UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

 

FORM 10-Q/A

(Amendment No. 1)

 

[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarter ended January 31, 2020

 

OR

 

[  ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE ACT OF 1934

 

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)

 

200 Park Avenue, Suite 1700

New York City, NY 10166

(Address of principal executive offices, including zip code.)

 

(718) 766-7898

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Class A Common Stock		ABMT		OTCQB

 

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 [  ]

 

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

 

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 [  ]		Accelerated filer [  ]
Non-accelerated filer [  ]		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 [  ] No [X]

 

As of August 20, 2020, there are 69,974,850 shares of common stock outstanding.

 

All references in this Report on Form 10-Q/A to the terms “we”, “our”, “us”, the “Company”, “ABMT” and the “Registrant” refer to Advanced BioMedical Technologies, Inc. unless the context indicates another meaning.

 

 

 

EXPLANATORY NOTE

 

Advanced BioMedical Technologies, Inc. (the “Company”) is filing this Amendment No. 1 (the “Amendment No. 1”) to its Quarterly Report on Form 10-Q for the period ended January 31, 2020, which was originally filed with the Securities and Exchange Commission (“SEC”) on April 30, 2020 (the “Original 2020 Form 10-Q”). The Company is supplementing the disclosure as set forth below in connection with the Company’s reliance on the Order (as defined below):

 

The Company is relying on the exemptions provided by the Commission’s March 4, 2020 order (Release No. 34-88318) as modified on March 25, 2020 (Release No. 34-88465) (the “Order”) for relief in the timely filing of its Quarterly Report on Form 10-Q for the period ended January 31, 2020 as a result of persisting negative impact derived from the outbreak of the COVID-19 Pandemic.

 

On April 30, 2020, in reliance upon the Order, the Company filed its quarterly report on Form 10-Q for the period ended January 31, 2020. The Company could not file the quarterly report on a timely basis because COVID 19 lockdown, travel restrictions and quarantine requirements prevented the Company’s staff and its auditor access to the Company’s records, thus preventing timely compilation and review of the Company’s financial statements for the period ended January 31, 2020. Furthermore, the Company’s Shenzhen subsidiary’s business partners had limited staff to respond to the reconciliation process, resulting in a delay in the Company’s information collection for ledger closing and consolidation works.

 

For convenience and ease of reference, the Company is filing the quarterly report for the period ended January 31, 2020 in its entirety with applicable changes. Except as specifically referenced herein, this Amendment No. 1 does not amend, update, change or restate the information in any other items of the Form 10-Q or reflect any event occurring subsequent to April 30, 2020, the filing date of the Original 2020 Form 10-Q.

 

Pursuant to Rule 12b-15 under the Securities Exchange Act of 1934, as amended, the certifications pursuant to Section 302 and Section 906 of the Sarbanes-Oxley Act of 2002, filed and furnished, respectively, as exhibits to the Original 2020 Form 10-Q have been re-executed and re-filed as of the date of this Amendment No. 1 and are included as exhibits hereto.

 

 

TABLE OF CONTENTS

 

			Page
PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements		3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		4
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		13
Item 4.	Controls and Procedures		13
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings		14
Item 1A.	Risk Factors		14
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		14
Item 3.	Defaults upon Senior Securities		14
Item 4.	Mine Safety Disclosure		14
Item 5.	Other Information		14
Item 6.	Exhibits		15

 

 

PART I – FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

The accompanying condensed consolidated unaudited financial statements of Advanced BioMedical Technologies, Inc., 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, 2019 included in our Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (“SEC”) on March 20, 2020. In the opinion of management, all adjustments necessary for a fair presentation have been included in the accompanying condensed consolidated financial statements and consist of only normal recurring adjustments. The results of operations presented in the accompanying condensed consolidated financial statements for the period ended January 31, 2020 are not necessarily indicative of the operating results that may be expected for the full year ending October 31, 2020.

 

 

ADVANCED BIOMEDICAL TECHNOLOGIES, INC.

AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AS OF JANUARY 31, 2020

(UNAUDITED)

 

 

ADVANCED BIOMEDICAL TECHNOLOGIES, INC.

AND SUBSIDIARIES

 

CONTENTS

 

	Pages
Condensed Consolidated Balance Sheets as of January 31, 2020 (unaudited) and October 31, 2019	F - 2
Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended January 31, 2020 and 2019 (unaudited)	F - 3
Condensed Consolidated Statements of Stockholders’ Deficit for the period from October 31, 2019 through January 31, 2020 (unaudited)	F - 4
Condensed Consolidated Statements of Cash Flows for the three months ended January 31, 2020 and 2019 (unaudited)	F - 5
Notes to Condensed Consolidated Financial Statements (unaudited)	F - 6 – F - 9

 

 

ADVANCED BIOMEDICAL TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

 

