UNITED STATES

 SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-K

 

(Mark One)

 

S	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934  For the fiscal year ended December 31, 2012
or
£	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: 000-53089

 

CHINA NORTHERN MEDICAL DEVICE, INC.

(Exact name of registrant as specified in its charter)

 

Nevada	30-0428006
(State or other jurisdiction of incorporation or organization)	(I.R.S.  Employer Identification No.)

 

70 Daxin Jie, Daowai District

Haerbing City, Heilongjiang Province 150020

People’s Republic of China

(Address of principal executive offices)

 

+86 (451) 8228-0845

(Registrant’s telephone number, including area code)

Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $.0001 (Title of class)

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes  o  No  x

 

Indicate by check 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 such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x     No o

 

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

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   o

 

Indicate by check mark whether the registrant is a large accelerated filer, an 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	S

 

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

 

As of the last business day of the registrant’s most recently completed second fiscal quarter, there was no established public trading market for our common stock.

 

As of February 21, 2013, the registrant had 3,550,000 shares of its common stock outstanding.

 

Documents Incorporated by Reference: None.

 

TABLE OF CONTENTS

 

Item Number and Caption			Page
PART I
Item 1.		Business.	3
Item 1A.		Risk Factors.	16
Item 2.		Properties.	16
Item 3.		Legal Proceedings.	16
Item 4.		Mine Safety Disclosures.	16
PART II
Item 5.		Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.	16
Item 6.		Selected Financial Data.	17
Item 7.		Management’s Discussion and Analysis of Financial Condition and Results of Operations.	17
Item 7A.		Quantitative and Qualitative Disclosures About Market Risk.	19
Item 8.		Financial Statements and Supplementary Data.	20
Item 9.		Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.	20
Item 9A.		Controls and Procedures.	20
Item 9B.		Other Information.	20
PART III
Item 10.		Directors, Executive Officers and Corporate Governance.	21
Item 11.		Executive Compensation.	21
Item 12.		Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.	22
Item 13.		Certain Relationships and Related Transactions, and Director Independence.	22
Item 14.		Principal Accountant Fees and Services.	22
PART IV
Item 15.		Exhibits, Financial Statement Schedules.	23
SIGNATURES			24

 

 

 

PART I

 

Item 1. Business.

 

We were incorporated as a Nevada corporation on March 26, 2007. Our activities have been limited to developing and writing our business plan.  Management has primarily focused on preparation of this offering document along with contacting various entities and people in furtherance of our business plan.

 

Business Strategy

 

We intend to sell medical devices with an emphasis on portable medical devices designed for home treatments.  Our initial focus will be in the northern regions of China.  We intend to seek strategic relationships with medical device manufacturers both in China and North America with the aim to be their sales and distribution agent in northern China.  We also intend to assist Chinese medical device manufacturers on the development of the North American market.  Eventually, we may seek to acquire an existing medical device manufacturer to enhance our operations.

 

Our internal marketing research indicates that the population in northern China is often subject to ordinary and ineradicable illness due to the geographic and climate factors of the region.  We believe the local health care system is not postured to provide home medical devices to those in need in a timely manner.  We believe that current enterprises employ poor marketing techniques and have not exploited the potential market for medical devices.  We intend to implement a strong marketing program and establish our brand.  We intend to conduct detailed research to understand the purchasing behavior in Northern China which will be followed by an advertising regime consisting of TV advertisement, outdoor advertisement, promotions in shopping malls and other methods of advertising.

 

In addition to implementing a strong marketing and branding campaign, we intend to establish multiple venues for the sale of our products including an e-commerce platform, establish a sales network in major cities and cooperate with local sops and business entities to sell our products.

 

Although we may face competition from other companies, we intend to fill what we perceive to be a market opportunity in this region.

 

We intend to seek and obtain marketing agreements and licenses from various sources so we can in turn sell home medical devices in the Northern China region.  We will focus on both American and Chinese medical device manufacturers with the goal being a marketing or sales agreement that allows us to market their products.  We expect any agreements we may enter will provide us a reasonable commission for product sales.

 

We anticipate conducting sampling market research in Northern China to determine actual consumer demands for home medical devices.  We then intend to acquire sales licenses to the products our research indicates is most in demand.

 

Once we have obtained marketing and sales agreements, we intend to promote our products through a number of venues.  We expect to build an electronic commerce platform for promotion and sales of products through the Internet.  We also expect to advertise our products through websites established by professionals in the medical communities.  We may use television and outdoor media advertisements.  We hope to establish relationships with such prominent Chinese advertisers such as Acorn International, Inc. and Focus Media Advertisement Col., Ltd. to promote the sales of various healthcare medical devices.

 

We further intend to offer our services as a consultant to current Chinese medical device manufacturers whereby we would assist companies on the development of markets in North America, application of relevant patent rights and approval documents. Additionally, we will offer consulting services for medical device market promotion and planning.

 

During our research, we noticed that there are many enterprises in China that manufacture medical or healthcare devices.  Although we believe these products incorporate current and cutting edge technology and the curative effect is good, most enterprises fail to successfully expand and market their products.  We believe the reasons for their failure to gain market share is a lack of advanced marketing skills and deficient or limited advertising.  Our internal research indicates that current enterprises limit their advertising to TV or newspapers and do not provide detail and information on features of the products.  Further, we noted a need for brand imaging.  Our research also indicated most enterprises do not expend sufficient resources on marketing.  Our statistics show the ratio between expenditure on sale and revenue in major business is less than average level of all China and much less than Shanghai, Zhejiang, Guangdong and other developed regions of China.  Finally, our research indicates these enterprises are dependent on a single outlet for their products which is typically a sales agent or dealer with limited capital for promoting the products.

 

It is our goal to provide consulting services to these enterprises to promote their products and increase their market share.  Further, we anticipate that we would also enter marketing or sales agreements with the manufacturers.

 

We intend to initially target three to five medical and healthcare manufacturers in Northern China with capacity and brand recognition and seek to enter consulting arrangements.  We would provide such manufacturers with long-term consultation services for management and product promotion.  We expect such services will include advertising and public relations for the targeted brand, construction of sales nets and tunnels and sales team training.

 

 

Potential Acquisitions

 

At some point in the future, once operations have commenced and the company is positioned favorably, we may consider acquiring a business or businesses that complement our business model.  Our criteria for any acquisition include the following:

 

	•	The company engages in the business in certain segmented markets, together with distinguished features of technical innovation and other competitive advantages;
	•	The company has mature production processes and proper equipment in place;
	•	The company has a history of operations with a stable client base and brand awareness; and
	•	The company has its own patent rights.

 

Competition

 

Competition from pharmaceutical companies, medical device companies, biotechnology companies, marketing companies and academic and research institutions is intense and is expected to increase. Many of our competitors and potential competitors have substantially greater product development capabilities, experience conducting clinical trials and financial, scientific, manufacturing, sales and marketing resources and experience than our company. Some of these competitors include giants in the industry such as Johnson & Johnson, Guidant Corporation, Genzyme Corporation, Baxter Healthcare Corporation, Abbott Laboratories, Boston Scientific Corporation, Medtronic, Inc., Wyeth, Inc., Novartis AG., C.R. Bard, the Allegiance division of Cardinal Health, Inc., Bausch & Lomb, and Tyco Ltd., among others. We also face competition from non-medical device companies, such as pharmaceutical companies, which may offer non-surgical alternative therapies for disease states which are currently or intended to be treated using our products.

 

We believe there are currently three traditional sales models of medical devices in Northern China.  The first model is that the manufacturer establishes its own sales distribution networks; the second model is distributing products through newspapers and TV advertisements and direct sales via TV; and the third model is making sales through dealers and agents to promote and sell products.  We believe there are few professional sales and marketing organizations existing in northern China and providing sales through the online e-commerce business model to sell medical devices, i.e., portable medical devices designed for home treatments covering the northern areas of China. There are some companies engaging in the health-care related products with the online e-commerce business model in northern China.  It is possible that competitors with the same or similar business model as ours will emerge on the development of the potential target market.

 

Governmental Regulation

 

Although we intend to comply with all applicable laws and regulations, we cannot assure you that we are in compliance or that we will be able to comply with all future laws and regulations.  Additional federal or state legislation, or changes in regulatory implementation, may limit our activities in the future or significantly increase the cost of regulatory compliance.  If we fail to comply with applicable laws and regulations, criminal sanctions or civil remedies, including fines, injunctions, or seizures, could be imposed on us.  This could have a material adverse effect on our operations.

 

We are not aware of any specific laws, regulations or restrictions that would limit our ability to implement and pursue our business plan.

 

Should we develop a market in the United States for medical devices manufactured in China, we may be subject to the FDA’s statutory and regulatory requirements for approval of devices imported to the United States.  Possible requirements may include submitting a pre-market approval application to the FDA for review.  Such application must be supported by extensive data, including technical, preclinical, clinical trials, manufacturing and labeling to demonstrate to the FDA’s satisfaction the safety and effectiveness of the device.

 

Foreign firms that manufacture medical devices sold in the United States and U.S. distributors ("importers") of medical devices must comply with applicable U.S. laws before, during, and after importing a medical device into the U.S. or its territories.

 

Below is a summary of the regulatory issues we may be subject to:

 

Device classification information

 

Medical devices vary widely in their complexity and their degree of risk or benefits. They do not all need the same degree of regulation. Thus, U.S. FDA places all medical devices into one of three regulatory classes based on the level of control necessary to assure safety and effectiveness of the device.

 

These classes are:

 

	•	Class I = General Controls
	•	Class II = General Controls and Special Controls
	•	Class III = General Controls and Premarket Approval

 

The class of most devices can be found in the classification regulations in Title 21 Code of Federal Regulations (CFR) Parts 862 through 892. There are approximately 1,700 device classifications within 16 medical specialties. Of the 1,700 classified devices, 45% are Class I, 47% are Class II and 8% are Class III.

 

Class I devices are subject to the least regulatory control. They present minimal potential for harm to the user and are often simpler in design than Class II or Class III devices. Class I devices are subject to "General Controls" as are Class II and Class III devices.

 

 

General controls include:

 

	•	Establishment registration (use FDA Form 2891) of companies which are required to register under 21 CFR part 07.20, such as manufacturers, distributors, repackagers and relabelers, and foreign firms.
	•	Medical device listing (use FDA Form 2892) with FDA of devices to be marketed.

	•	Manufacturing devices in accordance with the Quality Systems regulation (GMP's) in 21 CFR Part 820.
	•	Labeling devices in accordance with labeling regulations in 21 CFR Part 801 or 809.
	•	Submission of a premarket notification 510(k) before marketing a device.

 

Examples of Class I devices include elastic bandages, examination gloves, and hand-held surgical instruments.

 

Most Class I devices are exempt from the premarket notification and/or the Quality System regulation.

 

Class II devices are those for which general controls alone are insufficient to assure safety and effectiveness, and existing methods are available to provide such assurances. In addition to complying with general controls, Class II devices are also subject to special controls.

 

Special controls may include special labeling requirements, mandatory and voluntary performance standards and post-market surveillance.

 

Examples of Class II devices include powered wheelchairs, infusion pumps, and surgical drapes. Class II devices are usually not exempt from the premarket notification or the Quality System regulation.

 

Class III is the most stringent regulatory category for devices. Class III devices are those for which insufficient information exists to assure safety and effectiveness solely through general or special controls.

 

Class III devices are usually those that support or sustain human life, are of substantial importance in preventing impairment of human health, or which present a potential, unreasonable risk of illness or injury.

 

Premarket approval is the required process of scientific review to ensure the safety and effectiveness of Class III devices. Not all Class III devices require an approved premarket approval application for marketing. Class III devices which are equivalent to devices legally marketed before May 28, 1976 may be marketed through the premarket notification [510(k)] process until FDA has published a requirement for manufacturers of that device type to submit premarket approval data.

