Advanced Biomedical Technologies Inc. - Quarter Report: 2010 July (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
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x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarter ended July 31, 2010
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OR
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o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Commission file number 000-53051
Advanced BioMedical Technologies, Inc.
(Exact name of registrant as specified in its charter)
Nevada
(State or other jurisdiction of incorporation or organization)
18 Lake Ridge Drive
Middletown, NY 10940
(Address of principal executive offices, including zip code.)
(718) 766-7898
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for 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 o NO o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “small reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o Accelerated filer o
Non-accelerated filer o Smaller reporting company x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x
As of September 14, 2010, there are 55,981,167 shares of common stock outstanding.
All references in this Report on Form 10-Q to the terms “we”, “our”, “us”, the “Company”, “ABMT” and the “Registrant” refer to Advanced BioMedical Technologies, Inc. unless the context indicates another meaning.
ITEM 1. FINANCIAL STATEMENTS
The accompanying condensed unaudited financial statements of Advanced BioMedical Technologies, Inc., formerly known as Geostar Mineral Corporation, a Nevada corporation are condensed and, therefore, do not include all disclosures normally required by accounting principles generally accepted in the United States of America. These statements should be read in conjunction with the Company’s most recent annual financial statements for the year ended October 31, 2009 included in our Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (“SEC”) on February 12, 2010. In the opinion of management, all adjustments necessary for a fair presentation have been included in the accompanying condensed financial statements and consist of only normal recurring adjustments. The results of operations presented in the accompanying condensed financial statements for the period ended July 31, 2010 are not necessarily indicative of the operating results that may be expected for the full year ending October 31, 2010.
ADVANCED BIOMEDICAL TECHNOLOGIES, INC.
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF JULY 31, 2010
(UNAUDITED)
ADVANCED BIOMEDICAL TECHNOLOGIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONTENTS
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Pages
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F-1
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F- 2
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F- 3
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F-4
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ADVANCED BIOMEDICAL TECHNOLOGIES, INC. (“ABMT”)
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
| July 31, | October 31, | |||||||
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2010
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2009 | |||||||
| Unaudited | ||||||||
| ASSETS | ||||||||
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CURRENT ASSETS
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||||||||
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Cash and cash equivalents
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$ | 59,808 | $ | 10,606 | ||||
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Other receivables and prepaid expenses
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22,550 | 20,473 | ||||||
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Total Current Assets
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82,358 | 31,079 | ||||||
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PROPERTY AND EQUIPMENT, NET
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53,066 | 70,088 | ||||||
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TOTAL ASSETS
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$ | 135,424 | $ | 101,167 | ||||
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LIABILITIES AND STOCKHOLDERS’ DEFICIT
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||||||||
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CURRENT LIABILITIES
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||||||||
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Other payables and accrued expenses
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$ | 17,673 | $ | 30,657 | ||||
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Due to a stockholder
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213,989 | 335,755 | ||||||
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Due to directors
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171,051 | 220,894 | ||||||
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Due to a related company
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393,504 | 390,459 | ||||||
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Due to related parties
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704,351 | 386,159 | ||||||
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Total Current Liabilities
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1,500,568 | 1,363,924 | ||||||
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COMMITMENTS AND CONTINGENCIES
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— | — | ||||||
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DEFICIT
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||||||||
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ABMT Stockholders’ Deficit
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||||||||
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Common stock, $0.00001 par value, 100,000,000 shares authorized and 55,981,167 shares issued and outstanding as of July 31, 2010 and 55,721,000 shares issued and outstanding as of October 31, 2009
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560 | 557 | ||||||
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Additional paid-in capital
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1,093,583 | 732,269 | ||||||
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Deferred stock compensation
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(269,584 | ) | (292,292 | ) | ||||
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Accumulated deficit during development stage
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(2,097,142 | ) | (1,619,245 | ) | ||||
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Accumulated other comprehensive loss
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(92,561 | ) | (84,046 | ) | ||||
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Total ABMT Stockholders’ Deficit
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(1,365,144 | ) | (1,262,757 | ) | ||||
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Noncontrolling interests
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— | — | ||||||
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Total Deficit
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(1,365,144 | ) | (1,262,757 | ) | ||||
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TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT
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$ | 135,424 | $ | 101,167 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements
F-1
ADVANCED BIOMEDICAL TECHNOLOGIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
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Three months ended
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Nine months ended
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September 25, 2002
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||||||||||||||||||
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July 31,
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July 31,
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(Inception) through
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||||||||||||||||||
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2010
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2009
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2010
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2009
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July 31, 2010
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OPERATING EXPENSES
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General and administrative expenses
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$ | 119,820 | $ | 97,821 | $ | 377,020 | $ | 327,941 | $ | 1,672,179 | ||||||||||
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Depreciation
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7,400 | 7,393 | 22,239 | 23,871 | 259,044 | |||||||||||||||
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Research and development (Net of government grant)
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9,516 | (2,984 | ) | 11,356 | 394 | 118,703 | ||||||||||||||
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Total Operating Expenses
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136,736 | 102,230 | 410,615 | 352,206 | 2,049,926 | |||||||||||||||
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LOSS FROM OPERATIONS
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(136,736 | ) | (102,230 | ) | (410,615 | ) | (352,206 | ) | (2,049,926 | ) | ||||||||||
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OTHER INCOME (EXPENSES)
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Other income
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139 | 15 | 139 | 15 | 2,115 | |||||||||||||||
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Interest income
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27 | 25 | 63 | 82 | 1,561 | |||||||||||||||
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Interest paid to a stockholder and related parties
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(14,907 | ) | (10,277 | ) | (43,436 | ) | (24,017 | ) | (84,559 | ) | ||||||||||
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Imputed interest
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(7,006 | ) | (7,866 | ) | (21,067 | ) | (23,847 | ) | (169,795 | ) | ||||||||||
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Other expenses
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(194 | ) | (184 | ) | (2,981 | ) | (562 | ) | (13,743 | ) | ||||||||||
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Total Other Expenses, net
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(21,941 | ) | (18,287 | ) | (67,282 | ) | (48,329 | ) | (264,421 | ) | ||||||||||
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LOSS FROM OPERATIONS BEFORE TAXES
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(158,677 | ) | (120,517 | ) | (477,897 | ) | (400,535 | ) | (2,314,347 | ) | ||||||||||
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Income tax expense
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— | — | — | — | — | |||||||||||||||
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NET LOSS
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(158,677 | ) | (120,517 | ) | (477,897 | ) | (400,535 | ) | (2,314,347 | ) | ||||||||||
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Net loss attributable to noncontrolling interests
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— | — | — | — | 217,205 | |||||||||||||||
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NET LOSS ATTRIBUTABLE TO ABMTCOMMON STOCKHOLDERS