		January 31, 2020				October 31, 2019
		(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents		$	8,086			$	5,592
Other receivables and prepaid expenses			59,940				49,767
Inventory			49,399				64,107
Total Current Assets			117,425				119,466
Property and equipment, cost			544,377				534,666
Less: Accumulated depreciation			(448,418	)			(435,632	)
PROPERTY AND EQUIPMENT, NET			95,959				99,034
RIGHT-OF-USE ASSETS			64,518				-
TOTAL ASSETS		$	277,902			$	218,500
LIABILITIES AND STOCKHOLDERS’ DEFICIT
CURRENT LIABILITIES
Other payables and accrued expenses		$	670,164			$	674,882
Lease liabilities, current portion			45,286				-
Due to directors			298,911				280,514
Due to a stockholder			838,111				824,705
Due to related parties			5,044,984				4,916,638
Total Current Liabilities			6,897,456				6,696,739
NON-CURRENT LIABILITIES
Lease liabilities, less current portion		$	22,301			$	-
STOCKHOLDERS’ DEFICIT
Common stock, $0.00001 par value, 100,000,000 shares authorized, 69,874,850 issued and outstanding as of January 31, 2020 and
October 31, 2019			698				698
Additional paid-in capital			2,771,527				2,768,138
Accumulated deficit			(9,648,153	)			(9,581,438	)
Accumulated other comprehensive income			234,073				334,363
Total Deficit			(6,641,855	)			(6,478,239	)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT		$	277,902			$	218,500

 

The accompanying notes are an integral part of these consolidated financial statements

 

 

ADVANCED BIOMEDICAL TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(UNAUDITED)

 

		3 months ended
		January 31, 2020				January 31, 2019
Net sales		$	60,501			$	-
Cost of sales			(33,127	)			-
Gross margin			27,374				-
OPERATING EXPENSES
General and administrative expenses			54,285				147,930
Depreciation			5,132				5,000
Depreciation on right-of-use assets			10,822				-
Research and development			56,780				16,979
Total Operating Expenses			127,019				169,909
LOSS FROM OPERATIONS			(99,645	)			(169,909	)
OTHER (EXPENSES) INCOME
Government grants			125,652				-
Interest income			5				10
Interest paid to a stockholder and related parties			(80,254	)			(75,507	)
Interest on lease liabilities			(1,297	)			-
Imputed interest			(3,389	)			(3,148	)
Other, net			(4,861	)			(3,969	)
Total Other (Expenses) Income, net			35,856				(82,614	)
LOSS BEFORE TAXES			(63,789	)			(252,523	)
Income tax expense			-				-
NET LOSS			(63,789	)			(252,523	)
Net loss attributable to non-controlling interests			-				-
NET LOSS ATTRIBUTABLE TO ABMT COMMON STOCKHOLDERS			(63,789	)			(252,523	)
OTHER COMPREHENSIVE LOSS
Foreign currency translation loss			(100,290	)			(211,644	)
Total other comprehensive loss			(100,290	)			(211,644	)
COMPREHENSIVE LOSS ATTRIBUTABLE TO ABMT COMMON STOCKHOLDERS		$	(164,079	)		$	(464,167	)
Net loss per share-basic and diluted - basic and diluted		$	-			$	-
Weighted average number of shares outstanding during the period - basic and diluted			69,874,850				69,430,102

 

The accompanying notes are an integral part of these consolidated financial statements

 

 

ADVANCED BIOMEDICAL TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT (UNAUDITED)

 

																		Accumulated
		Common stock								Additional								other
		Number								paid-in				Accumulated				comprehensive
		of shares				Amount				capital				deficit				loss				Total
Balance at October 31, 2018			69,624,850			$	696			$	2,740,183			$	(8,632,618	)		$	272,727			$	(5,619,012	)
Imputed interest on advances from directors			-				-				3,148				-				-				3,148
Net loss for the period			-				-				-				(252,523	)			-				(252,523	)
Foreign currency translation loss			-				-				-				-				(211,644	)			(211,644	)
Balance at January 31, 2019			69,624,850			$	696			$	2,743,331			$	(8,885,141	)		$	61,083			$	(6,080,031	)

 

																		Accumulated
		Common stock								Additional								other
		Number								paid-in				Accumulated				comprehensive
		of shares				Amount				capital				deficit				income/(loss)				Total
Balance at October 31, 2019			69,874,850			$	698			$	2,768,138			$	(9,581,438	)		$	334,363			$	(6,478,239	)
Retrospective effect of adoption of ASU 2016-02			-				-				-				(2,926	)			-				(2,926	)
Imputed interest on advances from directors			-				-				3,389				-				-				3,389
Net loss for the period			-				-				-				(63,789	)			-				(63,789	)
Foreign currency translation loss			-				-				-				-				(100,290	)			(100,290	)
Balance at January 31, 2020			69,874,850			$	698			$	2,771,527			$	(9,648,153	)		$	234,073			$	(6,641,855	)

 

The accompanying notes are an integral part of these consolidated financial statements

 

 

ADVANCED BIOMEDICAL TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

		3 months ended
		January 31,
		2020				2019
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss attributable to ABMT common stockholders		$	(63,789	)		$	(252,523	)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation on owned property & equipment			5,132				5,000
Depreciation on right-of-use assets			10,822				-
Interest on lease liabilities			1,297				-
Imputed interest			3,389				3,148
Changes in operating assets and liabilities
Decrease (increase) in:
Inventory			15,685				-
Other receivables and prepaid expenses			(9,351	)			(11,020	)
Depreciation allocated to inventory			153				-
Increase (decrease) in:
Other payables and accrued expenses			(15,198	)			55,628
Net cash used in operating activities			(51,860	)			(199,767	)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment			(525	)			(7,968	)
Renovation of factory premises			-				(17,075	)
Net cash used in investing activities			(525	)			(25,043	)
CASH FLOWS FROM FINANCING ACTIVITIES
Due to a stockholder			12,448				43,428
Due to directors			13,748				(6,552	)
Due to related parties			40,640				197,746
Capital element of lease rental paid			(10,734	)			-
Interest element of lease rental paid			(1,297	)			-
Net cash provided by financing activities			54,805				234,622
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS			74				273
INCREASE IN CASH AND CASH EQUIVALENTS			2,494				10,085
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF PERIOD			5,592				6,860
CASH AND CASH EQUIVALENTS AT THE END OF PERIOD		$	8,086			$	16,945
Supplemental of cash flow information
Interest income		$	5			$	10
Other non cash items
Interest expenses		$	81,551			$	75,507

