UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 20212022
☐☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
COMMISSION FILE NUMBER: 001-38728
AVALON GLOBOCARE CORP.
(Exact name of Registrant as specified in its charter)
Delaware | 47-1685128 | |
(State of incorporation) | (I.R.S. Employer Identification No.) |
4400 Route 9 South, Suite 3100, Freehold, New Jersey 07728
(Address of principal executive offices) (zip code)
(732) 780-4400
(Registrant’sRegistrant’s telephone number, including
area code)
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes ☒☒ No ☐☐
Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§(§ 232.405
of this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit such files). Yes ☒☒ No ☐☐
Indicate by check mark
whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an
emerging growth company. See the definitions of “large“large accelerated filer,” “accelerated” “accelerated filer,” “smaller” “smaller
reporting company,”” and “emerging“emerging growth company”company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | Accelerated filer | ||
Non-accelerated filer | Smaller reporting company | ||
Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant
to Section 13(a) of the Exchange Act. ☐☐
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act) Yes ☐☐ No ☒☒
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class | Trading Symbol | Name of each exchange on which registered | ||
Common Stock, $0.0001 par value per share | AVCO | The NASDAQ Stock Market LLC |
State the number of shares outstanding of each
of the issuer’sissuer’s classes of common equity, as of the latest practicable date.
Class | Outstanding August | |
Common Stock, $0.0001 par value per share |
AVALON GLOBOCARE CORP.
FORM 10-Q
June 30, 20212022
TABLE OF CONTENTS
i
FORWARD LOOKING STATEMENTS
This report
contains forward-looking statements regarding our business, financial condition, results of operations and prospects. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates”“expects,”
“anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates”
and similar expressions or variations of such words are intended to identify forward-looking statements, but are not deemed to represent
an all-inclusive means of identifying forward-looking statements as denoted in this report. Additionally, statements concerning future
matters are forward-looking statements.
Although forward-looking
statements in this report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently
known by us. Consequently, forward-looking statements are inherently subject to risks and uncertainties and actual results and outcomes
may differ materially from the results and outcomes discussed in or anticipated by the forward-looking statements. Factors that could
cause or contribute to such differences in results and outcomes include, without limitation, those specifically addressed under the headings
“Risks Factors”“Risks Factors” and “Management’s“Management’s Discussion and Analysis of Financial Condition and Results of Operations”Operations”
in our annual report on Form 10-K, in “Management’s“Management’s Discussion and Analysis of Financial Condition and Results of Operations”Operations”
in this Form 10-Q and information contained in other reports that we file with the SEC. You are urged not to place undue reliance on
these forward-looking statements, which speak only as of the date of this report.
We file
reports with the SEC. The SEC maintains a website (www.sec.gov) that contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC, including us. You can also read and copy any materials we file with the SEC
at the SEC’sSEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. You can obtain additional information about the operation
of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
We undertake no obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this report, except as required by law. Readers are urged to carefully review and consider the various disclosures made throughout the entirety of this quarterly report, which are designed to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.
Unless
otherwise indicated, references in this report to “we,” “us”“we,” “us”, “Avalon”“Avalon” or the “Company”“Company”
refer to Avalon GloboCare Corp. and its consolidated subsidiaries.
