Item 1A. Risk Factors
ITEM 1A. Risk Factors
Investing in our securities
involves a high degree of risk. Before making any investment decision, you should consider carefully the following risks and other information
in this Report, including our consolidated financial statements and related notes. The risks and uncertainties we describe are not the
only ones facing us. Additional risks and uncertainties that we are unaware of or that we believe are not material at the time could also
materially adversely affect our business, financial condition or results of operations. In any case, the value of our Common Stock could
decline, and you could lose all or part of your investment. Please also see the section entitled “Cautionary Note Regarding Forward-Looking
Statements.”
Risks Related to Our Business and Industry
We are an early stage cancer diagnostics
company with a limited operating history, which may make it difficult to evaluate our current business and predict our future performance.
We are at the early stage
of commercializing our business. We have not started manufacturing or sales of any products or services. Our limited operating history
may make it difficult to evaluate our current business and predict our future performance. Any assessment of our profitability or prediction
about our future success or viability is subject to significant uncertainty.
Taiwan and China’s precision
oncology detection market is still in its early stage of development and rapidly evolving, and companies operating in this industry face
a variety of risks. We may not have sufficient experience or resources to address risks frequently encountered in this industry, which
include, among other things, our potential failure to:
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acquire and retain customers and increase adoption of our precision oncology detection products and services by hospitals, physicians, patients, pharmaceutical companies and others in the medical community;
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timely respond to changing market conditions and keep up with evolving industry and technological standards and regulatory developments;
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obtain and maintain the regulatory approvals required for us to further market and sell our precision oncology detection products and services and commercialize our early cancer detection products and services;
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manage our relationships with our suppliers, customers and research partners;
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protect proprietary technologies and intellectual property rights; and
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attract, train, motivate and retain research and development and other qualified personnel.
If we are unsuccessful in
addressing any one or more of these risks, our business, financial condition and results of operations could be adversely affected.
We may be unable to develop and commercialize
our early cancer detection devices, chips or immunochromogenic kits on a timely basis, or at all.
We are developing early cancer
detection products and may develop and commercialize our cancer diagnostics products from time to time in the future. Developing early
cancer detection and new cancer diagnostics products is a lengthy and complex process. New products may take time to commercialize, and
their launch could be delayed or may not be successful.
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Our product development process
involves various risks, and we may not be able to develop and commercialize any early cancer detection products or new precision oncology
detection products on a timely basis, or at all. A product candidate that appears promising in the early phases of development may fail
to reach the market for a number of reasons. For example:
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our product candidates may fail to demonstrate clinical utility, or the development process may produce negative or inconclusive results, and we may decide, or regulators may require us to conduct additional clinical trials or we may decide to abandon our development programs;
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our employees, or third-party clinical investigators, medical institutions and CROs, may fail to comply with their contractual duties or obligations or meet expected deadlines, and if the quality, completeness or accuracy of the clinical data they obtain are compromised due to any failure to adhere to our clinical protocols or for other reasons, our clinical trials may have to be extended, delayed or terminated;
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we may fail to obtain approvals for our product candidates from relevant regulatory authorities; and
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failure to generate additional data and insights from our existing products to advance the research and development of new products as quickly, or at all.
In addition, our competitors
may develop and commercialize competing products faster than we are able to, in which case our results of operations could be adversely
affected.
If we fail to keep up with industry and
technology developments in a timely and cost-effective manner, we may be unable to compete effectively and our business and prospects
could suffer.
Cancer early detection market
is characterized by rapid changes, including technological and scientific breakthroughs, increasing amounts of data, frequent introductions
of new tests, constant emergence of alternative diagnostic methods, and evolving industry standards. If we are not able to keep pace with
these advances and increased customer expectations as a result of these advances and capture new market opportunities that develop as
a result of these advances, our proprietary technologies could be rendered obsolete, our existing products and services and products and
services we are developing could be rendered less clinically effective, and our future operations and prospects could suffer. To remain
competitive, we must continuously upgrade our existing products and services and launch new products and services, to keep pace with these
developments. We cannot assure you that these efforts will be successful.
In addition, we must expend
significant resources in order to continuously upgrade our existing products and services or launch new ones to keep pace with industry
and technological advances. We may never realize a return on investment on these efforts, especially if the improved or new products and
services fail to perform as expected, in which case our business, financial condition and results of operations could be adversely affected.
If our products or services do not perform
as expected, our operating results, reputation and business could suffer.
Our success depends on the
market confidence that we can provide reliable, high-quality cancer early detection products and services that will provide physicians
with real-time clinically actionable diagnostic information. However, there is no assurance that our products and services will perform
as expected at all times. Our tests may fail to accurately detect gene variants or incompletely or incorrectly identify the significance
of genomic alterations, or contain other errors or mistakes due to a variety of reasons (such as malfunction of our laboratory equipment
and degraded liquid biopsy or tissue samples provided by our delivery service providers), which may result in negative perception of our
tests. In addition, inaccurate results or misunderstandings of, or inappropriate reliance on, the diagnostic information our tests provide
could lead to, or be associated with, side effects or adverse events in patients who use our tests, including treatment-related death,
and could lead to termination of our services or claims against us.
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We face risks related to natural disasters,
health epidemics, civil and social disruption and other outbreaks, which could significantly disrupt our operations. In particular, the COVID-19 outbreak
in China and worldwide has adversely affected, and may continue to adversely affect, our business, results of operations and financial
condition.
We are vulnerable to social
and natural catastrophic events that are beyond our control, such as natural disasters, health epidemics, and other catastrophes, which
may materially and adversely affect our business. Since December 2019, a novel strain of coronavirus, or COVID-19, has become
widespread in China and around the world. In March 2020, the World Health Organization declared COVID-19 a pandemic, given its
threat beyond a public health emergency of international concern that the organization had declared in January 2020. Since the beginning
of 2020, China, Taiwan and many other countries have taken various restrictive measures to contain the virus’ spread, such as quarantines,
travel restrictions and home office policies to avoid large-scale population movement and gathering. These restrictions had certain degree
of impact on our research and development and production plan in Taiwan and China. COVID-19 has reduced the availability of labor and
led to difficulties for employees to return to work and constraints of service chain interruption. Because of the uncertainty surrounding
the COVID-19 outbreak, the business disruption and the related financial impact related to the outbreak of and response to the coronavirus
cannot be reasonably estimated at this time.
Recently, the COVID-19 situation
has improved in Taiwan and China. With Taiwan relaxing its mask mandate on April 17, 2023, and China no longer enforcing the “zero-COVID”
policy, our research and development have started to recover. However, the potential downturn brought by the COVID-19 outbreak is difficult
to assess or predict and the full impact of the virus on our operations will depend on many factors beyond our control. The extent to
which the COVID-19 outbreak impacts our business, results of operations and financial condition remains uncertain, and we are
closely monitoring its impact on us. Our business, results of operations, financial conditions and prospects could be materially adversely
affected to the extent that COVID-19 harms the Chinese and global economy in general, and the trading price of our shares of
Common Stock may be adversely affected. To the extent the COVID-19 pandemic and the outbreak of other health epidemics adversely
affect our business and financial results, they may also have the effect of heightening many of the other risks described in this “Risk
Factors” section.
If we cannot compete successfully with our
competitors, we may be unable to increase or sustain our revenue or achieve and sustain profitability.
Cancer early detection and
screening market has become increasingly competitive, and we expect this competition to intensify further in the future. Some of our existing
and potential future competitors may have longer operating histories, larger customer bases, more expansive brand recognition and deeper
market penetration, substantially greater financial, technological and research and development resources and selling and marketing capabilities,
and more favorable terms from suppliers. As a result, they may be able to respond more quickly to changes in customer requirements or
preferences, develop faster, better and more expansive advancements for their technologies and tests, create and implement more successful
strategies for the promotion and sale of their tests, adopt more aggressive pricing policies for their tests, secure supplies from vendors
on more favorable terms or devote substantially more resources to infrastructure and system development. In addition, competitors may
be acquired by, receive investments from or enter into other commercial relationships with larger, well-established and well-financed
companies as the use of precision oncology detection increases. In addition, if we expand into international markets in the future, we
could face competition from the companies in these markets.
If we are unable to compete
successfully with current and future competitors for these or any other reasons, we may be unable to increase market acceptance and sales
volume of our tests, which could prevent us from maintaining or increasing our revenue levels or achieving or sustaining profitability
or could otherwise negatively affect our performance.
Our future success depends on our ability
to promote our brand and protect our reputation. If we are unable to effectively promote our brand, our business may be adversely affected.
We believe that enhancing
and maintaining awareness of our trademarks 欣戈赛 and
sglcell are critical to achieving widespread acceptance of our microfluidic biochip products, gaining trust for our testing devices and
attracting customers. Successful promotion of our brand depends largely on the quality of the products and services we offer and the effectiveness
of our branding and marketing efforts. Currently, we rely primarily on our own sales and marketing team to promote our brand and our precision
oncology detection products and testing services. We expect that our branding and marketing efforts will require us to incur significant
expenses and devote substantial resources. We cannot guarantee that our sales and marketing efforts will be successful. Brand promotion
activities may not lead to increased revenue in the near term, and, even if they do, any revenue increases may not offset the expenses
we incur to promote our brand. Our failure to establish and promote our brand and any damage to our reputation will hinder our growth.
In addition, our reputation may be undermined as a result of the negative publicity about our company or our industry in general. If precision
oncology detection products or services provided by us or our competitors do not perform to customers’ expectations, it may result
in lower confidence in precision oncology detection in general, which may in turn impair our operating results and our reputation. You
can find more information regarding our intellectual properties in “Business – Intellectual Property.”
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Failure to attract and retain our senior
management and other key employees could adversely affect our business.
Our future success is significantly
dependent upon the continued service of our senior management, such as Dr. Yi Lu, our chairman of the board of directors and chief
executive officer. If we lose their services, we may not be able to locate suitable or qualified replacements, and we may incur additional
expenses to recruit new senior management team members, which could severely disrupt our business and growth. In addition, if these personnel
join our competitors or form a competing business, our business and prospects could be adversely affected.
Our research and development
activities and laboratory operations depend upon our ability to attract and retain highly skilled scientists and technicians. We are also
in strong need of sales and marketing personnel with the relevant technology background and industry expertise in order to effectively
conduct our sales and marketing activities and increase our hospital network. We face intense competition for qualified individuals from
numerous biotechnology and pharmaceutical companies, universities, governmental entities and other research institutions. We may be unable
to attract and retain suitably qualified individuals, and our failure to do so could adversely affect our business.
If we experience difficulties in recruiting
subjects for clinical trials, our clinical development activities may be delayed or otherwise adversely affected.
Completion of a clinical trial
on time according to the trial plan depends, among other things, on our ability to recruit a sufficient number of subjects to participate
in the trial until the end of the trial. We may encounter difficulties in recruiting subjects for clinical trials for a variety of reasons,
including the base and nature of the subject population and the eligibility criteria for subjects defined in the trial plan. Our clinical
trials will likely compete with other clinical trials, which will reduce the number and categories of subjects we can recruit, as some
subjects who may choose to participate in our trials may instead choose to participate in trials conducted by other companies. Due to
the limited number of qualified clinical investigators and clinical trial sites, we expect that some of our clinical trials will be conducted
at the same clinical trial sites used by some of our competitors, which will result in subjects eligible to participate in our clinical
trials at those clinical trial sites decrease in the number of people. Even if our clinical trials are able to enroll a sufficient number
of subjects, delays in enrolling subjects may increase costs or affect the timing or outcomes of planned clinical trials, hindering the
completion of those trials and hindering our progress adversely affect the ability of product candidates to develop.
If we do not launch new products in a timely
manner, our products may become obsolete and our results of operations may suffer.
Technology in the cancer screening
industry is constantly changing, new products are emerging, and industry standards continue to evolve. If new and improved products are
not introduced in a timely manner, our products may become technologically obsolete or vulnerable to competition, and our revenue and
results of operations could be impaired. Even if we develop new or improved products, our ability to bring those products to market may
be limited by a variety of factors, including regulatory approvals and market demand. We invest significant financial and other resources
in our research and development activities. The research and development process are lengthy and uncertain. The products we are currently
developing may not be able to complete the development process or obtain the regulatory or other approvals required to bring such products
to market in a timely manner or at all.
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Technological innovations
often require significant time and investment before their commercial viability can be determined. We may not have the necessary financial
resources to fund all such projects. In addition, even if we are able to successfully develop new or improved products, those products
may not generate revenue in excess of development costs or achieve desirable financial returns and may become obsolete or due to changes
in customer preferences or the introduction of advanced technology or functionality by competitors. Products or other factors resulting
in a decline in competitiveness.
As of the date of this Report, we have not
conducted any clinical trials for our products. Uncertainties or failures in clinical trials of our product candidates could materially
and adversely affect our business operations.
We must conduct various clinical
trials to demonstrate the sensitivity and specificity of our test prior to regulatory approval for marketing of our product candidates
and depending on the type of our relevant product candidates, clinical trials may require large-scale prospective clinical studies, and
such studies are far more rigorous and expensive than other existing tests or auxiliary diagnostic products. We have planned to conduct
a multicenter registry trial in China to evaluate the performance of the pulmonary nodule benign and malignant determination kit. We may
encounter a variety of contingencies while conducting or as a result of clinical trials that may delay or prevent us from obtaining regulatory
approval or commercializing our product candidates, including but not limited to:
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Regulatory agencies, institutional review boards or ethics committees may refuse to authorize us or investigators to conduct clinical trials or conduct clinical trials at the intended trial site;
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We are unable to reach agreement on admissible terms with prospective CROs and hospitals (as trial centers), which may require extensive negotiation and may vary significantly between different CROs and hospitals (as trial centers);
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Production issues, including issues with the quality of production, supply, or obtaining sufficient quantities of the product candidate for use in clinical trials;
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Insufficient testing capacity to meet the needs of clinical trials;
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Our products fail to demonstrate superior results than competitors’ or alternative products (if applicable);
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Clinical trials of our product candidates may fail to demonstrate the expected cancer screening sensitivity and specificity, and we may decide or regulatory authorities may require us to conduct additional clinical trials or abandon product development programs;
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The number of subjects required for clinical trials of our product candidates may be larger than expected, recruitment may be insufficient or slower than we expect, or the rate of subjects dropping out of trials may be higher than expected;
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Our third-party contractors may fail to comply with regulatory requirements or perform in a timely manner or at all of their contractual obligations to us;
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We may have to suspend or terminate clinical trials of our product candidates for a variety of reasons, including the discovery of a lack of clinical response or other unexpected characteristics; and preliminary or interim results of clinical trials may not be indicative of final results.
There is no assurance that
such trials will be completed in a timely or cost-effective manner, or that they will result in a commercially viable product. If clinical
trials of any of our product candidates are delayed or terminated, the commercial prospects of that product candidate will be impaired
and our ability to generate revenue from any such product candidate will be delayed. In addition, any delay in the completion of our clinical
trials would increase our costs, slow down the development and approval process of our product candidate, and impair our ability to initiate
product sales and generate related revenue for that product candidate. The occurrence of any of the above events could materially damage
our business, financial condition and prospects.
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We have contracts with third parties for
the future manufacturing, supply and registration applications of certain of our products, which supply could become limited or interrupted
or may not be of satisfactory quality and quantity.
We currently rely on third
parties in the PRC for certain supplying, registration applications and future manufacturing of certain of our products. Any such reliance
may increase the risk that we will not have sufficient quantities of our products, or such quantities at an acceptable cost or quality,
which could delay, prevent or impair our development or commercialization efforts. Furthermore, all the contract manufacturers in the
PRC for our products are subject to extensive PRC laws and regulations. These PRC laws and regulations govern manufacturing processes
and procedures, including record keeping, and the implementation and operation of quality systems to control and assure the quality of
investigational products and products approved for sale. Poor control of production processes can lead to the introduction of contaminants,
or to inadvertent changes in the properties or stability of our products.
Risks Associated with Government Regulations
We may be adversely affected by uncertainties
and changes in China’s regulations on the cancer screening industry, and the lack of necessary approvals, licenses, registrations
or filings in relation to our business may adversely affect our business, results of operations and prospects material adverse effects.
Due to the relatively short
history of the cancer screening industry in China, a comprehensive regulatory framework to regulate the industry has not yet been established.
The possibility cannot be ruled out that certain industry practices, which we have also adopted, may be deemed to fail to fully comply
with the existing laws and regulations in the PRC. As China’s laws and regulations on medical devices are still developing, and
it is uncertain whether new laws, regulations or interpretations will be promulgated or adopted in the future, we cannot assure you that
our early stage cancer detection devices will not be construed as non-compliance with applicable laws and regulations in the future. If
the PRC government issues clear requirements for the approval of our devices, we intend to take the necessary steps to comply with those
requirements. Our business and results of operations may be adversely affected if we fail to comply with existing or future requirements
or are found to be otherwise non-compliant in the conduct of our business.
If we fail to obtain, complete or maintain
the required regulatory approvals, licenses, registrations or filings, or if there is a delay in obtaining, complete or maintain the required
regulatory approvals, licenses, registrations or filings, we will not be able to commercialize our product candidates change, and our
ability to generate revenue will be significantly compromised.