 

The accompanying notes are an integral part of these consolidated financial statements

 

 

ADVANCED BIOMEDICAL TECHNOLOGIES, INC.

AND SUBSIDIARIES

 

NOTES TO THE CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (UNAUDITED)

 

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 adjustments considered necessary to present fairly the Company’s financial position as of January 31, 2020, the consolidated results of operations for the three months ended January 31, 2020 and 2019 and consolidated statements of cash flows for the three months ended January 31, 2020 and 2019 on an accrual basis and in accordance with accounting principles generally accepted in the United States of America for interim financial information and rules and regulations of the SEC. The consolidated results for the three months ended January 31, 2020 are not necessarily indicative of the results to be expected for the entire fiscal year ending October 31, 2020. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes for the year ended October 31, 2019 appearing in the Company’s annual report on Form 10-K as filed with the Securities and Exchange Commission on March 20, 2020.

 

The reporting currency of the Company is US dollar.

 

NOTE 2 ORGANIZATION

 

Advanced BioMedical Technologies, Inc. (fka “Geostar Mineral Corporation” or “Geostar”) (“ABMT”) was incorporated in Nevada on September 12, 2006.

 

Shenzhen Changhua Biomedical Engineering Co., Ltd. (“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 has been involved in the development of polymer screws, rods and binding wires for fixation on human fractured bones. The Company is currently involved in researching, manufacturing and conducting clinical trials on its products and intends to raise additional capital to produce and market its products commercially. The Company holds one Class III permit and one Class II permit from the National Medical Products Administration of the PRC (“NMPA”), formerly the China Food and Drug Administration (“CFDA”) the PRC. The Company holds two patents issued by the State Intellectual Property Office of the P.R.C. (“SIPO”). The Company only started to generate at the end of the fiscal year ended October 31, 2019 since its inception and, in accordance with Accounting Standards Codification (“ASC”) Topic 915, “Development Stage Entities”, 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 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.

 

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 an 80.7% stockholder of ABMT.

 

On March 13, 2009, the name of the Company was changed from Geostar Mineral Corporation to Advanced Biomedical Technologies, Inc.

 

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:

 

	(1)	The balance sheet consisting of the net assets of the acquirer at historical cost and the net assets of the acquiree at historical cost.
	(2)	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.

 

ABMT, Masterise and Shenzhen Changhua are hereinafter referred to as (“the Company”).

 

NOTE 3 PRINCIPLES OF CONSOLIDATION

 

The accompanying condensed consolidated financial statements include the financial statements of ABMT and its wholly owned subsidiaries, Masterise and its 70% owned subsidiary, Shenzhen Changhua. The non-controlling interests in periods prior to 2012 represent the non-controlling 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 accounting principles generally accepted in the United States of America 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 January 31, 2020 and October 31, 2019, the Company owed a stockholder $838,111 and $824,705 respectively which are unsecured and repayable on demand. Interests are charged at 7% per annum on the amount owed.

 

As of January 31, 2020 and October 31, 2019, the Company owed four related parties a total of $5,044,984 and $4,916,638 respectively which are unsecured and repayable on demand. Interests are charged at 7% per annum on the amounts owed.

 

 

Total interest expenses on advances from a stockholder and the related parties accrued for the three months ended January 31, 2020 and 2019 were $80,254 and $75,507 respectively.

 

As of January 31, 2020 and October 31, 2019, the Company owed $298,911 and $280,514 respectively, to two directors for advances made on an unsecured basis, repayable on demand and interest free.

 

Imputed interest charged at 5% per annum on the amounts owed to two directors is $3,389 and $3,148 for the three months ended January 31, 2020 and 2019 respectively.

 

Sales for the quarter ended 31 January 2020 amounted to US$60,501 (2019: Nil) were made to a company in which Mr. Chen Tie Jun has a significant equity interest

 

NOTE 6 COMMITMENTS AND CONTINGENCIES

 

Leases

 

The Company adopted ASU 2016-02 on November 1, 2019 using the modified retrospective adoption method. The reported results for the three months ended January 31, 2020 reflect the adoption of ASC 842 guidance while the reported results for the three months ended January 31, 2019 were prepared and continue to be reported under the guidance of ASC 840, Leases.

 

Pursuant to ASC 842, the Company recognizes operating leases as right-of-use assets and lease liabilities as shown in the consolidated balance sheet. The Company has two operating leases with unrelated parties for factory space and director’s quarter in the P.R.C., which are non-cancelable and expiring on dates between 28 March 2021 and 30 April 2022, and do not include options to renew. The depreciable life of right-of use assets are limited by the term of leases.