ii
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, | December 31, | |||||||
2021 | 2020 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
CURRENT ASSETS: | ||||||||
Cash | $ | 685,304 | $ | 726,577 | ||||
Rent receivable | 23,650 | 35,395 | ||||||
Deferred financing costs | 168,531 | 222,141 | ||||||
Prepaid expenses and other current assets | 447,844 | 302,224 | ||||||
Total Current Assets | 1,325,329 | 1,286,337 | ||||||
NON-CURRENT ASSETS: | ||||||||
Rent receivable - noncurrent portion | 106,558 | 111,840 | ||||||
Security deposit | 19,953 | - | ||||||
Deferred leasing costs | 125,503 | 144,197 | ||||||
Operating lease right-of-use assets, net | 210,781 | 137,333 | ||||||
Property and equipment, net | 442,668 | 479,115 | ||||||
Investment in real estate, net | 7,613,111 | 7,685,686 | ||||||
Equity method investment | 533,949 | 521,758 | ||||||
Total Non-current Assets | 9,052,523 | 9,079,929 | ||||||
Total Assets | $ | 10,377,852 | $ | 10,366,266 | ||||
LIABILITIES AND EQUITY | ||||||||
CURRENT LIABILITIES: | ||||||||
Accrued professional fees | $ | 1,688,929 | $ | 1,212,822 | ||||
Accrued research and development fees | 587,805 | 513,533 | ||||||
Accrued payroll liability and directors' compensation | 182,474 | 154,292 | ||||||
Accrued liabilities and other payables | 330,710 | 367,411 | ||||||
Accrued liabilities and other payables - related parties | 359,236 | 267,956 | ||||||
Operating lease obligation | 140,978 | 76,379 | ||||||
Note payable - related party | 390,000 | - | ||||||
Total Current Liabilities | 3,680,132 | 2,592,393 | ||||||
NON-CURRENT LIABILITIES: | ||||||||
Operating lease obligation - noncurrent portion | 75,803 | 66,954 | ||||||
Note payable - related party | - | 390,000 | ||||||
Loan payable - related party | 3,393,188 | 3,200,000 | ||||||
Total Non-current Liabilities | 3,468,991 | 3,656,954 | ||||||
Total Liabilities | 7,149,123 | 6,249,347 | ||||||
Commitments and Contingencies | ||||||||
EQUITY: | ||||||||
Preferred stock, $0.0001 par value; 10,000,000 shares authorized; no shares issued and outstanding at June 30, 2021 and December 31, 2020 | - | - | ||||||
Common stock, $0.0001 par value; 490,000,000 shares authorized; 85,600,919 shares issued and 85,080,919 shares outstanding at June 30, 2021; 82,795,297 shares issued and 82,275,297 shares outstanding at December 31, 2020 | 8,560 | 8,279 | ||||||
Additional paid-in capital | 50,687,940 | 46,856,447 | ||||||
Less: common stock held in treasury, at cost; 520,000 shares at June 30, 2021 and December 31, 2020 | (522,500 | ) | (522,500 | ) | ||||
Accumulated deficit | (46,773,403 | ) | (42,041,375 | ) | ||||
Statutory reserve | 6,578 | 6,578 | ||||||
Accumulated other comprehensive loss - foreign currency translation adjustment | (178,446 | ) | (190,510 | ) | ||||
Total Avalon GloboCare Corp. stockholders' equity | 3,228,729 | 4,116,919 | ||||||
Non-controlling interest | - | - | ||||||
Total Equity | 3,228,729 | 4,116,919 | ||||||
Total Liabilities and Equity | $ | 10,377,852 | $ | 10,366,266 |
June 30, 2022 | December 31, 2021 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
CURRENT ASSETS: | ||||||||
Cash | $ | 1,180,208 | $ | 807,538 | ||||
Rent receivable | 24,778 | 33,618 | ||||||
Rent receivable - related party | 58,500 | 33,600 | ||||||
Deferred financing costs, net | 139,170 | 138,631 | ||||||
Prepaid expenses and other current assets | 250,302 | 309,655 | ||||||
Total Current Assets | 1,652,958 | 1,323,042 | ||||||
NON-CURRENT ASSETS: | ||||||||
Rent receivable - noncurrent portion | 147,964 | 163,211 | ||||||