Due to the relatively short
history of the cancer screening industry in China, a comprehensive regulatory framework to regulate the industry has not yet been established.
However, the significant aspects of the development and commercialization of our products have been strictly regulated in China. The process
of obtaining regulatory approvals and complying with applicable laws and regulations requires significant time and financial resources.
Applicants may face administrative or judicial sanctions if they fail to comply with applicable regulations during the product development
process, the approval process, or at any time after approval. Such sanctions may include regulatory refusals to approve pending applications,
revocation of approvals, revocation of licenses, clinical restrictions, voluntary or compulsory product recalls, product seizures, suspensions
of production or distribution in whole or in part, injunctions, fines, refusals to government contracts, compensation, Hand over money
or civil or criminal penalties. Failure to comply with these regulations may affect our business, financial business conditions and prospects
are materially and adversely affected.
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Before obtaining regulatory
approval for commercial sale of some of our products, we must demonstrate its effectiveness in a well-controlled clinical trial and, for
approval in China, must be satisfied by NMPA that the product candidate is safe and effective for its intended use, and appropriate manufacturing
and testing facilities, procedures and controls are in place. For now, only A + LCGuard is required by NMPA to complete clinical
trial. Obtaining regulatory approval is a long, expensive and uncertain process, and approval may not be obtained. When we submit a registration
application to NMPA, it will decide whether to accept or reject the submitted registration application. We cannot be certain that any
submission will be approved by NMPA for registration review. NMPA may also slow down, suspend or terminate the review of our application,
and any such circumstance will prolong the registration process for our products. Our product candidates may not receive regulatory approval
for a number of reasons, including:
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The clinical trial results cannot reach the level of statistical significance required for approval or the clinical trial cannot be conducted in accordance with regulatory regulations or clinical trial plan;
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Approval policy or regulatory changes that make our preclinical and clinical data insufficient to obtain approval or require us to revise our clinical trial plan;
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Regulatory requirements requiring additional analysis, reporting, data, non-clinical studies and clinical trials, or questions regarding interpretation of data and results and the emergence of new information about our product candidates or other products; and/or
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The relevant authority refuses to approve a pending application submitted by us or a supplementary application to an approved application, or suspends, withdraws or withdraws the approval.
Regulatory requirements and
guidelines may also change, and we may, among other things, need to revise clinical trial plans submitted to applicable regulatory authorities
to reflect such changes. We may make revisions that necessitate resubmission of the clinical trial proposal to the Institutional Review
Board or Ethics Committee for reconsideration, which may affect the outcome of the clinical trial.
The process of developing,
obtaining regulatory approval, and commercializing medical device candidates is long, complex, and costly, both within China and abroad.
Even if our product candidates are successful in obtaining regulatory approval, such approval may impose significant restrictions on the
approved use, or require product labels to contain precautions or warnings, or require expensive and time-consuming post-approval clinical
trials or surveillance as approval conditions of. If we are unable to obtain regulatory approvals for our product candidates in one or
more jurisdictions, or any approvals come with significant restrictions, our target market will be reduced and our ability to realize
the full market potential of our product candidates will be impaired. In addition, we may not be able to obtain sufficient financing or
generate sufficient revenue and cash flow to continue developing any other product candidates in the future.
Our products and any future products will
be subject to ongoing regulatory obligations and ongoing regulatory scrutiny, which may result in significant additional expenses, and
if we fail to comply with regulatory requirements or if there are unexpected issues with our products and/or product candidates, we may
be punished.
Our regulatory agency-approved
testing services, products and any other product candidates are subject to and will be subject to compliance with manufacturing, testing,
labelling, packaging, storage, advertising, promotion, sampling, record keeping, post-marketing studies, submission of safety, efficacy
and other ongoing regulatory requirements for post-listing materials, and other requirements from regulatory authorities in the PRC and/or
other jurisdictions. Our testing and manufacturing facilities are subject to numerous regulatory requirements from the China Food and
Drug Administration (“CFDA”) and/or other similar authorities. Accordingly, we have been and will be subject to ongoing scrutiny
and inspection by regulatory agencies to assess our compliance with applicable laws and regulations and our commitments made in any application
materials submitted to the CFDA or other authorities. Therefore, we must continue to invest time, money and effort in all aspects of regulatory
compliance.
Regulatory approvals for our
products and any approvals we obtain for product candidates are subject to and may be limited by the use of our marketable products. Our
approvals may also be subject to other conditions that may result in the need for potentially costly post-market testing and surveillance
to monitor the safety and efficacy of our products or product candidates. Such restrictions and conditions may adversely affect the commercial
potential of our products.
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After our product candidates
are approved for commercialization, certain changes to the products, such as changes in manufacturing processes and additional claims,
may require additional review and approval by the CFDA and/or similar regulatory authorities. Regulatory approval of any of our product
candidates may also be withdrawn. If we fail to maintain compliance with these ongoing regulatory requirements or if problems arise after
the product is launched, the CFDA or similar regulatory authorities may seek to enforce a consent order or withdraw marketing approval.
Late discovery of our products or product candidates or issues previously unknown to us in our manufacturing process may lead to revisions
to approved labels or regulations to add new safety information; conduct clinical studies to evaluate new safety risk; or impose distribution
restrictions or other restrictions. Other potential consequences include (among others):
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Restrictions on the listing or manufacture of our products, withdrawal of products from the market, or voluntary or mandatory product recalls;
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Fines, untitled letters or warning letters, or suspension of clinical trials;
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The CFDA or similar regulatory authorities refuse to approve our pending applications or supplements to approved applications, or suspend or revoke licensing approval or withdraw approval;
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Product seizure or detention, or denial of permission to import or export our products and candidate products; and/or
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Injunction or Civil or Criminal Penalty
The CFDA and other regulatory
authorities strictly supervise the listing, labelling, advertising and promotion of medical products and services introduced to the market.
Our products and testing services may only be marketed for their approved uses in accordance with approved labels. The CFDA and other
regulatory authorities actively enforce laws and regulations that prohibit the promotion of off-label uses, and companies found to improperly
promote off-label uses may bear significant responsibility. The policies of the CFDA and other regulatory authorities may change and other
government regulations may be issued to prevent, limit or delay regulatory approval of our product candidates. Given the changing regulatory
environment, we cannot predict the likelihood, nature or scope (whether in China or abroad) of government policies or regulations that
may result from future legislative or administrative actions. If we are slow or unable to adapt to changes in existing regulations or
adopt new regulations or policies, or if we are unable to maintain regulatory compliance, we may lose any regulatory approvals we have
obtained and may not be able to achieve or maintain profitability.
If our existing and new products fail to
meet the quality standards required by applicable laws, our business and reputation could be damaged, and our revenue and profitability
could be materially and adversely affected.
Our production and manufacturing
processes are subject to certain quality standards. We have established quality control and assurance systems and adopted standardized
operating procedures to prevent quality issues related to our products and operating processes. For further details of our quality control
and assurance system, please refer to “Business — Quality Control System”. Although we have quality control and assurance
systems and procedures, we cannot eliminate the risk of product defects or malfunctions. Quality defects may not be detected or remedied
due to a number of factors, many of which are beyond our control, including:
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Manufacturing error;
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Technical or mechanical failures in the manufacturing process;
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Human error or malfeasance by our quality control personnel;
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Third party intervention; and/or
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The raw materials we produce or purchase have quality problems.
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In addition, our failure to
detect quality defects in our products or to prevent such defective products from being delivered to end users may result in injury or
death, product recalls or withdrawals, revocation of licenses or fines by regulatory agencies, product and professional liability or other
problems, which could seriously damage our reputation and business, expose us to the risk of liability, and materially and adversely affect
our revenue and profitability.
In addition to the Chinese market, we are
planning to expand to North American and European markets. We cannot give any assurance that any of our products will receive regulatory
approval in North America or Europe, which is necessary before they can be commercialized.
We cannot be certain that
any of our product candidates will be successful in clinical studies or receive regulatory approval. Applications for our products could
fail to receive regulatory approval for many reasons, including but not limited to the following:
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the Food and Drug Administration (FDA), the competent authority of individual member states of the European Union where we plan to offer our products, or comparable foreign regulatory authorities may disagree with the design or implementation of our clinical studies;
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the population studied in the clinical program may not be sufficiently broad or representative to assure safety in the full population for which we seek approval;
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the FDA, the competent authority of individual member states of the European Union where we plan to offer our products, or comparable foreign regulatory authorities may disagree with our interpretation of data from nonclinical or clinical studies;
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the data collected from clinical studies of our products in China may not be sufficient or accepted to obtain regulatory approval in the U.S. or elsewhere;
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we may be unable to demonstrate to the FDA, the competent authority of individual member states of the European Union where we plan to offer our products, or comparable foreign regulatory authorities that a product’s benefit-risk ratio for its proposed indication is acceptable;
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the FDA, the competent authority of individual member states of the European Union where we plan to offer our products, or other regulatory authorities may fail to approve the manufacturing processes, test procedures and specifications, or facilities of third-party manufacturers with which we contract for clinical and commercial supplies; and
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the approval policies or regulations of the FDA, the competent authority of individual member states of the European Union where we plan to offer our products, or comparable foreign regulatory authorities may change significantly in a manner rendering our clinical data insufficient for approval.
Currently, we plan to seek
regulatory approval to commercialize our product candidates in the U.S., the EU and in additional countries where we obtain commercial
and IP rights. To obtain regulatory approval in other countries, we must comply with numerous and varying regulatory requirements of such
other countries regarding safety, efficacy, chemistry, manufacturing and controls, clinical studies, commercial sales, pricing, marketing
and distribution of our products. Even if we are successful in obtaining approval in one jurisdiction, we cannot ensure that we will obtain
approval in any other jurisdictions. Failure to obtain marketing authorization for our products will result in our being unable to market
and sell such products, which would materially adversely affect our business, financial condition and results of operations. If we fail
to obtain approval in any jurisdiction, the geographic market for our products could be limited.
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Failure to obtain the broad market acceptance
or maintain a good reputation necessary for our current products and any future products could materially and adversely affect our results
of operations and profitability.
The commercial success of
our current and future products depends on their market acceptance, especially among customers, hospitals and physicians. As a diagnostic
method recently developed and introduced into the Chinese market, our products may not be widely recognized by the intended target customers,
doctors or end users. If our products and any future approved product candidates fail to gain sufficient market acceptance from physicians,
end users, third-party payers and other industry players, our product sales will be adversely affected. In addition, customers, physicians,
end users and third-party payers may prefer other new products over our products. If our products and product candidates fail to achieve
an adequate level of recognition, we may not generate significant revenue and may not be profitable. The failure of our products, product
candidates and our testing services to achieve an adequate level of recognition or to increase market visibility could adversely affect
our financial condition, business and results of operations. Once approved for commercial sale, the market acceptance of our products
and product candidates and their services will depend on a number of factors, including:
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Physicians, end users and hospitals consider our products and product candidates to be safe and effective;
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Potential and visible advantages of our products and product candidates over other alternatives;
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Our continuous cooperation with existing commercialization channels;
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We further validate the product’s capabilities through clinical studies and accompanying publications;
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The timing and scope of the approval of our other cancer screening products by the CFDA;
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Our ability to maintain laboratory accreditation, accreditation and regulatory approval and to complete required inspections;
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Defects or errors that lead to negative reports about our or our competitors’ testing and technology influences;
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Changes in government policies or guidelines regarding cancer screening;
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Development of cancer treatments that may diminish or reduce the need for cancer screening;
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Our competitors accelerate R&D progress;
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The effectiveness of our sales and marketing efforts.
If any of our commercialized
products and services fail to gain market acceptance among doctors, end users, hospitals or other customers, or if we fail to maintain
good relationships with them, we will not be able to generate significant revenue. Our ability to market our products and product candidates
may be limited by regulatory approval requirements, restrictions on approved uses, inherent patterns of clinical practice, uncertainty
about third-party compensation or other factors. Even if our products gain market acceptance, we may not be able to maintain market acceptance
all the time if new products or technologies are introduced that are more popular, cost-effective or make our products obsolete. We believe
that maintaining and enhancing our brand image and increasing the market awareness of our company and our products are critical to gaining
broad recognition for our services and products, strengthening our relationships with existing customers and our ability to attract new
customers. The successful promotion of our brand will largely depend on our ability to continue to provide high-quality products, as well
as our research and development efforts. However, there is no guarantee that our branding activities and research and development efforts
will be successful or contribute to our growth. In addition, even if such activities increase revenue, such revenue may not be sufficient
to offset the increase in expenses we incur.
52
There is no guarantee that our products
will be covered by the National Medical Insurance Program in China.
China maintains a National
Medical Insurance Program that can reimburse certain residents in urban cities and rural areas for, among other things, fees associated
with diagnostic and treatment devices and diagnostic tests covered by such Program through the basic medical insurance scheme.
As of the date of this Report,
our products are not covered by any national or provincial medical insurance programs. Although we strive to make our products covered
by the national medical insurance programs in the future, there is no guarantee that the responsible government agency, the National Healthcare
Security Administration, will approve our applications. Furthermore, even if our products may be covered by the Program in the future,
uncertainties still exist around reimbursement coverage and rates as we need to negotiate such terms with government entities in the PRC,
and we cannot guarantee that we will receive favorable coverage and rates. In the absence of reimbursement or favorable coverage and rates
from the National Medical Insurance Program, end users have to bear all or the majority part of their expenses to use our products, which
may reduce consumers’ interest in our products or cause our products to be less competitive when compared with other products that
are covered by such Program.
We have relatively limited experience in
product promotion and sales. There is no assurance that we will be able to successfully commercialize our products and, as a result, our
revenue and profitability could be materially and adversely affected.
We have relatively limited
experience in launching and commercializing product candidates and in the sales and marketing of products, and limited experience in market
analysis or managing sales teams for product candidates. As a result, our ability to successfully commercialize our product candidates
may involve more inherent risks, require more time and cost more than would be the case if we were a company with extensive experience
in launching product candidates.
The market size of existing and future products
has not been precisely established and may be lower than our estimates, and we may not fully grasp the target population of our products.
Our estimates of the total
addressable market and target population for our existing products and product candidates are based on a number of internal and third-party
estimates, including but not limited to the size of the target population, the number of people at higher risk of developing cancer, and
the availability of the hypothetical price at which the established market sells the relevant candidate product. Although we believe that
our assumptions and data relating to estimates are reasonable, such assumptions and estimates may not be correct, and the conditions supporting
our assumptions or estimates may change at any time, reducing the accuracy of forecasts for these relevant factors. Accordingly, our estimates
of the total addressable market for current or future products may prove to be incorrect. If the target population that will benefit from
our products, the price at which we can sell our products or the total addressable market for our products is lower than our estimates,
it could harm our sales growth and adversely affect our business.
Risks Associated with Our Testing and the Manufacture
and Supply of Our Products
Delays in the completion and obtaining regulatory
approvals of our manufacturing facilities, or damage, destruction or interruption of production at such facilities may delay our development
plans or commercialization efforts.
Our future manufacturing facilities
will be global. The facility may incur unanticipated expenses due to a number of factors including regulatory requirements. Our manufacturing
facilities are subject to ongoing periodic inspections by various NMPA or other comparable regulatory agencies to ensure compliance with
current drug manufacturing practices. Failure to comply with applicable regulations may also result in us being subject to penalties,
including fines, injunctions, civil penalties, requests to suspend or stop one or more of our clinical trials, failure to obtain regulatory
approvals for our product candidates, delays, Suspension or withdrawal of approvals, supply interruptions, revocation of licenses, seizure
or recall of products or product candidates, operational restrictions and criminal prosecutions, any of which can cause harm to our business.
53
Our facilities may be damaged
or rendered inoperable due to physical damage caused by fire, flood, earthquake, typhoon, tornado, power outage, telecommunications failure,
intrusion and similar events. If our production facilities or equipment are damaged or destroyed, we may not be able to replace our production
capacity quickly or cheaply or at all. In the event of temporary or long-term damage to facilities or equipment, we may not be able to
transfer manufacturing to third parties. Even if we could transfer manufacturing to a third party, that transfer could be expensive and
time-consuming, especially since the new facility has to meet the necessary regulatory requirements and we have to obtain regulatory approvals
before selling any products manufactured at that facility. This event could delay our clinical trials or reduce sales of our products.
Any disruption to our manufacturing operations at our manufacturing facilities may result in us being unable to meet our clinical trial
or commercialization needs. Any disruption to our ability to manufacture products or product candidates in a timely manner could materially
damage our business, financial condition and results of operations. We currently insure against damage to our property and equipment for
an amount we believe is reasonable. However, our insurance coverage may not compensate us or may not be sufficient to cover any expenses
or losses we may incur. In the event of a catastrophic event or the failure of our production facilities or processes, we may not be able
to meet our requirements for products and product candidates.
The manufacturing and testing process of
our products is complex and subject to strict quality control. If we or any of our suppliers or logistics partners experience manufacturing,
logistics or quality problems, including as a result of natural disasters, our business may be damaged.
