Quarterly Report for Quarter Ending June 30, 2026 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of financial condition and results of operations should be read in conjunction with our financial statements and related notes included elsewhere in this quarterly report. This discussion contains forward-looking statements that involve risks, uncertainties and assumptions. See "Cautionary Note Regarding Forward-Looking Statements." Our actual results could differ materially from those anticipated in the forward-looking statements as a result of certain factors discussed elsewhere in this quarterly report.

Overview

Next Technology Holding Inc was incorporated in the State of Wyoming on March 28, 2019. We currently pursue two corporate strategies. One business strategy is to continue providing software development services, and the other strategy is to acquire and hold Bitcoin.

Software development

We provide AI-enabled software development services to our potential customers in USA, Hong Kong, Singapore, Malaysia, Japan and other Asian markets, which included developing, designing and implementing various SaaS software solutions for business of all types, including industrials and other businesses. In addition, we also provide AI-related customization services to further address specific client requirements.

The analytics market is highly competitive and subject to rapidly changing technology and market conditions. Our ability to compete successfully depends on a number of factors within and outside of our control. Some of these factors include software quality, performance and reliability; the quality of our service and support teams; marketing and prospecting effectiveness; the ability to incorporate artificial intelligence and other technically advanced features; and our ability to differentiate our products. Failure to perform in these or other areas may reduce the demand for our offerings and materially adversely affect our revenue from both existing and prospective customers.

Bitcoin Acquisition Strategy

We hold substantially all of our Bitcoin in custody accounts at Japanese based, institutional-grade custodians that have demonstrated records of regulatory compliance and information security. Our Bitcoin acquisition strategy generally involves acquiring Bitcoin with our liquid assets that exceed working capital requirements, and from time to time, subject to market conditions, issuing debt or equity securities or engaging in other capital raising transactions with the objective of using the proceeds to purchase Bitcoin.

We view our Bitcoin holdings as being held for trading and expect to continue to accumulate Bitcoin. We have not set any specific target for the amount of Bitcoin we seek to hold, and we will continue to monitor market conditions in determining whether to engage in additional financing to purchase additional Bitcoin.

Bitcoin Industry and Market

Bitcoin is a digital asset that is issued by and transmitted through an open-source protocol, known as the Bitcoin protocol, collectively maintained by a peer-to-peer network of decentralized user nodes. This network hosts a public transaction ledger, known as the Bitcoin blockchain, on which Bitcoin holdings and all validated transactions that have ever taken place on the Bitcoin network are recorded. Balances of Bitcoin are stored in individual "wallet" functions, which associate network public addresses with one or more "private keys" that control the transfer of Bitcoin. The Bitcoin blockchain can be updated without any single entity owning or operating the network.

Creation of New Bitcoin and Limits on Supply

New Bitcoin is created and allocated by the Bitcoin protocol through a "mining" process that rewards users that validate transactions in the Bitcoin blockchain. Validated transactions are added in "blocks" approximately every 10 minutes. The mining process serves to validate transactions and secure the Bitcoin network. Mining is a competitive and costly operation that requires a large amount of computational power to solve complex mathematical algorithms. This expenditure of computing power is known as "proof of work." To incentivize miners to incur the costs of mining Bitcoin, the Bitcoin protocol rewards miners that successfully validate a block of transactions with newly generated Bitcoin.

The Bitcoin protocol limits the total number of Bitcoin that can be generated over time to 21 million. The current reward for miners that successfully validate a block of transactions is 3.125 Bitcoin per mined block. Based on current mining rates, we anticipate the reward will decrease by half to 1.5625 Bitcoin per mined block sometime in 2028. This decrease in mining reward is referred to as a Bitcoin halving, and it occurs after every 210,000 blocks are mined, which has historically occurred approximately every four years.

Modifications to the Bitcoin Protocol

Bitcoin is an open-source network that has no central authority, so no one person can unilaterally make changes to the software that runs the network. However, there is a core group of developers that maintain the code for the Bitcoin protocol, and they can propose changes to the source code and release periodic updates and other changes. Unlike most software that has a central entity that can push updates to users, Bitcoin is a peer-to-peer network in which individual network participants, called nodes, decide whether to upgrade the software and accept the new changes. As a practical matter, a modification becomes part of the Bitcoin protocol only if the proposed changes are accepted by participants collectively having the most processing power, known as hash rate, on the network. If a certain percentage of the nodes reject the changes, then a "fork" takes place and participants can choose the version of the software they want to run.

