ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward
Looking Statements
This
section of the report includes a number of forward-looking statements that reflect our current views with respect to future events
and financial performance. Forward-looking statements are often identified by words like: believe, expect, estimate, anticipate,
intend, project and similar expressions, or words which, by their nature, refer to future events. Actual results could differ
materially from those anticipated in these forward looking statements as a result of any number of factors, including those set
forth in this Quarterly Report, and in the Company’s most recent Annual Report on Form 10-K filed on January 29, 2021.
All
written and oral forward-looking statements made in connection with this Quarterly Report on Form 10-Q that are attributable to
us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. Given the uncertainties
that surround such statements, you are cautioned not to place undue reliance on such forward-looking statements, which apply only
as of the date of this quarterly report. These forward-looking statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from historical results or our predictions.
Overview
The
following discussion is an overview of the important factors that management focuses on in evaluating our businesses, financial
condition and operating performance and should be read in conjunction with the financial statements included in this Quarterly
Report on Form 10-Q.
The
Company is subject to a number of risks similar to other companies in the medical device industry. These risks include but are
not limited to rapid technological change, uncertainty of market acceptance of our products, uncertainty of regulatory approval,
competition from substitute products and larger companies, the need to obtain additional financing, compliance with government
regulation, protection of proprietary technology, product liability, and the dependence on key individuals.
Our
Business
We
are engaged in the business of designing, developing, manufacturing and marketing of biomaterial internal fixation devices. We
hold one Class III medical device permit from the National Medical Products Administration of the PRC (“NMPA”) for
our product - polymer orthopaedic internal fixation screws, one Class II permit and one Class I permit. We hold four patents issued
by the State Intellectual Property Office of the P.R.C. (“SIPO”). Our polyamide materials, their uses and manufacturing
processes are protected by Patent No. ZL201511006236.7 and ZL971190739. Patent No. ZL201410647464.1 titled “Bone Fracture
Plate Made of High Polymer Materials” and patent No. ZL201511005531.0 titled “Composite fiber, manufacturing method
and orthopaedic binding wire” were granted to us in 2018 and 2020 respectively. Our polyamide materials are used in producing
screws, binding wires, rods and related products. These products are used in a variety of applications including orthopaedic trauma,
sports related medical treatment, or cartilage injuries, and reconstructive dental procedures. At this time, our company is the
sole patent holder and market permit holder of PA technologies in China, as well as the only company currently engaged in clinical
trials, manufacturing and marketing for PA orthopaedic internal fixation devices in the PRC. Our products are made of a very unique
material called PA6-P(MMA-CO-NVP)-HA (“PA”). Our PA products, such as screws, binding wires, rods, suture anchors
and rib-pins consist of enhanced fibers and high molecular polymers which are designed to facilitate quick healing of complex
fractures in many areas of the human skeletal system.
Our
products offer a number of significant advantages over existing metal implants and the first generation of degradable implants
(i.e. PLLA) for patients, surgeons and other customers including:
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1.
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A
notably reduced need for a secondary surgery to remove implant due to post-operative complications, therefore avoiding unnecessary
risk and expense on all patient care;
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2.
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Enhancing
the performance of the materials by manufacturing them to be easily fitted to each patient, forming an exact fit;
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3.
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Improving
the biological activity of materials. Clinical trial results have shown that PA implants promote a progressive shift of load
to the new bone creating micro-motion and thereby avoiding bone atrophy due to ‘stress shielding’;
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4.
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Reducing
the chance of post-operative infection;
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5.
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Stimulate
bone tissues to facilitate effective biological integration, benefitting the regeneration of bone;
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6.
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Ease
of post-operative care i.e. no distortion during x-ray imaging;
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7.
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Simple
and cost-effective to manufacture.
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Our
products are designed to replace the traditional internal fixation device made of stainless steel and titanium and overcome the
limitations of previous generations of products such as PLA and PLLA. Our laboratory statistics show that our PA products have
a higher mechanical strength, last longer in degradation ratio and are more evenly absorbed form outer layer inwards as compared
with similar materials such as PLA and PLLA. Thus PA allows increased restoration time for bone healing and re-growth. The Company’s
polymer orthopaedic internal fixation screws received approval from the National Medical Products Administration of the PRC (“NMPA”)
in April 2018. We launched our sales campaign at the end of our fiscal year ended October 31, 2019 and achieved a milestone in
the Company’s history by generating revenue through the sales of our PA Screws.
