

Plant and Equipment

Plant and equipment consisted of the following at September 30, 2011 and December 31, 2010:-



At

 

 

 

Accumulated

 

 

September 30, 2011:-

 

Cost

 

Depreciation

 

Net

Leasehold improvements

 

$           887,625

 

$            648,876

 

$             238,749

Medical equipments

 

2,477,839

 

1,590,923

 

886,916

Motor vehicles

 

438,435

 

211,308

 

227,127

Furniture, fixtures and equipment

 

639,504

 

454,300

 

185,204

 

 

$       4,443,403

 

$        2,905,407

 

$          1,537,996

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At

 

 

 

Accumulated

 

 

December 31, 2010:-

 

Cost

 

Depreciation

 

Net

Leasehold improvements

 

$            862,145

 

$            573,712

 

$             288,433

Medical equipments

 

2,358,684

 

1,310,459

 

1,048,225

Motor vehicles

 

425,850

 

172,670

 

253,180

Furniture, fixtures and equipment

 

662,819

 

384,318

 

278,501

 

 

$        4,309,498

 

$         2,441,159

 

$          1,868,339


Depreciation expenses were $464,248 and $335,365 for the nine months ended September 30, 2011 and 2010, respectively.



5.

Intangible Assets


The components of the Company’s intangible assets are as follows:


At

 

 

 

Accumulated

 

 

September, 2011:-

 

Cost

 

Amortization

 

Net

Software

 

$              57,696

 

$             21,506

 

$             36,190

 

 

$              57,696

 

$             21,506

 

$             36,190



6.

Other Payable and Accrual Liability


Description

 

September 30, 2011

 

December 31, 2010

Accrued expenses

 

$                      52,480

 

$                       5,108

Salaries payable

 

200,299

 

159,202

Other tax payables

 

6,559

 

6,154

 

 

$                    259,338

 

$                  170,464



7.

Income Taxes


In respect of the Company and its subsidiaries domiciled and operated in United States, British Virgin Islands, and the People’s Republic of China, the taxation of these entities are summarized below:



15


China Vitup Health Care Holdings, Inc.

Notes to Financial Statements

As of September 30, 2011 and December 31, 2010

(Stated in US Dollars)





Entities

 

Countries of Domicile

 

Income Tax Rate

China Vitup Health Care Holdings, Inc.

 

United States

 

34%

China Vitup Healthcare Holdings, Inc.

 

BVI

 

0%

Dalian Vitup Management Holdings Co., Ltd.

 

PRC

 

25%

Dalian Vitup Healthcare Management Co. Ltd.

 

PRC

 

25%


Since the Company is primarily a holding company without any business activities in United States, the Company did not incur any U.S. tax for the nine months ended September 30, 2011 and 2010, respectively.


Description

 

Nine months ended September 30, 2011

 

Nine months ended September 30, 2010

Income (loss) before taxes:

 

 

 

 

U.S. Federal

 

$                                -

 

$                                   -

U.S. State

 

-

 

-

BVI

 

(62,140)

 

(25,077)

PRC

 

313,204

 

493,989

Total income before taxes

 

$                    251,064

 

$                      468,912

 

 

 

 

 

Provision for taxes:

 

 

 

 

Current:

 

 

 

 

U.S. Federal

 

$                                -

 

$                                   -

U.S. State

 

-

 

-

BVI

 

-

 

-

PRC

 

118,024

 

47,034

 

 

$                   118,024                    

 

$                        47,034

Deferred:

 

 

 

 

U.S. Federal

 

$                                -

 

$                                   -

U.S. State

 

-

 

-

BVI

 

-

 

-

PRC

 

-

 

-

 

 

-

 

-

Valuation Allowance

 

-

 

       -

Deferred tax:

 

$                                 -

 

$                                   -

Total provision for taxes

 

$                    118,024

 

$                        47,034

Effective tax rate

 

47.01%

 

10.03%



The differences between the U.S. federal statutory income tax rates and the Company's effective tax rate for the nine months ended September 30, 2011 and 2010 are shown in the following table:-


 

 

Nine months ended September 30, 2011

 

Nine months ended September 30, 2010

U.S. federal statutory income tax rate

 

34.00%

 

34.00%

Lower rates in PRC, net

 

(9.00%)

 

(9.00%)

Accruals in foreign jurisdictions

 

22.01%

 

(14.97%)

Effective tax rate

 

47.01%

 

10.03%





16


China Vitup Health Care Holdings, Inc.

Notes to Financial Statements

As of September 30, 2011 and December 31, 2010

(Stated in US Dollars)



8.