 

Class III devices which require an approved premarket approval application to be marketed are those:

 

	•	Regulated as new devices prior to May 28, 1976, also called transitional devices.
	•	Devices found not substantially equivalent to devices marketed prior to May 28, 1976.
	•	Class III preamendment devices, which by regulation in 21 CFR, require a premarket approval application.
	•	Class III devices which can be marketed with a premarket notification 510(k) are those:
		•	Postamendment (i.e. introduced to the U.S. market after May 28, 1976)
		•	Class III devices which are substantially equivalent to preamendment (i.e. introduced into the U.S. market before May 28, 1976)
		•	Class III devices and for which the regulation calling for the premarket approval application has not been published in the CFR.

 

We anticipate that the majority of our products will be classified as Class I or Class II devices.

 

Investigational device exemption requirements

 

A manufacturer who wishes to export an unapproved device for investigational use may export the device under an Investigational Device Exemption, (“IDE”), under Section 801(e)(2), or under 802(c) of the FFD&C Act depending on where, i.e., to what country, the device is being exported. For instance, pursuant to Section 801(e)(2) of the FFD&C Act, an unapproved device intended for investigational use may be exported to any country, if, in addition to meeting the requirements of 801(e)(1) of the FFD&C Act, the exporter submits information to FDA that would enable the agency to determine that exportation is not contrary to the public health or safety and that the foreign country approves of the exportation.

 

Section 801(e)(1) of the FFD&C Act provides that a device intended for export should meet the following requirements: (1) complies with the laws of the foreign country; (2) meets the foreign purchaser’s specifications; (3) is labeled for export on the shipping carton; and (4) is not sold or offered for sale in domestic commerce. 

 

 

Obligations of a sponsor of an investigational device exemption

 

Clinical studies conducted in the U.S. cannot be sponsored by foreign entities. Therefore, an IDE application cannot be approved in the absence of a U.S. sponsor. If an original IDE application is submitted from an entity outside the U.S., the application will be considered incomplete until a U.S. sponsor is identified. Similarly, if an IDE supplement is submitted for a proposed change in sponsorship to a foreign entity, the supplement will be disapproved.

 

Pre-market approval application requirements and conditions of approval

 

The most stringent marketing application required by FDA is premarket approval or PMA. The PMA application must contain sufficient information to reasonably assure FDA of the safety and effectiveness of the device. This requires valid scientific data to demonstrate that the device is safe and effective for its intended use. In most cases, this includes well-controlled clinical studies; full reports of safety and effectiveness and data regarding the manufacturing of the device. Clinical studies to support the premarket approval application must be done in accordance with the Investigational Device Exemption (IDE) regulation.

 

The PMA review process consists of an administrative/filing review, scientific and regulatory review, advisory committee review/recommendation, and final documentation and notification of approval. An approved Premarket Approval Application is, in effect, a private license granted to the applicant for marketing a particular device.

 

About 1% of the medical devices in commercial distribution have gone through the PMA process. Class III devices marketed through the 510(k) process are preamendment devices for which FDA has not yet required the premarket approval application. FDA has been receiving approximately 50 premarket approval submissions per year.

 

The performance and effectiveness of medical devices marketed through the 510(k) process must only be demonstrated to the extent of substantial equivalence. That is, it must be as safe and as effective as a similar device already marketed. The performance and effectiveness of devices marketed through the PMA process must demonstrate that the device is reasonably safe and effective. These devices must demonstrate on their own merit, safety and effectiveness through valid scientific evidence.

 

Duration of the process

 

Because we anticipate most of our products will be Class I medical devices, we believe FDA approval will not be required.  We believe that any Class II medical devices we attempt to market may take up to one year for FDA approval.  Typical duration of seeking and obtaining FDA approval to market Class III medical devices is estimated to be one to three years.

 

Registration and labeling requirements

 

Foreign establishments engaged in the manufacture, preparation, propagation, compounding, or processing of a device that is imported, or offered for import, into the U.S. must register their establishments and provide the FDA with the name of the U.S. agent representing their establishment. Foreign establishments must also continue to file device listing forms for medical devices they are exporting to the U.S. FDA is also authorized to enter into cooperative agreements with foreign countries to ensure that non-compliant products are refused entry into the U.S.

 

The FDA district office determines if the product complies with FDA requirements. For devices intended for commercial distribution in the U.S., this includes assuring that the importer or original distributor is registered, the foreign manufacturer has registered and listed their establishments and devices and provided FDA with the name of the U.S. agent representing their establishment, that the device is compliant with the Quality Systems (QS) regulation and is properly labeled. The device has been given clearance or approval for marketing following the submission of a 510(k) premarket notification [or is exempt] of a PMA. If the FDA district office determines that the device, manufacturer, or importer has not complied with FDA import requirements, the device will be detained at the port of entry and the importer will be given a "Notice of Detention and Hearing." At this point, the importer, the foreign manufacturer, or the device itself must be brought into compliance before the device is released.

 

The labeling of medical devices and in vitro diagnostic products are governed by two U.S. Federal laws:

 

	•	Fair Packaging and Labeling Act (FPLA)
	•	Federal Food, Drug and Cosmetic (FFD&C) Act

 

Most of the provisions of the FPLA and the FFD&C Act are codified in the following parts of Title 21 of the U.S. Code of Federal Regulations (CFR):

 

	•	General Device Labeling - 21 CFR Part 801
	•	In Vitro Diagnostic Products - 21 CFR Part 809
	•	Investigational Device Exemptions - 21 CFR Part 812
	•	Good Manufacturing Practices - 21 CFR Part 820
	•	General Electronic Products - 21 CFR Part 1010

 

 

The FFD&C Act is the primary law under which the FDA takes action against non-complying regulated devices, such as adulterated, misbranded (mislabeled) devices. Section 201 of the FFD&C Act defines the terms "label" and "labeling" as they apply to medical devices and draws a distinction between the two terms. Certain provisions apply specifically to the "label" of the device, others are related to its "labeling". "Labeling" is a very broad term and deals with labels on the device as well as descriptive and informational literature that accompanies the device.

 

The FFD&C Act defines "label" as: a “[Display of written, printed, or graphic matter upon the immediate container of any article…” The FFD&C Act defines "labeling" as: "[All labels and other written, printed, or graphic matter upon any article or any of its containers or wrappers, or accompanying such article."

 

This labeling definition applies any time while a device is held for sale after shipment or delivery for shipment in U.S. interstate commerce. The term "accompanying" is interpreted liberally to mean more than physical association with the device. It extends to posters, tags, pamphlets, circulars, booklets, brochures, instruction books, direction sheets, etc. "Accompanying" also includes labeling that is brought together with the device after shipment or delivery for shipment in U.S. interstate commerce.

 

Advertising is frequently considered by FDA to be labeling since the intent is to provide information about the device. General device labeling requirements consist of:

 

	•	Name, address and qualifier for manufacturer, packager or distributors;
	•	Intended use/directions for use;
	•	Prominence of labels;
	•	Over-the-counter (OTC) devices;
	•	Prescription devices;
	•	Labeling in English;
	•	Warning and caution statements; and
	•	Specific labeling for certain devices.

 

There are no requirements for FDA to review a device’s label and/or labeling to confirm compliance with the labeling regulations above. The device label and/or labeling is reviewed with the premarket notification or premarket approval submission, but strictly for indication for use statements and the demonstration of substantial equivalence and/or safety and effectiveness of the device.

 

When labeling does not meet the FDA regulations in 21 CFR Part 801, the device is considered to be misbranded. The following activities would cause a device to be misbranded: 

	•	Its labeling is false or misleading in any particular, including promotion for unapproved uses;
	•	It is in package form and its label fails to contain the name and place of business of the manufacturer, packer, or distributor; and an accurate statement of the quantity of the contents in terms of weight, measure, or numerical count;
	•	Any required wording is not prominently displayed as compared with other wording on the device, or is not clearly stated;
	•	Its label does not bear adequate directions for use including warnings against use in certain pathological conditions; or by children where its use may be dangerous to health; or against unsafe dosage, or methods, or duration of administration or application;
	•	It is dangerous to health when used in the dosage or manner or with the frequency or duration prescribed, recommended or suggested in the labeling; or
	•	It does not comply with the color additives provisions listed under Section 706 of the Act.

 

Compliance with the labeling regulations is enforced during post market activities such as GMP inspections of the facility.

 

Quality system regulation and manufacturing of the device

 

The current Good Manufacturing Practices (GMP) requirements set forth in the Quality System (QS) regulation are promulgated under section 520 of the Federal Food, Drug and Cosmetic (FFD&C) Act. They require that domestic or foreign manufacturers have a quality system for the design and production of medical devices intended for commercial distribution in the United States. The regulation requires that various specifications and controls be established for devices; that devices be designed under a quality system to meet these specifications; that devices be manufactured under a quality system; that finished devices meet these specifications; that devices be correctly installed, checked and serviced; that quality data be analyzed to identify and correct quality problems; and that complaints be processed. The Food and Drug Administration (FDA) monitors device problem data and inspects the operations and records of device developers and manufacturers to determine compliance with the GMP requirements in the QS regulation.

 

The QS regulation is in Title 21, Code of Federal Regulations (CFR), Part 820. This regulation covers quality management and organization, device design, buildings, equipment, purchase and handling of components, production and process controls, packaging and labeling control, device evaluation, distribution, installation, complaint handling, servicing, and records.

 

 

Post-market reporting and record-keeping requirements, including medical device reporting and reports of corrections or removals

 

Since December 13, 1984, manufacturers and importers of medical devices have been required to comply with the Medical Device Reporting (MDR) regulation. The MDR requirements were changed in 1990, 1992, 1995 and again in 1997. Under the current provisions of the MDR regulation, which are found in 21 CFR Part 803, domestic and foreign medical device manufacturers and importers of medical devices are subject to the requirements.

 

The Food and Drug Administration (FDA) requires manufacturers and importers to report to FDA whenever the firm becomes aware of information that reasonably suggests that one of its marketed devices (1) has or may have caused or contributed to a death or serious injury, or (2) has malfunctioned and that the device or a similar device marketed by the manufacturer or importer would be likely to cause or contribute to a death or serious injury if the malfunction were to recur.

 

The Medical Device Reporting (MDR) regulation is a mechanism for FDA and manufacturers to identify and monitor significant adverse events involving medical devices so that problems may be detected and corrected in a timely manner.

 

The MDR regulation requires manufacturers of medical devices to report a device-related death, serious injury, or malfunction to FDA whenever they become aware of information that reasonably suggests that a reportable event occurred (one of their devices has or may have caused or contributed to the event). This is done using form FDA 3500A within 30 calendar days after becoming aware of the event. However, if the event necessitates remedial action to prevent an unreasonable risk of substantial harm to the public health, then a report must be submitted within five (5) work days. These reports must also be submitted when FDA notifies a manufacturer that 5-day reports involving a particular type of medical device or type of event are required.

 

Manufacturers must submit baseline reports that provide basic device identification information including:

 

	•	brand name,
	•	device family designation,
	•	model number,
	•	catalog number, and
	•	any other device identification number.

 

Baseline reports also contain other important information about the device including:

 

	•	regulatory basis for marketing the device,
	•	shelf life or expected life of the device, and
	•	date device was first marketed and when marketing stopped, if applicable.

 

A baseline report is to be submitted for a device when an adverse event involving the device is reported for the first time and is to be updated annually, when appropriate. FDA will allow annual updates to be done on the date which coincides with when a firm’s annual registration is due instead of the anniversary date of the original baseline submission. The official dates for when an annual registration is due can be found in 21 CFR 807.21. Detailed instructions for completing the form can be found in the document entitled, "Instructions for Completing Form 3417 Medical Device Reporting Baseline Report." This is available on the MDR home page at www.fda.gov/cdrh/mdr.htm.

 

Manufacturers must submit a supplemental report, using Form 3500A, if they obtain additional information denoted as unknown (UNK) or not available (no information at the time, NI) on the original 30-day or 5-day MDR reports. Additionally, a supplemental report is required when new facts prompt the manufacturer to alter any information submitted in the original MDR report. The supplemental information must be submitted on Form 3500A within one month (30 calendar days) following receipt of the information.

