ADVANCED BIOMEDICAL TECHNOLOGIES, INC. You should read this discussion together with the Financial Statements, related Notes and other financial information included elsewhere in this Form 10-K. The following discussion contains assumptions, estimates and other forward-looking statements that involve a number of risks and uncertainties, including those discussed under "SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS," and elsewhere in this Form 10-K. These risks could cause our actual results to differ materially from those anticipated in these forward-looking statements.
Overview
The following discussion is an overview of the important factors that management focuses on in evaluating our businesses, financial condition and operating performance and should be read in conjunction with the financial statements included in this Annual Report on Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties. Actual results could differ materially from those anticipated in these forward looking statements as a result of any number of factors, including those set forth in this Annual Report on Form 10-K, and elsewhere in our other public filings. Factors that may cause actual results, our performance or achievements, or industry results to differ materially from those contemplated by such forward-looking statements include without limitation:
1. The company's lack of funds in new R&D, especially in clinical testing; 2. The company's lack of funds in new equipment and the utilization of the
production process after the NMPA approval;
3. The company may need to seek funding through such vehicles as convertible
notes and warrants, private placements, and/or convertible debentures; 4. The company needs funding for marketing and sales network build-up; 5. The company plans to seek approval for clinical testing and marketing on a
worldwide basis, including
such approval;
6. While the company currently holds two patents originating in China , the
patents does not protect our intellectual property in the United States , and
the company is unsure of the validity of the patent in other countries.
However, specific trade secrets are involved in the manufacturing of our
product to help protect our technologies, and reverse engineering is unlikely
for our types of products and technologies. New patents are expected to be
filed as result of our continuous research works for new and refined
materials. Additionally, all machinery used to manufacture our products is
protected by Chinese patents.
The Company is subject to a number of risks similar to other companies in the medical device industry. These risks include rapid technological change, uncertainty of market acceptance of our products, uncertainty of regulatory approval, competition from substitute products from larger companies, the need to obtain additional financing, compliance with government regulations, protection of proprietary technology, product liability, and the dependence on key individuals.
All written and oral forward-looking statements made in connection with this Form 10-K that are attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. Given the uncertainties that surround such statements, you are cautioned not to place undue reliance on such forward-looking statements.
15 Our Business
We are engaged in the business of designing, developing, manufacturing and
marketing of biomaterial internal fixation devices. We hold one medical device
permit from the
Our products offer a number of significant advantages over existing metal implants and the first generation of degradable implants (i.e. PLLA) for patients, surgeons and other customers including:
1. A notably reduced need for a secondary surgery to remove implant due to
post-operative complications, therefore avoiding unnecessary risk and
expense on all patient care;
2. Enhancing the performance of the materials by manufacturing them to be
easily fitted to each patient, forming an exact fit;
3. Improving the biological activity of materials. Clinical trial results
have shown that PA implants promote a progressive shift of load to the new
bone creating micro-motion and thereby avoiding bone atrophy due to
'stress shielding';
4. Reducing the chance of post-operative infection;
5. Stimulate bone tissues to facilitate effective biological integration,
benefitting the regeneration of bone;
6. Ease of post-operative care i.e. no distortion during x-ray imaging;
7. Simple and cost-effective to manufacture.
Our products are designed to replace the traditional internal fixation device
made of stainless steel and titanium and overcome the limitations of previous
generations of products such as PLA and PLLA. Our laboratory statistics show
that our PA products have a higher mechanical strength, last longer in
degradation ratio and are more evenly absorbed form outer layer inwards as
compared with similar materials such as PLA and PLLA. Thus PA allows increased
restoration time for bone healing and re-growth. The Company's polymer
orthopaedic internal fixation screws received approval from the
NMPA Application Process and Approval for Polymer Screws
The Company first submitted its application for PA Screws to the NMPA (formerly the SFDA/CFDA) in 2008. The application has been withheld by the NMPA pending additional clinical trial cases. This is due to the amended NMPA regulations, which unlike previous regulations require the applicant to specify the position on the body where the clinical trial is carried out. Our amended NMPA application has specified the ankle fracture as the body part of our clinical trial. This is because bones around this part carry most of the body weight.
Due to the uniqueness of our material, there were no established NMPA Product
Standards that we could follow during our application process for our PA Screws.