NMPA
Application Process and Approval for Polymer Screws
The
Company first submitted its application for PA Screws to the NMPA (formerly the SFDA/CFDA) in 2008. The application has been withheld
by the NMPA pending additional clinical trial cases. This is due to the amended NMPA regulations, which unlike previous regulations
require the applicant to specify the position on the body where the clinical trial is carried out. Our amended NMPA application
has specified the ankle fracture as the body part of our clinical trial. This is because bones around this part carry most of
the body weight.
Due
to the uniqueness of our material, there were no established NMPA Product Standards that we could follow during our application
process for our PA Screws. To establish our own Product Standards, the Company had been carrying out extra tests. The Company
submitted its Product Standards and supplementary reports to the NMPA in 2014. In December 2016, the Company received a notice
from the NMPA requesting supplementary report as part of the review process. The Company completed the supplementary report and
submitted it to the NMPA in June 2017.
In
April 2018, the Company’s application for its PA Screws was approved by the NMPA in China (Medical Device Certification
Number: 20183460133).
Process
of Human Trials
As
of January 31, 2021, for medical study and comparison purpose, the Company has completed a total of 83 successful clinical human
trial cases, including 71 cases on ankle fractures and 57 successful PA Binding Wire trial cases. We have been conducting human
trials at the 6 state level hospitals recognized by NMPA for clinical trials in different cities throughout China; including Nanchang,
Changsha, Luoyang, Nanning and Tianjin. The cities and provinces where our clinical trial hospitals are based will be the initial
target regions on our marketing plan. These regions are both densely populated and have experienced high or above medium economic
growth. The clinical trials for the Company’s PA Screws have been completed with 100 percent success rate. Having gained
NMPA approval for PA Screws, the Company is planning to start clinical trials on series of orthopaedic products the Company has
developed using the same unique biomaterial.
Government
Regulation
Medical
implant devices/products manufactured or marketed by the Company in China are subject to extensive regulations by the NMPA. Pursuant
to the related laws and acts, as amended, and the regulations promulgated there under (the “NMPA Regulations”), the
NMPA regulates the clinical testing, manufacture, labeling, distribution and promotion of medical devices. The NMPA also has the
authority to request repair, replacement, or refund of the cost of any device manufactured or distributed by the Company.
Under
the NMPA Regulations, medical devices are classified into three classes (class I, II or III), the basis of the controls deemed
necessary by the NMPA to reasonably assure their safety and efficacy. Under the NMPA’s regulations, class I devices are
subject to general controls (for example, labeling and adherence to Good Manufacturing Practices (“GMP”) requirements)
and class II devices are subject to general and special controls. Generally, class III devices are those which must receive premarket
approval by the NMPA to ensure their safety and efficacy (for example, life-sustaining, life-supporting and certain implantable
devices, or new devices which have not been found substantially equivalent to legally marketed class I or class II devices). The
Company is classified as a manufacturer of class III medical devices. Current NMPA enforcement policy prohibits the marketing
of approved medical devices for unapproved uses.
Before
a new device can be introduced into the market in China, the manufacturer generally must obtain NMPA marketing clearance through
clinical trials. Since the Company is classified as a manufacturer of Class III medical devices, the Company must carry out all
clinical trials in pre-selected NMPA approved hospitals.
Manufacturers
of medical devices for marketing in China are required to adhere to GMP requirements. Enforcement of GMP requirements has increased
significantly in the last several years and the NMPA has publicly stated that compliance will be more strictly scrutinized. From
time to time the NMPA has made changes to the GMP and other requirements that increase the cost of compliance. Changes in existing
laws or requirements or adoption of new laws or requirements could have a material adverse effect on the Company’s business,
financial condition and results of operations. There can be no assurance that the Company will not incur significant costs to
comply with applicable laws and requirements in the future or that applicable laws and requirements will not have a material adverse
effect upon the Company’s business, financial condition and results of operations.
Regulations
regarding the development, manufacturing and sale of the Company’s products are subject to change. The Company cannot predict
the impact, if any, that such changes might have on its business, financial condition and results of operations.
Results
of Operations
The
“Results of Operations” discussed in this section merely reflect the information and results of the Company for the
period from September 25, 2002 (Shenzhen Changhua’s date of inception) to January 31, 2021 and 2020.