 

In all, there are four types of MDR reports that FDA requires the manufacturer to submit. Each type of report is to be submitted within the mandatory time frame by completing the appropriate form. MDR reports for manufacturers include a:

 

	•	30-day report,
	•	5-day report,
	•	baseline report, and
	•	supplemental report.

 

Manufacturers are required to establish and maintain files related to reportable events. The files must be prominently identified, facilitate timely access, and must contain:

 

	•	information related to the event or reference to the location of the information. This includes all documentation of the reporting decisions and decision-making process;
	•	copies of all completed MDR forms and other information submitted to FDA, importers (initial distributors), and manufacturers; and
	•	an explanation of why any required information was not submitted with the report or why it could not be obtained, and the results of the evaluation of the event.

 

Manufacturers must keep such records for two years, or a period of time equivalent to the expected life of the device, whichever is greater.

 

 

The FDA MedWatch program integrates onto a single reporting form, all of the adverse event and product problem reporting information required by the various FDA regulations. The program has both voluntary and mandatory components. The voluntary component encourages health care professionals to report serious adverse events and product problems involving devices, drugs, biologics, special nutritional products and other products directly to the FDA. The mandatory component covers the adverse event and product problem reporting requirements currently in place for manufacturers of drugs, biologics and medical device manufacturers, distributors and user facilities.

 

Import and export requirements

 

Foreign establishments engaged in the manufacture, preparation, propagation, compounding, or processing of a device that is imported, or offered for import, into the U.S. must register their establishments and provide the FDA with the name of the U.S. agent representing their establishment. Foreign establishments must also continue to file device listing forms for medical devices they are exporting to the U.S. FDA is also authorized to enter into cooperative agreements with foreign countries to ensure that non-compliant products are refused entry into the U.S.

 

Procedures for the Export of Medical Devices form the U.S.  Chapter VIII of the Federal Food, Drug and Cosmetic (FFD&C) Act addresses FDA regulation of the import and export of foods, drugs, cosmetics, biologics, medical devices, and radiation emitting electronic products. Sections 801 and 802 of Chapter VIII list the specific rules governing the import and the establishment of an Office of International Relations to act as FDA liaison with foreign governments.

 

The export provisions of the FFD&C Act do not apply to firms who wish to export devices that are legally marketed in the U.S. Any medical device legally on the U.S. market may be exported anywhere in the world without prior FDA notification or approval.

 

While FDA does not place any restrictions on the export of these devices, certain countries may require written certification that a firm or its devices are in compliance with U.S. law. In such instances, FDA will accommodate U.S. firms by providing a Certificate for Foreign Government (CFG). FDA has established this self-certification process in order to speed the processing of requests, which were formerly referred to as Certificates for Products for Export or Certificates of Free Sale.

 

Potential sanctions for violations

 

If a company violates any of the laws that FDA enforces, FDA can encourage the firm to voluntarily correct the problem or to recall a faulty product from the market. A recall is generally the fastest and most effective way to protect the public from an unsafe product.

 

When a company can't or won't correct a public health problem with one of its products voluntarily, FDA has legal sanctions it can bring to bear. The agency can go to court to force a company to stop selling a product and to have items already produced seized and destroyed. When warranted, FDA may seek criminal penalties-including prison sentences-against manufacturers and distributors.

 

FDA enforcement actions and sanctions for failure to meet its standards include issuance of health alerts and warning letters, ordering mandatory recall and seizure, obtaining injunctions, imposing civil money penalties up to $1 million per proceeding, and criminally prosecuting offenders for serious violations. In addition, violations of FDA regulations could result in banishment from federal programs such as Medicare.

 

Chinese Regulations

 

Overview of Chinese regulations

 

Medical devices and related sales are regulated by the State Food and Drug Administration (“SFDA”) in China. The SFDA is the Chinese equivalent of the US Food and Drug Administration (FDA). The General Administration of Quality, Supervision, Inspection and Quarantine (AQSIQ) is another Chinese agency that regulates imported medical devices. AQSIQ conducts mandatory safety registration, certification and inspection for certain devices. Companies that import medical devices into China must register their device with the SFDA. The Chinese regulating agents have promulgated several regulations requiring strict quality inspections systems on the domestic medical device industry; strict inspection and quality control of imported medical devices and apparatus, including the Regulations for the Supervision and Administration of Medical Devices enacted by the State Council in China, and the several regulations enacted by the SFDA (i.e. Administration Rules on the Classification of Medical Device, Measures on Administration of Medical Device Registration, Administration Rules on New Medical Device Approval (Interim), Measures on Administration of the license for Medical Devices Enterprise, Administration Rules on Quality Inspection System of Medical Device Industry, Product Classification Catalog of Medical Devices, Provision on the Registration and Inspection of Imported Medical Device and Apparatus, Provision of Implementation on the Inspection of Quality System of the Oversea Medical Device Manufacturing Enterprises, Administration Rules on Clinical Trial of Medical device, Administration Rules on instruction, label and package of Medical Device and Administration Rules Medical Device Product Specification Standardization (Interim), etc.), The local authority has power publish relevant laws and regulation which is not in conflict with state level laws.

 

Chinese medical devices classification information

 

Chinese authorities place all medical devices into several regulatory classes under special guidance to assure the safety of the device.

 

 

According to their respective structural characteristics, medical devices are divided into two categories: active and passive devices:

 

	•	Passive devices in terms of their form of operation can be classified as device used for transportation and storage of pharmaceutical liquid, device for alteration of blood, body fluids, medical dressing, surgical instruments; reusable surgical instruments, disposable aseptic device, implantable device, device for contraception and birth control, device for sterilization and cleaning, patient care device, in vitro diagnostic reagent, as well as other passive contacting device or passive supplementary device.
	•	Active devices in terms of their form of operation can be classified as device for treatment through energy, diagnostic monitoring, body fluids transportation and ionized radiation, laboratory instruments and medical sterilizer; as well as other active contacting device or active supplementary device.

 

Medical devices may be also divided into two categories: contacting / inserted devices and non-contacting devices based on their conditions for use, which include the possible injuries they might entail as well as their impact on the medical treatment. The contacting / inserted devices have the following features:

 

	•	Term of use: temporary use, short - term use, long-term use;
	•	Particular parts of the human body being contacted: skin, cavity and tract; trauma or body tissue; blood circulation system or central nervous system;
	•	The degree of injuries caused by malfunction of active devices: minor injuries, injuries, serious injuries.

 

Based on the treatment impacts, medical devices are divided into three categories: no general impact, indirect

impact, substantial impact.

 

Moreover, the medical devices are categorized into three classes, each with specific regulatory requirements. The classes are as follows:

 

	•	Class I: Low risk devices, regulated by provincial governments;
	•	Class II: Modest risk devices, regulated by provincial governments; and
	•	Class III: High risk devices, regulated by the SFDA.

 

Class I medical devices shall be inspected, approved and granted with a registration certificate by the drug regulatory authority of the government of the municipalities consisting of districts. Class II medical devices shall be inspected, approved and granted with registration certificates by the drug regulatory authorities of provinces, autonomous regions and municipalities directly under the central government.  Class III medical devices shall be inspected, approved and granted with registration certificates by the drug regulatory authority directly under the State Council. Clinical evaluation must be conducted for Class II and Class III medical devices before they are put into production.

 

In accordance with relevant regulations issued by SFDA, the drug regulatory authorities of provinces are responsible for the inspection and approval of the clinical trial or verification of class II medical devices in their own administrative regions. The drug regulatory authority under the State Council is responsible for the inspection and approval of clinical trial or verification of class III medical devices.

 

Establishment of manufacturing of class I medical devices requires that the enterprise file a record with the drug regulatory authority of provinces directly under the central government. Establishing manufacturing of class II and/or class III medical devices requires inspection and approval by the drug regulatory authorities of the provinces directly under the central government, who will then issue a Medical Device Manufacturing Enterprise License.

 

Chinese medical devices registration requirements

 

In order to register a medical device, a total of 12 documents must be collected and submitted to the SFDA in both Chinese and English, as announced by the SFDA on March 22, 2005. The required documents are summarized as follows:

 

1.

The SFDA registration form;

 

2.

The legal production qualifications (e.g., US FDA registration);

 

3.

The business license of the Registration Agent (the authorized agent by the manufacture of the medical device to apply for the registration in China) (the Registration Agent must be located in China with a valid license and a letter of permission from the manufacturer);

 

4.

Approvals from local government authorities of country of origin (i.e. Certificate to Foreign Government as well as 510(k), pre-market approval (PMA) application for US-made devices issued by FDA or Free Sale Certificate);

 

	5.	The product standards (ISO, CE, AAMI, etc.) including an authorization letter to the Registration Agent to translate and reformat the product standard according to Chinese regulations;
	6.	The operation manual (product instructions);

 

 

7.

The test reports issued by the SFDA-certified test centers (only required for Class II and III products that have not received ISO9000 certification);

 

8.

The clinical trial report (only required for certain types of devices; manufacturer may submit clinical trial data that was submitted in the country of origin);

 

9.

The quality guaranty letter (guaranteeing that the product being registered and sold in China is identical to the product approved in the country of origin);

 

10.

An authorization letter to the Registration Agent, who are responsible for reporting adverse events accrued in China (including an authorization letter from the manufacturer and a promise letter from the Registration Agent with the Registration Agent's qualification related documents);

 

11.

Customer service authorization (including an authorization letter from the manufacturer, a promise letter from the Customer Service Agent in China with its qualification related documents); and

 

12.

A self-guaranty declaration (to vouch for truthfulness of submitted documents).

 

Previously, all documents executed in the US had to first be authenticated by the Chinese Embassy or a Chinese Consulate before they were eligible for use in China. As of March 22, 2005, authentication by the Chinese Embassy or the Consulate is no longer required. Additionally, the notarized copies of government certificates, i.e. Number (4) above, will be accepted by the SFDA.

 

Chinese medical devices registration procedures

 

On August 9, 2004 the SFDA issued new regulations for the registration of medical devices in China. These new regulations have simplified the application and registration process of medical devices. Additionally, the Medical Device Clinical Trial Regulation, effective April, 2004, has laid out more detailed requirements for clinical protocol, clinical hospitals and clinical reports in China.

 

Previously, a company prepared an application (with all required documents) and then applied to the SFDA for a specification validation (for approval of the specifications of the device to be imported). Once the specification validation was reviewed and approved, the company was then required to send samples to a testing center. A company would then file its application, with the approved specifications and the official testing reports, to the SFDA. The SFDA would review the technical documents and decide whether to issue the medical device approval.

 

The 2004 regulations have combined the filing preparation and specification application into one step. Companies no longer need to apply to the SFDA for specification validation. Instead, they may use their own specifications as a basis for a testing agency to provide testing. The company then includes these test results in its completed application and submits it to the SFDA. The SFDA sends this application to the Medical Device Evaluation Center (MDEC) to review the specifications, the application, the government certificate and the clinical reports, if needed. The MDEC sends their conclusion to the SFDA and if everything is acceptable, the SFDA will issue the medical device approval license. While these new regulations have somewhat streamlined the process, they have not significantly altered the timeframe for medical device registration in China.

 

However, there are now several situations that can lengthen the new registration process. First, if the MDEC requires a supplement documents, companies must complete the supplement and re-submit it to the SFDA within 60 working days. Second, since the specification validation is not required before testing, the testing is completed based on the company's specifications. It is possible that the MDEC may request the company to revise its specifications and re-test, adding additional time and money to the registration process.

 

Chinese modifications on the registered medical devices

 

Medical device registration is valid for four (4) years. In order to change manufacturing locations or add a new manufacturing location, a new product registration must be submitted. To change the basic information, such as the manufacturer's name, medical device name, or name of the manufacturing location, etc., an amendment to the medical device registration shall be submitted. Requests for renewal of medical device registration must be made six (6) months before the initial registration expires. Along with renewal forms, a copy of the original registration must be submitted. Medical device quality follow-up reports must also be submitted.