To establish our own Product Standards, the Company had been carrying out extra
tests. The Company submitted its Product Standards and supplementary reports to
the NMPA in 2014. In
In
16
Clinical Trials on Other Products
The Company has completed a total of 83 successful clinical human trial cases,
including 71 cases on ankle fractures and 57 successful PA Binding Wire trial
cases. We have been conducting human trials at the 6 state level hospitals
recognized by NMPA for clinical trials in different cities throughout
Government Regulation
Medical implant devices/products manufactured or marketed by the Company in
Under the NMPA Regulations, medical devices are classified into three classes (class I, II or III), the basis of the controls deemed necessary by the NMPA to reasonably assure their safety and efficacy. Under the NMPA's regulations, class I devices are subject to general controls (for example, labeling and adherence to Good Manufacturing Practices ("GMP") requirements) and class II devices are subject to general and special controls. Generally, class III devices are those which must receive premarket approval by the NMPA to ensure their safety and efficacy (for example, life-sustaining, life-supporting and certain implantable devices, or new devices which have not been found substantially equivalent to legally marketed class I or class II devices). The Company is classified as a manufacturer of class III medical devices. Current NMPA enforcement policy prohibits the marketing of approved medical devices for unapproved uses.
Before a new device can be introduced into the market in
Manufacturers of medical devices for marketing in
Regulations regarding the development, manufacturing and sale of the Company's products are subject to change. The Company cannot predict the impact, if any, that such changes might have on its business, financial condition and results of operations.
Results of Operations
The "Results of Operations" discussed in this section merely reflect the
information and results of
Sales and Marketing
The Company launched the sales and marketing campaign of its NMPA approved
unique proprietary bio-polymer internal fixation screws ("PA Screws") at the end
of the fiscal year ended
17
The Company has established long term relationships with many hospitals and
national distributors in
The Company has been actively boosting its brand through participating in
national and provincial orthopaedic conferences, garnering deals with national
and provincial distributors. In addition, we have coordinated with government
authorities to obtain the National New Orthopaedic Consumables Classification
Code ("OCCC") especially for our unique proprietary bio-polymer internal
fixation screws and completed the provincial product registrations meeting
Revenues
The Company achieved a milestone in its history at the end of the fiscal year
ended
Cost of Sales
Cost of sales for the years ended
Gross Profits
Gross profits for the years ended
Operating Expenses
Operating expenses for the years ended
18 Funding Needs
The Company estimates that it will need to raise minimum
Due to the COVID-19 pandemic, our sales plan has been disrupted and our revenue
was insufficient to cover our expenditures in 2020. We estimate that our sales
revenue to be insufficient to meet our operating costs in 2021, albeit our sales
revenue started to recover with the easing of pandemic restrictions in
The management team is continuously looking for fundraising possibilities for sales and marketing expansion, product improvement, machinery upgrades, facility expansions and continuous research and development.
Estimate current production lines in full capacity
Our facility is located in
Output Quantity Price at ex-factory Total Turnover
(Max.) (US$) (US$)
PA Screw 100,000 (piece) 180 18,000,000
PA Binding Wire 240,000 (pack) 50 12,000,000
Total: 30,000,000
China's Marketing Analysis
- Patients - Advanced technology level
- Performance and price of the materials
The demand for internal fixation medical devices has rapidly increased during
the last decade. According to China Health Care Year Book 2013, the total
revenue of Chinese orthopaedic hospitals in 2013 was
Other factors such as new and improved medical technology will continue to
rapidly grow throughout hospitals in
19
The Company has advantages and more opportunities over others competitors due to:
- No other similar patent registrations in
- We are the only company received market approval and permitted to perform PA clinical trials by the NMPA to the best of our knowledge.
- We have a timing advantage over other companies in
- Under new regulations by the NMPA, it will take at least 5-10 years for clinical trials of new materials.
- Our patented material enables us to rapidly diversify our product line according to market trend and demand.
Number of Hospitals at the end of
Statistic and Census report by National Health Commission of the People's
Republic of China
(October 2020)
October 2020 October 2019 Increase / (Decrease)Total No. of Hospitals 34,879 33,752 1,127 Public Hospital 11,876 11,914 (38 ) Private Hospital 23,003 21,838 1,165 Hospital Rating AAA 2,860 2,671 189 AA 10,059 9,410 649 A 11,545 11,011 534 Unrated 10,415 10,660 (245 )
In general, technological advancements and the marketing potential within
Distribution Model
The Company will market its products through a hybrid sales force comprised of a
managed network of independent regional distributors/sales agents (80%) and
direct sales representatives (20%) in
Dealer/Distributor System:
We collaborate with dealers to sell and distribute our products to various hospitals and reach the consumers, i.e. bone fracture victims. The company will assist dealers to promote products to famous orthopaedic hospitals
By utilizing a distributor, ABMT will further benefit from promotional activities by having a second party help with common objectives, and at the same time, increase our sales audience through their contacts.