Deferred financing costs - noncurrent portion, net | 74,937 | 74,648 | ||||||
Security deposit | 20,271 | |||||||
Deferred leasing costs | 97,216 | 109,792 | ||||||
Operating lease right-of-use assets, net | 74,348 | 145,303 | ||||||
Property and equipment, net | 265,709 | 361,547 | ||||||
Investment in real estate, net | 7,444,428 | 7,528,770 | ||||||
Equity method investment | 517,442 | 515,632 | ||||||
Total Non-current Assets | 8,622,044 | 8,919,174 | ||||||
Total Assets | $ | 10,275,002 | $ | 10,242,216 | ||||
LIABILITIES AND EQUITY | ||||||||
CURRENT LIABILITIES: | ||||||||
Accounts payable | $ | 376,386 | $ | |||||
Accrued professional fees | 1,485,695 | 1,881,349 | ||||||
Accrued research and development fees | 609,222 | 928,111 | ||||||
Accrued payroll liability and directors’ compensation | 374,601 | 307,043 | ||||||
Accrued settlement of lawsuit | 900,000 | - | ||||||
Accrued liabilities and other payables | 344,352 | 275,320 | ||||||
Accrued liabilities and other payables - related parties | 539,974 | 468,433 | ||||||
Operating lease obligation | 74,348 | 151,402 | ||||||
Convertible note payable, net | 492,550 | |||||||
Derivative liability | 2,013,300 | |||||||
Note payable - related party | 390,000 | |||||||
Total Current Liabilities | 7,210,428 | 4,401,658 | ||||||
NON-CURRENT LIABILITIES: | ||||||||
Operating lease obligation - noncurrent portion | 5,901 | |||||||
Accrued settlement of lawsuit - noncurrent portion | 450,000 | |||||||
Loan payable - related party | 2,440,262 | 2,750,262 | ||||||
Total Non-current Liabilities | 2,890,262 | 2,756,163 | ||||||
Total Liabilities | 10,100,690 | 7,157,821 | ||||||
Commitments and Contingencies (Note 15) | ||||||||
EQUITY: | ||||||||
Preferred stock, $0.0001 par value; 10,000,000 shares authorized; | ||||||||
Common stock, $0.0001 par value; 490,000,000 shares authorized; | ||||||||
89,554,766 shares issued and 89,034,766 shares outstanding at June 30, 2022; | ||||||||
8,955 | 8,898 | |||||||
Additional paid-in capital | 56,118,913 | 54,888,559 | ||||||
Less: common stock held in treasury, at cost; | ||||||||
520,000 shares at June 30, 2022 and December 31, 2021 | (522,500 | ) | (522,500 | ) | ||||
Accumulated deficit | (55,230,886 | ) | (51,131,874 | ) | ||||
Statutory reserve | 6,578 | 6,578 | ||||||
Accumulated other comprehensive loss - foreign currency translation adjustment | (206,748 | ) | (165,266 | ) | ||||
Total Avalon GloboCare Corp. stockholders’ equity | 174,312 | 3,084,395 | ||||||
Non-controlling interest | ||||||||
Total Equity | 174,312 | 3,084,395 | ||||||
Total Liabilities and Equity | $ | 10,275,002 | $ | 10,242,216 |
See accompanying notes to the condensed consolidated financial statements.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
REVENUES | ||||||||||||||||
Real property rental | $ | 280,232 | $ | 301,267 | $ | 570,006 | $ | 598,223 | ||||||||
COSTS AND EXPENSES | ||||||||||||||||
Real property operating expenses | 205,147 | 272,764 | 422,041 | 527,265 | ||||||||||||
GROSS PROFIT | ||||||||||||||||
Real property operating income | 75,085 | 28,503 | 147,965 | 70,958 | ||||||||||||
OTHER OPERATING EXPENSES: | ||||||||||||||||
Professional fees | 1,357,079 | 1,561,650 | 2,738,257 | 3,115,348 | ||||||||||||
Compensation and related benefits | 547,829 | 1,054,052 | 1,109,835 | 2,182,520 | ||||||||||||
Research and development expenses | 238,793 | 161,101 | 451,981 | 436,503 | ||||||||||||
Other general and administrative | 233,664 | 254,527 | 453,760 | 561,606 | ||||||||||||
Total Other Operating Expenses | 2,377,365 | 3,031,330 | 4,753,833 | 6,295,977 | ||||||||||||