 

The following are required documents for such modification: 

 

	•	The document requirement for the change of manufacturer name:
		o	The original Registration Certificate for medical device;
		o	New legal qualification certification (i.e. notarized Business License);
		o	The original new product standards (if the main content has been changed in standard);
		o	The original condition statement and relevant documents for such changes; and
		o	The original Self-declaration to guaranty the truthfulness of documentation submitted (a list of documents submitted with legal consent should be included)

 

 

	•	The document requirement for the literal change of the product name, trade name, product model, specification and the name of the product standard or code name:

	o	The original Registration Certificate for the medical device;
	o	The original new product standards;
	o	The original instructions for use of the medical device;
	o	The original condition statement and relevant attestation documents for such changes; and
	o	The original Self-declaration to guaranty the truthfulness of documentation submitted (a list of documents submitted with legal consent should be included).

 

•

The document requirement for the literal changes of the registration and manufacturing address:

 

	o	The original Registration Certificate for the medical device;
	o	The original condition statement and relevant attestation documents for such changes;
	o	The original declaration for the address changes; and
	o	The original Self-declaration to guaranty the truthfulness of documentation submitted (a list of documents submitted with legal consent should be included).

 

•

The document requirement for the change of the customer service in the Registration Certificate (for the imported medical devices to China manufactured in a foreign country):

 

	o	The original Registration Certificate for medical device;
	o	The original statement for changing or adding Customer Service Agent;
	o	The original authorization letter for the new Customer Service Agent;
	o	The original promise letter of conducting the customer services for the sold products by manufacturer;
	o	A letter of promise to conduct the customer services and the business license of the new Customer Service Agent; and
	o	The original Self-declaration to guaranty the truthfulness of documentation submitted (a list of documents submitted with legal consent should be included).

 

•

The document requirement for the change of Registration Agent in Registration Certificate:

 

	o	The original Registration Certificate;
	o	The original declaration of changing of Registration Agent;
	o	The authorization letter to the new Registration Agent;
	o	The promise letter from the new Registration Agent; and
	o	The original Self-declaration to guaranty the truthfulness of documentation submitted (a list of documents submitted with legal consent should be included).

 

Chinese Labeling and Packaging requirements

 

In accordance with relevant regulations by the SFDA, raw materials and supplementary materials required for the production of drugs as well as containers and packing materials which have a direct contact with medical device shall meet the standards required for the pharmaceutical use.

 

The packaging of medical device must be appropriate under the requirements of the quality of the drug and must facilitate their storage, transportation and use. If the product has a sell-by date, such date must be expressively and clearly indicated on the outside package.

 

The Chinese medicinal materials must be packaged during the transportation. The package must expressively and clearly indicated the name of the product, its place of origin, the date of production and the name of the dispatching unit and the package must be marked to indicate that the quality of the materials meets the required product standard.

 

Medical device packages must, in accordance with the related regulations, be labeled and have an instruction booklet attached.

 

The name of the medical device, its specifications, the producing unit, approval number, product batch number, principal ingredients, diseases for which it is applied against, manner of use, side-effects and matters shall be noted by users must be clearly printed on the label or in the instruction booklet.

 

With the exception of Chinese traditional medicinal materials and traditional Chinese medicines that are sliced and prepared for extraction, medicines and drugs must use a registered trademark and may not be sold on the market until the regulating authorities have examined the same and approved for the registration.

 

 

The registered trademark must be clearly printed on the package and the label of the medical device.

 

Chinese importation and exportation requirements on medical devices

 

Similarly being regulated as in the U.S., the foreign companies engaged in the manufacture, preparation, propagation, compounding, or processing of a device that import or offer for import into the China must register themselves in China.

 

The registration application form can be download from the internet and shall filled in with the required information of the medical device, including the name of devices, the model, the name and address of the manufacturer, etc. All information must be unanimously the same as the contents carried in the documents approved by the government of the region of origin, and must be consistent with the contents concerned carried in the test reports, operation manual of the product, etc. All submitted documents shall be in both Chinese and English.

 

In the required supporting documents to the application for registration, the certificate of the legal production qualification of the manufacturer refers to the certificates issued by the government agency of the country of origin that authorized the manufacturer to engage in the production and distribute the medical device, which is equivalent to the business certificate or the manufacturing enterprise license. Such certificates may be submitted in the form of the copy thereof, subject to the seal by the original issuing agency or the notarization by the local notarization agency.

 

The qualification certificate of the applicant includes the business certificate of the Registration Agent and the certificates of permission given by the manufacturer to the Registration Agent.

 

The certificate recognized or approved by the government agency of the country of origin to authorize the products as medical devices to enter into the market of that country refers to:

 

•

The certificate recognized or approved by the government of the country of origin to authorize the products as medical devices to enter into the market of the country

 

o

that any special authorization documents specified by the government agency of the country of origin for the medical devices to be put into the local foreign market, such formal authorization documents as 510 K or PMA of the U.S. FDA, and the CE certificate of the EU shall be submitted; or

 

o

If there is no special authorization documents are required to handle by the government agency of the country of origin or there is any change to the products on the basis of the products specified in the original special authorization documents, due to the difference in the partition of registration elements, no re-application is required by the government of the country of origin, the enterprise shall give a statement, and provide the following certificates: the free sale certificate issued by the government; or the certificate to the foreign government; and the enterprise self-guarantee declaration in conformance with the provisions concerned of local regulations.

 

•

If no document issued by the government of country of origin to authorize the medical devices to be put into market,

 

o

If the products shall be regulated as medical devices in the country of origin, but they have not been authorized by the government of country of origin to be put into market, the standards of the products to be registered authorized by the competent department shall be submitted; for the Class II or Class III products, the full-performance test reports, the clinical trial reports, the risk analysis reports within the territory of China and other documents necessary for the registration of import products shall be submitted, subject to which, the application may be accepted and after the acceptance, the on-site inspection of the production quality system will be arranged.

 

o

If the products shall be regulated as medical devices in the country of origin but need not be authorized by the government agency of the country of origin to put in the market because they are produced specifically for Chinese market, the first paragraph of this Article shall apply.

 

o

If the products fail to be regulated as the medical devices in the country of origin but the products are defined as the medical devices in China in accordance with the definitions of medical devices, the first paragraph of this Article shall apply.

 

The certificates may be submitted in the form of the copy thereof, subject to the seal by the original issuing agencies or the notarization by the local notarization agencies.

 

In order to export the medical devices, it is necessary to hold an "Export License" issued by the department of the State Council Administering Health in China.

 

 

 

Other Chinese technical guidance

 

On October 14, 2005, the SFDA issued the Technical Guideline for Pre-Clinical Research of Preventive Vaccines, the Technical Guideline for Process Change Management of Biological Products Manufacturing, the Technical Guideline for Pre-Clinical and Clinical Research of Combined Vaccines, the Technical Guideline for Production and Quality Control of Polypeptide Vaccines, the Technical Guideline for Quality Control and Clinical Research of Conjugate Vaccines, and the Guideline for Rating Scales of Adverse Reaction of Clinical Trials of Preventive Vaccines.

 

These guidelines are issued by the SFDA in accordance with the China Drug Administration Law, the Regulations for Implementation of the Drug Administration Law and the Provisions for Drug Registration of the People‘s Republic of China to standardize the research and development of vaccines and offer scientific guidance to vaccine developers in their research.

 

Moreover, in order to further standardize the registration of domestic class III medical devices and foreign medical devices and facilitate companies’ registration applications, the SFDA revised the Standard Registration Procedure for Domestic Class III Medical Devices and Foregin Medical Devices (interim). The revised Standard Registration Procedure for Domestic Class III Medical Devices and Foreign Medical Devices was issued and put into practice recently.

 

The Standard Procedure defines that the registration of domestic class III medical devices and the foreign medical devices includes the application acceptance, technical evaluation and administrative approval. The Administrative Service Center of the SFDA is in charge of the application acceptance; the Center for Medical Devices Evaluation of the SFDA takes charge of the technical evaluation and the State Food and Drug Administration is responsible for the administrative approval. The Standard Procedure also specifies the time limit and position requirements of the application acceptance, technical evaluation and administrative approval.

 

Chinese Potential sanctions for violations

 

If a company violates any of the laws that relevant regulations, the governmental authorities shall issue an order for correction, launch a warning, and confiscate all of the illegally used products and illegal incomes.

 

Additionally, if the illegal incomes exceed 5,000 RMB, a fine of two to five times of the total sum of the illegal incomes shall be imposed. If there are no illegal incomes or the illegal incomes do not exceed 5,000 RMB, a fine of RMB 5,000 to 20,000 RMB shall be imposed, and person(s) in charge and other personnel who are directly responsible shall receive disciplinary punishments. If committed crimes are found, the authorities shall investigate the case under the laws.

 

The Company intends to strictly comply with all laws and regulation of China including without limitation, the Regulations for the Supervision and Administration of Medical Devices, the Rules for Clinical Trial of Medical Device and the Management Rule for Advertisement of Medicine, the Medical Device Distribution Enterprises Supervision & Administration Method, the Medical Device Manufacturing Enterprise Quality Inspection System Method, etc. In addition the Company will be administrated and inspected by the SFDA.

 

Chinese regulations may affect the timing and expenses of our business plan, creating potential uncertainty regarding our business operation, including our consulting services.  In our business plan, we will provide consulting services for the medical manufacturers, especially on their marketing strategies. The legitimacy of the manufacturers will be crucial to our business plan concerning our consulting service.

 

According to the laws of China, the medical devices manufacturers shall meet the following requirements:

 

	•	Professional technical personnel is required for the manufacture of its medical devices;
	•	Facility and environment are required for the manufacture of its medical devices;
	•	An establishment or personnel and equipment for quality testing are required for the manufacture of its medical devices.

 

If the medical device manufacturers are not able to maintain the above conditions, for example, the factory site is polluted, the SFDA and other authority will suspend or terminate their operations. In addition, under the Regulations for the Supervision and Administration of Medical Devices, the medical devices are classified into three categories, which includes Class I Medical Devices which only requires routine administration supervisions, Class II Medical Device that requires further controls, and Class III Medical Devices requiring strict controls. Many traditional home medical devices are classified as Class I medical devices. With the technical development of home medical devices, home medical devices, however, may be listed in Class II and Class III. The manufacture of Class II and Class III medical devices shall be approved by the provincial level and state level authorities, respectively. The manufacturers will have to maintain higher standard conditions for producing Class II and Class III medical devices. The SFDA and other authority will issue a Medical Device Manufacturing Enterprise License and conduct annual inspections on such manufacturers. If the manufacturer fails to meet the necessary requirements, the SFDA and other authority will revoke license and suspend or terminate relevant business operations. In the case that any business of the manufacturers we serve is suspended or terminated, it would have an adverse affect on our business.

 

 

We will also focus on marketing and promoting medical devices. The laws on advertisement in respect of medical devices may cause additional risks or negative effects on our marketing and promotion. Advertisements of medical devices shall be reviewed and approved by the drug regulatory authority of governments at provincial level and the national level, and shall not be published, broadcasted, circulated or posted before such approval. Should the planned advertisement be refused, it would cost additional expenditure for a new or modified advertisement and defer our schedule to exploit market.

 

According to the law of China, a qualified distributor of the medical devices shall meet the following conditions:

 

	•	Possession of appropriate facility and environment for the medical devices distributed;
	•	Possession of appropriate quality inspection personnel for the medical devices distributed; and
	•	Possession of adequate ability for technical training, maintenance and customer services for the medical devices distributed.

 

Failure of maintaining aforesaid conditions could cause the suspension and termination of our business. If any of medical devices in our operation are Class II or Class III, higher standard of conditions shall be provided and maintained for the purpose of issuance and maintenance of a Medical Device Distributing Enterprise License issued by the SFDA. The SFDA will conduct annual inspection during the term of such license. If we fail to pass the annual inspections, the business will be suspended and possibly terminated. Furthermore the aforesaid license has a term of five (5) years and will be subject to renewal upon its expiration. The application of renewal shall be submitted in 6 months prior to expiration. The authority will re-examine our conditions. If the deadline of renewal is missed or the renewal application is rejected, we will not be able to distribute or sell the relevant medical devices. Any suspension and termination may cost time and expenses and will have negative effects on our business.