Revenues
Our
revenue for the three months ended January 31, 2021 and 2020 were $47,233 and $60,501 respectively. The Company achieved a milestone
in its history at the end of the fiscal year ended October 31, 2019, by completing sales of $11,657 to its distributor, a company
in which Mr. Tie Jun Chen, a key management personnel of Shenzhen Changhua, has a significant equity interest.
Our
management team is continuously looking for fundraising possibilities for sales and marketing expansion, product improvement,
machinery upgrades, facility expansions and continuous research and development.
Estimate
current production lines in full capacity
Our
facility is located in Shenzhen, China, which is built to meet the GMP standards. Our facility covers about 865 square meters,
which includes the combined facilities of offices, laboratories, and workshops. There is one production line for the PA Screw
and another production line for the PA Binding Wire. The annual production capabilities of each production line are 100,000 pieces
for PA Screw, and 240,000 packs for the PA Binding Wires. Both production lines, at their maximum production capacities are capable
of generating approximately $30,000,000 in annual revenue.
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Output
Quantity (Max.)
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Price
at ex-factory ($)
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Total
Turnover ($)
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PA Screw
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100,000
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(piece)
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180
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18,000,000
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PA Binding Wire
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240,000
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(pack)
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50
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12,000,000
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Total:
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30,000,000
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China’s
Marketing Analysis:
We
have established long term relationships with many hospitals and national distributors in China. Ms. Hui Wang, the Company’s
CEO, has over 25 years’ sales experience in medical distribution. Professor Shangli Liu, our chief medical advisor, is one
of the highest ranked orthopedic doctors in China as well as being highly renowned in the rest of the world. He will assist the
Company in nationwide product promotion and joint projects with associated academic institutions and medical schools. During product
development and clinical trial stages, we developed close relationships with many major national hospitals. We expect these relationships
to boost our revenue generation.
China’s
market for PA devices depends on 3 major conditions:
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Patients
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Advanced technology level
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Performance and price of the materials
China
has gradually entered the Old Age Society. It is expected that there will be 245 million people over 60 years of age by 2020,
and, according to the survey of 50 years old, the incidence of osteoporosis is as high as 60%, accompanied by osteoporosis, fracture,
bone necrosis, disability and other diseases, resulting in continued high demand of orthopaedic implant medical devices. (Source:
The UN; Shenwan Hongyuan Securities research report).
The
Company has advantages and more opportunities over others competitors due to:
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No other similar patent registrations in China.
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We are the only company to receive market approval and permission to perform PA clinical trials by the NMPA to the best of our
knowledge.
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We have a timing advantage over other Chinese companies; other companies would need to successfully complete preclinical testing
for the NMPA in order to obtain clinical trial permits.
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Under new regulations by the NMPA, it will take at least 5-10 years for clinical trials of new materials.
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Our patented material enables us to rapidly diversify our product line according to market trend and demand.
Number
of Hospitals at the end of November 2020 Statistic and Census report by the National Health Commission of the People’s Republic
of China.
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Statistic and Census
report by the National Health Commission of the People’s Republic of China
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(November 2020)
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November
2020
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November
2019
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Increase
/ (Decrease)
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Total
No. of Hospitals
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35,112
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33,972
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1,140
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Public Hospital
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11,885
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11,891
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(6
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Private Hospital
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23,227
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22,081
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1,146
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Hospital Rating
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AAA
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2,895
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2,681
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214
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AA
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10,121
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9,478
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643
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A
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11,826
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11,014
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812
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Unrated
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10,270
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10,799
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(529
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In
general, technological advancements and the marketing potential within Asia are the biggest factors in driving significant growth
within the global orthopedic devices market. Another major factor that positively influences this market is the growing number
of aging baby boomers with active lifestyles. This sector represents a large portion of the total population.
Cost
of Sales
Cost
of sales for the three months ended January 31, 2021 and 2020 were $10,147 and $33,127 respectively, which accounted for 21.48%
and 54.75% of the gross revenue. The main components of cost of sales are expenses for attending exhibitions/trade shows and
staff costs.
Gross
Profits
Gross
profits for the three months ended January 31, 2021 and 2020 were $37,086 and $27,374 respectively, which accounted for 78.52%
and 45.25% of the gross revenue. Compared to the three months ended January 31, 2020, the gross profits percentage for the
three months ended January 31, 2021 was increased by 33.27%. The main contributor to this increase was that we had an established
initial sales network in the three months ended January 31, 2021.