LOSS FROM OPERATIONS | (2,302,280 | ) | (3,002,827 | ) | (4,605,868 | ) | (6,225,019 | ) | ||||||||
OTHER INCOME (EXPENSE) | ||||||||||||||||
Interest expense - related party | (46,131 | ) | (42,469 | ) | (91,280 | ) | (84,638 | ) | ||||||||
Loss from equity method investment | (15,418 | ) | (11,332 | ) | (33,932 | ) | (20,416 | ) | ||||||||
Other (expense) income | (1,081 | ) | 246 | (948 | ) | 2,910 | ||||||||||
Total Other Expense, net | (62,630 | ) | (53,555 | ) | (126,160 | ) | (102,144 | ) | ||||||||
LOSS BEFORE INCOME TAXES | (2,364,910 | ) | (3,056,382 | ) | (4,732,028 | ) | (6,327,163 | ) | ||||||||
INCOME TAXES | - | - | - | - | ||||||||||||
NET LOSS | $ | (2,364,910 | ) | $ | (3,056,382 | ) | $ | (4,732,028 | ) | $ | (6,327,163 | ) | ||||
LESS: NET LOSS ATTRIBUTABLE TO NON-CONTROLLING INTEREST | - | - | - | - | ||||||||||||
NET LOSS ATTRIBUTABLE TO AVALON GLOBOCARE CORP. COMMON SHAREHOLDERS | $ | (2,364,910 | ) | $ | (3,056,382 | ) | $ | (4,732,028 | ) | $ | (6,327,163 | ) | ||||
COMPREHENSIVE LOSS: | ||||||||||||||||
NET LOSS | $ | (2,364,910 | ) | $ | (3,056,382 | ) | $ | (4,732,028 | ) | $ | (6,327,163 | ) | ||||
OTHER COMPREHENSIVE INCOME (LOSS) | ||||||||||||||||
Unrealized foreign currency translation gain (loss) | 14,786 | 3,309 | 12,064 | (18,757 | ) | |||||||||||
COMPREHENSIVE LOSS | (2,350,124 | ) | (3,053,073 | ) | (4,719,964 | ) | (6,345,920 | ) | ||||||||
LESS: COMPREHENSIVE LOSS ATTRIBUTABLE TO NON-CONTROLLING INTEREST | - | - | - | - | ||||||||||||
COMPREHENSIVE LOSS ATTRIBUTABLE TO AVALON GLOBOCARE CORP. COMMON SHAREHOLDERS | $ | (2,350,124 | ) | $ | (3,053,073 | ) | $ | (4,719,964 | ) | $ | (6,345,920 | ) | ||||
NET LOSS PER COMMON SHARE ATTRIBUTABLE TO AVALON GLOBOCARE CORP. COMMON SHAREHOLDERS: | ||||||||||||||||
Basic and diluted | $ | (0.03 | ) | $ | (0.04 | ) | $ | (0.06 | ) | $ | (0.08 | ) | ||||
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: | ||||||||||||||||
Basic and diluted | 84,623,723 | 78,887,380 | 84,021,787 | 77,799,722 |
For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
REVENUES | ||||||||||||||||
Real property rental | $ | 290,821 | $ | 280,232 | $ | 588,452 | $ | 570,006 | ||||||||
Total Revenues | 290,821 | 280,232 | 588,452 | 570,006 | ||||||||||||
COSTS AND EXPENSES | ||||||||||||||||
Real property operating expenses | 211,703 | 205,147 | 430,151 | 422,041 | ||||||||||||
Total Costs and Expenses | 211,703 | 205,147 | 430,151 | 422,041 | ||||||||||||
GROSS PROFIT | ||||||||||||||||
Real property operating income | 79,118 | 75,085 | 158,301 | 147,965 | ||||||||||||
Total Gross Profit | 79,118 | 75,085 | 158,301 | 147,965 | ||||||||||||
OTHER OPERATING EXPENSES: | ||||||||||||||||
Advertising and marketing | 130,395 | 7,500 | 657,201 | 16,323 | ||||||||||||
Professional fees | 436,447 | 1,357,079 | 1,257,755 | 2,738,257 | ||||||||||||
Compensation and related benefits | 503,541 | 547,829 | 1,026,586 | 1,109,835 | ||||||||||||
Research and development expenses | 254,476 | 238,793 | 371,160 | 451,981 | ||||||||||||
Litigation settlement | 1,350,000 | 1,350,000 | ||||||||||||||
Other general and administrative | 247,830 | 226,164 | 466,112 | 437,437 | ||||||||||||
Total Other Operating Expenses | 2,922,689 | 2,377,365 | 5,128,814 | 4,753,833 | ||||||||||||
LOSS FROM OPERATIONS | (2,843,571 | ) | (2,302,280 | ) | (4,970,513 | ) | (4,605,868 | ) | ||||||||
OTHER (EXPENSE) INCOME | ||||||||||||||||
Interest expense | (61,889 | ) | (61,889 | ) | ||||||||||||
Interest expense - related party | (31,854 | ) | (46,131 | ) | (71,540 | ) | (91,280 | ) | ||||||||
Loss from equity method investment | (11,882 | ) | (15,418 | ) | (24,798 | ) | (33,932 | ) | ||||||||