Partly due to stringent regulatory
requirements, the manufacturing and testing process for products is complex and subject to strict quality control. Additionally, quality
is paramount as product or test defects can have serious and costly consequences. Manufacturing and testing processes can go wrong for
a number of reasons, including equipment failure, non-compliance with codes and procedures, raw material issues, software issues, sample
contamination or human error. In addition, if contaminants are found in our product or product candidate supply, or in our production
and testing facilities, such production and testing facilities may need to be shut down for an extended period of time to investigate
the contamination and remediate it. Stability and other issues may arise in the future related to the manufacture and testing of our products
or product candidates. While well-managed, disruptions can occur during the introduction of new equipment and systems to replace aging
equipment, as well as production line transfers and expansions. As we increase market penetration, we may face unexpected surges in demand
for our products, which could put pressure on our production capacity or testing capabilities. If these problems arise, or if we otherwise
fail to meet our internal quality standards or the standards of the CFDA or other applicable regulatory agencies, including detailed record-keeping
requirements, our reputation may be damaged and we Safety warnings or recalls may apply, we may incur product and professional liability
and other costs, product approvals may be delayed, and our business may otherwise be adversely affected. In addition, our manufacturing,
testing and warehousing facilities, as well as those of our suppliers and logistics partners, may be severely damaged by earthquakes,
hurricanes, volcanoes, fires and other natural disasters or catastrophic circumstances, could materially and adversely affect our business.
Security threats to our information technology
infrastructure and unauthorized use of data by third parties could expose us to liability or damage our reputation and business.
Our information technology
systems store and process a variety of sensitive data, including our proprietary business information, as well as patients’ personal
data such as health information and personally identifiable information.
It is essential that our information
technology infrastructure remains secure and is perceived by hospitals, patients and our research partners to be secure. Despite our security
measures, we may face cyber-attacks that attempt to penetrate our network security, sabotage or otherwise disable our research, tests
and services, misappropriate our proprietary business information or cause interruptions of our internal systems and services. Any cyber-attacks
could negatively affect our reputation, damage our network infrastructure and our ability to deploy our products and services, harm our
relationship with customers and research partners, and expose us to significant financial liabilities.
Moreover, we may not be able
to prevent third parties from illegally obtaining and misappropriating personal data of the tested patients that we collect. Concerns
about data leakage or unauthorized use of data by third parties, even if unfounded, could damage our reputation and negatively affect
our results of operations.
54
If we are unable to effectively protect
our intellectual property, our business and competitive position would be harmed.
We rely on patents, software
copyrights, trademarks, trade secrets and other intellectual property rights protection and contractual restrictions to protect our products,
services and technologies. We have registered a number of patents and trademarks in China and the United States. However, such protection
is limited and may not adequately protect our rights.
We may also be subject to
infringement claims by third parties. We may be subject to fines and other legal or administrative sanctions, and it may also be costly
to defend such claims. In addition, competitors could purchase our products and attempt to replicate and/or improve some or all of the
competitive advantages we derive from our development efforts, willfully infringe our intellectual property rights, and design their devices
and tests around our protected technologies or develop their own competitive technologies that fall outside of our intellectual property
rights.
Monitoring unauthorized disclosure
and uses of our trade secrets is difficult, and we do not know whether the steps we have taken to prevent such disclosure and uses are,
or will be, adequate. If we resort to litigation to enforce or protect our intellectual property rights, such litigation could result
in substantial costs and a diversion of our managerial and financial resources, while the outcome would be unpredictable, and any remedy
may be inadequate. Our contractual agreements may be breached by our counterparties, and there may not be adequate remedies available
to us for any such breach. In addition, our trade secrets may be leaked or otherwise become available to, or be independently discovered
by, our competitors, and we would have no right to prevent others from using them. Moreover, if a party having an agreement with us has
an overlapping or conflicting obligation to a third party, our rights in and to certain intellectual property could be undermined. If
we fail to effectively protect our intellectual property, our competitive position and prospects could be adversely affected.
We may be subject to intellectual property
infringement or misappropriation claims by third parties, which may force us to incur substantial legal expenses and, if determined adversely
against us, could disrupt our business.
We cannot be certain that
our products, tests and technologies do not or will not infringe patents, software copyrights, trademarks or other intellectual property
rights held by third parties, especially when they are in China, as the validity, enforceability and scope of intellectual property rights
protection in China are uncertain and still evolving. From time to time, we may be subject to legal proceedings and claims alleging infringement
of patents, trademarks or copyrights, or misappropriation of creative ideas or formats, or other infringement of proprietary intellectual
property rights. Any such proceedings and claims could result in significant costs to us and divert the time and attention of our management
and technical personnel from the operation of our business. These types of claims could also potentially adversely impact our reputation
and our ability to conduct business and raise capital, even if we are ultimately absolved of all liability. Moreover, third parties making
claims against us may be able to obtain injunctive relief against us, which could block our ability to offer one or more devices or tests
and could result in a substantial award of damages against us. In addition, since we sometimes indemnify our customers or collaboration
partners, we may have additional liability in connection with any infringement or alleged infringement of third-party intellectual property.
Intellectual property litigation can be very expensive, and we may not have the financial means to defend ourselves or our customers or
collaboration partners.
Because patent applications
can take many years to issue, there may be pending applications, some of which are unknown to us, that may result in issued patents upon
which our products, tests or proprietary technologies may infringe. Moreover, we may fail to identify issued patents of relevance or incorrectly
conclude that an issued patent is invalid or not infringed by our technology or any of our devices or tests. There is a substantial amount
of litigation involving patents and other intellectual property rights in our industry. If a third-party claims that we infringe upon
a third-party’s intellectual property rights, we may have to:
●
seek to obtain licenses that may not be available on commercially reasonable terms, if at all;
●
abandon any product alleged or held to infringe, or redesign our products or processes to avoid potential assertion of infringement;
55
●
pay substantial damages including, in exceptional cases, treble damages and attorneys’ fees, if a court decides that the device, test or proprietary technology at issue infringes upon or violates the third-party’s rights;
●
pay substantial royalties or fees or grant cross-licenses to our technology; and
●
defend litigation or administrative proceedings that may be costly whether we win or lose, and which could result in a substantial diversion of our financial and management resources.
We may be subject to litigation and other
claims and legal proceedings, and may not always be successful in defending ourselves against these claims or proceedings.
We may be subject to lawsuits
and other claims in the ordinary course of our business. We may from time to time be subject to lawsuits and other legal proceedings brought
by our customers, competitors, employees, business partners, investors, other shareholders of the companies we invest, or other entities
against us in the ordinary course of our business. We may also be subject to regulatory proceedings in the ordinary course of our business.
We may not be successful in defending ourselves, and the outcomes of these lawsuits and proceedings may be unfavorable to us. Lawsuits
and regulatory proceedings against us may also generate negative publicity that significantly harms our reputation, which may adversely
affect our customer base, market position and our relationships with our research partners and other business partners. In addition to
the related costs, managing and defending litigation and other legal proceedings and related indemnity obligations can significantly divert
our management’s attention from operating our business. We may also need to pay damages or settle lawsuits or other claims with
a substantial amount of cash, negatively affecting our liquidity. As a result, our business, financial condition and results of operations
could be adversely affected.
Risks Relating to Our Financial Prospects and
Need for Additional Capital
We incurred net losses for the years ended
June 30, 2025 and 2024 and may not be able to generate sufficient operating cash flows and working capital to continue as a going concern.
Failure to manage our liquidity and cash flows may materially and adversely affect our financial condition and results of operations.
As a result, we may need additional capital, and financing may not be available on terms acceptable to us, or at all.
We incurred net losses of
$3,258,969 and $2,782,278 for the years ended June 30, 2025 and 2024, respectively. Our ability to continue as a going concern depends
upon our ability to develop, register and obtain regulatory approval for commercial sell of our products to generate positive operating
cash flows. The Company had net cash outflows of $5,825,055 and $2,126,340 from operating activities for the years ended June 30, 2025
and 2024, respectively. These conditions give rise to substantial doubt as to whether the Company will be able to continue as a going
concern. The Company certain related parties have waived off the amount due to them as of June 30, 2024 amounted to $2,820,624 in order
to improve the Company’s working capital. The Company completed its initial public offering. In the initial public offering, the
Company issued 1,640,000 shares of common stock at a price of US$4.00 per share. The Company received gross proceeds in the amount of
US$6.56 million before deducting any underwriting discounts or expenses. On June 6, 2025, the Company entered into a purchase agreement
(the “ELOC Agreement”) with HELENA GLOBAL INVESTMENT OPPORTUNITIES I LTD. (the “Investor” or “Selling Stockholder”),
pursuant to which the Company have the right to issue and sell to the Investor, from time to time as provided therein, and the Investor
is obligated to purchase from us, up to Twenty-Five Million United States Dollars ($25,000,000) of the Company’s Common Stock, subject
to terms and conditions set forth in the ELOC Agreement.
We can offer no assurance
that we will operate profitably or that we will generate positive cash flows in the next twelve months, given our substantial expenses
in relation to our revenue at this stage of our Company. Inability to collect our accounts receivable in a timely and sufficient manner,
or the inability to offset our expenses with adequate revenue, may adversely affect our liquidity, financial condition and results of
operations. Although we believe that our cash on hand will be sufficient to meet our anticipated working capital requirements and capital
expenditures in the ordinary course of business for the next 6 months, we cannot assure you this will be the case.
If and when we are unable
to meet our working capital requirements and various operating needs, we may need to raise additional funds for our operations and such
funds may not be available on commercially acceptable terms, if at all. If we are unable to raise funds on acceptable terms, we may not
be able to execute our business plan, take advantage of future opportunities, or respond to competitive pressures or unanticipated requirements.
This may seriously harm our business, financial condition and results of operations. If we are unable to achieve or maintain profitability,
the market price of our shares may significantly decrease. In the event that the Company requires additional funding to finance its operations,
the Company’s major stockholders have indicated their intent and ability to provide such financial support, however, there is no
assurance such funding will be available when the Company needs it in the future.
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We have recorded negative cash flows from
operating activities historically and may have a current liabilities position in the future.
We have experienced significant
cash outflow from operating activities since our inception. We had net cash outflow in operating activities of $5.8 million and $2.1 million
for the years ended June 30, 2025 and 2024, respectively. The cost of continuing operations could further reduce our cash position, and
an increase in our net cash outflow from operating activities could adversely affect our operations by reducing the amount of cash available
to meet the cash needs for operating our business and to fund our investments in our business expansion.
We
had net current asset (liabilities) of $3.1 million and $0.3 million as of June 30, 2025 and 2024, respectively. We cannot guarantee that
we will remain in a net current assets position in future, which would expose us to liquidity risk. Our future liquidity and ability to
make additional capital investments necessary for our operations and business expansion will depend primarily on our ability to maintain
sufficient cash and to obtain adequate external financing. There can be no assurance that we will be able to obtain any sources of financing.
We require substantial funding for our operations.
If we cannot raise sufficient additional capital on acceptable terms, our business, financial condition and prospects may be adversely
affected.
We require substantial capital
to fund our existing operations, commercialize new products, expand our business and pursue strategic investments. In particular, we require
substantial capital to:
●
advance our early cancer detection technologies and develop early cancer detection product candidates;
●
increase our sales and marketing efforts to drive market adoption of our products and services and address competitive developments;
●
seek regulatory and marketing approvals for our tests;
●
maintain, expand and protect our intellectual property portfolio;
●
hire and retain additional personnel, such as scientists and sales and marketing personnel;
●
develop, acquire and improve operational, financial and management information systems;
●
add equipment and physical infrastructure to support our research and development programs;
●
finance general and administrative expenses; and
●
operate as a public company.
If our available cash balances
are insufficient to satisfy our liquidity requirements, in particular, for the development and commercialization of our products, we may
seek to obtain further funding through public or private equity offerings, debt financings or other sources.
57
Further financing may not
be available to us on acceptable terms, or at all. If we fail to raise capital as and when needed it would have a negative impact on our
financial condition and our ability to pursue our business strategy. In addition, if we raise funds by issuing debt securities or incurring
additional borrowings, the terms of debt securities issued or borrowings could impose significant restrictions on our operations, and
we may be unable to repay the indebtedness when due. If we raise funds by issuing equity securities, your investment in our company could
be diluted.
Raising additional capital may lead to dilution
of shareholdings by our existing stockholders, restrict our operations, and may further result in fair value loss adversely affecting
our financial results.
We may seek additional funding
through a combination of equity and debt financings and collaborations. To the extent that we raise additional capital through the sale
of equity or convertible debt securities, the ownership interest of existing holders of our shares will be diluted, and the terms may
include liquidation or other preferences that adversely affect the rights of our existing stockholders.
The incurrence of additional
indebtedness or the issuance of certain equity securities could result in increased fixed payment obligations and could also result in
certain additional restrictive covenants, such as limitations on our ability to incur additional debt or issue additional equity, limitations
on our ability to acquire or license IP rights and other operating restrictions that could adversely impact our ability to conduct our
business.
We have only a limited accounting personnel
and have corrected an error in application of the accounting principle for business combinations accounted for an acquisition of an entity
during the year ended June 30, 2022.
Prior to the completion of
the Initial Public Offering, we had been a private company with limited accounting personnel mainly engage in financial reporting. On
January 1, 2022, the Company, through Advanced Biomed HK, acquired 100% equity interest of Shanghai Sglcell. The Company carefully considered
the appropriate accounting guidance in accordance with its application of the accounting principle related to accounting for business
combinations. However, we did not engage outside experts to assist in the detailed analysis.
Upon further assessment, the
Company has corrected an error in its application of the accounting principle for business combinations where the Company previously incorrectly
accounted for an acquisition of an entity as a business combination; the Company has amended its consolidated financial statements for
the year ended June 30, 2022 to account for the transaction as purchase of assets.
Management concluded that
the above correction identified in connection with the accounting treatment for the acquisition was a significant deficiency that did
not rise to the level of a material weakness. The deficiency identified was narrow as it focused on the interpretation of accounting literature
to a specific transaction structure which is not expected to be recurring nature. For future material acquisitions, the Company will engage
outside experts to assist in the transaction, including legal and accounting advisors, to advise on complex accounting issues in order
to prevent potential differences in the accounting for business combinations. As a result, the Company does not believe that the significant
deficiency rose to the level of a material weakness.
Risks Related to Doing Business in Taiwan
Advanced Biomed Taiwan does not currently
own any trademark or patent.
No trademark or patent has
been registered by Advanced Biomed Taiwan so far in Taiwan. It also has no pending intellectual property right contracts, including license,
transfer or sublicense. Its primary business is research and development of various advanced and innovative microfluidic biochip technologies.
58
Based on Article 7 of Taiwan’s
Patent Act, where a fund provider appoints another party to conduct research and development, the ownership of the right to apply for
a patent and the patent right in connection with the outcome of such research and development shall be vested in the party as mutually
agreed upon in an agreement between both parties, or such rights shall be vested in the inventor, utility model creator or designer in
the absence of such agreement. However, the fund provider shall be entitled to exploit such invention, utility model or design. Advanced
Biomed Taiwan signed a research project equipment use contract with TSRI and used their semiconductor manufacturing equipment and precision
micro-nano processing equipment for chip technology research and development such as concept presentation of each R&D process, cross-scale
composite structure production, rapid wafer trial production, material testing, and thin film production. Both parties agree to keep the
test data, process and materials confidential. Advanced Biomed Taiwan agrees that TSRI may quote the test data in its research paper with
the consent of Advanced Biomed Taiwan. The contract also provides that any intellectual property rights of one party should only be used
in the test by licensing to the other party and that any intellectual property rights derived from the test will belong to the developer.
Both parties will jointly own the intellectual property right if it cannot be clearly identified who the developer is. The ownership of
patent application rights and patent rights may be obscure in such practice and raise disputes on who the developers are. We cannot assure
you that the patents owned or applied by Advanced Biomed Taiwan will not be subject to disputes under Taiwan’s Patent Act.
We face economic and political risks associated
with doing business in Taiwan, particularly due to the geopolitical tension between Taiwan and China that could negatively affect our
business and hence the value of your investment.
Currently, we rely on Advanced
Biomed Taiwan for microfluidic biochip technology and its application in precision medicine in the field of oncology. Accordingly, our
business, financial condition and results of operations and the market price of our securities may be affected by changes in governmental
policies, taxation, growth rate, inflation rate or interest rates and by social instability and diplomatic and social developments in
or affecting Taiwan. In particular, the unique political status of Taiwan and its internal political movement cause sustained tension
between China and Taiwan. Past developments related to the interactions between China and Taiwan, especially in relation to trade activities
such as bans on exports of goods from time to time, have on occasions depressed the transactions and business operations of certain Taiwanese
companies and overall economic environment. We cannot predict whether there will be escalation of the tensions between China and Taiwan
which would lead to new bans or tariffs on exports or even conflict. Any conflict which threatens the military, political or economic
stability in Taiwan could have a material adverse effect on our current or future business and financial conditions and results of operations.
Advanced Biomed Taiwan is subject to restrictions
on paying dividends or making other payments to us, which may restrict our ability to satisfy its liquidity requirements.