Operating
Expenses
Operating
expenses for the three months ended January 31, 2021 and 2020 were $125,728 and $127,019 respectively.
Research
and Development
Research
and development costs related to both present and future products are expensed as incurred. Total expenditure on research and
development charged to general and administrative expenses for the quarter ended January 31, 2021 and 2020 was $66,806 and $56,780.
The main component of research and development costs is staff costs of the technical personnel on product improvements to enhance
industrial design.
We
expect research and development expenses to grow as we continue to invest in basic research, clinical trials, product development
and in our intellectual property. The Company will be working closely with medical institutions and research universities to expedite
future clinical trials of upcoming series of polymer fixation devices, including Intramedullary Nailing Fixation, Binding Wires,
Micromodule Screws & Plates, Maxillofacial & Craniofacial Plates, and Rib Pins.
New
Patent Granted
The
Company was granted one patent in January 2021 by the State Intellectual Property Office of the P.R.China (“SIPO”),
patent no. ZL201511006236.7. This patent protects the use and manufacturing process of an unique polymer material used by the
Company.
Marketing
Strategy
The
Company has been conducting Pre-Market Research before its PA Screws application was approved by the NMPA in April 2018. The research
is intended to estimate the potential market success of the company’s products that can be expected. The research also beyond
the Company’s initial market - China, and covers international markets. Based on the results of our Pre-Market Research
and the positive feedbacks we have received from trade shows and industrial conferences, it is the Company’s intention to
apply for additional international regulatory approvals in due course.
The
Company will market its products through a hybrid sales force comprised of a managed network of independent regional distributors/sales
agents (80%) and direct sales representatives (20%) in China.
There
are two ways the Company will generate revenue, 1) through our nationwide and regional distributors and 2) through our direct
sales channels.
Impact
of COVID-19 Outbreak
The
Company’s primary business is carried out through its subsidiary, Shenzhen Changhua Biomedical Engineering Co., Ltd. (“Shenzhen
Changhua”), based in Shenzhen, China, where the COVID-19 pandemic started in January 2020.
The
Company has identified the following areas that had been adversely affected by COVID-19:
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1.
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Operation:
Our facilities in China were not fully staffed due to COVID-19 lockdown, travel restrictions and quarantine requirements.
This affected our accounting and marketing departments mostly because a large number of staff could not come back to office
as they were not allowed to travel or have 14-day quarantine before they came back to work. Our operation gradually came back
to normal with the easing of COVID-19 restrictions in China during the third and fourth quarter of 2020.
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2.
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Manufacturing:
We had sufficient raw material stock for 2 months, however, our production was affected by staff shortage and facilities closure
during lockdown.
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Marketing:
We launched our sales campaign in late 2019 and we generated revenue the first time in the history of the Company at the end
of 2019 fiscal year. Our sales and marketing plans were disrupted by COVID-19 pandemic because almost all the hospitals in
China were dealing with COVID-19 and non-essential operations were postponed or cancelled.
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The
Company has been working with its business partners and workforce through crisis planning, effective communication and co-operation
to minimize the negative impact of the COVID-19 pandemic.
Other
Income and Expenses
Total
other (expenses) income, for the three months ended January 31, 2021 and 2020 were ($83,402) and $35,856 respectively. There was
no significant changes in total other expenses for the three months ended January 31, 2021. The major contributor to the total
other income for the three months ended January 31, 2020 was due to that the Company received a grant of $125,652 from
local government in Shenzhen in January 2020. The remaining other expenses comprised mainly interest expenses with no significant
differences between the relevant periods of 2021 and 2020.
Finance
Costs
As
of January 31, 2021 and October 31, 2020, a stockholder and four related parties had loaned a total of $5,249,202 and $4,705,512
respectively to the Company as unsecured loans repayable on demand and interest is charged at 7% per annum on the amount due.
Total interest expenses on advances from a stockholder and the related parties accrued for the three months ended January 31,
2021 and 2020 were $73,018 and $80,254 respectively.
As
of January 31, 2021 and October 31, 2020, the Company owed $311,127 and $308,031 respectively to the directors for advances made
on an unsecured basis, repayable on demand. Total imputed interest expenses on advances from directors, calculated at 5% per annum,
recorded as additional paid-in capital amounted to $3,553 and $3,389 for the three months ended January 31, 2021 and 2020 respectively.