Change in fair value of derivative liability | 769,269 | 769,269 | ||||||||||||||
Other income (expense) | 151,453 | (1,081 | ) | 260,459 | (948 | ) | ||||||||||
Total Other Income (Expense), net | 815,097 | (62,630 | ) | 871,501 | (126,160 | ) | ||||||||||
LOSS BEFORE INCOME TAXES | (2,028,474 | ) | (2,364,910 | ) | (4,099,012 | ) | (4,732,028 | ) | ||||||||
INCOME TAXES | - | - | ||||||||||||||
NET LOSS | $ | (2,028,474 | ) | $ | (2,364,910 | ) | $ | (4,099,012 | ) | $ | (4,732,028 | ) | ||||
LESS: NET LOSS ATTRIBUTABLE TO NON-CONTROLLING INTEREST | - | - | ||||||||||||||
NET LOSS ATTRIBUTABLE TO AVALON GLOBOCARE CORP. COMMON SHAREHOLDERS | $ | (2,028,474 | ) | $ | (2,364,910 | ) | $ | (4,099,012 | ) | $ | (4,732,028 | ) | ||||
COMPREHENSIVE LOSS: | ||||||||||||||||
NET LOSS | $ | (2,028,474 | ) | $ | (2,364,910 | ) | $ | (4,099,012 | ) | $ | (4,732,028 | ) | ||||
OTHER COMPREHENSIVE (LOSS) INCOME | ||||||||||||||||
Unrealized foreign currency translation (loss) gain | (43,503 | ) | 14,786 | (41,482 | ) | 12,064 | ||||||||||
COMPREHENSIVE LOSS | (2,071,977 | ) | (2,350,124 | ) | (4,140,494 | ) | (4,719,964 | ) | ||||||||
LESS: COMPREHENSIVE LOSS ATTRIBUTABLE TO NON-CONTROLLING INTEREST | - | - | ||||||||||||||
COMPREHENSIVE LOSS ATTRIBUTABLE TO AVALON GLOBOCARE CORP. COMMON SHAREHOLDERS | $ | (2,071,977 | ) | $ | (2,350,124 | ) | $ | (4,140,494 | ) | $ | (4,719,964 | ) | ||||
NET LOSS PER COMMON SHARE ATTRIBUTABLE TO AVALON GLOBOCARE CORP. COMMON SHAREHOLDERS: | ||||||||||||||||
Basic and diluted | $ | (0.02 | ) | $ | (0.03 | ) | $ | (0.05 | ) | $ | (0.06 | ) | ||||
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: | ||||||||||||||||
Basic and diluted | 88,932,809 | 84,623,723 | 88,718,812 | 84,021,787 |
See accompanying notes to the condensed consolidated financial statements.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
For the Three and Six Months Ended June 30, 2022
(Unaudited)
Avalon GloboCare Corp. Stockholders’ Equity | ||||||||||||||||||||||||||||||||||||||||||||||||
Preferred Stock | Common Stock | Treasury Stock | Accumulated | |||||||||||||||||||||||||||||||||||||||||||||
Number | Number | Additional | Number | Other | Non- | |||||||||||||||||||||||||||||||||||||||||||
of | of | Paid-in | of | Accumulated | Statutory | Comprehensive | controlling | Total | ||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Shares | Amount | Deficit | Reserve | Loss | Interest | Equity | |||||||||||||||||||||||||||||||||||||
Balance, January 1, 2022 | $ | 88,975,169 | $ | 8,898 | $ | 54,888,559 | (520,000 | ) | $ | (522,500 | ) | $ | (51,131,874 | ) | $ | 6,578 | $ | (165,266 | ) | $ | $ | 3,084,395 | ||||||||||||||||||||||||||
Sale of common stock, net | - | 170,640 | 17 | 112,311 | - | 112,328 | ||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | - | - | 152,323 | - | 152,323 | |||||||||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustment | - | - | - | 2,021 | 2,021 | |||||||||||||||||||||||||||||||||||||||||||
Net loss for the three months ended March 31, 2022 | - | - | - | (2,070,538 | ) | (2,070,538 | ) | |||||||||||||||||||||||||||||||||||||||||
Balance, March 31, 2022 | 89,145,809 | 8,915 | 55,153,193 | (520,000 | ) | (522,500 | ) | (53,202,412 | ) | 6,578 | (163,245 | ) | 1,280,529 | |||||||||||||||||||||||||||||||||||
Warrants issued with convertible debt offering | - | - | 498,509 | - | 498,509 | |||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock for services | - | 408,957 | 40 | 340,910 | - | 340,950 | ||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | - | - | 126,301 | - | 126,301 | |||||||||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustment | - | - | - | (43,503 | ) | (43,503 | ) | |||||||||||||||||||||||||||||||||||||||||