 

As of January 31, 2020, the Company has lease commitments as follows:

 

For the year ending October 31,
2020		$	36,437
2021			28,340
2022			6,940
Total lease payment payables			71,717
Less: Interest element			(4,130	)
Total lease liabilities			67,587
Lease liabilities current portion			(45,286	)
Lease liabilities less current portion		$	22,301

 

In determining the lease liability and corresponding right-of-use asset for each lease, the Company calculated the present value of future lease payments using the Company’s incremental borrowing rate of 7%. The incremental borrowing rate was determined with reference to the interest rate applicable to borrowings from related parties disclosed in Note 4, Related Parties Transactions.

 

Capital commitments

 

The Company has outstanding commitments contracted for, net of deposit paid of US$1,446, in respect of acquisitions of plant and machineries amounted to US$2,675 and US$7,235 as of January 31, 2020 and 31 October 2019 respectively.

 

NOTE 7 FAIR VALUE OF FINANCIAL INSTRUMENTS

 

The Financial Accounting Standards Board (FASB) Codification Topic 825 (ASC Topic 825), “Disclosure About Fair Value of Financial Instruments,” requires certain disclosures regarding the fair value of financial instruments. The carrying amounts of other receivables and prepaid expenses, other payables and accrued liabilities and due to a stockholder, directors and related parties approximate their fair values because of the short-term nature of the instruments. The management of the Company is of the opinion that the Company is not exposed to significant interest or credit risks arising from these financial statements.

 

 

NOTE 8 GOING CONCERN

 

As reflected in the accompanying unaudited condensed consolidated financial statements, the Company has an accumulated deficit of $9,648,153 as of January 31, 2020 that includes a net loss of $63,789 for the three months ended January 31, 2020. As of January 31, 2020, the Company’s total current liabilities exceeded its total current assets by $6,780,031 and the Company used cash in operations of $51,860 for the three 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 consolidated 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.

 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Forward Looking Statements

 

This section of the report includes a number of forward-looking statements that reflect our current views with respect to future events and financial performance. Forward-looking statements are often identified by words like: believe, expect, estimate, anticipate, intend, project and similar expressions, or words which, by their nature, refer to future events. Actual results could differ materially from those anticipated in these forward looking statements as a result of any number of factors, including those set forth in this Quarterly Report, and in the Company’s most recent Annual Report on Form 10-K filed on March 20, 2020.

 

All written and oral forward-looking statements made in connection with this Quarterly Report on Form 10-Q that are attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. Given the uncertainties that surround such statements, you are cautioned not to place undue reliance on such forward-looking statements, which apply only as of the date of this quarterly report. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or our predictions.

 

Overview

 

The following discussion is an overview of the important factors that management focuses on in evaluating our businesses, financial condition and operating performance and should be read in conjunction with the financial statements included in this Quarterly Report on Form 10-Q.

 

The Company is subject to a number of risks similar to other companies in the medical device industry. These risks include but are not limited to rapid technological change, uncertainty of market acceptance of our products, uncertainty of regulatory approval, competition from substitute products and larger companies, the need to obtain additional financing, compliance with government regulation, protection of proprietary technology, product liability, and the dependence on key individuals.

 

Our Business

 

We are engaged in the business of designing, developing, manufacturing and marketing of biomaterial internal fixation devices. We hold one medical device permit from the National Medical Products Administration of the PRC (“NMPA”) for our product - polymer orthopaedic internal fixation screws and two patents issued by the State Intellectual Property Office of the P.R.C. (“SIPO”). Our polyamide materials, their uses and manufacturing processes are protected by Patent No. ZL971190739. A new patent, No. ZL201410647464.1 titled “Bone Fracture Plate Made of High Polymer Materials” was granted to us in January 2018. Our polyamide materials are used in producing screws, binding wires, rods and related products. These products are used in a variety of applications including orthopaedic trauma, sports related medical treatment, or cartilage injuries, and reconstructive dental procedures. At this time, our company is the sole patent holder and market permit holder of PA technologies in China, as well as the only company currently engaged in clinical trials, manufacturing and marketing for PA orthopaedic internal fixation devices in the PRC. Our products are made of a very unique material called PA6-P(MMA-CO-NVP)-HA (“PA”). Our PA products, such as screws, binding wires, rods, suture anchors and rib-pins consist of enhanced fibers and high molecular polymers which are designed to facilitate quick healing of complex fractures in many areas of the human skeletal system.

 

 

Our products offer a number of significant advantages over existing metal implants and the first generation of degradable implants (i.e. PLLA) for patients, surgeons and other customers including:

 

	1.	A notably reduced need for a secondary surgery to remove implant due to post-operative complications, therefore avoiding unnecessary risk and expense on all patient care;
	2.	Enhancing the performance of the materials by manufacturing them to be easily fitted to each patient, forming an exact fit;
	3.	Improving the biological activity of materials. Clinical trial results have shown that PA implants promote a progressive shift of load to the new bone creating micro-motion and thereby avoiding bone atrophy due to ‘stress shielding’;
	4.	Reducing the chance of post-operative infection;
	5.	Stimulate bone tissues to facilitate effective biological integration, benefitting the regeneration of bone;
	6.	Ease of post-operative care i.e. no distortion during x-ray imaging;
	7.	Simple and cost-effective to manufacture.