 

We intend to cooperate with the US medical device manufacturers and introduce their products to China. The procedure of importing the new foreign medical devices is complicated. The SFDA will be responsible for examining and granting such approval. It may take time and will be costly. For example, if the authority does not satisfy with the overseas clinical trial reports, then a new clinical trial will be required to be done.  In addition, some foreign medical devices shall only be introduced when they are qualified to obtain a China Compulsory Certificate (“CCC”). Therefore, the plan for importing the US medical devices into Chinese market may be expensive and it may create the uncertainties to some extent for getting the final approval.

 

We may, at some time, start the research and development (“R&D”) projects on our new products. Manufacturing and selling of the medical devices under the laws of China must be granted with a registration certification. Class I, Class II and Class III medical devices shall be inspected, approved and granted with a registration certificate by a local authority, provincial level authority and State Council, respectively. Thus any new type of medical devices shall be registered. Furthermore, for the registration of Class II and Class III products, a clinical trial will be essential. For any R&D projects, we may incur significant costs and time in completing a clinical trial. The outcome of the clinical trial will not be easily predictable. If the result of clinical trial is not satisfied by the SFDA or other authorities, the registration for such medical devices will be rejected. In case that no registration certification is obtained, and the entire cost of R&D would not be recovered by future marketing.

 

In addition, under laws of China, we will be considered a foreign investment enterprise based in the US. There is presently no restriction set forth in the Catalogue for the Encouragement of Foreign Investment Industries for the foreign investment enterprise to produce and sell the medical devices. Should the Chinese government change the current foreign investment regulations, it may be adverse to us.

 

HIPAA Privacy Rules

 

We may also be subject to United States HIPAA Privacy Rule which applies to any entity that is a health care provider that conducts certain transactions in electronic form.  As a supplier of medical devices we may be consider a covered health care provider and must then comply with HIPAA.

 

The Administrative Simplification Provisions of HIPAA required HHS to adopt standards to protect the security and privacy of health related information. Although HHS issued proposed rules in 1998 concerning the security standards, final rules were not adopted until February 20, 2003. The security standards contained in the final rules do not require the use of specific technologies (e.g., no specific hardware or software is required), but instead require health plans, healthcare clearinghouses and healthcare providers to comply with certain minimum security procedures in order to protect data integrity, confidentiality and availability.

 

With respect to the privacy standards, HHS published final rules in December of 2000. However, on August 14, 2002, HHS published final modifications to the privacy standards. The final modifications eliminated the need for patient consent when the protected health information is disclosed for treatment payment issues or health care operations. In addition, the final modifications clarified the requirements related to authorizations, marketing and minimum necessary disclosures of information. All healthcare providers were required to be compliant with the new federal privacy requirements no later than April 14, 2003. We intend to be in material compliance with existing state and federal law relating to patient privacy.

 

The HIPAA privacy standards contain detailed requirements regarding the use and disclosure of individually identifiable health information. Improper use or disclosure of identifiable health information covered by the HIPAA privacy regulations can result in the following fines and/or imprisonment: (i) civil money penalties for HIPAA privacy violations are $100 per incident, up to $25,000, per person, per year, per

 

 

standard violated; (ii) a person who knowingly and in violation of the HIPAA privacy regulations obtains individually identifiable health  information or discloses individually identifiable health information to another person may be fined up to $50,000 and imprisoned up to one year, or both; (iii) if the offense is committed under false pretenses, the fine may be up to $100,000 and imprisonment for up to five years; and (iv) if the offense is done with the intent to sell, transfer, or use individually identifiable health information for commercial advantage, personal gain, or malicious harm, the fine may be up to $250,000 and imprisonment for up to ten years.  

 

We are also required to comply with state and federal laws governing the transmission, privacy and security of health information. The Health Insurance Portability and Accountability Act of 1996 ("HIPAA") requires us to comply with certain standards for the use of individually identifiable health information within our company, and the disclosure and electronic transmission of such information to third parties, such as payors, business associates and patients. These include standards for common electronic healthcare transactions and information, such as claim submission, plan eligibility determination, payment information submission and the use of electronic signatures; unique identifiers for providers, employers and health plans; and the security and privacy of individually identifiable health information. In addition, some states have enacted comparable or, in some cases, more stringent privacy and security laws. If we fail to comply with these state and federal laws, we could be subject to criminal penalties and civil sanctions and be forced to modify our policies and procedures.

 

Employees

 

We have no employees other than our sole officer and director and no formal employment agreements with our officer and director.  We intend to hire employees as our operations require expansion.  We anticipate we will hire 3 or 4 employees in the year of 2012 if the fund is available.  Our employees will help conduct market research and identify and secure sources of inventory as well as promote sales.  Our sole officer and director has agreed to devote such time as necessary for the development of our business.  It is anticipated that upon completion of the offering, our officer and director will devote full time to our business.  Our sole officer and director is entitled to reimbursement for reasonable out of pocket expenses incurred on our behalf.  We do not have a formal agreements or arrangement to continue payment in the future.

 

Item 1A. Risk Factors.

 

Not applicable because we are a smaller reporting company.

 

Item 2. Properties.

 

Our principal executive offices and mailing address is 70 Daxin Jie, Daowai District, Harbin City, Heilongjiang Province, China. Our telephone number is (86) (0451) 82280845. We have no plans to expand beyond our current facilities and we intend to maintain our current office situation for at least the next twelve months.  We have renewed our one-year lease with the landlord, with an option to extend another year. Our leased space is approximately 3,000 square foot, with a rent of $400.00 per month, which will be expiring on May 31, 2013.   Our office building is located at Harbin High-tech Development Zone, which is leased to high-tech enterprises.  Our space is exclusively used by our company.

 

Item 3. Legal Proceedings.

 

We are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.

 

Item 4. Mine Safety Disclosures.

 

Not applicable. 

 

PART II

 

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

 

Market Information

 

Our common stock is listed on the Over-the-Counter Bulletin Board under symbol CNMV.OB.  There is, however, no established public trading market for our common stock.

 

Holders

 

As of March 29, 2013 in accordance with our transfer agent records, we had 41 shareholders of record holding 3,550,000 shares of our common stock.

 

 

 

Dividends

 

To date, we have not declared or paid any dividends on our common stock. We currently do not anticipate paying any cash dividends in the foreseeable future on our common stock, when issued pursuant to this offering. Although we intend to retain our earnings, if any, to finance the exploration and growth of our business, our Board of Directors will have the discretion to declare and pay dividends in the future. Payment of dividends in the future will depend upon our earnings, capital requirements, and other factors, which our Board of Directors may deem relevant.

 

Stock Option Grants

 

To date, we have not granted any stock options.

 

Item 6. Selected Financial Data.

 

Not applicable because we are a smaller reporting company.

 

Item 7. Management’s Discussion and Analysis of Financial Condition and Plan of Operations.

 

This Form 10-K contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  For this purpose any statements contained in this Form 10-K that are not statements of historical fact may be deemed to be forward-looking statements.  Without limiting the foregoing, words such as “may,” “will,” “expect,” “believe,” “anticipate,” “estimate” or “continue” or comparable terminology are intended to identify forward-looking statements.  These statements by their nature involve substantial risks and uncertainties, and actual results may differ materially depending on a variety of factors, many of which are not within our control.  These factors include but are not limited to economic conditions generally and in the industries in which we may participate; competition within our chosen industry, including competition from much larger competitors; technological advances and failure to successfully develop business relationships.

 

Business Overview

 

We formed as a Nevada corporation on March 26, 2007. Our activities have been limited to developing and writing our business plan.  Management has primarily focused on preparation of this offering document along with contacting various entities and people in furtherance of our business plan.

 

We intend to sell medical devices with an emphasis on portable medical devices designed for home treatments.  Our initial focus will be in the northern regions of China.  We intend to seek strategic relationships with medical device manufacturers both in China and North America with the aim to be their sales and distribution agent in northern China.  We also intend to assist Chinese medical device manufacturers on the development of the North American market.  Eventually, we may seek to acquire an existing medical device manufacturer to enhance our operations.

 

Our internal marketing research indicates that the population in northern China is often subject to ordinary and ineradicable illness due to the geographic and climate factors of the region.  We believe the local health care system is not postured to provide home medical devices to those in need in a timely manner.  We believe that current enterprises employ poor marketing techniques and have not exploited the potential market for medical devices.  We intend to implement a strong marketing program and establish our brand.  We intend to conduct detailed research to understand the purchasing behavior in northern area of China which will be followed by an advertising regime consisting of TV advertisement, outdoor advertisement, promotions in shopping malls and other methods of advertising.

 

In addition to implementing a strong marketing and branding campaign, we intend to establish multiple venues for the sale of our products including a online e-commerce platform in northern China, establish a sales network in major cities and cooperate with local sops and business entities to sell our products.

 

We intend to seek and obtain marketing agreements and licenses from various sources so we can in turn sell home medical devices in the northern China region. We will focus on both American and Chinese medical device manufacturers with the goal being a marketing or sales agreement that allows us to market their products.  We expect any agreements we may enter will provide us a reasonable commission for product sales.

 

We have initiated questionnaires and market sampling to determine consumer demands for home medical devices in northern China. Once our market analysis is complete, we intend to acquire sales licenses to the products our research indicates is most in demand.

 

Once we have obtained marketing and sales agreements, we intend to promote our products through a number of venues. We have commenced efforts to establish an electronic commerce platform for promotion and sales of products through the Internet. We have also begun to design advertisements for our products which will be posted on websites established by professionals in the medical communities as well as for use in television and outdoor media advertisements. We hope to establish relationships with such prominent Chinese advertisers such as Acorn International, Inc. and Focus Media Advertisement Col., Ltd. to promote the sales of various healthcare medical devices.

 

 

We further intend to offer our services as a consultant to current Chinese medical device manufacturers whereby we would assist companies on the development of markets in North America, application of relevant patent rights and approval documents. Additionally, we will offer consulting services for medical device market promotion and planning.

 

 

We intend to initially target three to five medical and healthcare manufacturers in northern area of China with capacity and brand recognition and seek to enter consulting arrangements. We would provide such manufacturers with long-term consultation services for management and product promotion. We expect such services will include advertising and public relations for the targeted brand, construction of sales nets and tunnels and sales team training.

 

At some point in the future, once operations have commenced and the company is positioned favorably, we may consider acquiring a business or businesses that complement our business model.  

 

Results of Operations for the Year ended December 31, 2012 Compared to the Year ended December 31, 2011

 

We have experienced losses since inception.  We generated $0 in revenues from operations during the year ended December 31, 2012 and December 31, 2011.  Expenses during the year ended December 31, 2012 were $13,627 which consisted of office rent of $4,800, office expenses of $2,107 and professional fees of $6,720 giving us a net loss of $13,627.  For the same period in 2011, our expenses were $23,398, consisting of office rent of $4,800, office expenses of $5,054, and professional fees of $13,544 resulting in a net loss of $23,398.  Our expenses during the year ended December 31, 2012 are similar to those for the year ended December 31, 2011. The decrease in our office expenses from $5,054 for the year ended December 31, 2011 to $2,107 for the year ended December 31, 2012 is principally attributable to the decrease in office staffing.  Our professional fees decreased from $13,544 for the year ended December 31, 2011 to $6,720 for the year ended December 31, 2012, as we required less professional service.  For the period of March 26, 2007 (inception) through the period ended December 31, 2012, our expenses were $355,910 and consisted of office rent of $26,800, office expenses of $14,001 consultancy fees of $25,000, and professional fees of $289,867 for a loss of $355,691 which included an interest income of $219.

 

Capital Resources and Liquidity

 

At December 31, 2012, we had $113 in available cash on hand and $800 in prepaid rent which are our only assets at this time.  We had liabilities of $6,604 consisting of accrued Professional fees.