Net loss for the three months ended June 30, 2022 | - | - | - | (2,028,474 | ) | (2,028,474 | ) | |||||||||||||||||||||||||||||||||||||||||
Balance, June 30, 2022 | - | $ | 89,554,766 | $ | 8,955 | $ | 56,118,913 | (520,000 | ) | $ | (522,500 | ) | $ | (55,230,886 | ) | $ | 6,578 | $ | (206,748 | ) | $ | $ | 174,312 |
See accompanying notes to the condensed consolidated financial statements.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
For the Three and Six Months Ended June 30, 2021
(Unaudited)
Avalon GloboCare Corp. Stockholders' Equity | ||||||||||||||||||||||||||||||||||||||||||||||||
Preferred Stock | Common Stock | Treasury Stock | Accumulated | |||||||||||||||||||||||||||||||||||||||||||||
Number | Number | Additional | Number | Other | ||||||||||||||||||||||||||||||||||||||||||||
of | of | Paid-in | of | Accumulated | Statutory | Comprehensive | Non-controlling | Total | ||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Shares | Amount | Deficit | Reserve | Loss | Interest | Equity | |||||||||||||||||||||||||||||||||||||
Balance, January 1, 2021 | - | $ | - | 82,795,297 | $ | 8,279 | $ | 46,856,447 | (520,000 | ) | $ | (522,500 | ) | $ | (42,041,375 | ) | $ | 6,578 | $ | (190,510 | ) | $ | - | $ | 4,116,919 | |||||||||||||||||||||||
Sale of common stock, net | - | - | 1,848,267 | 185 | 2,337,074 | - | - | - | - | - | - | 2,337,259 | ||||||||||||||||||||||||||||||||||||
Issuance of common stock for services | - | - | 300,000 | 30 | 359,970 | - | - | - | - | - | - | 360,000 | ||||||||||||||||||||||||||||||||||||
Stock-based compensation | - | - | - | - | 202,505 | - | - | - | - | - | - | 202,505 | ||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustment | - | - | - | - | - | - | - | - | - | (2,722 | ) | - | (2,722 | ) | ||||||||||||||||||||||||||||||||||
Net loss for the three months ended March 31, 2021 | - | - | - | - | - | - | - | (2,367,118 | ) | - | - | - | (2,367,118 | ) | ||||||||||||||||||||||||||||||||||
Balance, March 31, 2021 | - | - | 84,943,564 | 8,494 | 49,755,996 | (520,000 | ) | (522,500 | ) | (44,408,493 | ) | 6,578 | (193,232 | ) | - | 4,646,843 | ||||||||||||||||||||||||||||||||
Issuance of common stock for settlement of accrued professional fees | - | - | 167,355 | 17 | 202,483 | - | - | - | - | - | - | 202,500 | ||||||||||||||||||||||||||||||||||||
Issuance of common stock for services | - | - | 490,000 | 49 | 534,251 | - | - | - | - | - | - | 534,300 | ||||||||||||||||||||||||||||||||||||
Stock-based compensation | - | - | - | - | 195,209 | - | - | - | - | - | - | 195,209 | ||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustment | - | - | - | - | - | - | - | - | - | 14,786 | - | 14,786 | ||||||||||||||||||||||||||||||||||||
Net loss for the three months ended June 30, 2021 | - | - | - | - | - | - | - | (2,364,910 | ) | - | - | - | (2,364,910 | ) | ||||||||||||||||||||||||||||||||||
Balance, June 30, 2021 | - | $ | - | 85,600,919 | $ | 8,560 | $ | 50,687,939 | (520,000 | ) | $ | (522,500 | ) | $ | (46,773,403 | ) | $ | 6,578 | $ | (178,446 | ) | $ | - | $ | 3,228,728 |
Avalon GloboCare Corp. Stockholders’ Equity | ||||||||||||||||||||||||||||||||||||||||||||||||
Preferred Stock | Common Stock | Treasury Stock | Accumulated | |||||||||||||||||||||||||||||||||||||||||||||
Number | Number | Additional | Number | Other | Non- | |||||||||||||||||||||||||||||||||||||||||||