 

Our products are designed to replace the traditional internal fixation device made of stainless steel and titanium and overcome the limitations of previous generations of products such as PLA and PLLA. Our laboratory statistics show that our PA products have a higher mechanical strength, last longer in degradation ratio and are more evenly absorbed form outer layer inwards as compared with similar materials such as PLA and PLLA. Thus PA allows increased restoration time for bone healing and re-growth. The Company’s polymer orthopaedic internal fixation screws received approval from the National Medical Products Administration of the PRC (“NMPA”) in April 2018. We launched our sales campaign at the end of our fiscal year ended October 31, 2019 and achieved a milestone in the Company’s history by generating revenue through the sales of our PA Screws.

 

NMPA Application Process and Approval for Polymer Screws

 

The Company first submitted its application for PA Screws to the NMPA (formerly the SFDA/CFDA) in 2008. The application has been withheld by the NMPA pending additional clinical trial cases. This is due to the amended NMPA regulations, which unlike previous regulations require the applicant to specify the position on the body where the clinical trial is carried out. Our amended NMPA application has specified the ankle fracture as the body part of our clinical trial. This is because bones around this part carry most of the body weight.

 

Due to the uniqueness of our material, there were no established NMPA Product Standards that we could follow during our application process for our PA Screws. To establish our own Product Standards, the Company had been carrying out extra tests. The Company submitted its Product Standards and supplementary reports to the NMPA in 2014. In December 2016, the Company received a notice from the NMPA requesting supplementary report as part of the review process. The Company completed the supplementary report and submitted it to the NMPA in June 2017.

 

In April 2018, the Company’s application for its PA Screws was approved by the NMPA in China (Medical Device Certification Number: 20183460133).

 

Process of Human Trials

 

As of January 31, 2020, for medical study and comparison purpose, the Company has completed a total of 83 successful clinical human trial cases, including 71 cases on ankle fractures and 57 successful PA Binding Wire trial cases. We have been conducting human trials at the 6 state level hospitals recognized by NMPA for clinical trials in different cities throughout China; including Nanchang, Changsha, Luoyang, Nanning and Tianjin. The cities and provinces where our clinical trial hospitals are based will be the initial target regions on our marketing plan. These regions are both densely populated and have experienced high or above medium economic growth. The clinical trials for the Company’s PA Screws have been completed with 100 percent success rate. Having gained NMPA approval for PA Screws, the Company is planning to start clinical trials on series of orthopaedic products the Company has developed using the same unique biomaterial.

 

 

Government Regulation

 

Medical implant devices/products manufactured or marketed by the Company in China are subject to extensive regulations by the NMPA. Pursuant to the related laws and acts, as amended, and the regulations promulgated there under (the “NMPA Regulations”), the NMPA regulates the clinical testing, manufacture, labeling, distribution and promotion of medical devices. The NMPA also has the authority to request repair, replacement, or refund of the cost of any device manufactured or distributed by the Company.

 

Under the NMPA Regulations, medical devices are classified into three classes (class I, II or III), the basis of the controls deemed necessary by the NMPA to reasonably assure their safety and efficacy. Under the NMPA’s regulations, class I devices are subject to general controls (for example, labeling and adherence to Good Manufacturing Practices (“GMP”) requirements) and class II devices are subject to general and special controls. Generally, class III devices are those which must receive premarket approval by the NMPA to ensure their safety and efficacy (for example, life-sustaining, life-supporting and certain implantable devices, or new devices which have not been found substantially equivalent to legally marketed class I or class II devices). The Company is classified as a manufacturer of class III medical devices. Current NMPA enforcement policy prohibits the marketing of approved medical devices for unapproved uses.

 

Before a new device can be introduced into the market in China, the manufacturer generally must obtain NMPA marketing clearance through clinical trials. Since the Company is classified as a manufacturer of Class III medical devices, the Company must carry out all clinical trials in pre-selected NMPA approved hospitals.

 

Manufacturers of medical devices for marketing in China are required to adhere to GMP requirements. Enforcement of GMP requirements has increased significantly in the last several years and the NMPA has publicly stated that compliance will be more strictly scrutinized. From time to time the NMPA has made changes to the GMP and other requirements that increase the cost of compliance. Changes in existing laws or requirements or adoption of new laws or requirements could have a material adverse effect on the Company’s business, financial condition and results of operations. There can be no assurance that the Company will not incur significant costs to comply with applicable laws and requirements in the future or that applicable laws and requirements will not have a material adverse effect upon the Company’s business, financial condition and results of operations.

 

Regulations regarding the development, manufacturing and sale of the Company’s products are subject to change. The Company cannot predict the impact, if any, that such changes might have on its business, financial condition and results of operations.

 

Results of Operations

 

The “Results of Operations” discussed in this section merely reflect the information and results of the Company for the period from September 25, 2002 (Shenzhen Changhua’s date of inception) to January 31, 2020 and 2019.

 

 

 

Revenues

 

The Company achieved a milestone in its history by generating sales revenue at the end of the fiscal year ended October 31, 2019. As of January 31, 2020, the Company’s net sales increased from $11,657 to $60,501 compared with previous quarter. Due to the COVID-19 pandemic, non-essential operations have been cancelled in hospitals nationwide in China. We expect the sales of our PA Screws to fall in the second quarter of 2020, and gradually recover during the third quarter as the COVID-19 cases ease off in China.