Net
Loss
The
net loss attributable to common stockholders for the three months ended January 31, 2021 and 2020 were $172,044 and $63,789 respectively.
We started to generate revenue at the end of our fiscal year from inception to October 31, 2019 before our sales campaign was
disrupted by the COVID-19 pandemic, but we have to incur operating expenses for the upkeep of the Company and the clinical trials.
Liquidity
and Capital Resources
We
had a working capital deficit of $7,973,705 and $7,533,045 as of January 31, 2021 and October 31, 2020 respectively. Our working
capital deficit increased as a result of the fact that we only started to market of our NMPA approved PA Screw in China at the
end of 2019 fiscal year, and the company has to put resources to market its products, complete the clinical trials of other products.
Although we began to generate revenues at the end of 2019 fiscal year, our marketing campaign was disrupted by the COVID-19 pandemic
and the revenue income was not sufficient. Our main source of financing during the year came in the form of PA Screws sales and
loan from our related parties and stockholders.
Cash
Flows
Net
Cash Used in Operating Activities
Net
cash used in operating activities was $514,817 and $51,860 in the three months ended January 31, 2021 and 2020 respectively. This
amount was attributable primarily to the net loss after adjustment for non-cash items, such as depreciation, loss on disposal
of property and equipment, imputed interest on advances from directors, and others like charges in other receivables and prepaid
expenses and other payables and accrued expenses. Cash used in operating activities increased were a result of increased in
operating loss, stock-based compensation expenses, other receivables and prepared expenses, and other payables and accrued expenses.
Other items had no significant changes.
Net
Cash Used in Investing Activities
We
recorded net cash used of $18,192 and $525 in investing activities in the three months ended January 31, 2021 and 2020 respectively.
This amount reflected purchases of property and equipment, primarily for research and development to our facilities.
Net
Cash Provided by Financing Activities
Net
cash provided by financing activities in the three months ended January 31, 2021 and 2020 was $335,135 and $54,805 respectively,
which represented advances from a stockholder, directors and related parties, loan repayment to directors and advances to a related
company. The significant increase in the cash provided by financing activities were cash flow derived from due to related parties
which was the current financing source of the Company.
Operating
Capital and Capital Expenditure Requirements
Our
ability to continue as a going concern and support the commercialization of current products is dependent upon our ability to
market our product while obtaining additional financing in the near term. We anticipate that such funding will be in the form
of marketing of our products and equity financing from sales of our common stock. However, there is no assurance that we will
be able to raise sufficient funding from the sale of our products and common stock to fund our business plan should we decide
to proceed. We anticipate our sales revenue will not meet our financial needs in 2020 and we need to rely on advances from our
related parties and stockholders in order to continue to fund our business operations.
We
believe that our existing cash, cash equivalents at January 31, 2021, will be insufficient to meet our cash needs. Our minimum
cash requirement for the next 12 months is projected to be $700,000. This amount may increase if we decide to start clinical trials
on new products. The management is actively pursuing additional funding and strategic partners, which will enable the Company
to implement our business plan, business strategy, to continue research and development, clinical trials or further development
that may arise.
We
intend to spend more to support the commercialization of current products and on research and development activities, including
new products development, regulatory and compliance, clinical studies, and the enhancement and protection of our intellectual
property portfolio.
OFF-BALANCE
SHEET ARRANGEMENTS
We
do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial
condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital
resources that are material to our investors.
CRITICAL
ACCOUNTING POLICIES
The
preparation of our financial statements requires us to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate
our estimates, including but not limited to those related to income taxes and impairment of long-lived assets. We base our estimates
on historical experience and on various other assumptions and factors that are believed to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily
apparent from other sources. Based on our ongoing review, we plan to adjust to our judgments and estimates where facts and circumstances
dictate. Actual results could differ from our estimates.
We
believe the following critical accounting policies are important to the portrayal of our financial condition and results and require
our management’s most difficult, subjective or complex judgments, often because of the need to make estimates about the
effect of matters that are inherently uncertain.
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Property
and equipment
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Property
and equipment are stated at cost, less accumulated depreciation. Expenditures for additions, major renewals and betterments
are capitalized and expenditures for maintenance and repairs are charged to expense as incurred.
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Depreciation
is provided on a straight-line basis, less estimated residual value over the assets estimated useful lives. The estimated
useful lives of the assets are 5 years.