of | of | Paid-in | of | Accumulated | Statutory | Comprehensive | controlling | Total | ||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Shares | Amount | Deficit | Reserve | Loss | Interest | Equity | |||||||||||||||||||||||||||||||||||||
Balance, January 1, 2021 | $ | 82,795,297 | $ | 8,279 | $ | 46,856,447 | (520,000 | ) | $ | (522,500 | ) | $ | (42,041,375 | ) | $ | 6,578 | $ | (190,510 | ) | $ | $ | 4,116,919 | ||||||||||||||||||||||||||
Sale of common stock, net | 1,848,267 | 185 | 2,337,074 | 2,337,259 | ||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock for services | 300,000 | 30 | 359,970 | 360,000 | ||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | - | - | 202,505 | - | 202,505 | |||||||||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustment | - | - | - | (2,722 | ) | (2,722 | ) | |||||||||||||||||||||||||||||||||||||||||
Net loss for the three months ended March 31, 2021 | - | - | - | (2,367,118 | ) | (2,367,118 | ) | |||||||||||||||||||||||||||||||||||||||||
Balance, March 31, 2021 | 84,943,564 | 8,494 | 49,755,996 | (520,000 | ) | (522,500 | ) | (44,408,493 | ) | 6,578 | (193,232 | ) | 4,646,843 | |||||||||||||||||||||||||||||||||||
Issuance of common stock for settlement of accrued professional fees | - | 167,355 | 17 | 202,483 | - | 202,500 | ||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock for services | - | 490,000 | 49 | 534,251 | - | 534,300 | ||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | - | - | 195,209 | - | 195,209 | |||||||||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustment | - | - | - | 14,786 | 14,786 | |||||||||||||||||||||||||||||||||||||||||||
Net loss for the three months ended June 30, 2021 | - | - | - | (2,364,910 | ) | (2,364,910 | ) | |||||||||||||||||||||||||||||||||||||||||
Balance, June 30, 2021 | - | $ | 85,600,919 | $ | 8,560 | $ | 50,687,939 | (520,000 | ) | $ | (522,500 | ) | $ | (46,773,403 | ) | $ | 6,578 | $ | (178,446 | ) | $ | $ | 3,228,728 |
See accompanying notes to the condensed consolidated financial statements.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITYCASH FLOWS
For the Three and Six Months Ended June 30, 2020
(Unaudited)
Avalon GloboCare Corp. Stockholders' Equity | ||||||||||||||||||||||||||||||||||||||||||||||||
Preferred Stock | Common Stock | Treasury Stock | Accumulated | |||||||||||||||||||||||||||||||||||||||||||||
Number | Number | Additional | Number | Other | ||||||||||||||||||||||||||||||||||||||||||||
of | of | Paid-in | of | Accumulated | Statutory | Comprehensive | Non-controlling | Total | ||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Shares | Amount | Deficit | Reserve | Loss | Interest | Equity | |||||||||||||||||||||||||||||||||||||
Balance, January 1, 2020 | - | $ | - | 76,730,802 | $ | 7,673 | $ | 34,593,006 | (520,000 | ) | $ | (522,500 | ) | $ | (29,361,937 | ) | $ | 6,578 | $ | (257,747 | ) | $ | - | $ | 4,465,073 | |||||||||||||||||||||||
Sale of common stock, net | - | - | 980,358 | 98 | 1,539,153 | - | - | - | - | - | - | 1,539,251 | ||||||||||||||||||||||||||||||||||||
Issuance of common stock for services | - | - | 222,577 | 22 | 213,278 | - | - | - | - | - | - | 213,300 | ||||||||||||||||||||||||||||||||||||
Stock-based compensation | - | - | - | - | 785,350 | - | - | - | - | - | - | 785,350 | ||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustment | - | - | - | - | - | - | - | - | - | (22,066 | ) | - | (22,066 | ) | ||||||||||||||||||||||||||||||||||
Net loss for the three months ended March 31, 2020 | - | - | - | - | - | - | - | (3,270,781 | ) | - | - | - | (3,270,781 | ) | ||||||||||||||||||||||||||||||||||