 

Loan from a shareholder are loans from a shareholder/CEO, Mr. Wu, Jinzhao, to finance the Company’s operation due to lack of cash resources.  These loans are unsecured, non-interest bearing and have no fixed terms of repayment, therefore, deemed payable on demand. Cash flow from this activity is classified as cash flows from financing activity. The borrowing from Mr. Wu was $25,000 and $21,000 for the year ended December 31, 2012 and 2011, respectively. The total borrowing from Mr. Wu was $200,000 for the period March 26, 2007 (inception) through December 31, 2012.  On December 31, 2012, the Company entered into debt conversion agreement with Mr. Wu, pursuant to which $200,000 of debt owed to Mr. Wu by the Company was contributed to additional paid-in capital of the Company.

 

The Company filed a registration statement on Form SB-2 with the Securities and Exchange Commission to register up to 600,000 shares of common stock.  The public offering price was $0.20 per share.  The registration statement was declared effective on February 8, 2008.  The Company completed its offering on March 14, 2008 and raised $110,000 from the sale of 550,000 shares of common stock.  As of December 31, 2011, we have expended all of these proceeds in our operations.

 

Our sole officer and director, Mr. Wu has promised to fund our operation in the next twelve months. Mr. Wu has been funding our operation since our inception. However there is no formal written commitment agreement.

 

Going Concern

 

The Company incurred net losses of $13,627 and $23,398 for the year ended December 31, 2012 and 2011, respectively and $355,691 for the period March 26, 2007 (inception) through December 31, 2012. In addition, the Company had a stockholders' deficiency of $5,691 at December 31, 2012. These factors raise substantial doubt about the Company's ability to continue as a going concern.

 

There can be no assurance that sufficient funds required during the next year or thereafter will be generated from operations or that funds will be available from external sources such as debt or equity financings or other potential sources. The lack of additional capital resulting from the inability to generate cash flow from operations or to raise capital from external sources would force the Company to substantially curtail or cease operations and would, therefore, have a material adverse effect on its business. Furthermore, there can be no assurance that any such required funds, if available, will be available on attractive terms or that they will not have a significant dilutive effect on the Company's existing stockholders.

 

The accompanying financial statements do not include any adjustments related to the recoverability or classification of asset-carrying amounts or the amounts and classification of liabilities that may result should the Company be unable to continue as a going concern.

 

Need for Additional Financing

 

Costs associated with being a public company are much higher than those of a private company. China Northern, a new start-up in early development, has chosen public registration before the business has developed a predictable cash flow. There are present registration expenses and future legal and accounting expenses, future reporting requirements to the SEC, future exchange listing requirements, and future investor relation costs that must be borne by a public company but not by a private company. These costs can be a burdensome expense which could adversely affect our financial survival. The ongoing regulatory costs, reporting requirements, and management details, which must be met when registering and maintaining a public company, may make the economic viability of China Northern very doubtful.

 

 

We have no material commitments for the next twelve months. In the past we have relied on advances from our president to cover our operating costs. Management anticipates that they have sufficient capital to meet our needs through the next 12 months. However, there can be no assurances to that effect. Our need for capital may change dramatically if we acquire an interest in a business opportunity during that period. At present, we have no understandings, commitments or agreements with respect to the acquisition of any business venture, and there can be no assurance that we will identify a business venture suitable for acquisition in the future. Further, we cannot assure that we will be successful in consummating any acquisition on favorable terms or those we will be able to profitably manage any business venture we acquire. Should we require additional capital, we may seek additional advances from officers, sell common stock or find other forms of debt financing.  

 

Critical Accounting Policies

 

 Our financial statements and related public financial information are based on the application of accounting principles generally accepted in the United States (“GAAP”). GAAP requires the use of estimates; assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, revenue and expense amounts reported. These estimates can also affect supplemental information contained in our external disclosures including information regarding contingencies, risk and financial condition. We believe our use if estimates and underlying accounting assumptions adhere to GAAP and are consistently and conservatively applied. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. We continue to monitor significant estimates made during the preparation of our financial statements.  

 

Our significant accounting policies are summarized in Note 4 of our financial statements for the year ended December 31, 2012. While all these significant accounting policies impact our financial condition and results of operations, we view certain of these policies as critical. Policies determined to be critical are those policies that have the most significant impact on our financial statements and require management to use a greater degree of judgment and estimates. Actual results may differ from those estimates. Our management believes that given current facts and circumstances, it is unlikely that applying any other reasonable judgments or estimate methodologies would cause effect on our consolidated results of operations, financial position or liquidity for the periods presented in this report.

 

Recent Accounting Pronouncements

 

In July 2012, the Financial Accounting Standards Board (“FASB”) released Accounting Standards Update No. 2012-02 (“ASU 2011-12”), Testing Indefinite-Lived Intangible Assets for Impairment. Under this standard, entities testing long-lived intangible assets for impairment now have an option of performing a qualitative assessment to determine whether further impairment testing is necessary. If an entity determines, on the basis of qualitative factors, that the fair value of the indefinite-lived intangible asset is more-likely-than-not less than the carrying amount, the existing quantitative impairment test is required. Otherwise, no further impairment testing is required. This ASU is effective beginning January 1, 2013, with early adoption permitted under certain conditions. The adoption of this standard is not expected to have a material impact on the Company’s financial position, results of operations, and cash flows.   In December 2011, the Financial Accounting Standards Board (“FASB”) released Accounting Standards Update No. 2011-12 (“ASU 2011-12”), Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05. ASU 2011-12 defers only those changes in ASU 2011-05 that relate to the presentation of reclassification adjustments out of accumulated other comprehensive income. The provisions of ASU 2011-12 became effective in fiscal years beginning after December 15, 2011. The adoption of ASU 2011-12 did not materially impact on the Company’s financial position, results of operations, and cash flows.  

 

Off-Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements, financings, or other relationships with unconsolidated entities or other persons, also known as “special purpose entities” (SPEs).

 

 

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

 

Not applicable because we are a smaller reporting company.

 

 

Item 8. Financial Statements and Supplementary Data.

 

 

                  

Financial Statements as of December 31, 2012							Page
Report of Independent Registered Public Accounting Firm							F-1*
Balance Sheets							F-2
Statements of Operations							F-3
Statements of Shareholder Equity							F-4
Statements of Cash Flows							F-5
Condensed Notes to Consolidated Financial Statement							F-6
• F-1 commences after the signature page of this report

 

 

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

 

None.

 

Item 9A. Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures

 

Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (“Exchange Act”), the Company carried out an evaluation, with the participation of the Company’s management, including the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) (the Company’s principal financial and accounting officer), of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Company’s CEO and CFO concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

 

Management's Annual Report on Internal Control Over Financial Reporting.

 

The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting for the Company.  Our internal control system was designed to, in general, provide reasonable assurance to the Company’s management and board regarding the preparation and fair presentation of published financial statements, but because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

Our management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2011.  The framework used by management in making that assessment was the criteria set forth in the document entitled “Internal Control – Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that assessment, our management has determined that as of December 31, 2011, the Company’s internal control over financial reporting was effective for the purposes for which it is intended.

 

This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management's report in this annual report.

 

Changes in Internal Control over Financial Reporting

 

No change in our system of internal control over financial reporting occurred during the period covered by this report, fourth quarter of the fiscal year ended December 31, 2012 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

Item 9B. Other Information.

 

None.

 

 

PART III

 

Item 10. Directors, Executive Officers and Corporate Governance.

 

Our sole executive officer’s and director’s and his age as of February 21, 2013 are as follows:

 

Name		Age		Position
Jinzhao Wu		46		Chief Executive Officer, Chief Financial Officer, President, Secretary/Treasurer  and Director

 

Set forth below is a brief description of the background and business experience of our sole executive officer and director for the past five years.

 

Jinzhao Wu, Sole Officer and Director.  Mr. Wu is the owner and Manager of Sunny Co., Ltd., a business, located in Capetown, South Africa, that manages restaurant chains and international trade business including export/import of foods, accessories and general household products. From 1999 to 2004, Mr. Wu was the Manager of the China Inn Restaurant and since 2004. He graduated from Eastern Finance University in 1992 with a major in Marketing. He has been involved in customer service and operations management.

 

Our sole director of the Company serves for a term of one year or until the successor is elected at the Company’s annual shareholders’ meeting and is qualified, subject to removal by the Company's shareholders. Each officer serves, at the pleasure of the board of directors, for a term of one year and until the successor is elected at the annual meeting of the board of directors and is qualified.

 

Financial Expert

 

We do not have an audit committee financial expert.  We do not have an audit committee financial expert because we believe the cost related to retaining a financial expert at this time is prohibitive.  Furthermore, because we are only beginning our commercial operations, at the present time, we believe the services of a financial expert are not warranted.

   

 

Compliance With Section 16(A) Of The Exchange Act.

 

Section 16(a) of the Exchange Act requires the Company’s officers and directors, and persons who beneficially own more than 10% of a registered class of the Company’s equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission and are required to furnish copies to the Company. To the best of the Company’s knowledge, any reports required to be filed were timely filed in fiscal year ended December 31, 2010.

 

Code of Ethics

 

The Company has adopted a Code of Ethics applicable to its Chief Executive Officer and Chief Financial Officer. This Code of was filed as an exhibit to the Form 10K for the year ending December 31, 2008 filed on April 6, 2009.

 

Item 11. Executive Compensation.

 

The following summary compensation table sets forth all compensation awarded to, earned by, or paid to the named executive officers paid by us during the years ended December 31, 2012 and 2011 in all capacities for the accounts of our executives, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO):

 

Summary Compensation Table

 

Name and Principal Position		Year				Salary ($)				Bonus ($)				Stock  Awards ($)				Option Awards ($)		Non-Equity Incentive Plan Compensation ($)				Non-Qualified Deferred Compensation Earnings ($)				All Other Compensation ($)		Totals ($)
Jinzhao Wu, Chief Executive Officer, President,			2012			$	0				0				0			0			0				0			0		$	0
Secretary, Treasurer and Director			2011			$	0				0				0			0			0				0			0		$	0

 

 

Option Grants Table. There were no individual grants of stock options to purchase our common stock made to the executive officer named in the Summary Compensation Table through December 31, 2012.

 

Aggregated Option Exercises and Fiscal Year-End Option Value Table. There were no stock options exercised during period ending December 31, 2012 by the executive officer named in the Summary Compensation Table.

 

Long-Term Incentive Plan (“LTIP”) Awards Table. There were no awards made to a named executive officer in the last completed fiscal year under any LTIP

 

Compensation of Directors

 

Directors are permitted to receive fixed fees and other compensation for their services as directors. The Board of Directors has the authority to fix the compensation of directors. No amounts have been paid to, or accrued to, directors in such capacity.

 

Employment Agreements

 

We do not have any employment agreements in place with our sole officer and director.

 

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

 

The following table provides the names and addresses of each person known to us to own more than 5% of our outstanding shares of common stock as of March 28, 2013 and by the officers and directors, individually and as a group. Except as otherwise indicated, all shares are owned directly. As of March 28, 2013, the Company had 3,550,000 shares of its common stock issued and outstanding.

 

Title of Class		Name and Address of Beneficial Owner		Amount and Nature of Beneficial Owner				Percent of Class (1)
Common Stock		Jinzhao Wu No. 26 Bldg Development Zone No. 180 Hongqi Ave. Harbin City, China 150000			3,000,000				84.5	%
Common Stock		All executive officers and directors as a group (1 person)			3,000,000				84.5	%

 

Stock Option Grants

 

We have not granted any stock options to our executive officer since our incorporation. 

  

Item 13. Certain Relationships and Related Transactions, and Director Independence.

 

Mr. Wu, our sole officer and director has made loans to the Company to finance operations. These loans are unsecured, non-interest bearing and have no fixed terms of repayment, therefore, deemed payable on demand. Cash flow from this activity is classified as cash flows from financing activity.. The total borrowing from Mr. Wu was $200,000 for the period March 26, 2007 (inception) through December 31, 2012. Before years end December 31, 2012 Mr. Wu contributed his loan due of $200,000 to Paid in Capital.