Related Party Transactions


A.

Related party transactions


For the nine months ended September 30, 2011 and 2010, respectively, the Company paid rent charge of $43,074 and $41,004, to Mr. Shubin Wang, a major shareholder and director of the Company at the current market value in a normal course of business, for the following properties:-


(i)

The healthcare facility center with a term of 15 years commencing from 2004 through 2019.

(ii)

The office premise with a term of 20 years commencing from 2006 through 2026.


B.

Due from related parties

As of September 30, 2011 and December 31, 2010, the Company recorded due from Mr. Shubin Wang, Ms. Feng Gu, the directors of the Company, and their companies, as due from related parties amounting to zero and $116,412, respectively, which is unsecured, interest free and due on demand.


C.

Long-term prepaid expense for related party

The Company recorded long term prepaid expense for related party at $932,336 and $364,981 as of September 30, 2011 and December 31, 2010, respectively, which is unsecured, interest free and due on demand.


9.      Risks


A.

Credit risk


Since the Company’s inception, most of the age of account receivables has been less than one year indicating that the Company is subject to minimal risk borne from credit extended to customers.


B.

Major customers and vendors


For the nine months ended September 30, 2011, there are no customers and vendors who individually accounts for 10% or more of revenues and purchases, respectively. 100% of the Company’s assets were located in the PRC and 100% of the Company’s revenues were derived from customers located in the PRC.


C.

Economic and political risks


The Company’s operations are conducted in the PRC. Accordingly, the Company’s business, financial condition, and results of operations may be influenced by changes in the political, economic, and legal environments in the PRC.


The Company’s operations in the PRC are subject to special considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environment and foreign currency exchange. The Company’s results may be adversely affected by changes in the political and social conditions in the PRC, and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion, remittances abroad, and rates and methods of taxation, among other things.


D.

Inflation Risk


Management monitors changes in prices levels.  Historically inflation has not materially impacted the company’s financial statements; however, significant increases in the price of raw materials and labor that cannot be passed on the Company’s customers could adversely impact the Company’s results of operations.





17


China Vitup Health Care Holdings, Inc.

Notes to Financial Statements

As of September 30, 2011 and December 31, 2010

(Stated in US Dollars)



10.

Financial Instruments


The Company adopted ASC 820-10, Fair Value Measurements and Disclosures, which defines fair value, establishes a framework for using fair value to measure assets and liabilities, and expands disclosures about fair value measurements.


ASC 820-10 includes a fair value hierarchy that is intended to increase the consistency and comparability in fair value measurements and related disclosures. The fair value hierarchy is based on inputs to valuation techniques that are used to measure fair value that are either observable or unobservable. Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources while unobservable inputs reflect a reporting entity’s pricing an asset or liability based upon their own market assumptions. The fair value hierarchy consists of the following three levels:


Level 1–inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.


Level 2–observable inputs other than level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.


Level 3–instrument valuations are obtained without observable market values and require a high-level of judgment to determine the fair value.


The Company’s financial instruments consist mainly of cash. While the Company believes its valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.



The following tables present the Company’s financial assets and liabilities at fair value in accordance to ASC 820-10:-


At September 30, 2011:-

 

Quoted in

 

Significant

 

 

 

 

  

 

Active Markets

 

Other

 

Significant

 

 

  

 

for Identical

 

Observable

 

Unobservable

 

 

  

 

Assets

 

Inputs

 

Inputs

 

 

  

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

Total

Financial assets:

 

 

 

 

 

 

 

 

Cash

 

$           451,633

 

$                      -

 

$                       -

 

$           451,633

Restricted cash

 

-

 

-

 

-

 

-

Total financial assets

 

451,633

 

-

 

-

 

451,633

  

 

 

 

 

 

 

 

 

Financial liabilities:

 

 

 

 

 

 

 

 

Notes payable

 

-

 

-

 

-

 

-

Total financial liabilities

 

$                         -

 

$                      -

 

$                       -

 

$                        -

 

 

 

 

 

 

 

 

 

 At December 31, 2010:-

 

Quoted in

 

Significant

 

 

 

 

  

 

Active Markets

 

Other

 

Significant

 

 

  

 

for Identical

 

Observable

 

Unobservable

 

 

  

 

Assets

 

Inputs

 

Inputs

 

 

  

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

Total

Financial assets:

 

 

 

 

 

 

 

 

Cash

 

$           609,397

 

$                      -

 

$                       -

 

$           609,397



18


China Vitup Health Care Holdings, Inc.