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(158,677 | ) | (120,517 | ) | (477,897 | ) | (400,535 | ) | (2,097,142 | ) | ||||||||||
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OTHER COMPREHENSIVE INCOME (LOSS)
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Total other comprehensive loss
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(8,401 | ) | 915 | (8,515 | ) | (1,043 | ) | (92,561 | ) | |||||||||||
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Add: foreign currency translation loss attributable to noncontrolling interest
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— | — | — | — | — | |||||||||||||||
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Foreign currency translation gain attributable to ABMT common stockholders
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(8,401 | ) | 915 | (8,515 | ) | (1,043 | ) | (92,561 | ) | |||||||||||
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COMPREHENSIVE LOSS ATTRIBUTABLE TO ABMT COMMON STOCKHOLDERS
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$ | (167,078 | ) | $ | (119,602 | ) | $ | (486,412 | ) | $ | (401,578 | ) | $ | (2,189,703 | ) | |||||
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Net loss per share-basic and diluted
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$ | (0.00 | ) | $ | (0.00 | ) | $ | (0.01 | ) | $ | (0.01 | ) | ||||||||
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Weighted average number of shares outstanding during the period - basic and diluted
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55,897,471 | 55,614,000 | 55,816,945 | 54,459,080 | ||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements
F-2
ADVANCED BIOMEDICAL TECHNOLOGIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
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Common Stock
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Accumulated
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Accumulated
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Additional
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Deferred
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deficit during
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other
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Number
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Paid-in
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Stock
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development
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comprehensive
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Noncontrolling
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|||||||||||||||||||||||||||
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of Shares
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Amount
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capital
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Compensation
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stage
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loss
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interests
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Total
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Stock issued to founders for cash
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50,510,000 | $ | 505 | $ | 275,002 | $ | — | $ | — | $ | — | $ | 217,205 | $ | 492,712 | |||||||||||||||||
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Net loss for the period
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— | — | — | — | (40,343 | ) | — | (17,290 | ) | (57,633 | ) | |||||||||||||||||||||
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Foreign currency translation loss
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— | — | — | — | — | (225 | ) | 10 | (215 | ) | ||||||||||||||||||||||
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Comprehensive loss
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— | — | — | — | — | — | — | (57,848 | ) | |||||||||||||||||||||||
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Balance at December 31, 2003
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50,510,000 | 505 | 275,002 | — | (40,343 | ) | (225 | ) | 199,925 | 434,864 | ||||||||||||||||||||||
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Net loss for the year
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— | — | — | — | (65,960 | ) | — | (28,269 | ) | (94,229 | ) | |||||||||||||||||||||
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Foreign currency translation loss
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— | — | — | — | — | (357 | ) | 2 | (355 | ) | ||||||||||||||||||||||
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Comprehensive loss
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— | — | — | — | — | — | — | (94,584 | ) | |||||||||||||||||||||||
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Balance at December 31, 2004
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50,510,000 | 505 | 275,002 | — | (106,303 | ) | (582 | ) | 171,658 | 340,280 | ||||||||||||||||||||||
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Imputed interest on advances from a stockholder and related company
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— | — | 23,103 | — | — | — | — | 23,103 | ||||||||||||||||||||||||
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Net loss for the year
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— | — | — | — | (357,863 | ) | — | (153,370 | ) | (511,233 | ) | |||||||||||||||||||||
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Foreign currency translation loss
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— | — | — | — | — | (12,290 | ) | 2,064 | (10,226 | ) | ||||||||||||||||||||||
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Comprehensive loss
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— | — | — | — | — | — | — | (521,459 | ) | |||||||||||||||||||||||
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Balance at December 31, 2005
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50,510,000 | 505 | 298,105 | — | (464,166 | ) | (12,872 | ) | 20,352 | (158,076 | ) | |||||||||||||||||||||
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Imputed interest on advances from a stockholder and related company
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— | — | 27,184 | — | — | — | — | 27,184 | ||||||||||||||||||||||||
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Net loss for the year
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— | — | — | — | (172,738 | ) | — | (18,276 | ) | (191,014 | ) | |||||||||||||||||||||
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Foreign currency translation loss
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— | — | — | — | — | (6,084 | ) | (2,076 | ) | (8,160 | ) | |||||||||||||||||||||
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Comprehensive loss
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— | — | — | — | — | — | — | (199,174 | ) | |||||||||||||||||||||||
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Balance at December 31, 2006
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50,510,000 | 505 | 325,289 | — | (636,904 | ) | (18,956 | ) | — | (330,066 | ) | |||||||||||||||||||||
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Imputed interest on advances from a stockholder, related company and related party
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— | — | 39,021 | — | — | — | — | 39,021 | ||||||||||||||||||||||||
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Net loss for the year
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— | — | — | — | (196,871 | ) | — | — | (196,871 | ) | ||||||||||||||||||||||
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Foreign currency translation loss
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— | — | — | — | — | (27,401 | ) | — | (27,401 | ) | ||||||||||||||||||||||
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Comprehensive loss
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— | — | — | — | — | — | — | (224,272 | ) | |||||||||||||||||||||||
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Balance at December 31, 2007
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50,510,000 | 505 | 364,310 | — | (833,775 | ) | (46,357 | ) | — | (515,317 | ) | |||||||||||||||||||||
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Imputed interest on advances from a stockholder and related company
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— | — | 27,764 | — | — | — | — | 27,764 | ||||||||||||||||||||||||
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Net loss for the period
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— | — | — | — | (227,038 | ) | — | — | (227,038 | ) | ||||||||||||||||||||||
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Foreign currency translation loss
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— | — | — | — | — | (35,833 | ) | — | (35,833 | ) | ||||||||||||||||||||||
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Comprehensive loss
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— | — | — | — | — | — | — | (262,871 | ) | |||||||||||||||||||||||
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Balance at October 31,2008
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50,510,000 | 505 | 392,074 | — | (1,060,813 | ) | (82,190 | ) | — | (750,424 | ) | |||||||||||||||||||||
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Recapitalization
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5,104,000 | 51 | (51 | ) | — | — | — | — | — | |||||||||||||||||||||||
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Stock issued for services ($3.05 per share)
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100,000 | 1 | 304,999 | (292,292 | ) | — | — | — | 12,708 | |||||||||||||||||||||||
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Stock issued for cash in private placement ($1.15 per share)
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5,000 | — | 5,750 | — | — | — | — | 5,750 | ||||||||||||||||||||||||
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Stock issued for cash in private placement ($1.15 per share)
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2,000 | — | 2,300 | — | — | — | — | 2,300 | ||||||||||||||||||||||||
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Contributed capital
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— | — | 26,950 | — | — | — | — | 26,950 | ||||||||||||||||||||||||
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Distributed to the stockholders
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— | — | (31,409 | ) | — | — | — | — | (31,409 | ) | ||||||||||||||||||||||
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Imputed Interest on advances from a stockholder and related company
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— | — | 31,656 | — | — | — | — | 31,656 | ||||||||||||||||||||||||
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Net loss for the year
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— | — | — | — | (558,432 | ) | — | — | (558,432 | ) | ||||||||||||||||||||||
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Foreign currency translation loss
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— | — | — | — | — | (1,856 | ) | — | (1,856 | ) | ||||||||||||||||||||||
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Comprehensive loss
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— | — | — | — | — | — | — | (560,288 | ) | |||||||||||||||||||||||
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Balance at October 31, 2009
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55,721,000 | 557 | 732,269 | (292,292 | ) | (1,619,245 | ) | (84,046 | ) | — | (1,262,757 | ) | ||||||||||||||||||||