 

Item 14. Principal Accountant Fees and Services.

 

Audit Fees

 

For the Company’s fiscal years ended December 31, 2012 and 2011, we were billed approximately $11,000 and $16,000 for professional services rendered for the audit and review of our financial statements.

 

Audit Related Fees 

 

There were no fees for audit related services for the years ended December 31, 2012 and 2011.

 

 

Tax Fees

 

For the Company’s fiscal years ended December 31, 2012 and 2011, we were not billed for professional services rendered for tax compliance, tax advice, and tax planning.

 

All Other Fees

 

The Company did not incur any other fees related to services rendered by our principal accountant for the fiscal years ended December 31, 2012 and 2011.

 

Pursuant to the requirements of Section 13 or 15(d) 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.

 

Effective May 6, 2003, the Securities and Exchange Commission adopted rules that require that before our auditor is engaged by us to render any auditing or permitted non-audit related service, the engagement be:

 

•

approved by our audit committee; or

 

•

entered into pursuant to pre-approval policies and procedures established by the audit committee, provided the policies and procedures are detailed as to the particular  service,  the  audit committee is informed of each service, and such policies and procedures do not include delegation of the audit committee's responsibilities to management.

 

We do not have an audit committee.  Our entire board of directors pre-approves all services provided by our independent auditors.

 

The pre-approval process has just been implemented in response to the new rules. Therefore, our board of directors does not have records of what percentage of the above fees was pre-approved.  However, all of the above services and fees were reviewed and approved by the entire board of directors either before or after the respective services were rendered.

  

PART IV

 

Item 15. Exhibits, Financial Statement Schedules.

 

Exhibit Number		Exhibit Title
3.1		Articles of Incorporation (1)
3.2		Bylaws (1)
10.1		Marketing Research Agreement (2)
10.2		Loan Agreement (3)
10.3		Subscription Agreement (1)
14.1		Code of Ethics (4)
31.1		Certification of Principal Executive Officer, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *
31.2		Certification of Principal Financial Officer, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *
32.1		Certification of Principal Executive Officer, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. **
32.2		Certification of Principal Financial Officer, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. **

99.1		Temporary Hardship Exemption per Regulation S-T *
101.INS		XBRL Instance Document***
101.SCH		XBRL Extension Schema***
101.CAL		XBRL Calculation Linkbase***
101.DEF		XBRL Definition Linkbase***
101.LAB		XBRL Label Linkbase***
101.PRE		XBRL Presentation Linkbase***

______________________

 

(1) Incorporated by reference to the registration statement filed with the SEC on Form SB-2 dated June 29, 2007.

(2) Incorporated by reference to the registration statement filed with the SEC on Form SB-2/A dated October 11, 2007.

(3) Incorporated by reference to the registration statement filed with the SEC on Form SB-2/A dated January 28, 2008.  

(4) Incorporated by reference to the registration statement filed with the SEC on Form 10-K dated April 6, 2009.  

* Filed herein. 

**In accordance with SEC Release 33-8238, Exhibit 32.1 and 32.2 are being furnished and not filed.

*** To be filed or furnished by amendment per Temporary Hardship Exemption under Regulation S-T. 

 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) 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 NORTHERN MEDICAL DEVICE, INC.
Date: April 16, 2013	By:	/s/  Jinzhao Wu
		Jinzhao Wu
		Chief Executive Officer and Chief Financial Officer

 

 

 

 

 

 

CHINA NORTHERN MEDICAL DEVICE, INC

  ( A Development Stage Company)  

     

 

FINANCIAL STATEMENTS

     

 

At December 31, 2012 and  2011 and 

for the years ended December 31, 2012 and 2011

 

 

 

 

 

 

 

 

CHINA NORTHERN MEDICAL DEVICE, INC

(A Development Stage Company)

 

 

INDEX

 

										PAGE
	REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM									F-1
	BALANCE SHEETS									F-2
	STATEMENT OF OPERATIONS									F-3
	STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)									F-4
	STATEMENT OF CASH FLOWS									F-5
	NOTES TO FINANCIAL STATEMENTS									F-6 - F-12

 

 

 

KEITH K. ZHEN, CPA

CERTIFIED PUBLIC ACCOUNTANT

---

2070 WEST 6TH STREET - BROOKLYN, NY 11223 - TEL (347) 408-0693 - FAX (347) 602-4868 - EMAIL :KEITHZHEN@GMAIL.COM

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Stockholders of

China Northern Medical Device, Inc.

( A development stage company)

 

We have audited the accompanying balance sheet of China Northern Medical Device, Inc. ( a development stage company) as of  December 31, 2012 and 2011, and the related statements of income, stockholders' equity and comprehensive income, and cash flows for each of the years in the two-year period ended  December 31, 2012, and the period March 26, 2007 (inception) through December 31, 2012.  China Northern Medical Device, Inc’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of China Northern Medical Device, Inc. ( a development stage company) as of  December 31, 2012 and 2011, and the results of its operations and its cash flows for each of the years in the two-year period ended  December 31, 2012, and the period March 26, 2007 (inception) through December 31, 2012 in conformity with accounting principles generally accepted in the United States of America.

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has incurred an operating loss for each of the years in the two-year period ended  December 31, 2012, and as of December 31, 2012, has a shareholders' deficiency.  These factors raise substantial doubt about its ability to continue as a going concern. Management’s plans concerning these matters are also described in Note 2. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

 

 

/s/Keith K. Zhen, CPA

Keith K. Zhen, CPA

Brooklyn, New York

April 16, 2013

 

 

CHINA NORTHERN MEDICAL DEVICE, INC

(A Development Stage Company)

 

BALANCE SHEETS

 

 

		December 31,				December 31,
		2012				2011
ASSETS
Current Assets:
Cash and cash equivalents		$	113			$	35
Prepaid office rent			800				–
Total Current Assets			913				35
Total Assets		$	913			$	35
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses (Note 5)			6,604				17,099
Loan from a shareholder (Note 6)		$	–			$	175,000
Total Current Liabilities			6,604				192,099
Commitments and Contingencies (Note 9)			–				–
Stockholders' Equity:
Preferred stock, par value $0.0001, 5,000,000 shares authorized; none issued and outstanding as of December 31, 2012 and 2011			–				–
Common stock, par value $0.0001, 100,000,000 shares authorized; 3,550,000 shares issued and outstanding as of December 31, 2012 and 2011			355				355
Additional paid-in capital			349,645				149,645
Deficit accumulated during the development stage			(355,691	)			(342,064	)
Stockholders' deficiency			(5,691	)			(192,064	)
Total Liabilities and Stockholders' Deficiency		$	913			$	35

 

See Notes to Financial Statements

 

 

CHINA NORTHERN MEDICAL DEVICE, INC

(A Development Stage Company)

 

STATEMENT OF OPERATIONS

 

 

		For the Year Ended								For the Period March 26, 2007 (inception) through
		December 31,								December 31,
		2012				2011				2012
Revenues
Sales		$	–			$	–			$	–
Costs of Sales			–				–				–
Gross Profit			–				–				–
Operating Expenses
Office rent			4,800				4,800				26,800
Office expenses			2,107				5,054				14,001
Bank fees			–				–				242
Consultancy Fees			–				–				25,000
Professional fees			6,720				13,544				289,867
Total Operating Expenses			13,627				23,398				355,910
Loss from Operation			(13,627	)			(23,398	)			(355,910	)
Other Income
Interest Income			–				–				219
Total Other Income			–				–				219
Loss before Provision for Income Tax			(13,627	)			(23,398	)			(355,691	)
Provision for Income Tax			–				–				–
Net Loss		$	(13,627	)		$	(23,398	)		$	(355,691	)
Basic and fully diluted loss per share		$	(0.00	)		$	(0.01	)		$	(0.10	)
Weighted average shares outstanding			3,550,000				3,550,000				3,458,333

 

See Notes to Financial Statements

 

 

CHINA NORTHERN MEDICAL DEVICE, INC

(A Development Stage Company)

 

STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)

 

FOR PERIOD MARCH 26, 2007 (INCEPTION) THROUGH December 31, 2012

 

														Retained
		Common Stock								Additional				Earnings
		No  Par Value								Paid-in				(Accumulated)
		Shares				Amount				Capital				(Deficit)				Totals
Balances at the date of inception on March 26, 2007			–			$	–			$	–			$	–			$	–
Proceeds from issuance of common stock			3,000,000				300				39,700.00				–				40,000
Net income (loss)			–				–				–				(99,151	)			(99,151	)
Balances at December 31, 2007			3,000,000			$	300			$	39,700			$	(99,151	)		$	(59,151	)
Proceeds from issuance of common stock			550,000				55				109,945				–				110,000
Net income (loss)			–				–				–				(151,799	)			(151,799	)
Balances at December 31, 2008			3,550,000			$	355			$	149,645			$	(250,950	)		$	(100,950	)
Net income (loss)			–				–				–				(32,340	)			(32,340	)
Balances at December 31, 2009			3,550,000			$	355			$	149,645			$	(283,290	)		$	(133,290	)
Net income (loss)			–				–				–				(35,376	)			(35,376	)
Balances at December 31, 2010			3,550,000			$	355			$	149,645			$	(318,666	)		$	(168,666	)
Net income (loss)			–				–				–				(23,398	)			(23,398	)
Balances at December 31, 2011			3,550,000			$	355			$	149,645			$	(342,064	)		$	(192,064	)
Debt conversion			–				–				200,000				–				200,000
Net income (loss)			–				–				–				(13,627	)			(13,627	)
Balances at December 31, 2012			3,550,000			$	355			$	349,645			$	(355,691	)		$	(5,691	)

 

See Notes to Financial Statements

 

 

CHINA NORTHERN MEDICAL DEVICE, INC

(A Development Stage Company)

 

STATEMENT OF CASH FLOWS

 

		For the Year Ended								For the Period March 26, 2007 (inception) through
		December 31,								December 31,
		2012				2011				2012
Operating Activities
Net loss		$	(13,627	)		$	(23,398	)		$	(355,691	)
Adjustments to reconcile net loss to net cash used by operating activities:
Changes in operating assets and liabilities:
Decrease (Increase) in prepaid office rent			(800	)			400				(800	)
Increase (decrease) in accounts payable and accrued expenses			(10,495	)			1,934				6,604
Net cash used by operating activities			(24,922	)			(21,064	)			(349,887	)
Investing Activities
Net cash (used) by investing activities			–				–				–
Financing Activities
Proceeds from issuance of common stock			–				–				150,000
Loans from a shareholder			25,000				21,000				200,000
Net cash provided by financing activities			25,000				21,000				350,000
Increase (decrease) in cash			78				(64	)			113
Cash at beginning of period			35				99				–
Effects of exchange rates on cash			–				–				–
Cash at end of period		$	113			$	35			$	113
Supplemental Disclosures of Cash Flow Information:
Cash paid (received) during year for:
Interest		$	–			$	–			$	–
Income taxes		$	–			$	–			$	–

 

See Notes to Financial Statements

 

 

CHINA NORTHERN MEDICAL DEVICE, INC

(A Development Stage Company)

 

NOTES TO FINANCIAL STATEMENTS

 

 

Note 1- ORGANIZATION AND BUSINESS BACKGROUND

 

China Northern Medical Device, Inc. ("CNMD" or the "Company") was incorporated on March 26, 2007 under the laws of the State of Nevada.  The Company has selected December 31 as its fiscal year ending.

 

The Company has not yet generated revenues from planned principal operations and is considered a development stage company as defined in the Accounting Standards Codification ("ASC") 915, "Development Stage Entities", issued by the Financial Accounting Standards Board ("FASB") . The Company plans on becoming involved in the business of marketing medical devices and providing consulting services to medical device manufactures in the People's Republic of China ("PRC") and North America . There is no assurance, however, that the Company will achieve its objectives or goals.

 

Note 2- GOING CONCERN

 

The Company incurred net losses of $13,627 and $23,398  for the year ended December 31, 2012 and 2011, respectively, and $355,691 for the period March 26, 2007 (inception) through December 31, 2012. In addition, the Company had a stockholders' deficiency of $5,691 at December 31, 2012. These factors raise substantial doubt about the Company's ability to continue as a going concern.