As a company incorporated
under the laws of the State of Nevada structured as a holding company, we may need dividends and other distributions on equity from our
Taiwan subsidiary to satisfy our liquidity requirements. Current Taiwan regulations permit our Taiwan subsidiary to pay dividends to its
shareholders only out of its accumulated profits, if any, which shall first make up previous losses and set aside at least 10% of its
accumulated profits each year. These reserves are not distributable as cash dividends. Furthermore, if our Taiwan subsidiary incurs debt
on its own behalf in the future, the instruments governing the debt may restrict their ability to pay dividends or make other payments
to us. Any limitation on the ability of our Taiwan subsidiary to distribute dividends or to make payments to us may restrict our ability
to satisfy our liquidity requirements. In addition, the dividend payments by our Taiwan subsidiary to us shall be subject to the withholding
tax of 21% since January 1, 2018.
Advanced Biomed Taiwan is subject to foreign
exchange control imposed by Taiwan authorities, which may affect the paying dividends, repatriating the interest or making other payments
to us.
Currently Taiwan regulates
only those foreign exchange transactions that involve the conversion of the New Taiwan Dollar into foreign currencies. Pursuant to the
relevant provisions of Taiwan Foreign Exchange Control Act, foreign exchange transactions of a value of NTD 500,000 or more shall be declared
to the Central Bank of Republic of China (Taiwan). Further, for a remittance by a company as follows, relevant testimonials shall be submitted
and such remittance shall be subject to the approval of the Central Bank of Taiwan: (i) a single remittance of an amount over USD1 million;
or (ii) annual accumulated settlement amount of foreign exchange purchased or sold has exceeded USD50 million. Nevertheless,
Taiwan government may impose further foreign exchange restrictions in certain emergency situations, where Taiwan government experiences
extreme difficulty in stabilizing the balance of payments or where there are substantial disturbances in the financial and capital markets
in Taiwan. If the dividend payments or other payments by our Taiwan subsidiary and branches to us involves the currency conversion from
New Taiwan Dollar to US Dollar, such conversion would be subject to the foregoing foreign exchange control imposed by Taiwan authority.
59
Taiwan laws and regulations of loans to
and direct investment in Taiwan entities by offshore holding companies may delay or prevent us from using the credits of the ELOC Agreement
or any future financing acitivies to make loans or additional contributions to Advanced Biomed Taiwan, which could materially and adversely
affect our ability to fund and expand our business.
We are an offshore holding
company conducting our R&D operations substantially in Taiwan through our Advanced Biomed Taiwan. We may make loans to Advanced Biomed
Taiwan, or we may make additional capital contributions to Advanced Biomed Taiwan, or we may establish new Taiwan subsidiaries and make
capital contributions to these new Taiwan subsidiaries, or we may acquire offshore entities with business operations in Taiwan in an offshore
transaction.
Most of these ways are subject
to Taiwan regulations and approvals or registration. For example, investment, including lending long-term loans, in Taiwan entities require
Foreign Investment Approval (as defined below) from the Taiwan Investment Commission. Furthermore, foreign entities are prohibited from
investing in some industries which are relating to national security and environmental protection, as specified in the negative list provided
by Taiwan authority.
Advanced Biomed Taiwan will collaborate
and share its R&D efforts with us and our Shanghai subsidiary and is subject to Taiwan regulations on investment or technical cooperation
in China. It may affect its technical cooperation with the Shanghai subsidiary and more seriously its acquisition by Advanced Biomed.
As the cross-strait relations
become more and more sensitive recently, Taiwan authorities incline to prohibit Taiwan technology companies from selling their subsidiaries
or assets to mainland Chinese investors to prevent leak of sensitive technologies, including semiconductors. Pursuant to the Taiwan Permission
Regulations for Investment or Technical Cooperation in the PRC and the Review Principles for Investments or Technical Cooperation in China
(“Permission Regulations”), an investment or technical cooperation made by a Taiwanese investor in China is subject to the
restrictions thereunder and requires the approval by the competent Taiwan authority, Taiwan Investment Commission. The restrictions under
the Permission Regulations include a negative list in which investment or technical cooperation is prohibited. Currently, Advanced Biomed
Taiwan’s technical cooperation with the Shanghai subsidiary is not on such negative list. However, we cannot preclude the possibility
that the negative list will be amended to restrict Advanced Biomed Taiwan’s cooperation with the Shanghai subsidiary.
Taiwanese investors holding more than 10%
of Advanced Biomed Common Stock will be subject to Taiwan regulations on investment or technical cooperation in China for its investment
or technical cooperation in China.
Under the Permission Regulations,
for an investment made by a Taiwanese individual or entity (“Taiwanese Investor”) in a “third region” company
which conducts the investments or technical cooperation in China defined therein and such Taiwanese Investor (i) acts as director,
supervisor, manager or equivalent position or (ii) has a shareholding or capital contribution of 10% or more in such third region
company, the investment in such a third region company would also be deemed a defined investment in China and therefore be subject to
the Permission Regulations.
Therefore, for our future
investment or technical cooperation in China, our Taiwanese shareholders holding 10% or more of our Common Stock will need to apply for
the foreign investment approval with the competent Taiwan authority, the Taiwan Investment Commission in accordance with the Permission
Regulations (the “Foreign Investment Approval”). There are restrictions on the investment or technical cooperation with China,
including, without limitation, the annual investment amount in China shall be capped at USD5 million per year for Taiwan individuals or
NTD 80 million or 60% of the higher of its stand-along net worth or consolidated net worth for a Taiwan small-medium enterprise. Your
indirect investment in the PRC via the Company under the Permission Regulations will be calculated on the portion of your shareholdings
in the Company. If your aggregate investments in the PRC exceed the annual ceiling amount, the Taiwan Investment Commission will reject
your application for the exceeding investment in the PRC. If the Taiwanese Investor fails to obtain applicable approvals from the Taiwan
Investment Commission in respect of its investment in China, an administrative fine ranging NTD 50 thousand to 25 million or imprisonment
may be imposed.
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The imposition of foreign exchange restrictions
in Taiwan may have an adverse effect on foreign investors’ abilities to acquire securities of a Taiwan company, including the shares
of our subsidiaries in Taiwan, or to repatriate the interest, dividends or sale proceeds from those securities.
The Taiwan government may
impose foreign exchange restrictions in certain emergency situations, including situations where there are sudden fluctuations in interest
rates or exchange rates, where the Taiwan government experiences extreme difficulty in stabilizing the balance of payments or where there
are substantial disturbances in the financial and capital markets in Taiwan. These restrictions may require foreign investors to obtain
the Taiwan government’s approval before acquiring securities of a Taiwan company, including the shares of our subsidiaries in Taiwan,
repatriating the interest or dividends from those securities or repatriating the proceeds from the sale of those securities.
Our operations are subject to the effects
of a rising rate of inflation.
Taiwan experienced historically
high levels of inflation in 2022 and 2023. Although the inflation rate peaked in June 2022 at 3.59%, there is no guarantee that the inflation
will not accelerate again. If the inflation rate continues to remain at a relatively high level or increases drastically, for example,
due to increases in the costs of labor and supplies, it will affect our expenses, such as employee compensation and research and development
charges. Additionally, Taiwan is experiencing an acute workforce shortage, which, in turn, has created a very competitive wage environment
that may increase our operating costs. To the extent inflation results in rising interest rates and has other adverse effects on the market,
it may adversely affect our consolidated financial condition and results of operations.
You may experience difficulties in effecting
service of legal process, enforcing foreign judgments, or bringing actions in Taiwan against us.
As a company incorporated
under the laws of the State of Nevada, it may be difficult for you to enforce judgments obtained in U.S. courts based on civil liability
provisions of the U.S. federal securities laws against us in Taiwan. In addition, there is uncertainty as to whether the courts of Taiwan
would recognize or enforce judgments of U.S. courts against us or such persons predicated upon the civil liability provisions of the securities
laws of the U.S. or any state, if the following circumstances occurs:
●
Where the foreign court lacks jurisdiction pursuant to the Taiwan laws;
●
Where a default judgment is rendered against the losing defendant, except in the case where the notice or summons of the initiation of action had been legally served in a reasonable time in the foreign country or had been served through judicial assistance provided under the Taiwan laws;
●
Where the performance ordered by such judgment or its litigation procedure is contrary to Taiwan public policy or morals; or
●
Where there exists no mutual recognition between the foreign country and the Taiwan.
Risks Related to Doing Business in China
A downturn in China or global economy, and
economic and political policies of the PRC could materially and adversely affect our business.
Due to the different regulatory
requirements for the marketing of medical device products and invitro diagnosis (“IVD”) products in different regions/countries,
it is necessary to complete the registration application and obtain the corresponding license in accordance with the local regulations
before engaging in commercial activities in the respective regions/countries (“localization registration”). Afterwards, marketing
and sales can be carried out. All the products and equipment we research and develop are designed following the principle of modularization
so that products and equipment can be produced locally to meet different regulatory requirements. The Chinese market has a great potential
and is our one of the main markets in the future. At present, we have applied for product registration in China in accordance with relevant
Chinese laws and regulations. Meanwhile, we have established subsidiaries in Mainland China and Hong Kong. Accordingly, our business,
prospects, financial condition and results of operations may be influenced by political, economic and social conditions in the PRC generally
and by continued economic growth in the PRC as a whole. The Chinese economy differs from the economies of most developed countries in
many respects, including the amount of government involvement, level of development, growth rate, control of foreign exchange and allocation
of resources. While the Chinese economy has experienced significant growth over the past decades, growth has been uneven, both geographically
and among various sectors of the economy, and we cannot assure you that such growth is sustainable. The Chinese government has implemented
various measures to encourage economic growth and guide the allocation of resources. Some of these measures may benefit the overall Chinese
economy but may have a negative effect on us. For example, the Chinese government may direct resources to industries other than the one
we operate in and potentially reduce the investors’ interest in our business.
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Economic conditions in China
are sensitive to global economic conditions. Any prolonged slowdown in the global or Chinese economy may affect potential clients’
confidence in financial market as a whole and have a negative impact on our business, results of operations and financial condition. Additionally,
continued turbulence in the international markets may adversely affect our ability to access the capital markets to meet liquidity needs.
Changes in the policies, regulations, rules,
and the enforcement of laws of the PRC government may be quick with little advance notice and could have a significant impact upon our
ability to operate profitably in the Mainland China and Hong Kong.
Since we have our subsidiaries
in Shanghai and Hong Kong, economic, political and legal developments in the PRC will affect our business, financial condition, results
of operations and prospects. Policies, regulations, rules, and the enforcement of laws of the PRC government can have significant effects
on economic conditions in the PRC and the ability of businesses to operate profitably. Our ability to operate profitably in the PRC may
be adversely affected by changes in policies by the PRC government, including changes in laws, regulations or their interpretation, particularly
those dealing with the Internet, including censorship and other restriction on material which can be transmitted over the Internet, security,
intellectual property, money laundering, taxation and other laws that affect our ability to operate business in China.
The Chinese government may intervene in
or influence our operations in the Mainland China or Hong Kong at any time or may exert more control over offerings conducted overseas
and/or foreign investment in us, which could result in a material change in our operations and and/or the value of the securities we are
registering for sale.
The Chinese government has
significant oversight and discretion over the conduct of our business and may intervene or influence our operations in the Mainland China
or Hong Kong as the government deems appropriate to further regulatory, political and societal goals. The Chinese government has recently
published new policies that significantly affected certain industries such as the education and Internet industries, and we cannot rule
out the possibility that it will in the future release regulations or policies regarding our industry that could require us to seek permission
from Chinese authorities to commence to operate our business, which may adversely affect our business, financial condition and results
of operations. Furthermore, recent statements made by the Chinese government have indicated an intent to increase the government’s
oversight and control over offerings of companies with significant operations in China that are to be conducted in foreign markets, as
well as foreign investment in PRC-based issuers. There is no guarantee that we will not be subject to such direct influence or intervention
in the future due to changes in laws or other unforeseeable reasons. There is always a risk that the Chinese government may, in the future,
seek to affect operations of any company with any level of operations in the Mainland China and Hong Kong. Any such action, once taken
by the Chinese government, could cause the value of our Common Stock to significantly decline or become worthless. In addition, if we
were to become subject to the direct intervention or influence of the PRC government at any time due to changes in laws or other unforeseeable
reasons, it may require a material change in our operations and/or result in increased costs necessary to comply with existing and newly
adopted laws and regulations or penalties for any failure to comply.
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If the Chinese government chooses to exert
more oversight and control over offerings that are conducted overseas and/or foreign investment in China-based issuers, such action could
significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such
securities to significantly decline or be worthless.
We face risks arising from
China including risks and uncertainties regarding the enforcement of laws and that rules and regulations in China can change quickly with
little advance notice. The Chinese government may intervene or influence the operations of our subsidiaries in Shanghai and Hong Kong
at any time, or may exert more control over offerings conducted overseas and/or foreign investment in China-based issuers, which could
result in a material change in the operations of our subsidiaries in Shanghai and Hong Kong and/or the value of our Common Stock.
The Chinese government has
exercised and continues to exercise substantial control over virtually every sector of the Chinese economy through regulation and state
ownership. Our ability to operate in China through our subsidiaries in Shanghai and Hong Kong may be harmed by changes in laws and regulations
in China, including those relating to securities regulation, data protection, cybersecurity and mergers and acquisitions and other matters.
The PRC central or local governments may impose new, stricter regulations or interpretations of existing regulations that would require
additional expenditures and efforts on our part to ensure our and our subsidiaries’ compliance with such regulations or interpretations.
Government actions in the
future could significantly affect economic conditions in China or particular regions thereof, and could require our subsidiaries in Shanghai
and Hong Kong to materially change their operating activities or divest ourselves of any interests we hold in Chinese assets. Our subsidiaries
in Shanghai and Hong Kong may be subject to various government and regulatory interference. We may incur increased costs necessary to
comply with existing and newly adopted laws and regulations or penalties for any failure to comply. Such subsidiaries’ operations
could be adversely affected, directly or indirectly, by changes to existing laws or implementation of future laws and regulations relating
to their business or industry.
As of the date of this Report,
we and our subsidiaries in the Mainland China and Hong Kong (1) are not required to obtain permissions from any PRC authorities to operate
or issue our Common Stock to foreign investors, (2) are not subject to permission requirements from the CSRC, CAC or any other entity
that is required to approve their operations in the Mainland China and Hong Kong, and (3) have not received or were denied such permissions
by any PRC authorities. Nevertheless, the General Office of the Central Committee of the Communist Party of China and the General Office
of the State Council jointly issued the “Opinions on Severely Cracking Down on Illegal Securities Activities According to Law,”
which were made available to the public on July 6, 2021. The Opinions emphasized the need to strengthen the administration over illegal
securities activities, and the need to strengthen the supervision over overseas listings by Chinese companies. The regulatory agencies
like CSRC or CAC may impose fines and penalties on our operations in the Mainland China or Hong Kong, limit our ability to pay dividends
outside of the Mainland China or Hong Kong, limit our operations in the Mainland China or Hong Kong, delay or restrict the repatriation
of the credits from the ELOC Agreement or any future financing activities into the Mainland China or Hong Kong or take other actions that
could have a material adverse effect on our business, financial condition, results of operations and prospects, as well as the trading
price of our securities. The CSRC, the CAC, or other PRC regulatory agencies also may take actions requiring us, or making it advisable
for us, to halt future offerings before settlement and delivery of our Common Stock. Consequently, if you engage in market trading or
other activities in anticipation of and prior to settlement and delivery, you do so at the risk that settlement and delivery may not occur.
In addition, if the CSRC, the CAC or other regulatory PRC agencies later promulgate new rules requiring that we obtain their approvals
for future offerings, we may be unable to obtain a waiver of such approval requirements, if and when procedures are established to obtain
such a waiver. Any uncertainties and/or negative publicity regarding such an approval requirement could have a material adverse effect
on the trading price of our securities.
Any actions by the Chinese
government to exert more oversight and control over offerings that are conducted overseas and/or foreign investment in China-based issuers
could significantly limit or complete hinder our ability to offer or continue to offer our securities and cause the value of such securities
to significantly decline or be worthless.
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If the Chinese government were to exert
more oversight and control over or impose new requirements for approval from the PRC authorities to issue our Common Stock to foreign
investors or list on a foreign exchange, such action could significantly limit or completely hinder our ability to offer or continue to
offer securities to investors and cause the value of such securities to significantly decline or be worthless.
Recent statements by the Chinese
government have indicated an intent to exert more oversight and control over offerings that are conducted overseas and/or foreign investments
in PRC based issuers. PRC has recently promulgated new rules that require companies collecting or holding large amounts of data to undergo
a cybersecurity review prior to listing in foreign countries, a move that will significantly tighten oversight over PRC-based internet
giants. The Measures for Cybersecurity Review (2021 version) was promulgated on December 28, 2021 and became effective on February 15,
2022. These measures specify that any “online platform operators” controlling the personal information of more than one million
users which seek to list on a foreign stock exchange are subject to prior cybersecurity review.
On September 24, 2024, the
State Council promulgated the Regulation on Network Data Security Management (the “Network Data Regulation”), which became
effective as of January 1, 2025. The Network Data Regulation restates and further specifies the legal requirements for personal information,
important data, cross-border data transfer, network platform services, and data security. Among others, if the network data processing
activities have or may have impacts on national security, such activities shall be subject to national security review in accordance with
relevant laws and regulations. Any failure to comply with such requirements may subject us to, among others, suspension of services, fines,
revoking relevant business permits or business licenses and penalties.