Notes to Financial Statements

As of September 30, 2011 and December 31, 2010

(Stated in US Dollars)





Restricted cash

 

-

 

-

 

-

 

-

Total financial assets

 

609,397

 

-

 

-

 

609,397

  

 

 

 

 

 

 

 

 

Financial liabilities:

 

 

 

 

 

 

 

 

Notes payable

 

-

 

-

 

-

 

-

Total financial liabilities

 

$                         -

 

$                      -

 

$                       -

 

$                        -


In January 2008, the Company adopted SFAS 159, the Fair Value Option for Financial Assets and Financial Liabilities, now known as the provisions of Accounting Standards Codification subtopic 825-10 (formerly SFAS 159), Fair Value Option for Financial Assets and Financial Liabilities, and have elected not to measure any of our current eligible financial assets or liabilities at fair value. SFAS 159 was issued to allow entities to voluntarily choose to measure certain financial assets and liabilities at fair value (fair value option). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable, unless a new election date occurs. If the fair value option is elected for an instrument, SFAS 159 specifies that unrealized gains and losses for that instrument shall be reported in earnings at each subsequent reporting date. SFAS 159 is effective January 1, 2008.  We did not elect the fair value option for our financial assets and liabilities existing on January 1, 2008, and did not elect the fair value option for any financial assets or liabilities transacted during the nine months ended September 30, 2011.


11.

Commitments

A.

Operating lease commitments

The Company leases a healthcare center, a clinic and an office premise in Dalian City, PRC from Mr. Shubin Wang, a related party, under several non-cancelable operating lease agreements; the Company also leases a clinic in Dalian City from Shangri-La Hotel, an outside party, under a non-cancelable operating lease agreement. Costs incurred for the healthcare center, clinics and office premise under theses operating leases are recorded as rent expenses in the amounts of $90,600 and $38,097 for the nine months ended September 30, 2011 and 2010, respectively.


For the twelve months ending December 31:

Fiscal Years

 

Commitments

2011

 

$                    30,941

2012

 

            123,762

2013

 

            91,485

2014

 

            59,207

2015

 

            59,207

 

 

$                  364,602


B.

Long-term purchase commitment


In December 2006, the Company entered into a contract with a medical equipment supplier whereby the Company was obliged to purchase a minimum of approximately $76,852 of biochemical reagent for 5 years starting from 2007. For the nine months ended September 30, 2011 and 2010, the Company incurred $13,216 and $8,239, respectively.

C.

Statutory reserve commitment


In accordance with PRC laws, statutory reserve refers to the appropriation from net income, to the account statutory reserve, to be used for future company development, recovery of losses, and increase of capital, as approved, to expand production or operations.  Under the applicable PRC laws, a PRC enterprise operating at a profit must appropriate, on an annual basis, an amount equal to 10% of its profit until the reserve reaches 50% of its registered capital.




19


China Vitup Health Care Holdings, Inc.

Notes to Financial Statements

As of September 30, 2011 and December 31, 2010

(Stated in US Dollars)




 

September 30, 2011

 

December 31, 2010

PRC subsidiaries registered capital

 

 

 

-

Dalian Vitup Healthcare

$            1,180,159

 

$              1,180,159

Statutory reserve ceiling based on 50% of PRC registered capital

590,079

 

590,079

 

 

 

 

Less: Retained earnings appropriated to statutory reserve

239,261

 

239,261

Impact of foreign currency translation

-

 

-

Reserve commitment outstanding

$                350,819

 

$                 350,819




12. Earnings per Share


 

Nine months ended

 

September 30, 2011

 

September 30, 2010

 

 

 

 

Net Income

$                   133,040

 

$                  421,878

 

 

 

 

Income available to Common Stockholders

$                   133,040

 

$                  421,878

 

 

 

 

Original Shares of Common Stock

15,000,000

 

15,000,000

New Issuance of Common Stock

-

 

-

Basic Weighted Average Shares Outstanding

15,000,000

 

15,000,000

 

 

 

 

Addition to Common Stock from conversion of Preferred Stock

-

 

-

Addition to Common Stock from exercise of Warrant

-

 

-

Diluted Weighted Average Shares Outstanding

15,000,000

 

15,000,000

 

 

 

 

Earnings Per Share

 

 

 

-  Basic

$                       0.009

 

$                        0.028

-  Diluted

$                       0.009

 

$                        0.028

 

 

 

 

Weighted Average Shares Outstanding

 

 

 

-  Basic

15,000,000

 

15,000,000

-  Diluted

15,000,000

 

15,000,000





20




ITEM 2.

 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.