Currently, we have established contacts with various national and district distributors, every distributor covers a minimum of 50 hospitals, so our total coverage is 6,000 hospitals. We will provide ongoing after-sales service, technical supports and conventional meetings, etc., to help our distributors better promote our products.
Direct Hospital Sales (DHS):
Our Direct Hospital Sales (DHS) regions will include
1. The First Affiliated Hospital of Hunan University of Traditional Chinese
Medicine.
2. The Second Affiliated Hospital of Zhongshan University .
3. The First Affiliated Hospital of Guangxi Traditional Chinese Medicine
University.
4. The First Affiliated Hospital of Guangxi Medical University .
5. The People's Hospital of Guangxi Zhuang Autonomous Region .
6. The Affiliated Hospital of Jiangxi University of Traditional Chinese
Medicine .
7. Luoyang Orthopaedic-Traumatological Hospital .
20
Apart from assisting in our sales, these 7 hospitals will also be assisting ABMT in future clinical applications and trials.
In addition, we will receive up-to-date information directly from physicians to develop new products better suited for current patient needs and hence, speed up product commercialization.
Appointment of Chief Medical Officer
On
Research and Development
Research and development costs related to both present and future products are
expensed as incurred. Total expenditure on research and development charged to
general and administrative expenses for the years ended
The Company started research projects on two new products in 2020. These products are Class II and Class III medical devices for treating Sports Trauma. We expect research and development expenses to grow as we continue to invest in basic research, clinical trials, product development and in our intellectual property. The Company will be working closely with medical institutions and research universities to expedite future clinical trials of upcoming series of polymer fixation devices, including Intramedullary Nailing Fixation, Binding Wires, Micromodule Screws & Plates, Maxillofacial & Craniofacial Plates, and Rib Pins.
Impact of COVID-19 Pandemic
The Company's primary business is carried out through its subsidiary,
21
The Company has identified the following areas that had been adversely affected by COVID-19:
1. Operation: Our facilities inChina were not fully staffed due to COVID-19 lockdown, travel restrictions and quarantine requirements. This affected our accounting and marketing departments mostly because a large number of staff could not come back to office as they were not allowed to travel or have 14-day quarantine before they came back to work. Our operation gradually came back to normal with the easing of COVID-19 restrictions inChina during the third and fourth quarter of 2020. 2. Manufacturing: We had sufficient raw material stock for 2 months, however, our production was affected by staff shortage and facilities closure during lockdown. 3. Marketing: We launched our sales campaign in late 2019 and we generated revenue the first time in the history of the Company at the end of 2019 fiscal year. Our sales and marketing plans were disrupted by COVID-19 pandemic because almost all the hospitals inChina were dealing with COVID-19 and non-essential operations were postponed or cancelled.
The Company has been working with its business partners and workforce through crisis planning, effective communication and co-operation to minimize the negative impact of COVID-19.
Finance Costs
As of
As of
Total interest expenses on advances from a stockholder accrued for the years
ended
Total interest expenses on advances from following related parties accrued for
the years ended
As of
Imputed interest charged at 5% per annum on the amounts owed to the directors
for the years ended
Income Tax
ABMT was incorporated in
22
Shenzhen Changhua was incorporated in the PRC and is subject to PRC income tax which is computed according to the relevant laws and regulations in the PRC. The income tax rate has been 25%. No income tax expense has been provided by Shenzhen Changhua as it has only started to generated revenue at the end of fiscal year and it has incurred losses.
Other Income/(Expenses)
Other expenses for the years ended
Net Loss
As reflected in the accompanying audited consolidated financial statements, the
Company has an accumulated deficit of
Liquidity and Capital Resources
We had a working capital deficit of
Cash Flows
Net Cash Generated from Operating Activities
Net cash generated from operating activities was
We recorded
Net cash used in financing activities in the year ended
Operating Capital and Capital Expenditure Requirements
Our ability to continue as a going concern and support the commercialization of current products is dependent upon our ability to obtain additional financing in the near term. We anticipate that such funding will be in the form of marketing of our products and equity financing from sales of our common stock. However, there is no assurance that we will be able to raise sufficient funding from the sale of our products and common stock to fund our business plan should we decide to proceed. We anticipate our sales revenue will not meet our financial needs in 2021 and we need to rely on advances from our related parties and stockholders in order to continue to fund our business operations
We believe that our existing cash, cash equivalents at
23 Going Concern
As reflected in the accompanying consolidated financial statements, the Company
has an accumulated deficit of
These factors raise substantial doubt about our ability to continue as a going concern. In view of the matters described above, recoverability of a major portion of the recorded asset amounts shown in the accompanying balance sheet is dependent upon continued operations of the Company, which in turn is dependent upon the Company's ability to generating revenue, raise additional capital, obtain financing and succeed in its future operations. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Management has taken steps to revise its operating and financial requirements, which it believes are sufficient to provide the Company with the ability to continue as a going concern. The Company is now marketing its products, pursuing additional funding and potential merger or acquisition candidates, which would enhance stockholders' investment. Management believes that the above actions will allow the Company to continue operations through the next fiscal year.