The PRC Data Security Law,
which was promulgated by the Standing Committee of the National People’s Congress (the “SCNPC”) on June 10, 2021 and
took effect on September 1, 2021, requires data collection to be conducted in a legitimate and proper manner, and stipulates that, for
the purpose of data protection, data processing activities must be conducted based on data classification and hierarchical protection
system for data security.
On August 20, 2021, the SCNPC
promulgated the Personal Information Protection Law of the People’s Republic of China, or the Personal Information Protection Law,
which integrates the scattered rules with respect to personal information rights and privacy protection and took effect on November 1,
2021.
Our business does not involve the collection of user data, implicate
cybersecurity, or involve any other type of foreign investment restricted industry. As of the date of this Report, we have not received
any notice from any authorities identifying the operating entities as CIIOs or requiring us to go through cybersecurity review or network
data security review by the CAC. Uncertainties still exist, however, due to the possibility that laws, regulations, or policies in the
PRC could change rapidly in the future. Any future action by the PRC government expanding the categories of industries and companies whose
foreign securities offerings are subject to review by the CAC could significantly limit or completely hinder our ability to offer or continue
to offer securities to investors and could cause the value of such securities to significantly decline or be worthless.
On February 17, 2023, the CSRC released Trial Administrative Measures
of Overseas Securities Offering and Listing by Domestic Companies with five interpretive guidelines (the “Trial Measures”),
which came into effect on March 31, 2023. Pursuant to the Trial Measures, a PRC domestic company that seeks to offer and list securities
in overseas markets, either in direct or indirect overseas offering, shall fulfill the filing procedure with the CSRC and report relevant
information to the CSRC. Direct overseas offering and listing by domestic companies refers to such overseas offering and listing by a
joint-stock company incorporated domestically. Any overseas offering and listing made by an issuer that meets both the following conditions
will be determined as indirect offering and listing in overseas market and, therefore, be subject to filing requirement: (i) 50% or more
of the issuer’s operating revenue, total profit, total assets or net assets as documented in its audited consolidated financial
statements for the most recent accounting year is accounted for by domestic companies; and (ii) the main parts of the issuer’s business
activities are conducted in the Mainland China, or its main places of business are located in the Mainland China, or the senior managers
in charge of its business operation and management are mostly Chinese citizens or domiciled in the Mainland China. The determination as
to whether or not an overseas offering and listing by domestic companies is indirect, shall be made on substance over form basis. As of
the date of this Report, we believe we do not meet the explicit conditions set out in the Trial Measures to determine whether an overseas
offering shall be deemed as an indirect overseas offering and listing by a domestic company and thus we believe we are not required to
complete the filing with the CSRC.
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However, as the Trial Measures
was newly published and the determination as to whether or not an overseas offering and listing by domestic companies is indirect, shall
be made on a substance over form basis, there are substantial uncertainties as to the implementation and interpretation, and the CSRC
may take a view that is contrary to our understanding of the Trial Measures. If we are required by the CSRC to submit and complete the
filing procedures of future offering and listing, we cannot assure you that we will be able to complete such filings in a timely manner,
or even at all. Any failure by us to comply with such filing requirements under the Trial Measures may result in rectification, warnings,
and a fine between RMB1 million and RMB10 million on our Shanghai subsidiary, which could adversely and materially affect our business
operations and financial outlook, and significantly limit or completely hinder our ability to offer or continue to offer our Common Stock
to investors and could cause the value of our Common Stock to significantly decline or such shares to become worthless.
On February 24, 2023, the
CSRC, together with other PRC government authorities, released the Provisions on Strengthening the Confidentiality and Archives Administration
Related to the Overseas Securities Offering and Listing by Domestic Enterprises (the “Confidentiality and Archives Administration
Provisions”), which came into effect on March 31, 2023. The Confidentiality and Archives Administration Provisions require, among
others, that PRC domestic enterprises seeking to offer and list securities in overseas markets, either directly or indirectly, shall establish
the confidentiality and archives system, and shall complete approval and filing procedures with competent authorities, if such PRC domestic
enterprises or their overseas listing entities provide or publicly disclose documents or materials involving state secrets and work secrets
of PRC government agencies to relevant securities companies, securities service institutions, overseas regulatory agencies and other entities
and individuals. It further stipulates that providing or publicly disclosing documents and materials which may adversely affect national
security or public interests, and accounting files or copies of important preservation value to the state and society shall be subject
to corresponding procedures in accordance with relevant laws and regulations. As of the date of this Report, our Shanghai subsidiary has
established the confidentiality and archives system and we are not subject to the approval to the competent authorities since we do not
possess any documents or materials involving state secrets and work secrets of PRC government agencies.
As of the date of this Report, we believe we and our subsidiaries in
the Mainland China and Hong Kong, (1) are not required to obtain permissions from any PRC authorities to operate or issue our Common Stock
to foreign investors, (2) are not subject to permission requirements from the CSRC, CAC or any other entity that is required to approve
of our PRC Subsidiaries’ operations, and (3) have not received or were denied such permissions by any PRC authorities.
We have been closely monitoring
regulatory developments in PRC regarding any necessary approvals from the CSRC or other PRC governmental authorities required for overseas
listings. As of the date of this Report, we have not received any inquiry, notice, warning, sanctions or regulatory objection to our offering
of securities from the CSRC or other PRC governmental authorities. However, there remains significant uncertainty as to the enactment,
interpretation and implementation of regulatory requirements related to overseas securities offerings and other capital markets activities.
Given the current PRC regulatory environment, it is uncertain when and whether we or our subsidiaries in Shanghai and Hong Kong will be
required to obtain permission from the PRC government to list on U.S. exchanges in the future, and even when such permission is obtained,
whether it will be denied or rescinded. Such significant uncertainty could materially and adversely impact our business and financial
outlook and may impact our ability to accept foreign investments, or continue to list on a U.S. or other foreign exchange.
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Uncertainties in the interpretation and
enforcement of PRC laws and regulations could limit the legal protections available to you and the Company.
Our operations are subject
to various PRC laws and regulations generally applicable to companies in the PRC because we have subsidiaries in Shanghai and Hong Kong.
The PRC legal system is based on written statutes. Unlike common law systems, it is a system in which legal cases have limited value as
precedents. In the late 1970s, the PRC government began to promulgate a comprehensive system of laws and regulations governing economic
matters in general. The overall effect of legislation over the past four decades has significantly increased the protections afforded
to various forms of foreign or private-sector investment in the PRC.
However, the PRC has not developed
a fully integrated legal system and recently enacted laws and regulations may not sufficiently cover all aspects of economic activities
in the PRC. In particular, the interpretation and enforcement of these laws and regulations involve uncertainties. In addition, the
PRC legal system is based in part on government policies and internal rules (some of which are not published on a timely basis or at all)
that may have a retroactive effect. As a result, we may not be aware of our violation of these policies and rules until sometime after
the violation. Such uncertainties, including uncertainty over the scope and effect of our contractual, property (including intellectual
property) and procedural rights, and any failure to respond to changes in the regulatory environment in the PRC could materially and adversely
affect our business and impede our ability to continue our operation in the PRC.
In addition, if certain PRC
laws and regulations were to become applicable to us in the future, the application of such laws and regulations may have a material adverse
impact on our business, financial condition and results of operations, any of which may cause the value of our securities to significantly
decline or become worthless. In addition, the laws and regulations in the PRC are evolving, and their enactment timetable, interpretation
and implementation involve significant uncertainties. To the extent any PRC laws and regulations become applicable to our business, it
may be subject to the risks and uncertainties associated with the legal system in the PRC, including with respect to the enforcement of
laws and the possibility of changes of rules and regulations with little or no advance notice.
You may experience difficulties in effecting
service of legal process, enforcing foreign judgments, or bringing actions in PRC against us.
As a company incorporated
under the laws of the State of Nevada, it may be difficult for you to enforce judgments obtained in U.S. courts based on civil liability
provisions of the U.S. federal securities laws against us in the PRC. In addition, there is uncertainty as to whether the courts of the
PRC would recognize or enforce judgments of U.S. courts against us or such persons predicated upon the civil liability provisions of the
securities laws of the U.S. or any state.
The recognition and enforcement
of foreign judgments are provided for under the PRC Civil Procedures Law. PRC courts may recognize and enforce foreign judgments in accordance
with the requirements of the PRC Civil Procedures Law based either on treaties between PRC and the country where the judgment is made
or on principles of reciprocity between jurisdictions. PRC does not have any treaties or other forms of written arrangement with the United
States that provide for the reciprocal recognition and enforcement of foreign judgments. In addition, according to the PRC Civil Procedures
Law, the PRC courts will not enforce a foreign judgment against us or our directors and officers if they decide that the judgment violates
the basic principles of PRC laws or national sovereignty, security, or public interest. As a result, it is uncertain whether and on what
basis a PRC court would enforce a judgment rendered by a court in the United States.
Non-compliance with the PRC Labor Contract
Law and other labor-related regulations in the PRC may adversely affect our business and our results of operations.
We have been subject to stricter
regulatory requirements in terms of entering into labor contracts with our employees and paying various statutory employee benefits, including
pensions, housing fund, medical insurance, work-related injury insurance, unemployment insurance and childbearing insurance to designated
government agencies for the benefit of our employees.
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Pursuant to the PRC Labor
Contract Law, or the Labor Contract Law, which was released on January 1, 2008, was amended on December 28, 2012 and became
effective on July 1, 2013 employees have the right, among others, to enter into written labor contracts, minimum wages, paying remuneration,
determining the term of employees’ probation and unilaterally terminating labor contracts. In the event that we decide to terminate
some of our employees or otherwise change our employment or labor practices, the Labor Contract Law and its implementation rules may limit
our ability to effect those changes in a desirable or cost-effective manner, which could adversely affect our business and results of
operations. In addition, according to the PRC Social Insurance Law, which was released on July 1, 2011, amended on December 29,
2018 and became effective on the same day, and the Administrative Regulations on the Housing Provident Funds, which was released on April
3, 1999, amended on March 24, 2019 and became effective on the same day, companies operating in the PRC are required to participate in
pension insurance, work-related injury insurance, medical insurance, unemployment insurance, maternity insurance and housing provident
fund plans, and the employers must pay all or a portion of the social insurance premiums and housing provident funds for their employees. We
believe our current practice complies with the Labor Contract Law and its amendments. However, the relevant governmental authorities may
take a different view and impose fines on us.
As the interpretation and
implementation of these laws and regulations are still evolving, our employment practices may not at all times be deemed in compliance
with the new laws and regulations. If we incur significant liabilities in connection with labor disputes or investigations, our businesses
and results of operations may be adversely affected.
Changes in the PRC’s economic, political
or social conditions or government policies could have a material adverse effect on our businesses and operations in Mainland China and
Hong Kong.
The PRC’s economy differs
from the economies of the PRC’s counterpart countries in many respects, including the level of government involvement, level of
development, growth rate, control of foreign exchange and allocation of resources. Although the PRC government has implemented measures
since the late 1970s emphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive
assets, and the establishment of improved corporate governance in business enterprises, which are generally viewed as a positive development
for foreign business investment, a substantial portion of productive assets in the PRC is still owned by the PRC government. In addition,
the PRC government continues to play a significant role in regulating industry development by imposing industrial policies. The PRC government
also exercises significant control over the PRC’s economic growth through allocating resources, controlling payments of foreign
currency-denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies.
While the PRC’s economy
has experienced significant growth over the past decades, such growth has been uneven, both geographically and among various sectors of
the economy, and the rate of growth has been slowing down. In addition, in the past, the PRC government has implemented certain measures
to control the pace of economic growth. These measures may cause decreased economic activity, which in turn could lead to a low demand
for our products and services.
Our Shanghai subsidiary is subject to restrictions
on paying dividends or making other payments to us, which may restrict our ability to satisfy our liquidity requirements in the future.
In the future, we may need
dividends and other distributions on equity from our Shanghai subsidiary to satisfy our liquidity requirements. Current PRC regulations
permit our Shanghai subsidiary to pay dividends to their respective shareholders only out of their accumulated profits, if any, determined
in accordance with PRC accounting standards and regulations. In addition, such companies are required to set aside at least 10% of its
accumulated profits each year, if any, to fund certain reserve funds until the total amount set aside reaches 50% of its registered capital.
Our Shanghai subsidiary may also, at the respective subsidiary’s discretion, allocates a portion of its after-tax profits based
on its articles of association and PRC accounting standards to certain reserve funds. These reserves are not distributable as cash dividends.
Furthermore, if our Shanghai subsidiary incur debt on their own behalf in the future, the instruments governing the debt may restrict
their ability to pay dividends or make other payments to us. Any limitation on the ability of our Shanghai subsidiary to distribute dividends
or to make payments to us may restrict our ability to satisfy our future liquidity requirements.
In addition, the Enterprise
Income Tax Law and its implementation rules provide that a withholding tax rate of up to 10% will be applicable to dividends payable by
PRC companies to non-PRC-resident enterprises unless otherwise exempted or reduced according to treaties or arrangements between
the PRC central government and governments of other countries or regions where the non-PRC-resident enterprises are incorporated.
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If we are deemed by the PRC
tax authorities as a PRC tax resident enterprise for tax purposes, any dividends we pay to our non-PRC resident stockholders may be regarded
as China-sourced income and as a result, may be subject to PRC withholding tax at a rate of up to 10%. Pursuant to the Arrangement between
Mainland China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and Tax Evasion on Income, or the
Double Tax Avoidance Arrangement, the 10% withholding tax rate may be reduced to 5% if a Hong Kong resident enterprise owns no less than
25% of a PRC entity. However, the 5% withholding tax rate does not automatically apply and certain requirements must be satisfied, including,
without limitation, that (a) the Hong Kong entity must be the beneficial owner of the relevant dividends; and (b) the Hong Kong entity
must directly hold no less than 25% share ownership in the PRC entity during the 12 consecutive months preceding its receipt of the dividends.
In practice, a Hong Kong entity must obtain a tax resident certificate from the Hong Kong tax authority to apply for the 5% lower PRC
withholding tax rate. As the Hong Kong tax authority will issue such a tax resident certificate on a case-by-case basis, we cannot be
certain that we will be able to obtain the tax resident certificate from the relevant Hong Kong tax authority and enjoy the preferential
withholding tax rate of 5% under the Double Taxation Arrangement with respect to any dividends to be paid by our Shanghai subsidiary to
our Hong Kong subsidiary, Advanced Biomed HK. Moreover, Advanced Biomed HK may be subject to additional restrictions and government regulations
if the Chinese government were to impose new laws and regulations or exert more control over Hong Kong’s business activities. Our
Shanghai subsidiary currently does not have any plan to declare and pay dividends, and we have not applied for the tax resident certificate
from the relevant Hong Kong tax authority.
We can give no assurance that
we will declare dividends of any amounts, at any rate or at all in the future. The declaration of future dividends, if any, will be at
the discretion of our board of directors and will depend upon our future operations and earnings, capital requirements, general financial
conditions, legal and contractual restrictions and other factors that our board of directors may deem relevant.
PRC regulation on loans to, and direct investment
in, PRC entities by offshore holding companies and governmental control in currency conversion may delay or prevent us from making loans
to or making additional capital contributions to our Shanghai subsidiary.
Any funds we transfer to the
Shanghai subsidiary, either as a shareholder loan or as an increase in registered capital, are subject to approval by or registration
with relevant governmental authorities in China. According to the relevant PRC regulations on foreign invested enterprises in China, capital
contributions to our Shanghai subsidiary are subject to the registration with the State Administration for Market Regulation or its local
counterpart and registration with a local bank authorized by the SAFE. In addition, (i) any foreign loan procured by our Shanghai subsidiary
is required to be registered with the SAFE or its local branches and (ii) any of our Shanghai subsidiary may not procure loans which exceed
the difference between its total investment amount and registered capital or, as an alternative, only procure loans subject to the calculation
approach and limitation as provided by the People’s Bank of China. Additionally, any medium or long-term loans to be provided by
us to the Shanghai subsidiary must be registered with the National Development and Reform Commission and SAFE or its local branches. We
may not be able to obtain these government approvals or complete such registrations in a timely manner, or at all, with respect to future
capital contributions or loans by us to our Shanghai subsidiary. Moreover, Advanced Biomed HK may be subject to additional restrictions
and government regulations if the Chinese government were to impose new laws and regulations or exert more control over Hong Kong’s
business activities. If we fail to receive such approvals or complete such registration or filing, our ability to use the proceeds of
future offerings to capitalize our PRC operations may be negatively affected, which could adversely affect our liquidity and our ability
to fund and expand our business.