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Stock issued for services
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— | — | — | 114,375 | — | — | — | 114,375 | ||||||||||||||||||||||||
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Stock issued for cash in private placement ($1.5 per share)
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6,667 | — | 10,000 | — | — | — | — | 10,000 | ||||||||||||||||||||||||
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Stock issued for cash in private placement ($1.5 per share)
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16,667 | — | 25,000 | — | — | — | — | 25,000 | ||||||||||||||||||||||||
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Stock issued for cash in private placement ($1.5 per share)
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136,833 | 2 | 205,248 | — | — | — | — | 205,250 | ||||||||||||||||||||||||
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Stock issued for services ($1.00 per share)
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100,000 | 1 | 99,999 | (91,667 | ) | — | — | — | 8,333 | |||||||||||||||||||||||
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Imputed interest on advances from a stockholder and related company
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— | — | 21,067 | — | — | — | — | 21,067 | ||||||||||||||||||||||||
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Net loss for the period
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— | — | — | — | (477,897 | ) | — | — | (477,897 | ) | ||||||||||||||||||||||
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Foreign currency translation loss
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— | — | — | — | — | (8,515 | ) | — | (8,515 | ) | ||||||||||||||||||||||
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Comprehensive loss
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— | — | — | — | — | — | — | (486,412 | ) | |||||||||||||||||||||||
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Balance at April 30, 2010
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55,981,167 | 560 | 1,093,583 | (269,584 | ) | (2,097,142 | ) | (92,561 | ) | — | (1,365,144 | ) | ||||||||||||||||||||
F-3
ADVANCED BIOMEDICAL TECHNOLOGIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
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Nine months ended
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September 25, 2002
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July 31,
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(inception) through
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|||||||||||
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2010
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2009
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July 31, 2010
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CASH FLOWS FROM OPERATING ACTIVITIES
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Net loss
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$ | (477,897 | ) | $ | (400,535 | ) | $ | (2,097,142 | ) | |||
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Adjustments to reconcile net loss to cash used in operating activities:
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Depreciation
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22,239 | 23,871 | 259,044 | |||||||||
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Stock issued for services
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122,708 | — | 135,416 | |||||||||
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Noncontrolling interests
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— | — | (217,205 | ) | ||||||||
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Imputed interest
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21,067 | 23,847 | 169,795 | |||||||||
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Changes in operating assets and liabilities (Increase) decrease in:
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||||||||||||
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Other receivables and prepaid expenses
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(1,995 | ) | (8,971 | ) | (22,550 | ) | ||||||
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Increase (decrease) in:
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||||||||||||
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Other payables and accrued expenses
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(13,028 | ) | 6,798 | 17,673 | ||||||||
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Net cash used in operating activities
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(326,906 | ) | (354,990 | ) | (1,754,969 | ) | ||||||
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CASH FLOWS FROM INVESTING ACTIVITIES
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||||||||||||
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Purchase of property and equipment
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(4,866 | ) | (20,400 | ) | (312,110 | ) | ||||||
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Due from a related party
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— | — | — | |||||||||
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Due from stockholders
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— | — | — | |||||||||
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Due from a noncontrolling stockholder of a subsidiary
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— | (765 | ) | — | ||||||||
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Net cash used in investing activities
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(4,866 | ) | (21,165 | ) | (312,110 | ) | ||||||
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CASH FLOWS FROM FINANCING ACTIVITIES
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||||||||||||
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Stock issued to founders
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— | — | 505 | |||||||||
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Proceeds from issuance of shares
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240,250 | — | 248,300 | |||||||||
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Contribution by stockholders
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— | — | 519,157 | |||||||||
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Distributed to stockholders
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— | (31,408 | ) | (31,409 | ) | |||||||
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Due to a noncontrolling stockholder of a subsidiary
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— | (3,126 | ) | — | ||||||||
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Due to a stockholder
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(121,566 | ) | 245,284 | 213,989 | ||||||||
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Due to directors
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(51,220 | ) | (13,823 | ) | 171,051 | |||||||
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Due to a related company
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— | — | 393,504 | |||||||||
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Due to related parties
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313,198 | 171,032 | 704,351 | |||||||||
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Net cash provided by financing activities
|
380,662 | 367,959 | 2,219,448 | |||||||||
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EFFECT ON EXCHANGE RATES ON CASH
|
313 | (12,531 | ) | (92,561 | ) | |||||||
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NET INCREASE(DECREASE) IN CASH AND CASH EQUIVALENTS
|
49,202 | (20,727 | ) | 59,808 | ||||||||
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CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
|
10,606 | 78,876 | — | |||||||||
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CASH AND CASH EQUIVALENTS AT END OF PERIOD
|
$ | 59,808 | $ | 58,149 | $ | 59,808 | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements
F-4
ADVANCED BIOMEDICALTECHNOLOGIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTE 1 BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.
In the opinion of management, the unaudited condensed consolidated financial statements contain all adjustments consisting only of normal recurring accruals considered necessary to present fairly the Company’s financial position as of July 31, 2010, the consolidated results of operations for the three months and nine months ended July 31, 2010 and 2009 and for the period from September 25, 2002 (inception) to July 31, 2010 and consolidated statements of cash flows for the nine months ended July 31, 2010 and 2009 and for the period from September 25, 2002 (inception) to July 31, 2010. The consolidated results for the three months and nine months ended July 31, 2010 are not necessarily indicative of the results to be expected for the entire fiscal year ending October 31, 2010. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes for the year ended October 31, 2009 appearing in the Company’s annual report on Form 10-K as filed with the Securities and Exchange Commission on February 12, 2010.
NOTE 2 ORGANIZATION
Advanced BioMedical Technologies, Inc. (fka “Geostar Mineral Corporation” or “Geostar”) (“ABMT”) was incorporated in Nevada on September 12, 2006.
Shenzhen Changhua Biomedicine Engineering Company Limited (“Shenzhen Changhua”) was incorporated in the People’s Republic of China (“PRC”) on September 25, 2002 as a limited liability company with a registered capital of $724,017. Shenzhen Changhua is owned by two stockholders in the proportion of 70% and 30% respectively. Shenzhen Changhua plans to develop, manufacture and market self-reinforced, re-absorbable degradable PA screws, robs and binding ties for fixation on human fractured bones. The Company is currently conducting clinical trials on its products and intends to raise additional capital to produce and market its products commercially pending the approval from the State Food and Drug Administration (“SFDA”) of the PRC on its products. The Company has no revenue since its inception and, in accordance with Accounting Standards Codification (“ASC”) Topic 915, “Development Stage Entities” (formerly Statement of Financial Accounting Standard (“SFAS”) No. 7, “Accounting and Reporting by Development Stage Enterprise”), is considered a Development Stage Company.
Masterise Holdings Limited (“Masterise”) was incorporated in the British Virgin Islands on May 31, 2007 as an investment holding company and was then owned as to 63% by the spouse of Shenzhen Changhua’s 70% majority stockholder at the time and 37% by a third party corporation.
On January 29, 2008, Masterise entered into a Share Purchase Agreement (“the Agreement”) with a stockholder of Shenzhen Changhua whereupon Masterise acquired 70% of Shenzhen Changhua for US$64,100 in cash. The acquisition was completed on February 25, 2008. As both Masterise and Shenzhen Changhua were under common control and management, the acquisition was accounted for as a reorganization of entities under common control. Accordingly, the operations of Shenzhen Changhua for the three months and nine months ended July 31, 2010 and 2009 were included in the consolidated financial statements as if the transactions had occurred retroactively.
On December 31, 2008, ABMT consummated a Share Exchange Agreement (“the Exchange Agreement”) with the stockholders of Masterise pursuant to which ABMT issued 50,000 shares of Common Stock to the stockholders of Masterise for 100% equity interest in Masterise.