SPECIAL NOTE OF CAUTION REGARDING FORWARD-LOOKING STATEMENTS


CERTAIN STATEMENTS IN THIS REPORT, INCLUDING STATEMENTS IN THE FOLLOWING DISCUSSION, WHICH ARE NOT STATEMENTS OF HISTORICAL FACT, ARE WHAT ARE KNOWN AS “FORWARD-LOOKING STATEMENTS,” WHICH ARE BASICALLY STATEMENTS ABOUT THE FUTURE.  FOR THAT REASON, THESE STATEMENTS INVOLVE RISK AND UNCERTAINTY SINCE NO ONE CAN ACCURATELY PREDICT THE FUTURE.  WORDS SUCH AS “PLANS,” “INTENDS,”  “HOPES,” “SEEKS,” “ANTICIPATES,” “EXPECTS,” AND THE LIKE, OFTEN IDENTIFY SUCH FORWARD-LOOKING STATEMENTS, BUT ARE NOT THE ONLY INDICATION THAT A STATEMENT IS A FORWARD-LOOKING STATEMENT.  SUCH FORWARD-LOOKING STATEMENTS INCLUDE STATEMENTS CONCERNING OUR PLANS AND OBJECTIVES WITH RESPECT TO THE PRESENT AND FUTURE OPERATIONS OF THE COMPANY, AND STATEMENTS WHICH EXPRESS OR IMPLY THAT SUCH PRESENT AND FUTURE OPERATIONS WILL OR MAY PRODUCE REVENUES, INCOME OR PROFITS.  NUMEROUS FACTORS AND FUTURE EVENTS COULD CAUSE THE COMPANY TO CHANGE SUCH PLANS AND OBJECTIVES, OR FAIL TO SUCCESSFULLY IMPLEMENT SUCH PLANS OR ACHIEVE SUCH OBJECTIVES, OR CAUSE SUCH PRESENT AND FUTURE OPERATIONS TO FAIL TO PRODUCE REVENUES, INCOME OR PROFITS. WE CAUTION YOU NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS.  ALTHOUGH WE BASE THESE FORWARD-LOOKING STATEMENTS ON OUR EXPECTATIONS, ASSUMPTIONS, AND PROJECTIONS ABOUT FUTURE EVENTS, ACTUAL EVENTS AND RESULTS MAY DIFFER MATERIALLY, AND OUR EXPECTATIONS, ASSUMPTIONS, AND PROJECTIONS MAY PROVE TO BE INACCURATE. THE FORWARD-LOOKING STATEMENTS SPEAK ONLY AS OF THE DATE HEREOF, AND WE EXPRESSLY DISCLAIM ANY OBLIGATION TO PUBLICLY RELEASE THE RESULTS OF ANY REVISIONS TO THESE FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES AFTER THE DATE OF THIS FILING.


Overview


China Vitup Health Care Holdings, Inc., a Nevada corporation (hereinafter “China Vitup Nevada” or the “Registrant"), is a holding company which, through its wholly-owned subsidiaries and operating affiliates, is engaged in the business of providing healthcare services to customers in China.  Presently, the Registrant has an affiliate relationship with two medical clinics located in Dalian, China, through which it offers integrated healthcare services designed specifically to fit the needs of the Chinese population.  At the clinics in Dalian, the Registrant’s operating affiliates both monitor the health of its patients through regularly scheduled check-ups, and works to diagnose its patients’ different ailments and establish appropriate treatment procedures for such ailments.  Since the facilities in Dalian are primarily a preventative care facility, patients who require medical treatment which is more than preventative in nature are referred to hospitals and other health facilities.


Currently, our operating affiliates offer integrated health management services designed specifically for the PRC population through its preventative care medical facility located in the city of Dalian, China.  The Company’s health services offered at its operating affiliates’ medical facilities include physical examinations, health management plans, and guidance for medical treatment. Our operating affiliates assist their patients in maintaining a healthy status by comprehensively monitoring, analyzing and evaluating the patients and by predicting various risk factors that affect the health and well being of its patients.  In many instances, the Dalian Vitup Clinics, as a primary checkup facilities, will refer its patients to specialized hospitals and health facilities throughout the world which are equipped to treat the   patient’s specific health problems and needs that have been identified through a comprehensive checkup and monitoring procedures.  