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Inventories
Raw
materials, work in progress and finished goods are stated at the lower of cost and net realisable value. Cost comprises direct
materials, direct labour and an applicable proportion of production overheads. Production overheads are allocated
to inventories on the basis of normal operating capacity. Costs are assigned to individual inventory items on weighted average
costs basis. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of
completion and the estimated selling costs.
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3.
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Long-lived
assets
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In
accordance with FASB Codification Topic 360 (ASC Topic 360), “Accounting for the impairment or disposal of Long-Lived
Assets”, long-lived assets and certain identifiable intangible assets held and used by the Company are reviewed for
impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
For purposes of evaluating the recoverability of long-lived assets, the recoverability test is performed using undiscounted
net cash flows related to the long-lived assets. The Company reviews long-lived assets to determine that carrying values are
not impaired.
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4.
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Fair
value of financial instruments
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FASB
Codification Topic 825(ASC Topic 825), “Disclosure About Fair Value of Financial Instruments,” requires certain
disclosures regarding the fair value of financial instruments. The carrying amounts of other receivables and prepaid expenses,
other payables and accrued expenses, due to a stockholder, directors and related parties approximate their fair values because
of the short-term nature of the instruments. The management of the Company is of the opinion that the Company is not exposed
to significant interest or credit risks arising from these financial statements.
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5.
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Government
grant
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Government
grants are recognized when there is reasonable assurance that the Company complies with any conditions attached to them and
the grants will be received.
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6.
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Revenue
recognition
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Revenue
from contract with customers is recognized when control of goods is transferred to a customer, at an amount that reflects
the consideration to which the Company expects to be entitled in exchange for those goods. Control is considered to be transferred
when the customer has the ability to direct the use of and obtain substantially all of the remaining benefits of that good,
generally on delivery of the goods.
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Revenues
are generated from manufacturing and supply of biomaterial internal fixation devices, which are sold through its network of
distributors/agents and direct sales channels. Our performance obligations are satisfied at a point in time. Our contracts
have an anticipated duration of less than a year.
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Actual
returns and claims in any future period are inherently uncertain and thus may differ from our estimates. If actual or expected
future returns and claims are significantly greater or lower than the reserves that we have established, we will record a
reduction or increase to net revenue in the period in which we make such a determination.
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7.
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Stock-based
compensation
The
fair value of services received, as measured at the fair value of stock granted at the grant date, is expensed in the statements
of operations and comprehensive loss with a corresponding increase in the common stock and additional paid-in capital where applicable.
Where
the shares are granted for services to be rendered over a period of time, the fair value of the stock granted is accounted for
as a prepayment with a corresponding increase in the common stock and additional paid-in capital where applicable. This prepaid
stock-based compensation is amortized as an expense on a straight-line basis over the period for which the services are rendered.
Where,
pursuant to an agreement, the stock of the Company is to be granted for services being rendered, the fair value of the stock-based
compensation is credited to the stock-based compensation reserve which will be transferred to common stock and additional paid-in-capital
upon the actual granting of the shares. The stock-based compensation would be amortized as an expense on a straight-line basis
over the period for which the services are rendered.
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8.
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Income
taxes
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The
Company accounts for income taxes under the FASB Codification Topic 740-10-25 (“ASC 740-10-25”). Under ASC 740-10-25,
deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under ASC 740-10-25, the effect on deferred tax assets and liabilities
of a change in tax rates is recognized as income in the period included the enactment date.
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9.
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Research
and Development
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Research
and development costs related to both present and future products are expensed as incurred.
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10.
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Foreign
currency translation
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The
financial statements of the Company’s subsidiary denominated in currencies other than US $ are translated into US $
using the closing rate method. The balance sheet items are translated into US $ using the exchange rates at the respective
balance sheet dates. The capital and various reserves are translated at historical exchange rates prevailing at the time of
the transactions while income and expenses items are translated at the average exchange rate for the year. All exchange differences
are recorded within equity.
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RECENT
ACCOUNTING PRONOUNCEMENTS
There
has been no newly effective accounting pronouncement that has significance, or potential significance, to our consolidated financial
statements.
The
Company has reviewed all recently issued, but not yet effective, accounting pronouncements and does not believe the future adoptions
of any such pronouncements may be expected to cause a material impact on the financial condition or the results of operations.
The Company will carefully analyze these recently accounting pronouncements and take action to adopt them as required.