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Concurrently, on December 31, 2008, a major stockholder of ABMT also consummated an Affiliate Stock Purchase Agreement (the “Affiliate Agreement”) with thirteen individuals including all the stockholders of Masterise, pursuant to which the major stockholder sold a total of 5,001,000 shares of ABMT’s common stock for a total aggregate consideration of $5,000, including 4,438,250 shares to the stockholders of Masterise.
On consummation of the Exchange Agreement and the Affiliate Agreement, the 70% majority stockholder of Masterise became a 80.7% stockholder of ABMT.
The merger of ABMT and Masterise was treated for accounting purposes as a capital transaction and recapitalization by Masterise (“the accounting acquirer”) and a re-organization by ABMT (“the accounting acquiree”). The financial statements have been prepared as if the re-organization had occurred retroactively.
Accordingly, these financial statements include the following:
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(1)
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The balance sheet consisting of the net assets of the acquirer at historical cost and the net assets of the acquiree at historical cost.
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(2)
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The statement of operations including the operations of the acquirer for the periods presented and the operations of the acquiree from the date of the transaction.
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ABMT, Masterise and Shenzhen Changhua are hereinafter referred to as (“the Company”)
NOTE 3 PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the financial statements of ABMT and its wholly owned subsidiaries, Masterise and its 70% owned subsidiary, Shenzhen Changhua. The noncontrolling interests represent the noncontrolling stockholders’ 30% proportionate share of the results of Shenzhen Changhua.
All significant inter-company balances and transactions have been eliminated in consolidation.
NOTE 4 USE OF ESTIMATES
The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
NOTE 5 RELATED PARTY TRANSACTIONS
As of July 31, 2010, the Company owed a stockholder $213,989 which is unsecured and repayable on demand. Interest is charged at 7% per annum on the amount owed.
As of July 31, 2010, the Company owed two related parties a total of $704,351, which are unsecured and repayable on demand. Interests are charged at 7% per annum on the amount owed.
Total interest expenses on advances from a stockholder and the related parties accrued for the three months and nine months ended July 31, 2010 and 2009 and for the period from September 25, 2002 (inception) through July 31, 2010 were $14,907, $10,277, $43,436, $24,017 and $84,559 respectively.
As of July 31, 2010, the Company owed $171,051 to three directors for advances made on an unsecured basis, repayable on demand and interest free.
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As of July 31, 2010, the Company owed $393,504 to a related company on an unsecured basis, repayable on demand and interest free.
Imputed interest charged at 5% per annum on the amounts owed to three directors, and a related company is $7,006, $7,866, $21,067, $23,847 and $169,795 for the three months and nine months ended July 31, 2010 and 2009 and for the period from September 25, 2002 (inception) through July 31, 2010 respectively.
NOTE 6 STOCKHOLDERS’ EQUITY
Common stock
On October 1, 2009, the Company issued 100,000 shares of restricted common stock at $3.05 for the advisory services under a service agreement. The shares were valued at the closing price on the date of grant, yielding an aggregate fair value of total $305,000. As of July 31, 2010, the Company recognized $127,083 of consultant fees in general and administrative expenses and recorded deferred stock compensation of $177,917 as of July 31, 2010 for these services. Accordingly, the Company recorded $38,125, $0, $114,375, $0 and $127,083 of consultant fees in general and administrative expenses for the three months and nine months ended July 31, 2010 and 2009 and for the period from September 25, 2002 (inception) through July 31, 2010 respectively.
On December 19, 2009, the Company issued 23,334 shares of common stock at $1.50 per share for cash in a private placement.
On March 16, 2010, the Company entered into a subscription agreement with an investor for the issue of 136,833 shares of common stock at $1.50 per share for cash. The total subscription amount of $205,250 was received on March 16, 2010 and the 136,833 shares were issued to the investor on May 13, 2010.
On July 17, 2010, the Company issued 100,000 shares of restricted common stock at $1.00 to the Chief Medical Advisor for his advisory services. The shares were valued at the closing price on the date of grant, yielding an aggregate fair value of total $100,000. As of July 31, 2010, the Company recognized $8,333 of consultant fees in general and administrative expenses and recorded deferred stock compensation of $91,667 as of July 31, 2010 for these services.
NOTE 7 RECENT ACCOUNTING PRONOUNCEMENTS
In April 2010, FASB issued ASU 2010-13 Compensation-Stock Compensation (Topic 718) Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades. ASU 2010-13 addresses the classification of a share-based payment award with an exercise price denominated in the currency of a market in which the underlying equity security trades. Topic 718 is amended to clarify that a share-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the entity’s equity securities trades shall not be considered to contain a market, performance, or service condition. Therefore, such an award is not to be classified as a liability if it otherwise qualifies as equity classification. The amendments in this Update should be effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010. The guidance should be applied by recording a cumulative-effect adjustment to the opening balance of retained earnings for all outstanding awards as of the beginning of the fiscal year in which the amendments are initially applied. Management is currently evaluating the potential impact of ASU 2010-13 on our financial statements.
In March 2010, FASB issued ASU 2010-11 Derivatives and Hedging (Topic 815) Scope Exception Related to Embedded Credit Derivatives (“ASU 2010-11”). ASU 2010-11 clarifies the type of embedded credit derivative that is exempt from embedded derivative bifurcation requirements. Only one form of embedded credit derivative qualifies for the exemption—one that is related only to the subordination of one financial
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instrument to another. As a result, entities that have contracts containing an embedded credit derivative feature in a form other than such subordination may need to separately account for the embedded credit derivative feature. The amendments in this Update are effective for each reporting entity at the beginning of its first fiscal quarter beginning after June 15, 2010. Early adoption is permitted at the beginning of each entity’s first fiscal quarter beginning after issuance of this Update. The Management is currently evaluating the potential impact of ASU 2010-11 on our financial statements.
In February 2010, FASB issued ASU 2010-9 Subsequent Events (Topic 855) Amendments to Certain Recognition and Disclosure Requirements (“ASU 2010-9”). ASU 2010-9 amends disclosure requirements within Subtopic 855-10. An entity that is an SEC filer is not required to disclose the date through which subsequent events have been evaluated. This change alleviates potential conflicts between Subtopic 855-10 and the SEC’s requirements. ASU 2010-9 is effective for interim and annual periods ending after June 15, 2010. The adoption of ASU 2010-9 did not have a material impact on our financial statements.
In January 2010, the FASB issued ASU 2010-06, Improving Disclosures about Fair Value Measurements. The ASU requires disclosing the amounts of significant transfers in and out of Level 1 and 2 fair value measurements and to describe the reasons for the transfers. The disclosures are effective for reporting periods beginning after December 15, 2009. Additionally, disclosures of the gross purchases, sales, issuances and settlements activity in Level 3 fair value measurements will be required for fiscal years beginning after December 15, 2010. The Company does not expect the provisions of ASU 2010-06 to have a material effect on the financial position, results of operations or cash flows of the Company.
In January 2010, the FASB issued Accounting Standards Update 2010-01, Equity (Topic 505): Accounting for Distributions to Shareholders with Components of Stock and Cash (A Consensus of the FASB Emerging Issues Task Force). This amendment to Topic 505 clarifies the stock portion of a distribution to shareholders that allows them to elect to receive cash or stock with a limit on the amount of cash that will be distributed is not a stock dividend for purposes of applying Topics 505 and 260. Effective for interim and annual periods ending on or after December 15, 2009, and would be applied on a retrospective basis. The Company does not expect the provisions of ASU 2010-01 to have a material effect on the financial position, results of operations or cash flows of the Company.