 

Our management team is continuously looking for fundraising possibilities for sales and marketing expansion, product improvement, machinery upgrades, facility expansions and continuous research and development.

 

Our facility is located in Shenzhen, China, which is built to meet the GMP standards. Our facility covers about 865 square meters, which includes the combined facilities of offices, laboratories, and workshops. There is one production line for the PA Screw and another production line for the PA Binding Wire. The annual production capabilities of each production line are 100,000 pieces for PA Screw, and 240,000 packs for the PA Binding Wires. Both production lines, at their maximum production capacities are capable of generating approximately $30,000,000 in annual revenue.

 

Estimate current production lines in full capacity
		Output Quantity (Max.)								Price at ex-factory ($)					Total Turnover ($)
PA Screw			100,000				(piece)				180					18,000,000
PA Binding Wire			240,000				(pack)				50					12,000,000
													Total:			30,000,000

 

China’s Marketing Analysis:

 

We have established long term relationships with many hospitals and national distributors in China. Ms. Hui Wang, the Company’s CEO, has over 25 years’ sales experience in medical distribution. Professor Shangli Liu, our chief medical advisor, is one of the highest ranked orthopedic doctors in China as well as being highly renowned in the rest of the world. He will assist the Company in nationwide product promotion and joint projects with associated academic institutions and medical schools. During product development and clinical trial stages, we developed close relationships with many major national hospitals. We expect these relationships to boost our revenue generation.

 

China’s market for PA devices depends on 3 major conditions:

- Patients

- Advanced technology level

- Performance and price of the materials

 

China has gradually entered the Old Age Society. It is expected that there will be 245 million people over 60 years of age by 2020, and, according to the survey of 50 years old, the incidence of osteoporosis is as high as 60%, accompanied by osteoporosis, fracture, bone necrosis, disability and other diseases, resulting in continued high demand of orthopaedic implant medical devices. (Source: The UN; Shenwan Hongyuan Securities research report).

 

 

The Company has advantages and more opportunities over others competitors due to:

 

- No other similar patent registrations in China.

- We are the only company to receive market approval and permission to perform PA clinical trials by the NMPA to the best of our knowledge.

- We have a timing advantage over other Chinese companies; other companies would need to successfully complete preclinical testing for the NMPA in order to obtain clinical trial permits.

- Under new regulations by the NMPA, it will take at least 5-10 years for clinical trials of new materials.

- Our patented material enables us to rapidly diversify our product line according to market trend and demand.

 

Number of Hospitals at the end of February 2020 Statistic and Census report by the National Health Commission of the People’s Republic of China.

 

Statistic and Census report by the National Health Commission of the People’s Republic of China
(February 2020)
		February 2020				February 2019				Increase / (Decrease)
Total No. of Hospitals			34,104				33,125				979
Public Hospital			11,915				11,960				(45	)
Private Hospital			22,189				21,165				1,024
Hospital Rating
AAA			2,762				2,582				180
AA			9,730				9,061				669
A			11,153				10,850				303
Unrated			10,459				10,632				(173	)

 

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

 

Research and development costs related to both present and future products are expensed as incurred. Total expenditure on research and development charged to general and administrative expenses for the quarter ended January 31, 2020 and 2019 was $56,780 and $16,979.

 

We expect research and development expenses to grow as we continue to invest in basic research, clinical trials, product development and in our intellectual property. The Company will be working closely with medical institutions and research universities to expedite future clinical trials of upcoming series of polymer fixation devices, including Intramedullary Nailing Fixation, Binding Wires, Micromodule Screws & Plates, Maxillofacial & Craniofacial Plates, and Rib Pins.

 

Marketing Strategy

 

The Company has been conducting Pre-Market Research before its PA Screws application was approved by the NMPA in April 2018. The research is intended to estimate the potential market success of the company’s products that can be expected. The research also beyond the Company’s initial market - China, and covers international markets. Based on the results of our Pre-Market Research and the positive feedbacks we have received from trade shows and industrial conferences, it is the Company’s intention to apply for additional international regulatory approvals in due course.

 

 

The Company will market its products through a hybrid sales force comprised of a managed network of independent regional distributors/sales agents (80%) and direct sales representatives (20%) in China.

 

There are two ways the Company will generate revenue, 1) through our nationwide and regional distributors and 2) through our direct sales channels.

 

The Company is currently working to have its products registered on multiple provincial Group Purchasing Organization (GPO) platforms. A few distributors have made deposit payment. The Company is working with distributors to develop sales channels and have its products reaching hospitals.

 

Impact of COVID-19 Outbreak

 

The Company’s primary business is carried out through its subsidiary, Shenzhen Changhua Biomedical Engineering Co., Ltd. (“Shenzhen Changhua”), based in Shenzhen, China, where the COVID-19 pandemic started in January 2020.