Bitcoin Industry Participants

The primary Bitcoin industry participants are miners, investors and traders, digital asset exchanges and service providers, including custodians, brokers, payment processors, wallet providers and financial institutions.

Miners. Miners range from Bitcoin enthusiasts to professional mining operations that design and build dedicated mining machines and data centers, including mining pools, which are groups of miners that act cohesively and combine their processing power to mine Bitcoin blocks.

Investors and Traders. Bitcoin investors and traders include individuals and institutional investors who, directly or indirectly, purchase, hold, and sell Bitcoin or Bitcoin-based derivatives. On January 10, 2024, the Securities and Exchange Commission ("SEC") issued an order approving several applications for the listing and trading of shares of spot Bitcoin exchange-traded products ("ETPs") on U.S. national securities exchanges. While the SEC had previously approved exchange-traded funds where the underlying assets were Bitcoin futures contracts, this order represents the first time the SEC has approved the listing and trading of ETPs that acquire, hold and sell Bitcoin directly. ETPs can be bought and sold on a stock exchange like traditional stocks, and provide investors with another means of gaining economic exposure to Bitcoin through traditional brokerage accounts.

Digital Asset Exchanges. Digital asset exchanges provide trading venues for purchases and sales of Bitcoin in exchange for fiat or other digital assets. Bitcoin can be exchanged for fiat currencies, such as the U.S. dollar, at rates of exchange determined by market forces on Bitcoin trading platforms, which are not regulated in the same manner as traditional securities exchanges. In addition to these platforms, over-the-counter markets and derivatives markets for Bitcoin also exist. The value of Bitcoin within the market is determined, in part, by the supply of and demand for Bitcoin in the global Bitcoin market, market expectations for the adoption of Bitcoin as a store of value, the number of merchants that accept Bitcoin as a form of payment, and the volume of peer-to-peer transactions, among other factors.

Service providers. Service providers offer a multitude of services to other participants in the Bitcoin industry, including custodial and trade execution services, commercial and retail payment processing, loans secured by Bitcoin collateral, and financial advisory services. If adoption of the Bitcoin network continues to materially increase, we anticipate that service providers may expand the currently available range of services and that additional parties will enter the service sector for the Bitcoin network.

Results of Operations

The following tables provide a comparison of a summary of our results of operations for the six months ended June 30, 2026 and 2025. We are a "smaller reporting company" as defined by Item 10(f)(1) of Regulation S-K, and are providing scaled MD&A disclosures pursuant to Regulation S-K. Management has determined that the comparison of operating results for the six-month period ended June 30, 2026, with the corresponding period of the prior fiscal year, provides sufficient and representative information regarding changes in the Company's operations. The Company's operating results did not vary materially between the first and second quarters of the six-month period, and no unusual or infrequent events occurred during either quarter that would warrant separate quarterly discussion. Accordingly, a separate narrative discussion of the three-month period has not been included.

For the six months ended June 30, 2026 and 2025

		For the Six Months ended June 30,												% of
		2026				2025				Change				Change
Service revenue		$	1,306,168			$	-				1,306,168				NA
Cost of revenue			(874,457	)			-				(874,457	)			NA
Gross Profit			431,711				-				431,711				NA
Operating expenses
General and administrative expenses			(8,123,815	)			(705,820	)			(7,417,995	)			1,051.0	%
Selling and marketing expenses			(713,560	)			-				(713,560	)			NA
Research and development expenses			(3,039,330	)			-				(3,039,330	)			NA
Total operating expenses			(11,876,705	)			(705,820	)			(11,170,885	)			1,582.7	%
Loss from operations			(11,444,994	)			(705,820	)			(10,739,174	)			1,521.5	%
Other (expense) income			(164,643,679	)			395,661,456				(560,305,135	)			-141.6	%
(Loss) income before income tax		$	(176,088,673	)		$	394,955,636				(571,044,309	)			-144.6	%
Income tax benefits (expenses)			40,524,270				(82,940,684	)			123,464,954				-148.9	%
Net (loss) income		$	(135,564,403	)		$	312,014,952				(447,579,355	)			-143.4	%

Revenue from Operations

Revenue is primarily derived from AI software development services and SaaS software solutions provided to industrial and other business customers.