In October, 2009, the FASB issued ASU 2009-15, “Accounting for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance or Other Financing”, now codified under FASB ASC Topic 470 “Debt”, (“ASU 2009-15”), and provides guidance for accounting and reporting for own-share lending arrangements issued in contemplation of a convertible debt issuance. At the date of issuance, a share-lending arrangement entered into on an entity’s own shares should be measured at fair value in accordance with Topic 820 and recognized as an issuance cost, with an offset to additional paid-in capital. Loaned shares are excluded from basic and diluted earnings per share unless default of the share-lending arrangement occurs. The amendments also require several disclosures including a description and the terms of the arrangement and the reason for entering into the arrangement. The effective dates of the amendments are dependent upon the date the share-lending arrangement was entered into and include retrospective application for arrangements outstanding as of the beginning of fiscal years beginning on or after December 15, 2009. The Company does not expect the provisions of ASU 2009-15 to have a material effect on the financial position, results of operations or cash flows of the Company.
In October 2009, the FASB issued ASU 2009-14, “Certain Arrangements That Include Software Elements, now codified under FASB ASC Topic 985, “Software”, (“ASU 2009-14”). ASU 2009-14 removes tangible products from the scope of software revenue guidance and provides guidance on determining whether software deliverables in an arrangement that includes a tangible product are covered by the scope of the software revenue guidance. ASU 2009-14 should be applied on a prospective basis for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with early adoption permitted. The Company does not expect the provisions of ASU 2009-14 to have a material effect on the financial position, results of operations or cash flows of the Company.
In October 2009, the FASB issued ASU 2009-13, “Multiple-Deliverable Revenue Arrangements”, now codified under FASB ASC Topic 605, “Revenue Recognition”, (“ASU 2009-13”). ASU 2009-13 requires entities to allocate revenue in an arrangement using estimated selling prices of the delivered goods and services based on a selling price hierarchy. The amendments eliminate the residual method of revenue allocation and require revenue to be allocated using the relative selling price method. ASU 2009-13 should be applied on a prospective basis for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with early adoption permitted. The Company does not expect the provisions of ASU2009-13 to have a material effect on the financial position, results of operations or cash flows of the Company.
NOTE 8 GOING CONCERN
As reflected in the accompanying unaudited condensed financial statements, the Company has an accumulated deficit of $2,097,142 at July 31, 2010 that includes a net loss of $477,897 for the nine months ended July 31, 2010. As at July 31, 2010, the Company’s total current liabilities exceeded its total current assets by $1,418,210 and the Company used cash in operations of $326,906 for the nine months ended on that date. These factors raise substantial doubt about its 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 condensed balance sheet is dependent upon continued operations of the Company, which in turn is dependent upon the Company’s ability to 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 the following 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 actively pursuing additional funding and strategic partners, which will enable the Company to implement its business plan. Management believes that these actions as successful will allow the Company to continue its operations through the next fiscal year.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This section of the report includes a number of forward-looking statements that reflect our current views with respect to future events and financial performance. Forward-looking statements are often identified by words like: believe, expect, estimate, anticipate, intend, project and similar expressions, or words which, by their nature, refer to future events. You should not place undue certainty on these forward-looking statements, which apply only as of the date of this annual report. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or our predictions.
Overview
The following discussion is an overview of the important factors that management focuses on in evaluating our businesses, financial condition and operating performance and should be read in conjunction with the financial statements included in this Quarterly Report on Form 10-Q. 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 Quarterly Report as well as under the section entitled “Risk Factors” and elsewhere in the Company’s most recent Annual Report on Form 10-K filed on February 12, 2010.
The Company is subject to a number of risks similar to other companies in the medical device industry. These risks include but are not limited to rapid technological change, uncertainty of market acceptance of our products, uncertainty of regulatory approval, competition from substitute products and larger companies, the need to obtain additional financing, compliance with government regulation, protection of proprietary technology, product liability, and the dependence on key individuals.
All written and oral forward-looking statements made in connection with this Quarterly Report on Form 10-Q that are attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. Given the uncertainties that surround such statements, you are cautioned not to place undue reliance on such forward-looking statements.
Our Business
We are engaged in the business of designing, developing, manufacturing and the planned future marketing of self-reinforced, re-absorbable biodegradable internal fixation devices. Our polyamide materials are protected by Patent no. ZL97119073.9, PRC, issued by the Chinese Intellectual Property Rights Bureau, is used in producing screws, binding wires, rods and related products. These products are used in a variety of applications which include orthopedic trauma, sports related medical treatment, or cartilage injuries. Our products are biodegradable internal fixation devices which are made of a very unique material called Polyamide (“PA”). Our PA products, such as screws, binding wires, rods, suture anchors and rib-pins consist of enhanced fibers and high molecular polymers which are designed to facilitate quick healing of complex fractures in many areas of the human skeletal system. Our products offer a number of significant advantages over existing metal implants and the first generation of degradable implants (i.e. PLLA) for patients, surgeons and other customers including:
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1.
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A notably reduced need for a secondary surgery to remove implant due to post-operative complications, therefore avoiding unnecessary risk and expense on all patient care;
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2.
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Enhancing the performance of the materials by manufacturing them to be easily fitted to each patient, forming an exact fit;
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3.
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Improving the biological activity of materials. Clinical trial results have shown that as PA implants degrade, they promote a progressive shift of load to the new bone creating micro-motion and thereby avoiding bone atrophy due to ‘stress shielding’
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4.
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Reducing the chance of post-operative infection;
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5.
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Effectively controlling the degeneration speed, so that there will be no complications in treating repeat injuries;
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6.
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Ease of post-operative care i.e. no distortion during x-ray imaging;
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7.
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Simple and cost-effective to manufacture.
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Our products are designed to replace the traditional internal fixation device made of stainless steel and titanium and overcome the limitations of previous generations of products such as PLA and PLLA. Our laboratory statistics show that our PA products have a higher mechanical strength, last longer in degradation ratio and are more evenly absorbed form outer layer inwards as compared with similar materials such as PLA and PLLA. Thus PA allows increased restoration time for bone healing and re-growth. The Company’s PA Degradable and Absorbable Screw (“PA Screw”) and Degradable and Absorbable Binding Wire (“PA Binding Wire) are currently being tested in human trials under permit from China’s State Food and Drug Administration (“SFDA”). The Company has completed 71 successful PA Screw trial cases, and 57 successful PA Binding Wire trial cases. Upon the completion of these trials the Company has already exceeded China SFDA’s requirement on clinical trial. The Company is at its final reviewing stage for PA Screws SFDA application submission. In May 2010, the Company organized an internal panel of independent medical experts who have been advising and assisting the Company on the SFDA application preparation.
The Company is preparing documentation for SFDA Provincial Authentication Inspection. Once this is completed, the Company will submit the application for Authentication Inspection to Guangdong Provincial FDA Office. Provincial FDA Authentication Inspection is the first step of formal SFDA application process. After the inspection, Provincial FDA Office will submit the official reports to the State FDA (SFDA).