 

The Company has identified the following areas that have been adversely affected by COVID-19 pandemic:

 

	1.	Operation: Our facilities in China were not fully staffed due to COVID-19 lockdown, travel restrictions and quarantine requirements. This affected our accounting and marketing departments mostly because a large number of staff couldn’t come back to office as they were not allowed to travel or have 14-day quarantine before they come back to work. As the crisis is easing off in China, we expect our operation to gradually be back to normal.
	2.	Manufacturing: We have sufficient raw material stock for 2 months and our production should not be affected. However, if COVID-19 pandemic persists and continues beyond May 2020, our supply chain will be affected, and we may be short of raw material supply.
	3.	Marketing: We launched our sales campaign in November 2019 and our sales increased in the quarter ended January 31, 2020. Our sales and marketing plans have been disrupted by COVID-19 pandemic because almost all the hospitals in China have been dealing with COVID-19 and non-essential operations have been postponed or cancelled.

 

The Company has been working with its business partners and workforce through crisis planning, effective communication and co-operation to minimize the negative impact of the COVID-19 pandemic.

 

Finance Costs

 

As of January 31, 2020 and October 31, 2019, a stockholder and four related parties had loaned a total of $5,044,984 and $4,916,638 respectively to the Company as unsecured loans repayable on demand and interest is charged at 7% per annum on the amount due. Total interest expenses on advances from a stockholder and the related parties accrued for the three months ended January 31, 2020 and 2019 were $80,254 and $75,507 respectively.

 

As of January 31, 2020 and October 31, 2019, the Company owed $298,911 and $280,514 respectively to the directors for advances made on an unsecured basis, repayable on demand. Total imputed interest expenses on advances from directors, calculated at 5% per annum, recorded as additional paid-in capital amounted to $3,389 and $3,148 for the three months ended January 31, 2020 and 2019 respectively.

 

 

Net Loss

 

The net loss attributable to common stockholders for the three months ended January 31, 2020 and 2019 were $63,789 and $252,523 respectively. We started to generate revenue at the end of our fiscal year from inception to October 31, 2019 before our sales campaign was disrupted by the COVID-19 pandemic, but we have to incur operating expenses for the upkeep of the Company and the clinical trials.

 

Liquidity and Capital Resources

 

We had a working capital deficit of $6,780,031 and $6,577,273 as of January 31, 2020 and October 31, 2019 respectively. Our working capital deficit is due to the fact that we received the NMPA approval for one product in April 2018 and we are in the process to produce, market and sell our product in China. We only started our sales campaign and our sales revenues were not able to cover our expenses and we relied on loans from our related parties and stockholders.

 

Cash Flows

 

Net Cash Used in Operating Activities

 

Net cash used in operating activities was $51,860 and $199,767 in the three months ended January 31, 2020 and 2019 respectively. This amount was attributable primarily to the net loss after adjustment for non-cash items, such as depreciation, loss on disposal of property and equipment, imputed interest on advances from directors, and others like charges in other receivables and prepaid expenses and other payables and accrued expenses.

 

Net Cash Used in Investing Activities

 

We recorded net cash used of $525 and $25,043 in investing activities in the three months ended January 31, 2020 and 2019 respectively. This amount reflected purchases of property and equipment, primarily for research and development to our facilities.

 

Net Cash Provided by Financing Activities

 

Net cash provided by financing activities in the three months ended January 31, 2020 and 2019 was $54,805 and $234,622 respectively, which represented advances from a stockholder, directors and related parties, loan repayment to directors and advances to a related company.

 

Operating Capital and Capital Expenditure Requirements

 

Our ability to continue as a going concern and support the commercialization of current products is dependent upon our ability to market our product while obtaining additional financing in the near term. We anticipate that such funding will be in the form of marketing of our products and equity financing from sales of our common stock. However, there is no assurance that we will be able to raise sufficient funding from the sale of our products and common stock to fund our business plan should we decide to proceed. We anticipate our sales revenue will not meet our financial needs in 2020 and we need to rely on advances from our related parties and stockholders in order to continue to fund our business operations.

 

We believe that our existing cash, cash equivalents at January 31, 2020, will be insufficient to meet our cash needs. Our minimum cash requirement for the next 12 months is projected to be $100,000,000. This amount may increase if we decide to start clinical trials on new products. The management is actively pursuing additional funding and strategic partners, which will enable the Company to implement our business plan, business strategy, to continue research and development, clinical trials or further development that may arise.

 

 

We intend to spend more to support the commercialization of current products and on research and development activities, including new products development, regulatory and compliance, clinical studies, and the enhancement and protection of our intellectual property portfolio.

 

OFF-BALANCE SHEET ARRANGEMENTS

 

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to our investors.

 

CRITICAL ACCOUNTING POLICIES

 

The preparation of our financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including but not limited to those related to income taxes and impairment of long-lived assets. We base our estimates on historical experience and on various other assumptions and factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Based on our ongoing review, we plan to adjust to our judgments and estimates where facts and circumstances dictate. Actual results could differ from our estimates.

 

We believe the following critical accounting policies are important to the portrayal of our financial condition and results and require our management’s most difficult, subjective or complex judgments, often because of the need to make estimates about the effect of matters that are inherently uncertain.

 

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.

Inventory

 

Inventory is stated at the lower of cost (using weighted average basis) and net realizable value.

 

 

4.

Fair value of financial instruments

 

FASB Codification Topic 825 (ASC Topic 825), “Disclosure About Fair Value of Financial Instruments,” requires certain disclosures regarding the fair value of financial instruments. The carrying amounts of other receivables and prepaid expenses, other payables and accrued liabilities and due to a stockholder, directors and related parties approximate their fair values because of the short-term nature of the instruments. The management of the Company is of the opinion that the Company is not exposed to significant interest or credit risks arising from these financial statements.