PRC laws restrict foreign ownership of medical clinics and hospitals located in China.  As a result, the Registrant does not directly carry on any business operations.  To comply with PRC laws, the Registrant operates through a corporate structure consisting of subsidiaries, variable interest entities (“VIE”), and contractual arrangements.  A VIE is a term used by the U.S. Financial Accounting Standards Board to describe a legal business structure whose financial support comes from another corporation which exerts control over


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the VIE.  As noted above, all of the Registrant’s business operations are structured around subsidiaries, VIEs and contractual agreements.  Through these contractual agreements the Registrant is able to exert effective control over its PRC operating affiliates and receive all of the economic benefits derived from the business operations of its PRC operating affiliates.  In accordance with the specific contractual agreements, the consolidated financial statements of the Registrant include all assets and liabilities and all revenues and expenses of our operating affiliates, the Dalian Vitup Healthcare Management Co. Ltd. Nanshanlu Clinic and the Dalian Vitup Healthcare Management Co. Ltd. Renminlu Clinic, both located in Dalian, China.


Within the next three years, it is our objective is to establish an additional two affiliated medical clinics throughout China through which we are able to provide high quality medical care to Chinese citizens.  We will model our clinics after the clinic that we currently operate in Dalian.  We anticipate establishing medical clinics in the following cities, in the following order: 1) Beijing; and 2) Shenyang. At proper time, we are going to copy our business model quickly and open more new clinics in economic developed cities all around China.


Results of Operations


The following discussion and analysis provides information that we believe is relevant to an assessment and understanding of our results of operation and financial condition for the three and nine months ended September 30, 2011.  The following discussion should be read in conjunction with the Financial Statements and related Notes appearing elsewhere in this Form 10-Q.


Results of Operations for the Three Month Period Ended September 30, 2011 Compared to the Three Month Period Ended September 30, 2010.


Revenue


During the three months ended September 30, 2011 the Company had revenue of $1,099,355 as compared to revenue of $927,985 during the three months ended September 30, 2010, an increase of $171,370, or 18%.


Of the $1,099,355 in revenue generated during the three months ended September 30, 2011, the revenue generated from health management service was $762,899, an increase of $51,807, or 7%, as compared to the same period of 2010. This increase was primarily attributable to the fact that: (i) we enhanced our promotional efforts for business relating to the provision of enterprise healthcare services; and (ii) we established additional customers in the third quarter of 2011 which resulted in an increase of enterprise clients especially for government agencies, which in turn enhanced the Company’s revenue.


Of the $1,099,355 in revenue generated during the three months ended September 30, 2011, the revenue generated from the general treatment services was $336,456, an increase of $119,563, or 55% as compared to the same period of 2010.This increase was primarily attributable to the facts that: (i) we employed persons with strong medical expertise including Chinese and Japanese expertise, established a professional medical team, and expanded outpatient medical care, developed chronic disease treatment and management (diseases like hypertension, diabetes, arteriosclerosis); and (ii) we experienced a large increase of foreign customers, particularly foreigners living in Dalian.


The following charts illustrate the changes in our revenue generated by our health management service and general treatment service during the three months ended 2011, as compared to the same period of 2010:



 

 

Three Months Ended September 30,

 

 

2011

 

2010

 

% Change

Health management service revenue

 

 

 

 

 

 

- Product sale

 

-

 

-

 

-

- Service revenue

 

$762,899

 

$711,092

 

7%

 

 

 

 

 

 

 



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Total Health management service revenue

 

$762,899

 

$711,092

 

7%


 

 

Three Months Ended September30,

 

 

2011

 

2010

 

% Change

General  treatment revenue:

 

 

 

 

 

 

- Product sale

 

$94,197

 

$107,942

 

(13)%

- Service revenue

 

$242,259

 

$108,951

 

122%

 

 

 

 

 

 

 

Total General treatment service revenue

 

$336,456

 

$216,893

 

55%


The Company has three major types of customers: (i) Individuals and Members, (ii) Enterprises including Governmental Agencies, and (iii) General Treatment. Each customer type’s proportion of the total revenue generated by the Company for the three months ended September 30, 2011 was 12%, 57% and 31%, respectively.


The following chart illustrates the changes which occurred regarding the percent and amount of the Company’s revenue attributable to each customer type for the three months ended September 30, 2011 and 2010


 

Three Months  Ended September 30,

Customer Type

2011 ($)

% of Total

2010 ($)

% of

Total

Change

% Change

Individuals & Members

            137,322

12%

269,581

29%

(132,259)

(77)%

Enterprises (including Government Agencies)

            625,577

57%

441,511

48%

184,066

107%

General Treatment

            336,456

31%

216,893

23%

119,563

70%

TOTAL

         1,099,355

100%

927,985

100%

171,370

100%


As illustrated above, the Company’s operating revenue from Individuals & Members, Enterprises and General Treatment for the three months ended September 30, 2011 increased by $(132,259), $184,066 and $119,563, or approximately (77) %, 107% and 70%, respectively as compared to the same period of 2010.