SAFE promulgated the Notice
of the State Administration of Foreign Exchange on Reforming the Administration of Foreign Exchange Settlement of Capital of Foreign-invested
Enterprises, or SAFE Circular 19, effective on June 1, 2015 and was amended on December 30, 2019, in replacement of the Circular
on the Relevant Operating Issues Concerning the Improvement of the Administration of the Payment and Settlement of Foreign Currency Capital
of Foreign-Invested Enterprises, the Notice from the State Administration of Foreign Exchange on Relevant Issues Concerning Strengthening
the Administration of Foreign Exchange Businesses, and the Circular on Further Clarification and Regulation of the Issues Concerning the
Administration of Certain Capital Account Foreign Exchange Businesses. According to SAFE Circular 19, the flow and use of the RMB capital
converted from foreign currency-denominated registered capital of a foreign-invested company is regulated such that RMB capital may not
be used for the issuance of RMB entrusted loans, the repayment of inter-enterprise loans or the repayment of bank loans that have been
transferred to a third party. Although SAFE Circular 19 allows RMB capital converted from foreign currency-denominated registered capital
of a foreign-invested enterprise to be used for equity investments within the PRC, it also reiterates the principle that RMB converted
from the foreign currency-denominated capital of a foreign-invested company may not be directly or indirectly used for purposes beyond
its business scope. Thus, it is unclear whether the SAFE will permit such capital to be used for equity investments in the PRC in actual
practice. The SAFE promulgated the Notice of the State Administration of Foreign Exchange on Reforming and Standardizing the Foreign Exchange
Settlement Management Policy of Capital Account, or SAFE Circular 16, effective on June 9, 2016, which reiterates some of the rules
set forth in SAFE Circular 19, but changes the prohibition against using RMB capital converted from foreign currency-denominated registered
capital of a foreign-invested company to issue RMB entrusted loans to a prohibition against using such capital to grant loans to non-associated
enterprises. Violations of SAFE Circular 19 and SAFE Circular 16 could result in administrative penalties. SAFE Circular 19 and SAFE Circular
16 may significantly limit our ability to transfer any foreign currency it holds, including the net proceeds from the offering to
our Shanghai subsidiary, which may adversely affect our liquidity and our ability to fund and expand our business in the PRC. On
October 23, 2019, SAFE issued the Notice of the State Administration of Foreign Exchange on Further Facilitating Cross-border Trade and
Investment, or “SAFE Circular 28,” which, among other things, expanded the use of foreign exchange capital to domestic equity
investment area. Non-investment foreign-funded enterprises are allowed to lawfully make domestic equity investments by using their capital
if (i) such investments do not violate the current Negative List and (ii) the domestic investment projects are authentic and are in compliance
with relevant regulations. However, since SAFE Circular 28 is newly promulgated, it is unclear how SAFE and competent banks will carry
it out in practice.
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In light of the various requirements
imposed by PRC regulations on loans to, and direct investment in, PRC entities by offshore holding companies, we cannot assure you that
we will be able to complete the necessary government registrations or obtain the necessary government approvals on a timely basis, if
at all, with respect to future loans or future capital contributions by us to our Shanghai subsidiary. If we fail to complete such registrations
or obtain such approvals, our ability to capitalize or otherwise fund our PRC operations may be negatively affected, which could materially
and adversely affect our liquidity and our ability to fund and expand our business.
PRC regulations relating to offshore investment
activities by PRC residents may subject our PRC resident beneficial owners or our Shanghai subsidiary to liability or penalties, limit
our ability to inject capital into our Shanghai subsidiary, limit our Shanghai subsidiary’s ability to increase its registered capital
or distribute profits to us, or may otherwise adversely affect us.
In July 2014, SAFE promulgated
the Circular on Relevant Issues Concerning Foreign Exchange Control on Domestic Residents’ Offshore Investment and Financing and
Roundtrip Investment Through Special Purpose Vehicles, or SAFE Circular 37, to replace the Notice on Relevant Issues Concerning Foreign
Exchange Administration for Domestic Residents’ Financing and Roundtrip Investment Through Offshore Special Purpose Vehicles, or
SAFE Circular 75, which ceased to be effective upon the promulgation of SAFE Circular 37. SAFE Circular 37 requires PRC residents (including
PRC individuals and PRC corporate entities) to register with SAFE or its local branches in connection with their direct or indirect offshore
investment activities. SAFE Circular 37 may be applicable to any offshore acquisitions that we make in the future.
Under SAFE Circular 37, PRC
residents who make, or have prior to the implementation of SAFE Circular 37 made, direct or indirect investments in offshore special purpose
vehicles, or SPVs, will be required to register such investments with SAFE or its local branches. In addition, any PRC resident who is
a direct or indirect shareholder of an SPV is required to update its filed registration with the local branch of SAFE with respect to
that SPV, to reflect any material change. Moreover, any subsidiary of such SPV in China is required to urge the PRC resident stockholders
to update their registration with the local branch of SAFE. If any PRC shareholder of such SPV fails to make the required registration
or to update the previously filed registration, the subsidiary of such SPV in China may be prohibited from distributing its profits or
the proceeds from any capital reduction, share transfer or liquidation to the SPV, and the SPV may also be prohibited from making additional
capital contributions into its subsidiary in China. On February 13, 2015, the SAFE promulgated a Notice on Further Simplifying and Improving
Foreign Exchange Administration Policy on Direct Investment, or SAFE Notice 13, which became effective on June 1, 2015. Under SAFE Notice
13, applications for foreign exchange registration of inbound foreign direct investments and outbound overseas direct investments, including
those required under SAFE Circular 37, will be filed with qualified banks instead of SAFE. The qualified banks will directly examine the
applications and accept registrations under the supervision of SAFE.
69
As of the date of this Report,
none of our stockholders are subject to the SAFE Circular 37. We may not be informed of the identities of all the PRC residents holding
direct or indirect interest in our company, however, and we have no control over any of our future beneficial owners. Thus, we cannot
provide any assurance that our current or future PRC resident beneficial owners will comply with our request to make or obtain any applicable
registrations or continuously comply with all registration procedures set forth in these SAFE regulations. Such failure or inability of
our PRC residents beneficial owners to comply with these SAFE regulations may subject us or our PRC resident beneficial owners to fines
and legal sanctions, restrict our cross-border investment activities, or limit our Shanghai subsidiary’s ability to distribute dividends
to or obtain foreign-exchange-dominated loans from us, or prevent us from being able to make distributions or pay dividends, as a result
of which our business operations and our ability to distribute profits to you could be materially and adversely affected. Moreover, Advanced
Biomed HK may be subject to additional restrictions and government regulations if the Chinese government were to impose new laws and regulations
or exert more control over Hong Kong’s business activities.
The Chinese government may exert more control
over Hong Kong business or impose new laws or regulations on business activities in Hong Kong.
Although Advanced Biomed HK
is a holding company with no operations and is in compliance with current Mainland China and Hong Kong laws and regulations, it may be
subject to similar risks faced by our Shanghai subsidiary in the future if the Chinese government were to exert more control over Hong
Kong business or impose new laws or regulations on business activities in Hong Kong, which often comes with little advance notice. In
that case, we cannot guarantee you that we can timely comply with any new laws and regulations, which could materially affect our operations
and significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of
such securities to significantly decline or be worthless.
Recent joint statement by the SEC and the
PCAOB, rule changes by Nasdaq, and the Holding Foreign Companies Accountable Act all call for additional and more stringent criteria to
be applied to emerging market companies upon assessing the qualification of their auditors, especially the non-U.S. auditors who are not
inspected by the PCAOB. These developments could add uncertainties to our continued listing or future offerings of our securities in the
U.S.
On April 21, 2020, SEC Chairman
Jay Clayton and PCAOB Chairman William D. Duhnke III, along with other senior SEC staff, released a joint statement highlighting the risks
associated with investing in companies based in or have substantial operations in emerging markets including China. The joint statement
emphasized the risks associated with lack of access for the PCAOB to inspect auditors and audit work papers in China and higher risks
of fraud in emerging markets.
On May 18, 2020, Nasdaq filed
three proposals with the SEC to (i) apply minimum offering size requirement for companies primarily operating in “Restrictive Market”,
(ii) adopt a new requirement relating to the qualification of management or board of director for Restrictive Market companies, and (iii)
apply additional and more stringent criteria to an applicant or listed company based on the qualifications of the company’s auditors.
On May 20, 2020, the U.S.
Senate passed the Holding Foreign Companies Accountable Act requiring a foreign company to certify it is not owned or controlled by a
foreign government if the PCAOB is unable to audit specified reports because the company uses a foreign auditor not subject to PCAOB inspection.
If the PCAOB is unable to inspect the company’s auditors for three consecutive years, the issuer’s securities are prohibited
to trade on a national exchange. On December 2, 2020, the U.S. House of Representatives approved the Holding Foreign Companies Accountable
Act. On December 18, 2020, the Holding Foreign Companies Accountable Act was signed into law.
On March 24, 2021, the SEC
announced the adoption of interim final amendments to implement the submission and disclosure requirements of the Holding Foreign Companies
Accountable Act. In the announcement, the SEC clarifies that before any issuer will have to comply with the interim final amendments,
the SEC must implement a process for identifying covered issuers. The announcement also states that the SEC staff is actively assessing
how best to implement the other requirements of the Holding Foreign Companies Accountable Act, including the identification process and
the trading prohibition requirements.
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On June 22, 2021, the U.S.
Senate passed the AHFCAA, which, if passed by the U.S. House of Representatives and signed into law, would reduce the number of consecutive
non-inspection years required for triggering the prohibitions under the Holding Foreign Companies Accountable Act from three years to
two. On December 29, 2022, a legislation entitled “Consolidated Appropriations Act, 2023” (the “Consolidated Appropriations
Act”), was signed into law by President Biden. The Consolidated Appropriations Act contained, among other things, an identical provision
to HFCAA, which reduces the number of consecutive non-inspection years required for triggering the prohibitions under the HFCAA from three
years to two.
On September 22, 2021, the
PCAOB adopted a final rule implementing the Holding Foreign Companies Accountable Act, which provides a framework for the PCAOB to use
when determining, as contemplated under the Holding Foreign Companies Accountable Act, whether the board of directors of a company is
unable to inspect or investigate completely registered public accounting firms located in a foreign jurisdiction because of a position
taken by one or more authorities in that jurisdiction.
On December 2, 2021, the SEC
issued amendments to finalize rules implementing the submission and disclosure requirements in the Holding Foreign Companies Accountable
Act. The rules apply to registrants that the SEC identifies as having filed an annual report with an audit report issued by a registered
public accounting firm that is located in a foreign jurisdiction and that PCAOB is unable to inspect or investigate completely because
of a position taken by an authority in foreign jurisdictions. The final amendments are effective on January 10, 2022. The SEC will begin
to identify and list Commission-Identified Issuers on its website shortly after registrants begin filing their annual reports for 2021.
On December 16, 2021, PCAOB
announced the PCAOB Holding Foreign Companies Accountable Act determinations (the “PCAOB determinations”) relating to the
PCAOB’s inability to inspect or investigate completely registered public accounting firms headquartered in China of the PRC or Hong
Kong, a Special Administrative Region and dependency of the PRC, because of a position taken by one or more authorities in the PRC or
Hong Kong.
On August 26, 2022, PCAOB
signed a Statement of Protocol with the CSRC and the Ministry of Finance of the People’s Republic of China governing inspections
and investigations of audit firms based in Mainland China and Hong Kong.
On December 15, 2022, the
PCAOB announced in the 2022 Determination its determination that the PCAOB was able to secure complete access to inspect and investigate
accounting firms headquartered in Mainland China and Hong Kong, and the PCAOB Board voted to vacate previous determinations to the contrary.
Should the PCAOB again encounter
impediments to inspections and investigations in Mainland China or Hong Kong as a result of positions taken by any authority in either
jurisdiction, including by the CSRC or the MOF, the PCAOB will make determinations under the HFCAA as and when appropriate. The inability
of the PCAOB to conduct inspections of auditors in PRC makes it more difficult to evaluate the effectiveness of these accounting firm’s
audit procedures or quality control procedures as compared to auditors outside of PRC that are subject to the PCAOB inspections, which
could cause investors and potential investors in our Common Stock to lose confidence in our audit procedures and reported financial information
and the quality of our financial statements.
Our auditor WWC, P.C., the
independent registered public accounting firm that issues the audit report included elsewhere in this Report, as an auditor of companies
that are traded publicly in the United States and a firm registered with the PCAOB, is subject to laws in the United States pursuant to
which the PCAOB conducts regular inspections to assess its compliance with the applicable professional standards Our auditor, WWC, P.C.
is headquartered in San Mateo, California and has been inspected by the PCAOB on a regular basis, with the last inspection conducted in
December 2021. It is not subject to the determinations announced by the PCAOB on December 16, 2021 or the Statement of Protocol with the
China Securities Regulatory Commission and the Ministry of Finance of the People’s Republic of China on August 26, 2022. However,
if the PCAOB is unable to inspect our accounting firm in the future, our Common Stock may be delisted from or prohibited from trading
on a national securities exchange.
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The recent developments would
add uncertainties to our offering and we cannot assure you whether Nasdaq or regulatory authorities would apply additional and more stringent
criteria to us since we are an emerging growth company and substantially all of our operations are conducted in China. The Holding Foreign
Companies Accountable Act, which requires that the PCAOB be permitted to inspect an issuer’s public accounting firm within three
years, may result in the delisting of our Company or prohibition of trading in our Common Stock in the future if the PCAOB is unable to
inspect our accounting firm at such future time. Further, the AHFCAA which was later signed into law in the Consolidated Appropriations
Act, reduces the period for foreign companies to comply with PCAOB audits to two consecutive years instead of three, thus reducing the
time period for triggering the prohibition on trading, and this ultimately could result in our Common Stock being delisted by an exchange.
The M&A Rules and certain PRC regulations
may make it more difficult for us to pursue growth through acquisitions.
Among other things, the Regulations
on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rules, adopted by six PRC regulatory agencies
in 2006 and amended in 2009, and some other regulations and rules concerning mergers and acquisitions, established additional procedures
and requirements that could make merger and acquisition activities by foreign investors more time-consuming and complex. Such regulation
requires, among other things, that the Ministry of Commerce of the PRC, or the MOFCOM, be notified in advance of any change-of-control
transaction in which a foreign investor acquires control of a PRC domestic enterprise or a foreign company with substantial PRC operations,
if certain thresholds under the Provisions on Thresholds for Prior Notification of Concentrations of Undertakings, issued by the State
Council in 2008, are triggered. Moreover, the Anti-Monopoly Law promulgated by the Standing Committee of the National People’s Congress
which became effective in 2008 requires that transactions which are deemed concentrations and involve parties with specified turnover
thresholds must be cleared by the Anti-Monopoly Bureau of State Administration for Market Regulation, or the Anti-Monopoly Bureau, before
they can be completed. Therefore, our acquisitions of other entities that we make in the future (whether by ourselves or our subsidiaries)
and that meets the thresholds for clearance, may be required to be report to and approved by the anti-monopoly law enforcement agency
in the PRC, and we may be subject to penalty including but not limited to a fine of no more than RMB500,000 if we fail to comply with
such requirement. In addition, PRC national security review rules which became effective in September 2011 require acquisitions by foreign
investors of PRC companies engaged in military related or certain other industries that are crucial to national security be subject to
security review before consummation of any such acquisition. On December 19, 2020, the Measures for the Security Review for Foreign Investment
was jointly issued by National Development and Reform Commission (“NDRC”) and MOFCOM and took effect from January 18, 2021.
The Measures for the Security Review for Foreign Investment specified provisions concerning the security review mechanism on foreign investment,
including the types of investments subject to review, review scopes and procedures, among others. We may pursue potential strategic
acquisitions that are complementary to our business and operations in the future. Complying with the requirements of these regulations
to complete such transactions could be time-consuming, and any required approval processes, including obtaining approval or clearance
from the MOFCOM or the Anti-Monopoly Bureau or its local counterparts or other relevant governmental authorities, may delay or inhibit
our ability to complete such transactions, which could affect our ability to expand our business or maintain our market share. Moreover,
Advanced Biomed HK may be subject to additional restrictions and government regulations if the Chinese government were to impose new laws
and regulations or exert more control over Hong Kong’s business activities.
Enhanced scrutiny over acquisition transactions
by the PRC tax authorities may have a negative impact on potential acquisitions we may pursue in the future.
Pursuant to the Notice on
Strengthening Administration of Enterprise Income Tax for Share Transfers by Non-PRC Resident Enterprises, or SAT Circular 698,
issued by the PRC’s State Administration of Taxation (“SAT”) on December 10, 2009, where a foreign investor transfers
the equity interests of a resident enterprise indirectly via disposition of the equity interests of an overseas holding company, or an
“indirect transfer,” and such overseas holding company is located in a tax jurisdiction that (i) has an effective tax
rate less than 12.5% or (ii) does not tax foreign income of its residents, the foreign investor shall report the indirect transfer
to the competent PRC tax authority. The PRC tax authority will examine the true nature of the indirect transfer, and if the tax authority
considers that the foreign investor has adopted an “abusive arrangement” to avoid PRC tax, it may disregard the existence
of the overseas holding company and re-characterize the indirect transfer and as a result, gains derived from such indirect
transfer may be subject to PRC withholding tax at a rate of up to 10%.