 

5.

Income taxes

 

The Company accounts for income taxes under The Financial Accounting Standards Board (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 reporting currency of the company’s financial statements is the US dollar. The financial statements of the Company’s subsidiary denominated in currencies other than the US dollar are translated into US dollars using the closing rate method. The balance sheet items are translated into US dollars 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.

 

ADOPTION OF NEW ACCOUNTING STANDARD

 

Leases

 

The Company has initially adopted ASU No. 2016-02, Leases (Topic 842) as of 1 November 2019 using the modified retrospective method. In addition, the Company elected the transition method permitted under the ASU 2018-11 issued in July 2018, which allowed the Company to initially apply the new leases standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of accumulated deficits in the period of adoption.

 

The cumulative effect of the changes made to the consolidated balance sheet as of 1 November 2019 for the adoption of the new leases standard was as follows:

 

		Balances at				Adjustments				Balances at
		October 31,				on adoption of				November 1,
		2019				ASU 2016-02				2019
ASSETS
Right-of-use assets		$	-			$	74,139			$	74,139
CURRENT LIABILITIES
Lease liabilities, current portion			-				(43,732	)			(43,732	)
NON-CURRENT LIABILITIES
Lease liabilities, net of current portion			-				(33,333	)			(33,333	)
Cumulative-effect adjustment to opening balance of accumulated deficit		$	-			$	(2,926	)		$	(2,926	)

 

In determining the lease liability and corresponding right-of-use asset for each lease, the Company calculated the present value of future lease payments using the Company’s incremental borrowing rate. The incremental borrowing rate was determined with reference to the interest rate applicable to borrowings from related parties disclosed in Note 4, Related Parties Transactions.

 

The reported results for the three months ended January 31, 2020 reflect the adoption of ASC 842 guidance while the reported results for the three months ended January 31, 2019 were prepared and continue to be reported under the guidance of ASC 840, Leases.

 

 

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 have established disclosure controls and procedures, as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934. Our disclosure controls and procedures are designed to ensure that material information relating to us, including our consolidated subsidiaries, is made known to our principal executive officer and principal financial officer by others within our organization. Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of January 31, 2020 to ensure that the information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to our management, including our principal executive officer and principal financial officer as appropriate, to allow timely decisions regarding required disclosure. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective as of January 31, 2020.

 

Under the supervision and with the participation of our then principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended, as of January 31, 2020. Based on this evaluation, the management concluded that the disclosure controls and procedures were ineffective at such time to ensure that information required to be disclosed by the company in the reports filed or submitted under the Exchange Act were recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Our principal executive officer and principal financial officer also concluded that our disclosure controls, which are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to management, were inappropriate to allow timely decisions regarding required disclosure.

 

Based on officers’ assessment, the Company determined that there were material weaknesses in its internal control over financial reporting as of January 31, 2020 based on the material weaknesses described below:

 

● Because the Company consists of one person who acts as the financial officer, operating officer, secretary and director of the Company, there are limited controls over information processing.

 

● There is an inadequate segregation of duties consistent with control objectives as financial reporting function is composed of only one person. In order to remedy this situation, we would need to hire additional staff to provide greater segregation of duties. Currently, it is not feasible to hire additional staff to obtain optimal segregation of duties. Management will reassess this matter after the Company have obtained additional financial resources to determine whether improvement in segregation of duty is feasible.

 

● The Company does not have a formal audit committee with a financial expert, and thus the Company lacks the Board oversight role within the financial reporting process.

 

● There is a lack of formal policies and procedures necessary to adequately review significant accounting transactions.

 

The Company utilizes a third-party independent contractor for the preparation of its financial statements. Although the financial statements and footnotes are reviewed by our management, we do not have a formal policy to review significant accounting transactions and the accounting treatment of such transactions. The third-party independent contractor is not involved in the day to day operations of the Company and may not provide financial information from and to the management on a timely basis to allow for adequate reporting/consideration of certain transactions.

 

As a result of this material weakness, our management concluded that our internal control over financial reporting was not effective as of January 31, 2020. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness; yet important enough to merit attention by those responsible for oversight of the company’s financial reporting.

 

Changes in Internal Control

 

During the most recently completed fiscal quarter, there has been no change in the Company’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.

 

 

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 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

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:

 

Exhibit No.		Description
3.1		Articles of Incorporation (1)
3.2		Bylaws (1)
31.1		Section 302 Certification of Chief Executive Officer*
31.2		Section 302 Certification of Chief Financial Officer *
32.1		Section 906 Certification of Chief Executive Officer *
32.2		Section 906 Certification of Chief Financial Officer *
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		XBRL Taxonomy Extension Label Linkbase Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

 

*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.

 

Date: August 20, 2020		By:
		ADVANCED BIOMEDICAL TECHNOLOGIES, INC.
		By:	/s/ Chi Ming Yu
			Chi Ming Yu, President and Director
			(Principal Executive Officer)
		By:	/s/ Hui Wang
			Hui Wang, Director and Chief Executive Officer
			(Controller)
		By:	/s/ Kai Gui
			Kai Gui, Director, Secretary and Chief Financial Officer (Principal Financial Officer)