Cost of Revenues


During the three months ended September 30, 2011, our cost of revenues was $685,419 as compared to costs of revenues of $405,139 for the same period of 2010, an increase of $280,280 of 69%. The increase in cost of revenues for the three months ended September 30, 2011 was primarily attributable to the following reasons, (i) inspection expense increased by $93,618 due to the Company’s increase in its number of clients which led to the increase of the inspection items; (ii) the salary and related expense increased by $95,792 as the Company employed high ranking medical and administrative staff and the wages of the doctors and nurses were increased in the year of 2011; and (iii) the medical consumption increased by $30,550 as a result of the increase of number of the Company’s clients.


Operating Expenses


Our operating expenses for the three months ended September 30, 2011 were $349,849, as compared to $268,039 for the three months ended September 30, 2010, an increase of $81,810 or approximately 31%. This increase was attributable to an increase in selling expenses and general and administrative expenses which are discussed below.


Selling Expense Selling expense totaled $43,764 for the three months ended September 30, 2011 as compared to $18,519 for the three months ended September 30, 2010, an increase of $25,245, or approximately 136%.The increase of selling expenses was primarily attributable to an increase of marketing department salary and target performance bonus.



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General and administrative expenses General and administrative expenses totaled $306,085 for the three months ended September 30, 2011as compared to $249,520 for the three months ended September 30, 2010, an increase of$56,565, or 23%. The increase of general and administrative expenses was primarily attributable to an increase in admin department salary and related expense and audit expense.


The following chart illustrates the changes in our operating expenses for the three months ended September 30, 2011, as compared to the same period of 2010:


 

 

Three Months Ended September 30,

 

 

2011 ($)

 

2010 ($)

 

% Change

Operating expenses:

 

 

 

 

 

 

Selling expenses

 

43,764

 

18,519

 

136%

 General and administrative expenses

 

306,085

 

249,520

 

23%

 

 

 

 

 

 

 

Total operating expenses

 

349,849

 

268,039

 

31%

Net Income


We experienced a net income of $37,434 for the three months ended September 30, 2011 as compared to net income of $236,273 for the three months ended September 30, 2010, a decrease of $198,839, or 84 %.  The decrease was primarily attributable to the sharply increase in cost of revenue especially in labor cost and inspection expense which offset the increase in revenue as compared to the same periods in 2010.


Results of Operations for the Nine Month Period Ended September 30, 2011 Compared to the Nine Month Period Ended September 30, 2010.


Revenue


During the nine months ended September 30, 2011 the Company had revenue of $3,287,368, as compared to revenue of $2,286,461 during the nine months ended September 30, 2010, an increase of $1,000,907, or 44%.


Of the $3,287,368 in revenue generated during the nine months ended September 30, 2011, the revenue generated from health management service was $2,523,653, an increase of $642, 616, or 34% as compared to the same period of 2010. This increase was primarily attributable to the fact that: (i) we enhanced our promotional efforts for business relating to the provision of enterprise healthcare services; and (ii) we established additional customers in the first three quarters of 2011 which resulted in an increase of enterprise clients especially for government agencies, which in turn enhanced the Company’s revenue.


Of the $3,287,368 in revenue generated during the nine months ended September 30, 2011, the revenue generated from the general treatment services was $763,715, an increase of $358,290, or approximately 88% as compared to the same period of 2010. This increase was primarily attributable to the facts that: (i) we employed persons with strong medical expertise including Chinese and Japanese expertise, established a professional medical team, and expanded outpatient medical care, developed chronic disease treatment and management (diseases like hypertension, diabetes, arteriosclerosis); and (ii) we experienced a large increase of foreign customers, particularly foreigners living in Dalian.


The following charts illustrate the changes in our revenue generated by our health management service and general treatment service during the nine months ended 2011, as compared to the same period of 2010:








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Nine Month Period Ended September 30,

 

 

2011

 

2010

 

% Change

Health management service revenue

 

 

 

 

 

 

- Product sale

 

-

 

-

 

-

- Service revenue

 

$2,523,653

 

$1,881,037

 

34%

 

 

 

 

 

 

 

Total Health management service revenue

 

$2,523,653

 

$1,881,037

 

34%


 

 

Nine Month Period Ended September 30,

 

 

2011

 

2010

 

% Change

General  treatment revenue:

 

 

 

 

 

 

- Product sale

 

$190,397

 

$176,366

 

8%

- Service revenue

 

$573,318

 

$229,059

 

150%

 

 

 

 

 

 

 

Total General treatment service revenue

 

$763,715

 

$405,425

 

88%


The Company has three major types of customers: (i) Individuals and Members, (ii) Enterprises including Governmental Agencies, and (iii) General Treatment. Each customer type’s proportion of the total revenue generated by the Company for the nine months ended September 30, 2011 was 14%, 63% and 23%, respectively.


