Regulatory Compliance - Baird Medical obtained five registration certificates for microwave ablation therapeutic apparatus and multiple models of microwave ablation needles, all classified as Class III, on February 6, 2023[67]. - The company is subject to the Holding Foreign Companies Accountable Act (HFCAA), which could lead to delisting if the PCAOB cannot inspect its auditors in China for two consecutive years[72]. - The regulatory framework for the microwave medical device industry in China is evolving, which may lead to increased compliance costs and affect product commercialization[90]. - The company may face fines ranging from RMB5,000 to RMB30,000 for non-compliance with PRC safety facility regulations[135]. - The company is subject to evolving PRC regulatory requirements regarding cybersecurity, which may result in fines or penalties for non-compliance[228]. - The implementation of the Cybersecurity Review Measures requires operators of critical information infrastructure to pass a cybersecurity review when purchasing network products and services[227]. - The company faces regulatory uncertainties that could restrict its ability to adopt additional share incentive plans for its directors and employees under PRC law[246]. - The company must ensure compliance with Circular 37, which requires PRC residents to complete foreign exchange registrations for offshore investments, to avoid potential fines and legal penalties[241]. - Current PRC regulations restrict PRC subsidiaries from paying dividends except from accumulated after-tax profits, and they must set aside at least 10% of profits for reserve funds until reaching 50% of registered capital[259]. Financial Performance and Risks - The company has not paid any dividends or made distributions to shareholders since 2022, and there are no current plans to do so in the foreseeable future[71]. - Baird Medical's historical operating results may not be indicative of future performance, making it difficult to predict future growth[80]. - The company has a high gross profit margin, but it may not be sustainable in the future due to various operational risks[80]. - The company may face delays in obtaining Class III medical device registration certificates for its microwave ablation products, which could negatively impact sales revenue[101]. - The company may require significant capital for operations and growth, which may not be available on acceptable terms[159]. - The company may face penalties ranging from RMB 1,000,000 to RMB 10,000,000 for non-compliance with regulatory requirements, which could hinder its ability to raise funds overseas[225]. - The company faces intense competition in the medical technology industry, which may adversely affect market share and profitability[145]. - Future revenue may be impacted by regulatory changes in the medical device industry, including potential price reductions due to centralized procurement[152]. Market and Operational Strategy - The company has developed a strategically managed network with hospitals and medical device distributors, gradually expanding its market share in microwave ablation medical devices in China[81]. - The microwave ablation medical devices industry in China is in an early stage of development, and there is no guarantee that hospitals or distributors will accept the products at acceptable price points[82]. - The company relies on distributors for product delivery, and any failure to maintain these relationships could adversely affect revenue and growth[93]. - The availability of medical insurance reimbursement for the company's products varies by region and is subject to change, impacting demand and sales[95]. - The national medical insurance program in China generally reimburses a higher percentage for domestic products compared to imported ones, which may affect pricing strategies[96]. - The company relies on marketing service providers for product development and marketing, which is critical for understanding clinical needs and trends[120]. Intellectual Property and R&D - The company has a total of 54 registered patents in China and has applied for 18 additional patents as of December 31, 2024[175]. - The company faces risks related to potential patent infringement claims, which could lead to significant legal costs and operational disruptions[178]. - The company’s ability to maintain patent protection is contingent on compliance with various procedural requirements imposed by patent agencies[179]. - The company’s R&D personnel must account for at least 10% of total employees to qualify as a High and New Technology Enterprise[164]. - The Super Deduction ratio for R&D expenses is currently 100% since October 1, 2022, with 80% for outsourced R&D expenses[164]. Management and Operational Challenges - The company relies on key management personnel, particularly CEO Haimei Wu, whose loss could adversely affect business growth[141]. - Labor shortages and increased labor costs may significantly impact the company's operating costs and financial results[143]. - The company has identified material weaknesses in its internal control over financial reporting, including insufficient personnel knowledgeable in U.S. GAAP and SEC reporting requirements[190]. - The company engaged an external consulting firm to perform U.S. GAAP conversion of its PRC financial statements as a remedial measure for identified weaknesses[191]. - The company is increasingly dependent on information technology, and failures in data protection could lead to significant operational disruptions[122]. Supply Chain and Production - The company procured all raw materials in China in 2022, 2023, and 2024, relying on three, four, and three suppliers that contributed more than 10% of total cost of revenues, respectively[121]. - The company is exposed to risks of raw material shortages and price increases, which could adversely affect profitability if costs cannot be passed on to customers[121]. - Manufacturing operations could be interrupted by various factors, including natural disasters and regulatory changes, impacting the ability to meet customer demand[136]. External Economic Factors - The company’s operations are significantly influenced by the political, economic, and social conditions in China, which may lead to material changes in operations and the value of securities[200]. - The PRC government has significant control over economic growth, including resource allocation and monetary policy, which could adversely affect the company’s business and financial condition[201]. - The uneven economic growth in China could lead to fluctuations in demand for the company’s products, adversely affecting its competitive position[202]. - The COVID-19 pandemic has had a limited impact on the company’s operations in 2021 and 2022, but future external events could lead to material disruptions[202].
Baird Medical Investment Holdings Ltd.(BDMD) - 2024 Q4 - Annual Report