Process of Human Trials
As of July 31, 2010, for medical study and comparison purpose, the Company has completed a total of 83 successful clinical human trial cases, including 71 cases on ankle fractures. Under SFDA Regulations, a total number of 60 trial cases and 60 comparison cases must be completed before approval is considered. Amended SFDA regulations, unlike previous regulations, require the applicant to specify the position on the body where the clinical trial is carried out. Our SFDA 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. Currently, we have been conducting human trials at the 6 state level hospitals recognized by SFDA for clinical trials in different cities throughout China; including Nanchang, Changsha, Luoyang, Nanning and Tianjin. The cities and provinces where our clinical trial hospitals are based will be the initial target regions on our marketing plan. These regions are both densely populated and have experienced high or above medium economic growth. The Company intends to continuously perform clinical trials exceeding the requirement of 60 cases for further medical studies. Four cases were successfully completed during the period ending July 31, 2010.
The Company anticipates that the PA Screws should receive the SFDA approval by the fourth fiscal quarter of 2010 at the earliest. The Company will start marketing and generate revenues after the SFDA approval. The Company is also planning to start the SFDA application process for the PA Binding Wires once funding becomes available.
The Company has been conducting research and animal tests on Cranio-Maxillofacial Fracture (CMF) Treatment in cooperation with The First Affiliated Hospital of Guangdong Pharmaceutical University in Guangzhou, China. Under the cooperative agreement, both parties will join efforts in utilizing the Company’s bio-absorbable mini-screws and plates. CMF surgery encompasses the treatment of the face, jaws and skull, including trauma and the correction of facial skeletal deformity. Since the 1980s, titanium plates and screws have been the most commonly used fixation devices in CMF surgery. However concerns of using titanium include bone growth restriction and implant migration through the cranium in children. Also adult patients complain about feeling the metal implants, particularly in cold weather or through thin skin. We believe that utilizing our bio-absorbable mini-screws and plates in CMF surgery will eliminate the problems associated with other treatment types.
There can be no assurance that the Company will be able to obtain any further clearances or approvals, if required, to market its products for their intended uses on a timely basis, if at all. Moreover, regulatory approvals, if granted, may include significant limitations on the indicated uses for which a product may be marketed. Delays in the receipt of or the failure to obtain such clearances or approvals, the need for additional clearances or approvals, the loss of previously received clearances or approvals, unfavorable limitations or conditions of approval, or the failure to comply with existing or future regulatory requirements could have a material adverse effect on the Company’s business, financial condition and results of operations.
GOVERNMENT REGULATION
Medical implant devices/products manufactured or marketed by the Company in China are subject to extensive regulations by the SFDA. Pursuant to the related laws and acts, as amended, and the regulations promulgated there under (the “SFDA Regulations”), the SFDA regulates the clinical testing, manufacture, labeling, distribution and promotion of medical devices. The SFDA also has the authority to request repair, replacement, or refund of the cost of any device manufactured or distributed by the Company.
Under the SFDA Regulations, medical devices are classified into three classes (class I, II or III), the basis of the controls deemed necessary by the SFDA to reasonably assure their safety and efficacy. Under the SFDA’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 SFDA 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 SFDA enforcement policy prohibits the marketing of approved medical devices for unapproved uses.
Before a new device can be introduced into the market in China, the manufacturer generally must obtain SFDA marketing clearance through clinical trials. Since the Company is classified as a manufacturer of Class III medical devices, the Company must carry out all clinical trials in pre-selected SFDA approved hospitals.
Manufacturers of medical devices for marketing in China are required to adhere to GMP requirements. Enforcement of GMP requirements has increased significantly in the last several years and the SFDA has publicly stated that compliance will be more strictly scrutinized. From time to time the SFDA has made changes to the GMP and other requirements that increase the cost of compliance. Changes in existing laws or requirements or adoption of new laws or requirements could have a material adverse effect on the Company’s business, financial condition and results of operations. There can be no assurance that the Company will not incur significant costs to comply with applicable laws and requirements in the future or that applicable laws and requirements will not have a material adverse effect upon the Company’s business, financial condition and results of operations.
Regulations regarding the development, manufacturing and sale of the Company’s products are subject to change. The Company cannot predict the impact, if any, that such changes might have on its business, financial condition and results of operations.
Results of Operations
The “Results of Operations” discussed in this section merely reflect the information and results of the Company for the period from September 25, 2002 (Shenzhen Changhua’s date of inception) to July 31, 2010.
Revenues
The Company is in its development stage and does not have any revenue. The management team is continuously looking for fundraising possibilities for product improvement, machinery upgrades, facility expansions, continuous research and development, and sales and marketing preparation.
Our facility is located in Shenzhen, China which is built to meet the GMP standards. Our facility covers about 865 square meters, which includes the combined facilities of offices, laboratories, and workshops. There is one production line for the PA Screw and another production line for the PA Binding Wire. The annual production capabilities of each production line are 100,000 pieces for PA Screw, and 240,000 packs for the PA Binding Wires. Both production lines, at their maximum production capacity, are capable of generating approximately USD $24,000,000 in annual revenue.
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Estimate current production lines in full capacity
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Output Quantity (Max.)
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Price at ex-factory
(U$)
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Total Turnover
(U$)
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PA Screw
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100,000 |
(piece)
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120 | 12,000,000 | |||||||||
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PA Binding Wire
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240,000 |
(pack)
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50 | 12,000,000 | |||||||||
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Total:
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24,000,000 | ||||||||||||
The Company will market its products through a hybrid sales force comprised of a managed network of independent regional distributors/sales agents (80%) and direct sales representatives (20%) in China.
There are two ways the Company will generate revenue, 1) through our nationwide and regional distributors and 2) through our direct sales channels.
Marketing and Sales Goals:
1) Second quarter of 2011: forecasted revenue of $677,600; Distribution of our product in approximately 50 hospitals immediately following SFDA approval.
2) Third quarter of 2011: forecasted revenue of $931,920; Distribution of our product in approximately 78 hospitals.
3) Fourth quarter of 2011: forecasted revenue of $1,332,140; Distribution of our product in approximately 126 hospitals.
4) First quarter of 2012: forecasted revenue of $2,596,560; Distribution of our product in approximately 210 hospitals.
In general, we estimate that the Company will distribute product to a total of 356 hospitals and expect to generate total revenues of $8,883,490 in 2011. In addition, we expected to have positive earning in the fourth quarter of 2011. We also expect a continuous increase of affiliated hospitals and anticipate large increases in revenue due to marketing results of the PA Screw in China and the utilization of the Company’s secured funding to bring the remaining family of self-reinforced, re-absorbable PA products to market.
China’s Marketing Analysis and Sales Strategy:
We have established long term relationships with many hospitals and national distributors in China. Ms. WANG Hui, the Company’s CEO, has over 20 years’ sales experience in medical distribution. She will be in charge of our sales programs. Professor LIU, Shangli, our chief medical advisor, is one of the highest ranked orthopedic doctors in China as well as being highly renowned in the rest of the world. He will assist the Company in nationwide product promotion and joint projects with associated academic institutions and medical schools.
During product development and clinical trial stages we developed close relationships with many major national hospitals. We expect these relationships to boost our revenue generation following SFDA final approval. In order to better serve our customers, including hospitals, distributors, patients and the general public, the Company will set up Regional Service Offices to provide technical support, product information, and customer aid service.