The following chart illustrates the changes which occurred regarding the percent and amount of the Company’s revenue attributable to each customer type for the nine months ended September 30, 2011 and 2010


 

Nine Months Ended September 30,

Customer Type

2011 ($)

% of Total

2010 ($)

% of

Total

Change

% Change

Individuals & Members

454,258

14%

591,806

26%

(137,548)

(14)%

Enterprises (including Government Agencies)

2,069,395

63%

1,289,231

56%

780,164

78%

General Treatment

763,715

23%

405,424

18%

358,291

36%

TOTAL

3,287,368

100%

2,286,461

100%

1,000,907

100%


As illustrated above, the Company’s operating revenue from Individuals & Members, Enterprises and General Treatment for the nine months ended September 30, 2011 increased by $(137,548), $780,164 and $358,291, or (14)%, 78% and 36%, respectively as compared to the same period of 2010.


Cost of Revenues


During the nine months ended September 30, 2011, our cost of revenues was $2,271,146 as compared to costs of revenues of $1,085,120 for the same period of 2010, an increase of $1,186,026, or 109%. The increase in cost of revenues for the nine months ended September 30, 2011 was primarily attributable to,(i) inspection expense increased by $486,566 due to the Company’s increase in its number of clients which led to the increase of the inspection items; (ii) the salary and related expense increased by $218,752 as the Company employed high ranking medical and administrative staff and the wages of the doctors and nurses were increased in the first three quarters in 2011; and (iii) the medical consumption increased by $158,253 as a result of the increase of number of the Company’s clients.

.

Operating Expenses


Our operating expenses for nine months ended September 30, 2011 were $823,240, as compared to $704,362 for the nine months ended September 30, 2010, an increase of $118,878, or 17%.  This increase was primarily attributable to an increase in selling expenses. Selling expense totaled $142,505 for the nine months ended



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September 30, 2011 as compared to $52,117 for the nine months ended September 30, 2010, an increase of $90,388, or 173%.The increase of selling expenses was primarily attributable to an increase of marketing department salary and target performance bonus.


The following chart illustrates the changes in our operating expenses for the nine months ended September 30, 2011, as compared to the same period of 2010:


 

 

Nine Months Ended September 30,

 

 

2011

 

2010

 

% Change

Operating expenses:

 

 

 

 

 

 

Selling expense

 

$142,505

 

$52,117

 

173%

 General and administrative expense

 

$680,735

 

$652,245

 

4%

 

 

 

 

 

 

 

Total operating expenses

 

$823,240

 

$704,362

 

17%

Net Income


We experienced a net income of $133,040 for the nine months ended September 30, 2011 as compared to net income of $421,878 for the nine months ended September 30, 2010, a decrease of $288,838, or 68 %.  The decrease was primarily attributable to the sharply increase in cost of revenue especially in labor cost and inspection expense which offset the increase in revenue as compared to the same periods in 2010.


Income Tax Expenses


The Company’s PRC subsidiary was subject to the PRC Enterprise Income Tax (“EIT”) at a rate of 25% on annual net income.


For the nine months ended September 30, 2011 the Company experienced an income tax expenses of $118,024 as compared to income tax expenses of $47,034 for the nine months ended September 30, 2010, an increase of $70,990, or 151%. The increase of income tax was primarily attributable to the change of EIT policy.


Current Assets & Total Assets


As of September 30, 2011, our unaudited balance sheet reflects that we have total current assets of $­­­­­­­1,124,140 as compared to total current assets of $1,249,911 at December 31, 2010, a decrease of $125,771 or 10%. As of September 30, 2011, our balance sheet reflects that we have total assets of $3,647,064, as compared to total assets of $3,483,231 at December 31, 2010, an increase of $163,833 or 5%.


Cash and Cash Equivalents.  As of September 30, 2011, our cash and cash equivalents were $451,633 as compared to $609,397 at December 31, 2010, a decrease of $157,764, or 26%.  This decrease was primarily attributable to expense payment and other cash expenditures.


Accounts Receivable.  As of September 30, 2011, our accounts receivable were $489,042 as compared to accounts receivable of $417,888 at December 31, 2010, an increase of $71,154, or 17%. This increase was attributable to the facts that the Company signed some long-term contacts with enterprise client which were not settle up in the end of the quarter.