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On February 3, 2015,
the SAT issued the Announcement of the State Administration of Taxation on Several Issues Concerning the Enterprise Income Tax on Indirect
Property Transfer by Non-Resident Enterprises, or SAT Bulletin 7, to supersede existing provisions in relation to the “indirect
transfer” as set forth in SAT Circular 698, while the other provisions of SAT Circular 698 remain in force. Pursuant to SAT Bulletin
7, where a non-resident enterprise indirectly transfers properties such as equity in PRC resident enterprises without any justifiable
business purposes and aiming to avoid the payment of enterprise income tax, such indirect transfer must be reclassified as a direct transfer
of equity in PRC resident enterprise. To assess whether an indirect transfer of PRC taxable properties has reasonable commercial purposes,
all arrangements related to the indirect transfer must be considered comprehensively and factors set forth in SAT Bulletin 7 must be comprehensively
analyzed considering the actual circumstances. SAT Bulletin 7 also provides that, where a non-PRC resident enterprise transfers
its equity interests in a resident enterprise to its related parties at a price lower than the fair market value, the competent tax authority
has the power to make a reasonable adjustment to the taxable income of the transaction.
On October 17, 2017,
the SAT issued the Announcement of the State Administration of Taxation on Matters Concerning Withholding of Income Tax of Non-resident Enterprises
as Source, or SAT Bulletin 37, which repealed the entire SAT Circular 698 and the provision in relation to the time limit for the withholding
agent to declare to the competent tax authority for payment of such tax of SAT Bulletin 7. Pursuant to SAT Bulletin 37, the income from
a property transfer, as stipulated in the second item under Article 19 of the Enterprise Income
Tax Law, shall include the
income derived from transferring such equity investment assets as stock equity. The balance of deducting the equity’s net value
from the total income from equity transfer shall be taxable income from equity transfer. Where a withholding agent enters into a business
contract, involving the income specified in the third paragraph of Article 3 in the Enterprise Income Tax Law, with a non-resident enterprise,
the tax-excluding income of the non-resident enterprise will be treated as the tax-including income, based
on which the tax payment will be calculated and remitted, if it is agreed in the contract that the withholding agent shall assume the
tax payable.
During the effective period
of SAT Circular 698 and by the application of SAT Bulletin 7 and SAT Bulletin 37, some intermediary holding companies were looked through
by the PRC tax authorities, and consequently the non-PRC resident investors were deemed to have transferred the PRC Subsidiary
and PRC corporate taxes were assessed accordingly. It is possible that we or our non-PRC resident investors may at some point
be at risk of being taxed under SAT Bulletin 7 and SAT Bulletin 37 and may be required to expend valuable resources to comply with SAT
Bulletin 7 and SAT Bulletin 37 or to establish that we or our non-PRC resident investors should not be taxed under SAT Bulletin
7 and SAT Bulletin 37, which may have an adverse effect on our financial condition and results of operations or such non-PRC resident
investors’ investment in the Company.
It may be difficult for overseas stockholders
and/or regulators to conduct investigations or collect evidence within the PRC.
Stockholder claims or regulatory
investigation that are common in the United States generally are difficult to pursue as a matter of law or practicality in the PRC. For
example, in the PRC, there are significant legal and other obstacles to providing information needed for regulatory investigations or
litigation initiated outside the PRC or otherwise with respect to foreign entities. Although the authorities in the PRC may establish
a regulatory cooperation mechanism with the securities regulatory authorities of another country or region to implement cross-border supervision
and administration, such cooperation with the securities regulatory authorities in the Unities States may not be efficient in the absence
of mutual and practical cooperation mechanism. Furthermore, according to Article 177 of the PRC Securities Law, which became effective
in March 2020, or Article 177, the securities regulatory authority of the State Council may collaborate with securities regulatory authorities
of other countries or regions in order to monitor and oversee cross border securities activities. Article 177 further provides that no
overseas securities regulator is allowed to directly conduct investigation or evidence collection activities within the territory of the
PRC, and that PRC entities and individuals are not allowed to provide documents or materials related to securities business activities
to overseas agencies without prior consent of the securities regulatory authority of the State Council and the competent departments of
the State Council. While detailed interpretation of or implementation rules under Article 177 have yet to be promulgated, the inability
for an overseas securities regulator to directly conduct investigation or evidence collection activities within the PRC may further increase
difficulties faced by you in protecting your interests.
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Regulation and censorship of information
disseminated over the Internet in the PRC may adversely affect our business, and we may be liable for content that is displayed on our
website.
The PRC has enacted laws and
regulations governing internet access and the distribution of products, services, news, information, audio-video programs and other content
through the Internet. In the past, the PRC government has prohibited the distribution of information through the Internet that it deems
to be in violation of PRC laws and regulations. If any of our Internet information is deemed by the PRC government to violate any content
restrictions, we would not be able to continue to display such content and could become subject to penalties, including confiscation of
income, fines, suspension of business and revocation of required licenses, which could materially and adversely affect our PRC businesses,
financial condition and results of operations. We may also be subject to potential liability for any unlawful actions of our customers
or users of our website or for content we distribute that is deemed inappropriate. It may be difficult to determine the type of content
that may result in liability to us, and if we are found to be liable, we may be prevented from operating our website in the PRC.
Additional factors outside of our control
related to doing business in the Mainland China and Hong Kong could negatively affect our business.
Additional factors that could
negatively affect our business include a potential significant revaluation of the RMB, which may result in an increase in the cost of
operating in the PRC. Natural disasters or health pandemics impacting the PRC can also have a significant negative impact on our PRC businesses.
Further, the imposition of trade sanctions or other regulations against products imported by us from, exported by us into, or the loss
of “normal trade relations” status with the PRC could significantly increase our cost of products exported outside of or imported
into the PRC and harm our business.
Payment of dividends
is subject to restrictions under PRC laws.
Because
of a variety of rules applicable to our operations in the PRC and the regulations on foreign investments as well as the applicable tax
law, we may be subject to limitations on our ability to declare and pay dividends to our stockholders.
As a holding company, we may
rely on dividends and other distributions from our Shanghai subsidiary for cash requirements. If our Shanghai subsidiary incurs any debts,
the instruments governing such debts may restrict its ability to pay dividends to us. To the extent cash or assets in the business is
in the PRC or the Shanghai subsidiary, the cash or assets may not be available to fund operations or for other use outside of the PRC
due to interventions in or the imposition of restrictions and limitations on our or Shanghai subsidiary’s ability by the PRC government
to transfer cash or assets.
Current PRC regulations permit
Chinese operating subsidiaries to pay dividends to foreign parent companies only out of their accumulated profits, if any, determined
in accordance with Chinese accounting standards and regulations. In addition, our subsidiary in China is required to set aside at least
10% of its after-tax profits each year, if any, to fund a statutory reserve until such reserve reaches 50% of its registered capital.
The Shanghai subsidiary is also required to further set aside a portion of its after-tax profits to fund the employee welfare fund, although
the amount to be set aside, if any, is determined at the discretion of its board of directors. While the statutory reserves can be used,
among other ways, to increase the registered capital and eliminate future losses in excess of retained earnings of the respective companies,
the reserve funds are not distributable as cash dividends except in the event of liquidation.
Cash dividends, if any, on
our Common Stock will be paid in U.S. dollars. The PRC government also imposes restrictions on the conversion of RMB into foreign currencies
and the remittance of currencies out of the PRC. As such, we may experience difficulties in completing the administrative procedures necessary
to obtain and remit foreign currency for the payment of dividends from our profits, if any. Furthermore, if the Shanghai subsidiary incurs
any debts, the existence of debts evidenced by the debt instruments may significantly limit its ability to pay dividends or make other
payments. If we are unable to receive earnings distributions from the operating subsidiary in China, we would be unable to pay dividends
on our shares.
74
If we are deemed by the PRC
tax authorities as a PRC tax resident enterprise for tax purposes, any dividends we pay to our non-PRC resident stockholders may be regarded
as China-sourced income and as a result, may be subject to PRC withholding tax at a rate of up to 10%. Pursuant to the Arrangement between
Mainland China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and Tax Evasion on Income, or the
Double Tax Avoidance Arrangement, the 10% withholding tax rate may be reduced to 5% if a Hong Kong resident enterprise owns no less than
25% of a PRC entity. However, the 5% withholding tax rate does not automatically apply and certain requirements must be satisfied, including,
without limitation, that (a) the Hong Kong entity must be the beneficial owner of the relevant dividends; and (b) the Hong Kong entity
must directly hold no less than 25% share ownership in the PRC entity during the 12 consecutive months preceding its receipt of the dividends.
In practice, a Hong Kong entity must obtain a tax resident certificate from the Hong Kong tax authority to apply for the 5% lower PRC
withholding tax rate. As the Hong Kong tax authority will issue such a tax resident certificate on a case-by-case basis, we cannot be
certain that we will be able to obtain the tax resident certificate from the relevant Hong Kong tax authority and enjoy the preferential
withholding tax rate of 5% under the Double Taxation Arrangement with respect to any dividends to be paid by our Shanghai subsidiary to
our Hong Kong subsidiary, Advanced Biomed HK. Moreover, Advanced Biomed HK may be subject to additional restrictions and government regulations
if the Chinese government were to impose new laws and regulations or exert more control over Hong Kong’s business activities. Our
Shanghai subsidiary currently does not have any plan to declare and pay dividends, and we have not applied for the tax resident certificate
from the relevant Hong Kong tax authority.
As of the date of this Report,
we have not paid, and do not anticipate paying in the foreseeable future, dividends or other distributions to our stockholders. Our Shanghai
subsidiary has never paid any dividends or distributions outside of China. We presently intend to retain all earnings to fund our operations
and business expansions.
We can give no assurance that
we will declare dividends of any amounts, at any rate or at all in the future. The declaration of future dividends, if any, will be at
the discretion of our board of directors and will depend upon our future operations and earnings, capital requirements, general financial
conditions, legal and contractual restrictions and other factors that our board of directors may deem relevant.
Risks Related to Nevada Corporate Laws
Nevada law and our charter documents provide our directors and
officers with broad protection from liability, which could reduce stockholder rights.
We are incorporated under
the laws of the State of Nevada. Nevada law provides directors and officers with broader discretion in the discharge of their duties,
and greater protection from liability, than directors and officers of corporations incorporated in many other states. Except in cases
of intentional misconduct, fraud, or a knowing violation of law, Nevada law generally provides that directors and officers are not personally
liable to the corporation or its stockholders. As a result, stockholders may have more limited rights to challenge actions of our directors
and officers, even when they believe those actions are not in their best interests. This limitation on liability could reduce the likelihood
of derivative litigation against our directors and officers and may discourage or prevent stockholders from bringing a lawsuit, even in
instances where they believe that directors or officers have acted improperly.
We indemnify our officers and directors
against liability to us and our security holders, and such indemnification could increase our operating costs.
Our articles of incorporation
and bylaws require us to indemnify our officers and directors against claims associated with carrying out the duties of their offices.
We are also required to advance the costs of certain legal defenses upon the indemnitee undertaking to repay such expenses to the extent
it is determined that such person was not entitled to indemnification of such expenses. Insofar as indemnification for liabilities arising
under the Securities Act may be permitted to our officers, directors, or control persons, the SEC has advised that such indemnification
is against public policy and is therefore unenforceable.
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Provisions in our articles of incorporation,
our bylaws, and Nevada law might discourage, delay or prevent a change in control of our Company or changes in our management and, therefore,
depress the trading price of our Common Stock.
Provisions of our articles
of incorporation, our bylaws, and Nevada law may have the effect of deterring unsolicited takeovers or delaying or preventing a change
in control of our Company or changes in our management, including transactions in which our stockholders might otherwise receive a premium
for their shares over then current market prices. In addition, these provisions may limit the ability of stockholders to approve transactions
that they may deem to be in their best interests. These provisions include:
● the ability of stockholders to call special meetings only upon request of
stockholders holding 80% of the shares entitled to vote at the meeting; and
● the “business combinations” and “control share acquisitions”
provisions of Nevada law (discussed below), to the extent applicable, could discourage attempts to acquire our stockholders’ stock
even on terms above the prevailing market price.
The existence of the forgoing
provisions and anti-takeover measures could limit the price that investors might be willing to pay in the future for shares of our Common
Stock. They could also deter potential acquirers of our company, thereby reducing the likelihood that you could receive a premium for
your Common Stock in an acquisition.
Nevada’s anti-takeover statutes could make it more difficult
for a third party to acquire us, even if doing so would benefit our stockholders.
As a Nevada corporation, we are subject to provisions of the Nevada
Revised Statutes (“NRS”) that may have the effect of discouraging, delaying, or preventing a change of control that stockholders
may consider favorable. In particular, Nevada’s “business combination” statute (NRS 78.411–78.444) restricts certain
transactions between a Nevada corporation and an “interested stockholder” (generally a person who owns 10% or more of the
corporation’s voting shares) for up to two years after the person becomes an interested stockholder, unless certain conditions are
met. Nevada’s “control share” statute (NRS 78.378–78.3793) also limits the voting rights of a person acquiring
a “controlling interest” (generally 20% or more of a corporation’s voting shares), unless approved by the disinterested
stockholders. These statutes, and similar provisions in our articles of incorporation and bylaws, may make it more difficult for a third
party to acquire control of us without the approval of our board of directors and may discourage potential takeover attempts that stockholders
might consider in their best interests.
Risks Related to our
Common Stock
Our Common Stock may not develop an active
trading market and the price and trading volume of our shares may fluctuate significantly.
Our Common Stock is currently
listed on the Nasdaq Capital Market. We cannot predict whether investor interest in us will lead to the development of an active and liquid
trading market. If an active trading market does not develop, holders of our shares of Common Stock may have difficulty selling our shares
that may now be owned or may be purchased later. Even if an active trading market develops for our shares, the market price of our shares
may be highly volatile and could be subject to wide fluctuations. In addition, the trading volume of our shares may fluctuate and cause
significant price variations to occur.
We do not anticipate
paying cash dividends on our Common Stock in the foreseeable future.
We
do not anticipate paying cash dividends in the foreseeable future. Presently, we intend to retain all our earnings, if any, to finance
development and expansion of our business. Consequently, your only opportunity to achieve a positive return on your investment in us will
be if the market price of our Common Stock appreciates.
Our Chairman Dr.
Yi Lu owns a substantial portion of our outstanding shares of Common Stock and could significantly influence the outcome of our corporate
matters.
Our
Chairman and Chief Executive Officer, Dr. Yi Lu, beneficially owns 31.00% of our outstanding shares of Common Stock. As a result, Mr.
Lu is able to exercise significant influence over all matters that require us to obtain stockholder approval, including the election of
directors to our board and approval of significant corporate transactions that we may consider, such as a merger or sale of our company
or its assets. This concentration of ownership in our shares by Mr. Lu will limit other stockholders’ ability to influence corporate
matters and may have the effect of delaying or preventing a third party from acquiring control over us.
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The price of our Common Stock may be volatile
or may decline regardless of our operating performance, and stockholders may not be able to resell their shares.
The market price of our stock
may fluctuate significantly in response to numerous factors, many of which are beyond our control, including:
●
actual or anticipated fluctuations in our revenue and other operating results;
●
the financial projections we may provide to the public, any changes in these projections or our failure to meet these projections;
●
actions of securities analysts who initiate or maintain coverage of us, changes in financial estimates by any securities analysts who follow our company, or our failure to meet these estimates or the expectations of investors;
●
announcements by us or our competitors of significant products, acquisitions, strategic partnerships, joint ventures, or capital commitments;
●
price and volume fluctuations in the overall stock market, including as a result of trends in the economy as a whole;
●
lawsuits threatened or filed against us; and
●
other events or factors, including those resulting from health pandemics, war or incidents of terrorism, or responses to these events.
In addition, the stock markets
have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of securities of many
companies. Stock prices of many companies have fluctuated in a manner unrelated or disproportionate to the operating performance of those
companies.
Risks Related to the ELOC Agreement
It is not possible
to predict the actual number of shares of our Common Stock, if any, we will sell under the ELOC Agreement, or the actual gross proceeds
resulting from those sales or the dilution to you from those sales. Further, we may not have access to the full amount available under
the ELOC Agreement.
Pursuant
to the ELOC Agreement, the Selling Stockholder will purchase from us, from time to time, up to 4,325,836 Common Stock (the “Resale
Shares”), which equal to 19.99% of the total number of shares of Common Stock outstanding immediately prior to the execution of
the ELOC Agreement (the “Exchange Cap”), until such time as we obtain stockholder approval to issue in excess of 19.99% of
our Common Stock upon the terms and subject to the conditions and limitations set forth in the ELOC Agreement; provided, however, that
such limitations will not apply if we obtain stockholder approval to issue additional shares of Common Stock. In no event shall the number
of shares of Common Stock issuable to the Selling Stockholder pursuant to an advance under the ELOC Agreement cause the aggregate number
of shares of Common Stock beneficially owned (as calculated pursuant to Section 13(d) of the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder) by the Selling Stockholder and its affiliates as a result of previous issuances
and sales of Common Stock to the Selling Stockholder under the ELOC Agreement to exceed 4.99% of the then issued and outstanding Common
Stock (the “Ownership Limitation).