For the six months ended June 30, 2026 and 2025, we generated total revenue of $1.3 million and nil, respectively. This increase was primarily attributable to revenue recognized from two commercial customer agreements during the period, covering the smart water-system management sector and AI-related customization services (including robot task training and validation services), respectively. In the comparable 2025 period, we had no commercial contracts in place.

Cost of Revenue

Cost of revenue primarily consists of personnel-related expenses, including salaries, benefits, and share-based compensation for employees involved in system development and implementation, as well as costs associated with outsourced development personnel and third-party vendors. These expenses also include other direct system development and delivery costs.

For the six months ended June 30, 2026, our cost of revenue was $0.9 million, compared to nil for the six months ended June 30, 2025. The notable rise of $0.9 million was mainly driven by increased utilization of external vendors and outsourced development resources, as well as higher personnel expenses resulting from an increase in headcount to support revenue growth.

Gross Profit and Gross Margin

For the six months ended June 30, 2026, our gross profit was $0.4 million, compared to nil for the six months ended June 30, 2025. For the six months ended June 30, 2026, our gross margin was 33.1%, compared to nil for the six months ended June 30, 2025. Gross margin for the six months ended June 30, 2026 reflects our revenue mix and early commercialization and may fluctuate with the mix of software, hardware, and services.

Research and Development Expenses

Research and development expenses primarily consist of: (i) fees for outsourced software development services, (ii) research activities in new technology domains, and (iii) personnel-related costs for employees, including salaries, bonus, and share-based compensation.

For the six months ended June 30, 2026, research and development expenses was $3.0 million, compared to nil for the six months ended June 30, 2025. The notable increase of $3.0 million is primarily attributed to: (i) share-based compensation expenses of $1.3 million, reflecting equity incentives granted to attract and retain key technical personnel; and (ii) Professional service fees of $1.7 million, mainly related to outsourced software development and technical consulting services.

The significant increase in R&D expenses reflects our strategic commitment to expanding its research capabilities and investing in new technology domains. We believe that these investments are critical to enhancing product innovation, strengthening long-term competitiveness, and supporting sustainable growth. While such expenditures increased operating expenses in the current period, they are expected to generate long-term value by accelerating technology development and market expansion.

Selling and Marketing Expenses

Selling and marketing expenses primarily include: (i) advertising and promotion expenses, (ii) compensation and benefits for sales personnel, and (iii) travel and other routine office expense. All expenses are recognized in the period in which the related services occur or the benefits are received.

For the six months ended June 30, 2026, selling and marketing expenses was $0.7 million, compared to nil for the six months ended June 30, 2025. The increase was primarily attributable to:(i) higher payroll and bonus expenses, as we recorded performance-based bonuses for sales management personnel in line with the significant increase in sales revenue and cash collections during the period; and (ii) increased advertising and promotional expenses, reflecting expanded marketing activities to support revenue growth and customer acquisition.

We believe that the increase in selling and marketing expenses is consistent with our business expansion and revenue growth strategy. The performance-based compensation structure aligns sales incentives with operating results and cash recovery, supporting sustainable growth.

General and Administrative Expenses

General and administrative expenses also consisted of (i) salary, welfare and share-based compensation for general and administrative personnel, (ii) office expense, and (iii) professional service fees and others.

For the six months ended June 30, 2026, general and administrative expenses was $8.1 million, compared to $0.7 million for the six months ended June 30, 2025. The significant increase was primarily attributable to:

(i)

A substantial increase in share-based compensation expenses, resulting from the grant of equity awards to certain individuals who made significant contributions to the Company's survival, strategic transformation, and long-term development. The recognition of these equity awards led to a material increase in non-cash compensation expenses for the six months ended June 30, 2026, and;

(ii)

Higher professional service fees, as we engaged professionals to support key strategic initiatives and corporate development activities, including strategic advisory, legal, and consulting services.

We believe that these expenditures were necessary to strengthen our governance structure, enhance capital market readiness, and support its long-term strategic objectives. While such expenses materially increased operating costs for the six months ended June 30, 2026, they reflect the Company's continued investment in organizational capability and capital formation efforts.