Total Current Liabilities and Total Liabilities


As of September 30, 2011, our balance sheet reflects that we have: i) total current liabilities of $1,132,996 as compared to total current liabilities of $1,150,712 at December 31, 2010, a decrease of $17,716 or approximately 2%; and ii) total liabilities of $1,132,996 as compared to total liabilities of $2,294,384, a decrease of $1,161,388, or 51% at December 31, 2010.




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Cash Flow


 

 

 

Nine Months Ended                          September 30,

 

 

 

2011

 

 

2010

 

 

 

 

 

 

 

Net cash provided by operating activities

 

$

452,675

 

$

367,723

Net cash used in investing activities

 

$

(207,290)

 

$

(220,861)

Net cash used in financing activities

 

$

(450,943)

 

$

(423,912)


Net Cash Provided by Operating Activities Net cash provided by operating activities for the nine months ended September 30, 2011 was $452,675 as compared to net cash provided by operating activities for the nine months ended September 30, 2010 of $367,723, an increase of $84,952, or 23%. This increase was primarily attributable to an increase in customer deposit especially for the government agencies.


Net Cash Used in Investing Activities Net cash used in our investing activities was $207,290 for the nine months ended September 30, 2011, as compared to net cash used in investing activities of $220,861 for the nine months ended September 30, 2010, a decrease of $13,571, or 6%. This decrease was primarily due to the decrease in payment for deposit.


Net Cash Used in Financing Activities Net cash used in our financing activities was $450,943 for the nine months ended September 30, 2011, as compared to net cash used in our financing activities of $423,912 for the nine months ended December 31, 2010, an increase of $27,031, or 6%.. The increase was primarily due to the increase in payment to related parties.


Off Balance Sheet Arrangement


The Company does not have any off-balance sheet arrangements.


ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.


Not Applicable.


ITEM 4.

CONTROLS AND PROCEDURES.


Disclosure Controls and Procedures


The Securities and Exchange Commission defines the term “disclosure controls and procedures” to mean the company's controls and other procedures of an issuer that are designed to ensure that information required to be disclosed in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.  The Company maintains such a system of controls and procedures in an effort to ensure that all information which it is required to disclose in the reports it files under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified under the SEC's rules and forms and that information required to be disclosed is accumulated and communicated to principal executive and principal financial officers to allow timely decisions regarding disclosure.


As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our chief executive officer and chief financial officer, of the effectiveness of the design and



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operation of our disclosure controls and procedures.  Based on this evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are designed to provide reasonable assurance of achieving the objectives of timely alerting them to material information required to be included in our periodic SEC reports and of ensuring that such information is recorded, processed, summarized and reported within the time periods specified.  Our chief executive officer and chief financial officer also concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report to provide reasonable assurance of the achievement of these objectives.  


Changes in Internal Control over Financial Reporting


There was no change in the Company's internal control over financial reporting during the period ended September 30, 2011, that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.


PART II-OTHER INFORMATION


ITEM 1.

LEGAL PROCEEDINGS.


The Company is not a party to any pending legal proceedings, and no such proceedings are known to be contemplated. No director, officer or affiliate of the Company, and no owner of record or beneficial owner of more than 5.0% of the securities of the Company, or any associate of any such director, officer or security holder is a party adverse to the Company or has a material interest adverse to the Company in reference to pending litigation.


ITEM 1A.

 RISK FACTORS.


Not Applicable.


ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.


None.


ITEM 3.

DEFAULTS UPON SENIOR SECURITIES.


None.


ITEM 4.

(REMOVED AND RESERVED).


ITEM 5.    

OTHER INFORMATION.


None.


ITEM 6.

EXHIBITS.


(a)

The following exhibits are filed herewith:


31.1

Certifications pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.


31.2

Certifications pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.




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32.1

Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


32.2

Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


101

SCH XBRL Schema Document.


101

CAL XBRL Taxonomy Extension Calculation Linkbase Document.


101

LAB XBRL Taxonomy Extension Label Linkbase Document.


101

PRE XBRL Taxonomy Extension Presentation Linkbase Document.


101

DEF XBRL Taxonomy Extension Definition Linkbase Document.



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.


CHINA VITUP HEALTH CARE HOLDINGS, INC.


By:  /S/ Feng Gu

Feng Gu, Chief Executive Officer, Director


Date:  November 14, 2011


By:  /S/ Chunxiang Li

Chunxiang Li, Chief Financial Officer, Principal Accounting Officer


Date:  November 14, 2011




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