China’s market for PA devices depends on 3 major conditions:
- Patients
- Advanced technology level
- Performance and price of the materials
The demand for internal fixation medical devices has rapidly increased during the last decade. Total market sales have increased more than 15% each year. There are over 1 million bone fractures in patients in China requiring about 4 million bone bolts/screws each year. Research shows that in the next 10 years, China will have a booming aging population and the population in China will continue to increase. New and improved medical technology will continue to rapidly grow throughout hospitals in China, and material optimization and product pricing is expected to directly stimulate increased sales.
The Company has advantages and more opportunities over others competitors due to:
- No other similar patent registrations in China.
- We are the only company qualified and permitted to perform PA clinical trials by SFDA
- We have a timing advantage over other companies in China which would have to go through the preclinical testing for the SFDA permit on clinical trials.
- Under existing regulations by SFDA, it will take at least 3-5 years for clinical trials.
Number of Hospitals in China in year 2008 Statistic and Census report by Ministry of Health of People’s Republic of China.
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Statistic and Census report by Ministry of Health of People’s Republic of China.
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(Year 2008)
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Total
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Total
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Total
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Government
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Society
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Private
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Non-Profit
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Profit
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Hospitals
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19712 | 9777 | 6048 | 3887 | 15650 | 4038 | ||||||||||||||||||
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General Hospital
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13119 | 5830 | 5060 | 2229 | 10856 | 2245 | ||||||||||||||||||
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TCM Hospital
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2688 | 2244 | 158 | 286 | 2403 | 285 | ||||||||||||||||||
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TCM-WM Hospital
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236 | 96 | 48 | 92 | 139 | 97 | ||||||||||||||||||
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Minority Hospital
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191 | 170 | 8 | 13 | 175 | 16 | ||||||||||||||||||
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Specialist Hospital
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3437 | 1422 | 763 | 1252 | 2048 | 1383 | ||||||||||||||||||
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Nursing Hospital
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41 | 15 | 11 | 15 | 29 | 12 | ||||||||||||||||||
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TCM Hospital: Traditional Chinese Medicine Hospital
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WM Hospital: Western Medicine Hospital
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Minority Hospital: The hospitals locate in Autonomous Region (Province) in China
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By the end of year 2011, we anticipate that there will be over 356 hospitals carrying our products. By the end of year 2017, we estimate that our products will reach over 1500 hospitals. Based on the estimated sales figures for one single product, PA Screw, the Company’s projected annual revenue in 2017 would be $64,800,000.
In general, technological advancements and the marketing potential within Asia are the biggest factors in driving significant growth within the global orthopedic devices market. Another major factor that positively influences this market is the growing number of aging baby boomers with active lifestyles. This sector represents a large portion of the total population.
Research and Development
There is substantial research and development (R&D) activity in the market indicating a favorable growth trend. While revenues for active lifestyle participants registered a compound annual growth rate (CAGR) of 17.4 percent for the period 2002-2006; R&D expenditure for the same period recorded a higher growth of 18.4 percent. Increasing R&D expenditure is considered a key indicator of the future direction of the orthopedic market as it points to sustained technological development and innovation.
The Company believes that Asia holds tremendous growth potential for orthopedic device manufacturers due to its fundamental population advantage. Asia accounts for more than 50 percent of the population in the world, but its share of the global orthopedic devices market is comparatively low at approximately 10 percent. Within the region, Japan contributes to a majority of market revenues, indicating large potential for growth in relatively under-penetrated countries such as China and India.
In future periods, 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.
Finance Costs
As of July 31, 2010, a stockholder and two related parties had loaned a total of $918,340 to the Company as unsecured loans repayable on demand and interest is charged at 7% per annum on the amount due. Total interest expenses on advances from a stockholder and the related parties accrued for the three months and nine months ended July 31, 2010 and 2009 and for the period from September 25, 2002 (inception) through July 31, 2010 are $14,907, $10,277, $43,436, 24,017 and $84,559 respectively
As of July 31, 2010, the Company owed $564,555 to the directors and a related company for advances made on an unsecured basis, repayable on demand. Total imputed interest expenses, calculated at 5% per annum, recorded as additional paid-in capital amounted to $7,006, $7,866, $21,067, $23,847 and $169,795 for the three months and nine months ended July 31, 2010 and 2009 and for the period from September 25, 2002 (inception) through July 31, 2010, respectively.
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Three months ended
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Nine months ended
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September 25, 2002
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July 31,
|
July 31,
|
(Inception) through
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||||||||||||||||||
|
2010
|
2009
|
2010
|
2009
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July 31, 2010
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||||||||||||||||
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Interest paid to directors and a related company
|
$ | (7,006 | ) | (7,866 | ) | (21,067 | ) | (23,847 | ) | (169,795 | ) | |||||||||
Net Loss
The net loss for the nine months ended July 31, 2010 and 2009 and for the period from September 25, 2002 (inception) through July 31, 2010 are $477,897, $400,535 and $2,097,142 respectively. We do not have any revenue from inception to July 31, 2010 but have to incur operating expenses for the upkeep of the Company and the clinical trials.
Liquidity and Capital Resources
We had a working capital deficit of $1,418,210 as of July 31, 2010 compared to a working capital deficit of $1,332,845 as of October 31, 2009. Our working capital deficit increased as a result of the fact that we have just completed our PA Screw Clinical Trial phase and do not have a SFDA permit to produce, market or sell in China. We had no revenues during the period and that our sole source of financing are loans from our related parties and stockholders. Meanwhile, we have been conducting clinical trials for PA Binding Wire.
Cash Flows
Net Cash Used in Operating Activities.
Net cash used in operating activities was $326,906 in the nine months ended July 31, 2010. This amount was attributable primarily to the net loss after adjustment for non-cash items, such as depreciation, imputed interest on advances from directors and a related company, and others like decrease in other receivables and prepaid expenses.
Net Cash Used in Investing Activities.
We recorded $4,866 net cash used in investing activities in the nine months ended July 31, 2010. This amount reflected purchases of property and equipment, primarily for research and development to our facilities.
Net Cash Provided by Financing Activities.
Net cash provided by financing activities in the nine months ended July 31, 2010 was $380,662, which represented advances from related parties and proceeds from issuance of 160,167 shares for private placement.
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 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 common stock to fund our business plan should we decide to proceed. We anticipate continuing 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 July 31, 2010, will be insufficient to meet our cash needs. The management is actively pursuing additional funding and strategic partners, which will enable the Company to implement our business plan, business strategy, to continue research and development, clinical trials or further development that may arise.
We intend to spend more to support the commercialization of current products and on research and development activities, including new products development, regulatory and compliance, clinical studies, and the enhancement and protection of our intellectual property portfolio.
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to our investors.
CRITICAL ACCOUNTING POLICIES
The preparation of our financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including but not limited to those related to income taxes and impairment of long-lived assets. We base our estimates on historical experience and on various other assumptions and factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Based on our ongoing review, we plan to adjust to our
judgments and estimates where facts and circumstances dictate. Actual results could differ from our estimates.
We believe the following critical accounting policies are important to the portrayal of our financial condition and results and require our management’s most difficult, subjective or complex judgments, often because of the need to make estimates about the effect of matters that are inherently uncertain.
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.
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.
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, due from related parties, other payables and accrued liabilities and due to 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 grant represents a subsidy from the local government and is unconditional. The Company recognizes the grant upon receipt from the local government and is accounted for as an offset of research and development expenses.