Other (Expenses) Income

For the six months ended June 30, 2026, other expenses were $164.6 million, compared to other income of $395.7 million for the six months ended June 30, 2025, an unfavorable change of $560.3 million. The year-over-year change was primarily driven by a decline in the fair value of our Bitcoin holdings, resulting in recognition of an unrealized loss for the six months ended June 30, 2026. Fluctuations in Bitcoin market prices materially affect our reported results of operations, and we expect such volatility to continue to impact our financial performance in future periods. Changes in fair value are non-cash until realized through sale.

Income Tax (Benefits) Expenses

For the six months ended June 30, 2026, our income tax benefits was $40.5 million, compared to income tax expenses of $82.9 million for the six months ended June 30, 2025. The year-over-year change primarily reflects a significant decrease in pre-tax income, driven mainly by lower other income (i.e., an unrealized loss) associated with changes in the fair value of our Bitcoin holdings in 2026. Our income tax (benefit) expense may continue to fluctuate in future periods based on our profitability, movements in the fair value of digital assets, and changes in applicable tax regulations.

Net (Loss) Income

As a result of the factors described above, for the six months ended June 30, 2026 and 2025, there was a net loss of $135.6 million and a net income of $312.0 million, respectively. The decrease is mainly due to loss in fair value in digital assets and offset by decrease in income tax expenses.

The following chart provides a summary of our balance sheets as of June 30, 2026 and December 31, 2025, respectively. It should be read in conjunction with the financial statements, and notes thereto.

Balance Sheets Analysis

		June 30, 2026				December 31, 2025
Cash and cash equivalents		$	159,043,268			$	5,623,944
Digital assets			351,509,806				516,153,485
Accounts receivable, net			127,500				354,772
Prepaid expenses			1,682,041				1,999,213
Total assets		$	512,362,615			$	524,131,414
Accounts payable			1,293,500				751,322
Amount due to related parties			735,312				660,259
Income tax payable			130,415				130,415
Accrued expense and other payables			758,988				2,393,667
Deferred tax liabilities			24,092,072				64,616,342
Total liabilities		$	27,010,287			$	68,552,005
Total stockholders' equity		$	485,352,328			$	455,579,409

As of June 30, 2026, we had total assets of $512.4 million, which mainly consisted of $159.0 million in cash and cash equivalents, $351.5 million in digital assets, $0.1 million in accounts receivable, net and $1.7 million in prepaid expenses; we had total liabilities of $27.0 million which consisted of $1.3 million in accounts payable, $0.7 million in amount due to related parties, $0.1 million in income tax payable, $0.8 million in accrued expense and other payable and $24.1 million in deferred tax liabilities; we had total stockholders' equity of $485.4 million.

As of December 31, 2025, we had total assets of $524.1 million, which mainly consisted of $5.6 million in cash and cash equivalents, $516.2 million in digital assets, $0.4 million in accounts receivable, net and $2.0 million in prepaid expenses; we had total liabilities of $68.5 million which consisted of $0.7 million in accounts payable, $0.7 million in amount due to related parties,$0.1 million in income tax payable, $2.4 million in accrued expense and other payables and $64.6 million in deferred tax liabilities; we had total stockholders' equity of $455.6 million.

Liquidity and Capital Resources

Our primary sources of liquidity have been through the operation of our business and financing activities, which have historically been sufficient to meet our working capital, our business needs, as well as our capital expenditure requirements. As of June 30, 2026, we had cash and cash equivalents of $159.0 million. As of and for the six months ended June 30, 2026, we had a positive working capital of $509.4 million, net cash used in operating activities of $2.1 million, and a net loss of $135.6 million, with unrealized fair value loss of $164.6 million.

We believe that our existing cash and cash equivalents, cash flow we expect to generate from future operating activities, net proceeds we expect to receive from the issuance of ordinary shares, capital allocation strategy, will be sufficient to meet our anticipated working capital requirements, and capital expenditures in the ordinary course of business for the next 12 months.

We may, however, need additional cash resources in the future if we experience changes in business conditions or other developments, or if we find and wish to pursue opportunities for investments, acquisitions, capital expenditures or similar actions. If we determine that our cash requirements exceed the amount of cash and cash equivalents we have on hand at the time, we may seek to issue equity or debt securities or obtain additional credit facilities. The issuance and sale of additional equity would result in further dilution to our shareholders. The incurrence of indebtedness would result in increased fixed obligations and could result in operating covenants that would restrict our operations. We cannot assure you that financing will be available in amounts or on terms acceptable to us, if at all.