The
shares of our Common Stock that may be issued under the ELOC Agreement may be sold by us to the Selling Stockholder at our discretion
from time to time until the earliest to occur of (i) the 24-month anniversary of the effective date of the ELOC Agreement or (ii) the
date on which the Selling Stockholder has purchased the total Commitment Amount pursuant to the ELOC Agreement.
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The
ELOC Agreement provides that we may sell up to an aggregate of $25,000,000 of shares of our Common Stock to the Selling Stockholder, and
we have therefore agreed to register shares of Common Stock with an aggregate offering price of up to $25,000,000 for resale under one
or more registration statements, which includes the up to 10,000,000 shares of Common Stock registered offered by a registration statement.
We
generally have the right to control the timing and amount of any sales of our Common Stock to the Selling Stockholder under the ELOC Agreement
(the “Resale Offering”). Sales of our Common Stock, if any, to the Selling Stockholder under the ELOC Agreement will depend
upon market conditions and other factors to be determined by us. We may ultimately decide to sell to the Selling Stockholder all, some
or none of the Common Stock that may be available for us to sell pursuant to the ELOC Agreement. Accordingly, we cannot guarantee that
we will be able to sell all of the Commitment Amount or how much in proceeds we may obtain under the ELOC Agreement. If we cannot sell
securities under the ELOC Agreement, we may be required to utilize more costly and time-consuming means of accessing the capital markets,
which could have a material adverse effect on our liquidity and cash position.
Because
the purchase price per share of Common Stock to be paid by the Selling Stockholder for the Common Stock that we may elect to sell to under
the ELOC Agreement, if any, will fluctuate based on the market prices of our Common Stock at the time we make such election, it is not
possible for us to predict, as of the date of this Report and prior to any such sales, the number of shares of Common Stock that we will
sell to the Selling Stockholder under the ELOC Agreement, the purchase price per share that the Selling Stockholder will pay for shares
of Common Stock purchased from us under the ELOC Agreement, or the aggregate gross proceeds that we will receive from those purchases
by the Selling Stockholder under the ELOC Agreement.
The
actual number of shares of our Common Stock issuable will vary depending on the then current market price of shares of our Common Stock
sold to the Selling Stockholder in the Resale Offering and the number of shares of our Common Stock we ultimately elect to sell to the
Selling Stockholder under the ELOC Agreement. The Company shall not issue or sell any Common Stock pursuant to the ELOC Agreement, and
the Selling Stockholder shall not purchase or acquire any Common Stock under the ELOC Agreement, if such shares, when aggregated with
all other Common Stock issued pursuant to the ELOC Agreement and the transactions contemplated thereby, exceed the Exchange Cap. In no
event shall the number of shares of Common Stock issuable to the Selling Stockholder pursuant to an advance under the ELOC Agreement cause
Selling Stockholder to exceed the Ownership Limitation. Our inability to access a portion or the full amount available under the ELOC
Agreement, in the absence of any other financing sources, could have a material adverse effect on our business or results of operation.
Investors who buy
shares of Common Stock from the Selling Stockholder at different times will likely pay different prices.
Pursuant
to the ELOC Agreement, we have discretion, to vary the timing, price and number of shares of Common Stock we sell to the Selling Stockholder.
If and when we elect to sell shares of Common Stock to the Selling Stockholder pursuant to the ELOC Agreement, after the Selling Stockholder
has acquired such shares, the Selling Stockholder may resell all, some or none of such shares at any time or from time to time in its
sole discretion and at different prices. As a result, investors who purchase shares from the Selling Stockholder in the Resale Offering
at different times will likely pay different prices for those shares, and so may experience different levels of dilution and in some cases
substantial dilution and different outcomes in their investment results. Investors may experience a decline in the value of the shares
they purchase from the Selling Stockholder in the Resale Offering as a result of future sales made by us to the Selling Stockholder at
prices lower than the prices such investors paid for their shares in the Resale Offering. In addition, if we sell a substantial number
of shares to the Selling Stockholder under the ELOC Agreement, or if investors expect that we will do so, the actual sales of shares or
the mere existence of our arrangements with the Selling Stockholder may make it more difficult for us to sell equity or equity-related
securities in the future at a time and at a price that we might otherwise wish to effect such sales.
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Future resales
and/or issuances of shares of Common Stock, or the perception that such sales may occur, may cause the market price of our shares to drop
significantly.
The
shares of our Common Stock that may be issued under the ELOC Agreement may be sold by us to the Selling Stockholder at our discretion
from time to time from the date of effectiveness of the registration statement on Form S-1 (File No. 333-288907) until the earliest to
occur of (i) the 24-month anniversary of the effective date of the ELOC Agreement, or (ii) the date on which the Selling Stockholder has
purchased the aggregate Commitment Amount.
The
purchase price for shares of our Common Stock that we may sell to the Selling Stockholder under the ELOC Agreement will fluctuate based
on the trading price of shares of our Common Stock. Depending on market liquidity at the time, sales of shares of our Common Stock may
cause the trading price of shares of our Common Stock to decrease. We generally have the right to control the timing and amount of any
future sales of shares of our Common Stock to the Selling Stockholder. Additional sales of shares of our Common Stock, if any, to the
Selling Stockholder will depend upon market conditions and other factors to be determined by us. We may ultimately decide to sell to the
Selling Stockholder all, some or none of the additional shares of our Common Stock that may be available for us to sell pursuant to the
ELOC Agreement. If and when we do sell shares of our Common Stock to the Selling Stockholder, after the Selling Stockholder has acquired
shares of our Common Stock, the Selling Stockholder may resell all, some or none of such shares of our Common Stock at any time or from
time to time in its discretion and at different prices. Therefore, sales to the Selling Stockholder by us could result in substantial
dilution to the interests of other holders of shares of our Common Stock. In addition, if we sell a substantial number of shares of our
Common Stock to the Selling Stockholder under the ELOC Agreement, or if investors expect that we will do so, the shares held by the Selling
Stockholder will represent a significant portion of our public float and may result in substantial decreases to the price of our Common
Stock. The actual sales of shares of our Common Stock or the mere existence of our arrangement with the Selling Stockholder may also make
it more difficult for us to sell equity or equity-related securities in the future at a time and at a price that we might otherwise wish
to effect such sales.
The
market price of shares of our Common Stock could drop significantly if the Selling Stockholder sells shares of Common Stock or is perceived
by the market as intending to sell them. These factors could also make it more difficult for us to raise additional funds through future
offerings of shares of our Common Stock or other securities.
We may use proceeds
from sales of our Common Stock made pursuant to the ELOC Agreement in ways with which you may not agree or in ways which may not yield
a significant return.
We
will have broad discretion over the use of proceeds from sales of our Common Stock made by Helena pursuant to the ELOC Agreement, including
for any of the purposes described in the section entitled “Use of Proceeds” of our S-1, and you will not have the opportunity,
as part of your investment decision, to assess whether the proceeds are being used appropriately. Because of the number and variability
of factors that will determine our use of the net proceeds, their ultimate use may vary substantially from their currently intended use.
While we expect to use the net proceeds from the Resale Offering as set forth in “Use of Proceeds,” we are not obligated to
do so. The failure by us to apply these funds effectively could harm our business, and the net proceeds may be used for corporate purposes
that do not increase our operating results or enhance the value of our Common Stock.
You will experience
dilution if we issue additional equity securities in future financing transactions.
If
we issue additional shares of Common Stock, or securities convertible into or exchangeable or exercisable for Common Stock, our stockholders,
including investors who purchase shares of Common Stock in the Resale Offering, may experience dilution, and any such issuances may result
in downward pressure on the price of our Common Stock. We also cannot assure you that we will be able to sell shares or other securities
in any future offering at a price per share that is equal to or greater than the price per share paid by investors in the Resale Offering,
and investors purchasing shares or other securities in the future could have rights superior to existing stockholders.
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Nasdaq may apply additional and more stringent
criteria for our continued listing because we had a small Initial Public Offering and insiders hold a large portion of our listed securities.
Nasdaq Listing Rule 5101 provides
Nasdaq with broad discretionary authority over the continued listing of securities in Nasdaq, and Nasdaq may use such discretion to apply
additional or more stringent criteria for the continued listing of particular securities, or suspend or delist particular securities based
on any event, condition, or circumstance that exists or occurs that makes continued listing of the securities on Nasdaq inadvisable or
unwarranted in the opinion of Nasdaq, even though the securities meet all enumerated criteria for initial or continued listing on Nasdaq.
In addition, Nasdaq has used its discretion to deny continued listing or to apply additional and more stringent criteria in the instances,
including but not limited to: (i) where the company engaged an auditor that has not been subject to an inspection by the Public Company
Accounting Oversight Board (“PCAOB”), an auditor that PCAOB cannot inspect, or an auditor that has not demonstrated sufficient
resources, geographic reach, or experience to adequately perform the company’s audit; (ii) where the company planned a small public
offering, which would result in insiders holding a large portion of the company’s listed securities. Nasdaq was concerned that the
offering size was insufficient to establish the company’s initial valuation, and there would not be sufficient liquidity to support
a public market for the company; and (iii) where the company did not demonstrate sufficient nexus to the U.S. capital market, including
having no U.S. stockholders, operations, or members of the board of directors or management. Our offering will be relatively small, and
our company’s insiders will hold a large portion of the company’s listed securities. Nasdaq might apply the additional and
more stringent criteria for our continued listing, which might cause delay or even denial of our continued listing.
If we cannot continue to satisfy the listing
requirements and other rules of Nasdaq Capital Market, our securities may be delisted, which could negatively impact the price of our
securities and your ability to sell them.
Although our securities are
listed on the Nasdaq Capital Market, we cannot assure you that our securities will continue to be listed on the Nasdaq Capital Market.
In order to maintain our listing on the Nasdaq Capital Market, we will be required to comply with certain rules of Nasdaq Capital Market,
including those regarding minimum stockholders’ equity, minimum share price, and certain corporate governance requirements. Even
if we initially meet the listing requirements and other applicable rules of the Nasdaq Capital Market, we may not be able to continue
to satisfy these requirements and applicable rules. If we are unable to satisfy the Nasdaq Capital Market criteria for maintaining our
listing, our securities could be subject to delisting.
On July 18, 2025, we received
a written notice (the “Deficiency Notice”) from the Listing Qualifications Department of The Nasdaq Stock Market LLC notifying
us that, for the last 32 consecutive business days, the bid price for our Common Stock had closed below the minimum $1.00 per share requirement
for continued listing on the Nasdaq Capital Market under Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Price Requirement”).
The Notice has no immediate effect on the listing or trading of our Common Stock, which will continue to trade on the Nasdaq Capital Market
under the symbol “ADVB.” In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we have been provided a compliance period of
180 calendar days, or until January 14, 2026 (the “Compliance Period”), to regain compliance with the Minimum Bid Price Requirement.
If we do not regain compliance
by the end of the Compliance Period, we may be eligible for an additional 180 calendar day compliance period, provided that we meet the
continued listing requirement for market value of publicly held shares and all other initial listing standards for the Nasdaq Capital
Market (except for the bid price requirement), and provides written notice to Nasdaq of our intent to cure the deficiency during the second
compliance period, including, if necessary, by effecting a reverse stock split.
We intend to monitor the closing
bid price of our Common Stock and will consider all available options to regain compliance with the Minimum Bid Price Requirement within
the compliance period. However, if we do not regain compliance by the end of the Compliance Period and any additional compliance period,
our Common Stock will be subject to delisting.
If the Nasdaq Capital Market
subsequently delists our securities from trading, we could face significant consequences, including:
●
limited availability for market quotations for our securities;
●
reduced liquidity with respect to our securities;
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●
a determination that our Common Stock is a “penny stock,” which will require brokers trading in our Common Stock to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our Common Stock;
●
limited amount of news and analyst coverage; and
●
a decreased ability to issue additional securities or obtain additional financing in the future.
The market price of our Common Stock may
be volatile or may decline regardless of our operating performance, and you may not be able to resell your shares at or above the public
offering price.
Recently, there have been
instances of extreme stock price run-ups followed by rapid price declines and strong stock price volatility with a number of recent initial
public offerings, especially among companies with relatively smaller public floats. If you purchase our Common Stock in the Resale Offering,
you may not be able to sell those shares at or above the Initial Public Offering price or the Resale Offering price. In particular, our
Common Stock may be subject to rapid and substantial price volatility, low volumes of trades and large spreads in bid and ask prices,
given that we will have relatively small public floats after the Resale Offering, and the Selling Stockholder is offering Resale Shares
through this Resale Offering. Such volatility, including any stock price run-ups, may be unrelated to our actual or expected operating
performance, financial condition or prospects.
We cannot assure you that
the market price following the Resale Offering will equal or exceed prices in privately negotiated transactions of our shares that have
occurred from time to time prior to the Resale Offering. The market price of our Common Stock may fluctuate significantly in response
to numerous factors, many of which are beyond our control, including:
●
actual or anticipated fluctuations in our revenue and other operating results;
●
the sale of Resale Shares by the Selling Stockholder in the open market;
●
the financial projections we may provide to the public, any changes in these projections or our failure to meet these projections;
●
actions of securities analysts who initiate or maintain coverage of us, changes in financial estimates by any securities analysts who follow our company, or our failure to meet these estimates or the expectations of investors;
●
announcements by us or our competitors of significant services or features, technical innovations, acquisitions, strategic relationships, joint ventures, or capital commitments;
●
price and volume fluctuations in the overall stock market, including as a result of trends in the economy as a whole;
●
lawsuits threatened or filed against us; and
●
other events or factors, including those resulting from war or incidents of terrorism, or responses to these events.
●
In addition, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. Stock prices of many companies have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies. In the past, stockholders have filed securities class action litigation following periods of market volatility. In the event that we were to become involved in securities litigation, it could subject us to substantial costs, divert resources and the attention of management from our business, and adversely affect our business.
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Holders of our Common Stock
may also not be able to readily liquidate their investment or may be forced to sell at depressed prices due to low volume trading. Broad
market fluctuations and general economic and political conditions may also adversely affect the market price of our Common Stock. As a
result of this volatility, investors may experience losses on their investment in our Common Stock. Furthermore, the potential extreme
volatility may confuse the public investors of the value of our stock, distort the market perception of our stock price and our company’s
financial performance and public image, negatively affect the long-term liquidity of our Common Stock, regardless of our actual or expected
operating performance. If we encounter such volatility, including any rapid stock price increases and declines seemingly unrelated to
our actual or expected operating performance and financial condition or prospects, it will likely make it difficult and confusing for
prospective investors to assess the rapidly changing value of our Common Stock and understand the value thereof.
The purchase price of our Common Stock in
the Resale Offering could be higher or lower than the IPO.
Our Common Stock was initially
offered in a primary underwritten offering in March 2025 (the “IPO”). Although our Common Stock was offered at a fixed price
in the IPO determined by the underwriters and us, we cannot guarantee that the Selling Stockholder will also offer their shares at the
same price. As a result, if you participate in the Resale Offering, you could pay more or less than the price in our IPO, depending on
the actual price of the Resale Shares at the time of the sale.
Shares eligible for future sale may adversely
affect the market price of our Common Stock, as the future sale of a substantial amount of outstanding Common Stock in the public marketplace
could reduce the price of our Common Stock.
The market price of our shares
could decline as a result of sales of substantial amounts of our shares in the public market or the perception that these sales could
occur, including the sale of Resale Shares by the Selling Stockholder. In addition, these factors could make it more difficult for us
to raise funds through future offerings of our Common Stock. 21,640,000 shares of our Common Stock are outstanding immediately before
the Resale Offering. All of the shares sold in the Resale Offering will be freely transferable without restriction or further registration
under the Securities Act. Certain Common Stock are “restricted securities” as defined in Rule 144, as they are subject to
lock-up in connection with our Initial Public Offering. These shares may be sold in the future without registration under the Securities
Act to the extent permitted by Rule 144 or other exemptions under the Securities Act.
We will not receive any proceeds
from the Resale Offering.
We will incur additional costs as a result
of becoming a public company, which could negatively impact our net income and liquidity.
We became a public company
in March 2025. As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private
company. In addition, Sarbanes-Oxley and rules and regulations implemented by the SEC and the Nasdaq Capital Market require significantly
heightened corporate governance practices for public companies. We expect that these rules and regulations will increase our legal, accounting
and financial compliance costs and will make many corporate activities more time-consuming and costly.
We do not expect to incur
materially greater costs as a result of becoming a public company than those incurred by similarly sized U.S. public companies. In the
event that we fail to comply with these rules and regulations, we could become the subject of a governmental enforcement action, investors
may lose confidence in us and the market price of our Common Stock could decline.
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The obligation to disclose information publicly
may put us at a disadvantage to competitors that are private companies.
We are a publicly listed company
in the United States. As a publicly listed company, we will be required to file quarterly and annual reports with the Securities and Exchange
Commission. In some cases, we will need to disclose material agreements or results of financial operations that we would not be required
to disclose if we were a private company. Our competitors may have access to this information, which would otherwise be confidential.
This may give them advantages in competing with our company. Similarly, as a U.S.-listed public company, we will be governed by U.S. laws
that our competitors, which are mostly private Chinese companies, are not required to follow. To the extent compliance with U.S. laws
increases our expenses or decreases our competitiveness against such companies, our public listing could affect our results of operations.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.