As of
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to our investors.
CRITICAL ACCOUNTING POLICIES
The preparation of our financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including but not limited to those related to income taxes and impairment of long-lived assets. We base our estimates on historical experience and on various other assumptions and factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Based on our ongoing review, we plan to adjust to our judgments and estimates where facts and circumstances dictate. Actual results could differ from our estimates.
We believe the following critical accounting policies are important to the portrayal of our financial condition and results and require our management's most difficult, subjective or complex judgments, often because of the need to make estimates about the effect of matters that are inherently uncertain.
1. Property and equipment
Property and equipment are stated at cost, less accumulated depreciation. Expenditures for additions, major renewals and betterments are capitalized and expenditures for maintenance and repairs are charged to expense as incurred.
Depreciation is provided on a straight-line basis, less estimated residual value over the assets estimated useful lives. The estimated useful lives of the assets are 5 years.
24 2. Long-lived assets
In accordance with FASB Codification Topic 360 (ASC Topic 360), "Accounting for the impairment or disposal of Long-Lived Assets", long-lived assets and certain identifiable intangible assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. For purposes of evaluating the recoverability of long-lived assets, the recoverability test is performed using undiscounted net cash flows related to the long-lived assets. The Company reviews long-lived assets to determine that carrying values are not impaired.
Long-lived assets, such as property, plant and equipment are reviewed for
impairment whenever events or changes in circumstances indicate that the book
value of the asset may not be recoverable. Impairment of the carrying value of
long-lived assets would be indicated if the best estimate of future undiscounted
cash flows expected to be generated by the asset grouping is less than its
carrying value. If an impairment is indicated, any loss is measured as the
difference between estimated fair value and carrying value and is recognized in
operating income. For the years ended
3. Fair value of financial instruments
FASB Codification Topic 825(ASC Topic 825), "Disclosure About Fair Value of Financial Instruments," requires certain disclosures regarding the fair value of financial instruments. The carrying amounts of other receivables and prepaid expenses, other payables and accrued expenses, due to a stockholder, directors and related parties approximate their fair values because of the short-term nature of the instruments. The management of the Company is of the opinion that the Company is not exposed to significant interest or credit risks arising from these financial statements.
4. Government grant
Government grants are recognized when there is reasonable assurance that the Company complies with any conditions attached to them and the grants will be received.
5. Revenue recognition
Revenue from contract with customers is recognized when control of goods is transferred to a customer, at an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods. Control is considered to be transferred when the customer has the ability to direct the use of and obtain substantially all of the remaining benefits of that good, generally on delivery of the goods.
Revenues are generated from manufacturing and supply of biomaterial internal fixation devices, which are sold through its network of distributors/agents and direct sales channels. Our performance obligations are satisfied at a point in time. Our contracts have an anticipated duration of less than a year.
Actual returns and claims in any future period are inherently uncertain and thus may differ from our estimates. If actual or expected future returns and claims are significantly greater or lower than the reserves that we have established, we will record a reduction or increase to net revenue in the period in which we make such a determination.
6. Income taxes
The Company accounts for income taxes under the FASB Codification Topic 740-10-25 ("ASC 740-10-25"). Under ASC 740-10-25, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under ASC 740-10-25, the effect on deferred tax assets and liabilities of a change in tax rates is recognized as income in the period included the enactment date.
25 7. Research and Development
Research and development costs related to both present and future products are expensed as incurred.
8. Foreign currency translation
The financial statements of the Company's subsidiary denominated in currencies other than US $ are translated into US $ using the closing rate method. The balance sheet items are translated into US $ using the exchange rates at the respective balance sheet dates. The capital and various reserves are translated at historical exchange rates prevailing at the time of the transactions while income and expenses items are translated at the average exchange rate for the year. All exchange differences are recorded within equity.
Recent Accounting Pronouncements
There has been no newly effective accounting pronouncement that has significance, or potential significance, to our consolidated financial statements.
The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and does not believe the future adoptions of any such pronouncements may be expected to cause a material impact on the financial condition or the results of operations. The Company will carefully analyze these recently accounting pronouncements and take action to adopt them as required.
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