Cash Flows Analysis

The following table sets forth a summary of our cash flows for the periods indicated:

		For the Six Months ended June 30,
		2026				2025
Net cash flows used in operating activities:		$	(2,069,665	)		$	-
Net cash flows used in investing activities:			-				-
Net cash provided by financing activities:			155,488,989				-
Effect of exchange rate changes on cash			-				-
Change in Cash and Cash Equivalents:			153,419,324				-
Cash and Cash Equivalents, Beginning of the period			5,623,944				668,387
Cash and Cash Equivalents, End of the period		$	159,043,268			$	668,387

Operating activities

Our cash flow used in operating activities was $2.1 million for the six months ended June 30, 2026. This resulted from net loss of $135.6 million, adjusted for non-cash and working capital items. Positive adjustments to operating cash flows included $8.4 million of share-based compensation and $164.6 million of non-cash fair value loss on digital assets. These were partially offset by a $40.5 million of deferred tax benefits.

Our cash flow used in operating activities was nil for the six months ended June 30, 2025.

Investing activities

Our cash flow used in investing activities was nil for the six months ended June 30, 2026 and 2025.

Financing activities

Our cash flow generated from financing activities was $155.5 million and nil for the six months ended June 30, 2026 and 2025, respectively.

Capital Expenditures

There were no capital expenditures during the six months ended June 30, 2026 and 2025. However, future capital expenditures will be made to support the expected growth of the business.

Commitments

As of June 30, 2026 and December 31, 2025, we did not have any commitments.

Capital commitments

As of June 30, 2026 and December 31, 2025, we did not have any capital commitments.

Inflation

Inflation does not materially affect our business or the results of our operations.

Post-Balance Sheet Events

The Company has evaluated subsequent events and transactions that occurred after the balance sheet date through the date these unaudited condensed consolidated financial statements were issued and determined that, except as disclosed elsewhere in these financial statements, there have been no events that would require adjustment to or disclosure in the unaudited condensed consolidated financial statements.

Critical Accounting Policies

We prepare our financial statements in accordance with generally accepted accounting principles of the United States ("U.S. GAAP"). GAAP represents a comprehensive set of accounting and disclosure rules and requirements. The preparation of our financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Our actual results could differ from those estimates. We use historical data to assist in the forecast of our future results. Deviations from our projections are addressed when our financial statements are reviewed on a monthly basis. This allows us to be proactive in our approach to managing our business. It also allows us to rely on proven data rather than having to make assumptions regarding our estimates.

Revenue recognition

We apply ASC Topic 606, Revenue from Contracts with Customers ("ASC 606"), for all periods presented. Under ASC 606, revenue is recognized when we transfer promised services to a customer in an amount that reflects the consideration to which we expect to be entitled in exchange for those services.

ASC 606 requires us to apply a five-step model to recognize revenue: (i) identify the contract with a customer; (ii) identify the performance obligations; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations; and (v) recognize revenue as the performance obligations are satisfied.

We report all of our revenues on a gross basis. This determination is based on our assessment that it is the principal in our revenue arrangements. We control delivery of customized development services through its proprietary platform, is primarily responsible for fulfillment, sets pricing, and bears credit risk.

We provide development, design, and implementation services built on its proprietary pre-existing technology platform. The platform license and related development activities are highly interdependent and are accounted for as a single performance obligation. Revenue is recognized over time because the services create a customized asset with no alternative use and we have an enforceable right to payment for performance completed to date. Progress is measured using the cost-to-cost input method (actual costs incurred relative to total estimated costs). Contracts do not contain return or refund provisions. We provide assurance-type warranties only; related costs are recorded in cost of revenue and have not been material historically.

We provide stand-alone maintenance and support that is separately priced and contracted and constitutes a distinct performance obligation. These services are billed monthly in arrears, and revenue is recognized ratably over the monthly service period as the services are provided. Amounts billed in arrears are recorded as accounts receivable when the service is provided. Advance billings, when applicable, are recorded as contract liabilities, which are not significant given our usual billing practices.