 

There can be no assurance that sufficient funds required during the next year or thereafter will be generated from operations or that funds will be available from external sources such as debt or equity financings or other potential sources. The lack of additional capital resulting from the inability to generate cash flow from operations or to raise capital from external sources would force the Company to substantially curtail or cease operations and would, therefore, have a material adverse effect on its business. Furthermore, there can be no assurance that any such required funds, if available, will be available on attractive terms or that they will not have a significant dilutive effect on the Company's existing stockholders.

 

The accompanying financial statements do not include any adjustments related to the recoverability or classification of asset-carrying amounts or the amounts and classification of liabilities that may result should the Company be unable to continue as a going concern.

 

During the period March 26, 2007 (inception) through December 31, 2012, the Company relied heavily for its financing needs on its CEO/director, Mr. Wu, Jinzhao, as more fully disclosed in Note 6.

 

 

CHINA NORTHERN MEDICAL DEVICE, INC

(A Development Stage Company)

 

NOTES TO FINANCIAL STATEMENTS

 

 

Note 3- CONTROL BY PRINCIPAL STOCKHOLDER/OFFICER

 

The chief executive officer owns beneficially and in the aggregate, the majority of the voting power of the Company. Accordingly, the chief executive officer has the ability to control the approval of most corporate actions, including approving significant expenses, increasing the authorized capital stock and the dissolution, merger or sale of the Company's assets.

 

 

Note 4- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The accompanying financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America ("US GAAP") and are presented in U.S. dollars.

 

Subsequent Events

 

The Company evaluated subsequent events through the date of the issuance of these financial statements. We are not aware of any significant events that occurred subsequent to the balance sheet date but prior to the filing of this report that would have a material impact on our financial statements.

 

Use of Estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles 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 revenue and expenses during the reporting period.  Actual results when ultimately realized could differ from these estimates.

 

Cash and Cash Equivalents

 

Cash and cash equivalents include cash on hand, deposits in banks with maturities of three months or less, and all highly liquid investments which are unrestricted as to withdrawal or use, and which have original maturities of three months or less.

 

Concentrations of Credit Risk

 

Financial instruments that subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents. The Company maintains its cash and cash equivalents with high-quality institutions.  Deposits held with banks in PRC may not be insured or exceed the amount of insurance provided on such deposits.  Generally these deposits may be redeemed upon demand and therefore bear minimal risk.  

 

 

CHINA NORTHERN MEDICAL DEVICE, INC

(A Development Stage Company)

 

NOTES TO FINANCIAL STATEMENTS

 

 

Note 4- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Fair Value of Financial Instruments

 

The carrying value of financial instruments including cash and cash equivalents, receivables, prepaid expenses, accounts payable, and accrued expenses, approximates their fair value due to the relatively short-term nature of these instruments.

 

Impairment of Long-life Assets

 

Long-lived assets and certain identifiable intangibles are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

 

Revenue Recognition

 

The Company recognizes revenue when the earnings process is complete and persuasive evidence of an arrangement exists. This generally occurs when products are shipped to unaffiliated customer or picked up by unaffiliated customers in the Company's warehouse, both title and the risks and rewards of ownership are transferred or services have been rendered and accepted, the selling price is fixed or determinable, and collectability is reasonably assured.

 

Advertising Costs

 

The Company expenses advertising costs as incurred or the first time the advertising takes place, whichever is earlier, in accordance with the FASB ASC 720-35.  Advertising costs were immaterial for the year ended December 31, 2012 and 2011, respectively.  

 

Research and Development Costs

 

The Company charges research and development costs to expense when incurred in accordance with the FASB ASC 730, “Research and Development”. Research and development costs were immaterial for the year ended December 31, 2012 and 2011, respectively.

 

Related parties

 

For the purposes of these financial statements, parties are considered to be related if one party has the ability, directly or indirectly, to control the party or exercise significant influence over the party in making financial and operating decisions, or vice versa, or where the Company and the party are subject to common control or common significant influence. Related parties may be individuals or other entities.  

 

 

CHINA NORTHERN MEDICAL DEVICE, INC

(A Development Stage Company)

 

NOTES TO FINANCIAL STATEMENTS

 

Note 4- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Income Taxes

 

The Company accounts for income tax in accordance with FASB ASC 740, "Income Taxes", which requires the asset and liability approach for financial accounting and reporting for income taxes.  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.  The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.  A valuation allowance related to deferred tax assets is recorded when it is more likely than not that some portion or all of the deferred tax assets will not be realized. 

 

The Company has accumulated deficiency in its operation. Because there is no certainty that we will realize taxable income in the future, we did no record any deferred tax benefit as a result of these losses.

 

Effective January 1, 2007, the Company adopted a new FASB guidance, which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. The new FASB guidance prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.  The new FASB guidance also provides guidance on de-recognition of tax benefits, classification on the balance sheet, interest and penalties, accounting in interim periods, disclosure, and transition.  In accordance with the new FASB guidance, the Company performed a self-assessment and concluded that there were no significant uncertain tax positions requiring recognition in its financial statements.

 

The Company accounts for income taxes in interim periods in accordance with  FASB ASC 740-270, "Interim Reporting". The Company has determined an estimated annual effect tax rate. The rate will be revised, if necessary, as of the end of each successive interim period during the Company’s fiscal year to its best current estimate. The estimated annual effective tax rate is applied to the year-to-date ordinary income (or loss) at the end of the interim period.

 

Earnings (Loss) Per Share

 

The Company reports earnings per share in accordance with FASB ASC 260, “Earnings Per Share.” FASB ASC 260 requires presentation of basic and diluted earnings per share in conjunction with the disclosure of the methodology used in computing such earnings per share.  Basic earnings (loss) per share is computed by dividing income (loss) available to common shareholders by the weighted-average number of common shares outstanding during the period.  Diluted earnings per share is computed similar to basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive.  There are no potentially dilutive securities outstanding (options and warrants) for the year ended December 31, 2012 and 2011, respectively.  

 

 

 

CHINA NORTHERN MEDICAL DEVICE, INC

(A Development Stage Company)

 

NOTES TO FINANCIAL STATEMENTS

 

 

Note 4- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Comprehensive Income

 

FASB ASC 220, “Comprehensive Income", establishes standards for reporting and display of comprehensive income, its components and accumulated balances.  Comprehensive income as defined includes all changes in equity during a period from non-owner sources.

 

Segment Reporting

 

FASB ASC 820 “Segments Reporting” establishes standards for reporting information about operating segments on a basis consistent with the Company’s internal organization structure as well as information about geographical areas, business segments and major customers in financial statements. The Company currently plans on operating in one principal business segment.

 

Fair Value of Measurements

 

Accounting principles generally accepted in the United States define fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Additionally, the inputs used to measure fair value are prioritized based on a three-level hierarchy. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

 

	Level 1:	Unadjusted quoted prices in active markets for identical assets or liabilities
	Level 2:	Input other than quoted market prices that are observable, either directly or indirectly, and reasonably available.  Observable inputs reflect the assumptions market participants would use in pricing the asset or liability and are developed based on market data obtained from sources independent of the Company.
	Level 3:	Unobservable inputs.  Unobservable inputs reflect the assumptions that the Company develops based on available information about what market participants would use in valuing the asset or liability.

 

An asset or liability’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.  Availability of observable inputs can vary and is affected by a variety of factors.  The Company uses judgment in determining fair value of assets and liabilities and Level 3 assets and liabilities involve greater judgment than Level 1 and Level 2 assets or liabilities.

 

 

 

CHINA NORTHERN MEDICAL DEVICE, INC

(A Development Stage Company)

 

NOTES TO FINANCIAL STATEMENTS

 

 

Note 4- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Recent Accounting Pronouncements

 

In July 2012, the Financial Accounting Standards Board (“FASB”) released Accounting Standards Update No. 2012-02 (“ASU 2011-12”), Testing Indefinite-Lived Intangible Assets for Impairment. Under this standard, entities testing long-lived intangible assets for impairment now have an option of performing a qualitative assessment to determine whether further impairment testing is necessary. If an entity determines, on the basis of qualitative factors, that the fair value of the indefinite-lived intangible asset is more-likely-than-not less than the carrying amount, the existing quantitative impairment test is required. Otherwise, no further impairment testing is required. This ASU is effective beginning January 1, 2013, with early adoption permitted under certain conditions. The adoption of this standard is not expected to have a material impact on the Company’s financial position, results of operations, and cash flows.  

 

In December 2011, the Financial Accounting Standards Board (“FASB”) released Accounting Standards Update No. 2011-12 (“ASU 2011-12”), Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05. ASU 2011-12 defers only those changes in ASU 2011-05 that relate to the presentation of reclassification adjustments out of accumulated other comprehensive income. The provisions of ASU 2011-12 became effective in fiscal years beginning after December 15, 2011. The adoption of ASU 2011-12 did not materially impact on the Company’s financial position, results of operations, and cash flows.  

 

 

Note 5- ACCOUNTS PAYABLE AND ACCRUED EXPENSES

 

Accounts payable and accrued expenses consist of the following:

 

		December 31,				December 31,
		2012				2011
Accrued professional fees		$	6,604			$	10,580
Accrued office rent			–				3,900
Accrued office expenses			–				2,619
Total accounts payable and accrued expenses		$	6,604			$	17,099

 

 

 

CHINA NORTHERN MEDICAL DEVICE, INC

(A Development Stage Company)

 

NOTES TO FINANCIAL STATEMENTS

 

 

Note 6- LOAN FROM A SHAREHOLDER

 

Loan from a shareholder are loans from a shareholder/CEO, Mr. Wu, Jinzhao, to finance the Company’s operation due to lack of cash resources.  These loans are unsecured, non-interest bearing and have no fixed terms of repayment, therefore, deemed payable on demand. Cash flow from this activity is classified as cash flows from financing activity. The borrowing from Mr. Wu was $25,000 and $21,000 for the year ended December 31, 2012 and 2011, respectively. The total borrowing from Mr. Wu was $200,000 for the period March 26, 2007 (inception) through December 31, 2012.  On December 31, 2012, the Company entered into debt conversion agreement with Mr. Wu, pursuant to which $200,000 of debt owed to Mr. Wu by the Company was contributed to additional paid-in capital of the Company.

 

Note 7- CAPITAL STOCK

 

The Articles of Incorporation authorized the Company to issue 5,000,000 shares of preferred stock with a par value of $0.0001, and 100,000,000 shares of common stock with a par value of $0.0001.  No shares of preferred stock have been issued.  Upon formation of the Company, 3,000,000 shares of common stock were issued for $40,000.

 

The Company completed a public offering on March 14, 2008.  The Company issued 550,000 shares of common stock to 40 PRC citizen shareholders for $110,000.  The number of common stocks issued and outstanding immediately after the offering was 3,550,000. 

 

On December 31, 2012, the Company entered into debt conversion agreement with Mr. Wu, pursuant to which $200,000 of debt owed to Mr. Wu by the Company was contributed to additional paid-in capital of the Company.  

 

Note 8- OFFICE LEASE

 

The Company rents office premise and attached facilities for its headquarters. The lease is for a one-year period ended May 31, 2013.  Rental expense amounted to $4,800 and $4,800 for the year ended December 31, 2012 and 2011, respectively.  

 

 

Note 9- COMMITMENTS AND CONTINGENCIES

 

The Company faces a number of risks and challenges not typically associated with companies in North America and Western Europe, since its assets exist solely in the PRC, and its revenues are derived from its operations therein.  The PRC is a developing country with an early stage market economic system, overshadowed by the state.  Its political and economic systems are very different from the more developed countries and are in a state of change.  The PRC also faces many social, economic and political challenges that may produce major shocks and instabilities and even crises, in both its domestic arena and in its relationships with other countries, including the United States.  Such shocks, instabilities and crises may in turn significantly and negatively affect the Company's performance.