5. 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.
6. Research and Development
Research and development costs related to both present and future products are expensed as incurred.
7. 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
In April 2010, FASB issued ASU 2010-13 Compensation-Stock Compensation (Topic 718) Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades. ASU 2010-13 addresses the classification of a share-based payment award with an exercise price denominated in the currency of a market in which the underlying equity security trades. Topic 718 is amended to clarify that a share-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the entity’s equity securities trades shall not be considered to contain a market, performance, or service condition. Therefore, such an award is not to be classified as a liability if it otherwise qualifies as equity classification. The amendments in this Update should be effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010. The guidance should be applied by recording a cumulative-effect adjustment to the opening balance of retained earnings for all outstanding awards as of the beginning of the fiscal year in which the amendments are initially applied. Management is currently evaluating the potential impact of ASU 2010-13 on our financial statements.
In March 2010, FASB issued ASU 2010-11 Derivatives and Hedging (Topic 815) Scope Exception Related to Embedded Credit Derivatives (“ASU 2010-11”). ASU 2010-11 clarifies the type of embedded credit derivative that is exempt from embedded derivative bifurcation requirements. Only one form of embedded credit derivative qualifies for the exemption—one that is related only to the subordination of one financial instrument to another. As a result, entities that have contracts containing an embedded credit derivative feature in a form other than such subordination may need to separately account for the embedded credit derivative feature. The amendments in this Update are effective for each reporting entity at the beginning of its first fiscal quarter beginning after June 15, 2010. Early adoption is permitted at the beginning of each entity’s first fiscal quarter beginning after issuance of this Update. The Management is currently evaluating the potential impact of ASU 2010-11 on our financial statements.
In February 2010, FASB issued ASU 2010-9 Subsequent Events (Topic 855) Amendments to Certain Recognition and Disclosure Requirements (“ASU 2010-9”). ASU 2010-9 amends
disclosure requirements within Subtopic 855-10. An entity that is an SEC filer is not required to disclose the date through which subsequent events have been evaluated. This change alleviates potential conflicts between Subtopic 855-10 and the SEC’s requirements. ASU 2010-9 is effective for interim and annual periods ending after June 15, 2010. The adoption of ASU 2010-9 did not have a material impact on our financial statements.
In January 2010, the FASB issued ASU 2010-06, Improving Disclosures about Fair Value Measurements. The ASU requires disclosing the amounts of significant transfers in and out of Level 1 and 2 fair value measurements and to describe the reasons for the transfers. The disclosures are effective for reporting periods beginning after December 15, 2009. Additionally, disclosures of the gross purchases, sales, issuances and settlements activity in Level 3 fair value measurements will be required for fiscal years beginning after December 15, 2010. The Company does not expect the provisions of ASU 2010-06 to have a material effect on the financial position, results of operations or cash flows of the Company.
In January 2010, the FASB issued Accounting Standards Update 2010-01, Equity (Topic 505): Accounting for Distributions to Shareholders with Components of Stock and Cash (A Consensus of the FASB Emerging Issues Task Force). This amendment to Topic 505 clarifies the stock portion of a distribution to shareholders that allows them to elect to receive cash or stock with a limit on the amount of cash that will be distributed is not a stock dividend for purposes of applying Topics 505 and 260. Effective for interim and annual periods ending on or after December 15, 2009, and would be applied on a retrospective basis. The Company does not expect the provisions of ASU 2010-01 to have a material effect on the financial position, results of operations or cash flows of the Company.
In October, 2009, the FASB issued ASU 2009-15, “Accounting for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance or Other Financing”, now codified under FASB ASC Topic 470 “Debt”, (“ASU 2009-15”), and provides guidance for accounting and reporting for own-share lending arrangements issued in contemplation of a convertible debt issuance. At the date of issuance, a share-lending arrangement entered into on an entity’s own shares should be measured at fair value in accordance with Topic 820 and recognized as an issuance cost, with an offset to additional paid-in capital. Loaned shares are excluded from basic and diluted earnings per share unless default of the share-lending arrangement occurs. The amendments also require several disclosures including a description and the terms of the arrangement and the reason for entering into the arrangement. The effective dates of the amendments are dependent upon the date the share-lending arrangement was entered into and include retrospective application for arrangements outstanding as of the beginning of fiscal years beginning on or after December 15, 2009. The Company does not expect the provisions of ASU 2009-15 to have a material effect on the financial position, results of operations or cash flows of the Company.
In October 2009, the FASB issued ASU 2009-14, “Certain Arrangements That Include Software Elements, now codified under FASB ASC Topic 985, “Software”, (“ASU 2009-14”). ASU 2009-14 removes tangible products from the scope of software revenue guidance and provides guidance on determining whether software deliverables in an arrangement that includes a tangible product are covered by the scope of the software revenue guidance. ASU 2009-14 should be applied on a prospective basis for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with early adoption permitted. The Company does not expect the provisions of ASU 2009-14 to have a material effect on the financial position, results of operations or cash flows of the Company.
In October 2009, the FASB issued ASU 2009-13, “Multiple-Deliverable Revenue Arrangements”, now codified under FASB ASC Topic 605, “Revenue Recognition”, (“ASU 2009-13”). ASU 2009-13 requires entities to allocate revenue in an arrangement using estimated selling prices of the delivered goods and services based on a selling price hierarchy. The amendments eliminate the residual method of revenue allocation and require revenue to be allocated using the relative selling price method. ASU 2009-13 should be applied on a prospective basis for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with early adoption permitted. The Company does not expect the provisions of ASU2009-13 to have a material effect on the financial position, results of operations or cash flows of the Company.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s Exchange Act reports 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 our management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure based closely on the definition of “disclosure controls and procedures” in 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this quarterly report on From 10-Q (the “Evaluation Date”). Our disclosure controls and procedures are designed to provide a reasonable level of assurance of reaching our desired disclosure control objectives. In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our certifying officers have concluded that our disclosure controls and procedures require additional diligence to be considered effective in reaching that level of assurance.
As of the Evaluation Date, we carried out an evaluation, under the supervision and with the participation of our management including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that with the additional controls and procedures we have put in place, our disclosure controls and procedures were effective as of the Evaluation Date.
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Currently we are not involved in any pending litigation or legal proceeding.
ITEM 1A. RISK FACTORS
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
The following documents are filed as a part of this report or are incorporated by reference to previous filings, if so indicated:
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Exhibit No.
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Description
|
|
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3.1
|
Articles of Incorporation (1)
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3.2
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Bylaws (1)
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||
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31.1
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Section 302 Certification of Chief Executive Officer*
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31.2
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Section 302 Certification of Chief Financial Officer *
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||
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32.1
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Section 906 Certification of Chief Executive Officer *
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||
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32.2
|
Section 906 Certification of Chief Financial Officer *
|
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*filed herewith
(1) Incorporated by reference to the Form SB-2 registration statement filed on January 16, 2007.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
September 16, 2010
| By: | |||
| ADVANCED BIOMEDICAL TECHNOLOGIES, INC. | |||
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|
|
BY: /s/ Chi Ming YU | |
| Chi Ming YU, President and Director | |||
| BY: /s/ Wang Hui | |||
| Wang Hui, Director and Chief Executive Officer | |||
| BY: /s/ Kai GUI | |||
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Kai GUI, Director, Secretary and Chief Financial Officer
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