Accounts receivable represent unconditional rights to consideration for services provided in accordance with contractual billing schedules, which are typically monthly in arrears. Contract liabilities primarily relate to any advance billings and are not significant.

For the six months ended June 30, 2026 and 2025, all revenue recognized over time amounted to $1.3 million and nil, respectively. For the six months ended June 30, 2026 and 2025, all revenue from software development services amounted to $0.9 million and nil, respectively.

Use of Estimate

The preparation of financial statements in conformity with U.S. GAAP requires management to make judgement estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Management believes that the estimates used in preparing the financial statements are reasonable and prudent; however, actual results could differ from these estimates. Significant accounting estimates include revenue recognition, the allowance for expected credit losses, recognition and measurement of share-based compensation, deferred tax liabilities, deferred tax assets and valuation allowance.

Accounts receivable, net

Accounts receivable represents those receivables derived in the ordinary course of business, net of an allowance for any potentially uncollectible amounts. We make estimates of expected credit and collectability trends for the allowance for credit losses based upon our assessment of various factors, including historical experience, the age of the accounts receivable balances, credit quality of our customers, current economic conditions, reasonable and supportable forecasts of future economic conditions that may vary by geography, customer-type, or industry sub-vertical, and other factors that may affect its ability to collect from customers. Expected credit losses are recorded as general and administrative expenses on our consolidated statements of comprehensive income.

Although we have historically not experienced significant credit losses, we may experience increasing credit loss risks from accounts receivable in future periods if our customers are adversely affected by economic pressures or uncertainty associated with local or global economic recessions, or other customer-specific factors, and actual experience in the future may differ from our past experiences or current assessment.

As of June 30, 2026 and December 31, 2025, accounts receivable from customers amounted to $127,500 and $354,772, respectively, there is no allowance provided.

Share-based compensation

We grant our common stocks to eligible employees and non-employees. We account for share-based awards issued to employees in accordance with ASC Topic 718 Compensation - Stock Compensation.

Employees' share-based awards and non-employees' share-based awards are measured at the grant date fair value of the awards and recognized as expenses: a) immediately at grant date if no vesting conditions are required; or b) using graded vesting method, net of estimated forfeitures, over the requisite service period, which is the vesting period.

We recognize the estimated compensation cost of RSUs and common stocks based on the fair value of common stocks on the date of the grant. We recognize the compensation cost, net of estimated forfeitures, over a vesting term for service-based RSUs.

We also recognize the compensation cost of performance-based share awards, net of estimated forfeitures, if it is probable that the performance condition will be achieved at the end of each reporting period. Forfeitures are estimated at the time of grant and revised in the subsequent periods if actual forfeitures differ from those estimates.

Deferred income tax assets and deferred income tax liabilities

Income taxes are determined in accordance with the provisions of ASC Topic 740, "Income Taxes" ("ASC Topic 740"). Under this method, 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 basis. Deferred tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the periods in which those temporary differences are expected to be recovered or settled. Any 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.

ASC 740 prescribes a comprehensive model for how companies should recognize, measure, present, and disclose in their financial statements uncertain tax positions taken or expected to be taken on a tax return. Under ASC 740, tax positions must initially be recognized in the financial statements when it is more likely than not that the position will be sustained upon examination by the tax authorities. Such tax positions must initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant facts.

Our Company in Wyoming is subject to U.S. federal income tax at 21% and a state income tax rate of nil. We have considered U.S. withholding tax implications in our deferred tax liability calculations for unremitted earnings of U.S. subsidiaries. A deferred tax liability has been recognized for the withholding tax that would be due upon distribution of earnings to foreign shareholders. For the periods presented, no additional capital gain tax provision is required as there is no plan to dispose of the investment in foreign subsidiaries.

We have a subsidiary in Hong Kong and BVI. The Hong Kong subsidiary is subject to tax in Hong Kong, and the BVI subsidiary is generally not subject to income tax under BVI laws. As a result of our future business activities, we will be required to file tax returns that are subject to examination by the Inland Revenue Authority of Hong Kong.

Recent Accounting Pronouncements

A list of recent relevant accounting pronouncements is included in Note 2 "Summary of Principal Accounting Policies" of our financial statements.

We have reviewed all the recently issued, but not yet effective, accounting pronouncements and we do not believe any of these pronouncements will have a material impact on the Company financial statements.