Balance, March 31, 2020 | - | - | 77,933,737 | 7,793 | 37,130,787 | (520,000 | ) | (522,500 | ) | (32,632,718 | ) | 6,578 | (279,813 | ) | - | 3,710,127 | ||||||||||||||||||||||||||||||||
Sale of common stock, net | - | - | 1,795,150 | 180 | 2,959,687 | - | - | - | - | - | - | 2,959,867 | ||||||||||||||||||||||||||||||||||||
Issuance of common stock for services | - | - | 380,000 | 38 | 398,692 | - | - | - | - | - | - | 398,730 | ||||||||||||||||||||||||||||||||||||
Stock-based compensation | - | - | - | - | 726,600 | - | - | - | - | - | - | 726,600 | ||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustment | - | - | - | - | - | - | - | - | - | 3,309 | - | 3,309 | ||||||||||||||||||||||||||||||||||||
Net loss for the three months ended June 30, 2020 | - | - | - | - | - | - | - | (3,056,382 | ) | - | - | - | (3,056,382 | ) | ||||||||||||||||||||||||||||||||||
Balance, June 30, 2020 | - | $ | - | 80,108,887 | $ | 8,011 | $ | 41,215,766 | (520,000 | ) | $ | (522,500 | ) | $ | (35,689,100 | ) | $ | 6,578 | $ | (276,504 | ) | $ | - | $ | 4,742,251 |
For the Six Months Ended June 30, | ||||||||
2022 | 2021 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net loss | $ | (4,099,012 | ) | $ | (4,732,028 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation | 168,564 | 141,285 | ||||||
Change in straight-line rent receivable | 8,857 | 4,934 | ||||||
Amortization of right-of-use asset | 68,206 | 60,254 | ||||||
Stock-based compensation and service expense | 821,247 | 1,086,546 | ||||||
Loss on equity method investment | 24,798 | 33,932 | ||||||
Amortization of debt discount | 54,685 | |||||||
Change in fair market value of derivative liability | (769,269 | ) | ||||||
Changes in operating assets and liabilities: | ||||||||
Rent receivable | 15,230 | 12,093 | ||||||
Rent receivable - related party | (24,900 | ) | ||||||
Security deposit | (432 | ) | 6,015 | |||||
Deferred leasing costs | 10,596 | 5,492 | ||||||
Prepaid expenses and other assets | (20,731 | ) | 42,555 | |||||
Accounts payable | 389,106 | |||||||
Accrued liabilities and other payables | 674,998 | 714,348 | ||||||
Accrued liabilities and other payables - related parties | 71,541 | 91,280 | ||||||
Operating lease obligation | (80,206 | ) | (60,254 | ) | ||||
NET CASH USED IN OPERATING ACTIVITIES | (2,686,722 | ) | (2,593,548 | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Purchase of property and equipment | (1,749 | ) | ||||||
Improvement of commercial real estate | (10,332 | ) | ||||||
Additional investment in equity method investment | (54,008 | ) | (40,179 | ) | ||||
CASH USED IN INVESTING ACTIVITIES | (55,757 | ) | (50,511 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Repayments of note payable - related party | (390,000 | ) | ||||||
Proceeds from loan payable - related party | 100,000 | 193,188 | ||||||
Repayments of loan payable - related party | (410,000 | ) | ||||||
Proceeds from issuance of convertible debt and warrants | 3,718,943 | |||||||
Proceeds from equity offering | 135,567 | 2,481,405 | ||||||
Disbursements for equity offering costs | (24,067 | ) | (74,442 | ) | ||||
NET CASH PROVIDED BY FINANCING ACTIVITIES | 3,130,443 | 2,600,151 | ||||||
EFFECT OF EXCHANGE RATE ON CASH | (15,294 | ) | 2,635 | |||||
NET INCREASE (DECREASE) IN CASH | 372,670 | (41,273 | ) | |||||
CASH - beginning of period | 807,538 | 726,577 | ||||||
CASH - end of period | $ | 1,180,208 | $ | 685,304 | ||||
NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
Common stock issued for future services | $ | 56,027 | $ | 234,750 | ||||
Common stock issued for accrued liabilities | $ | 30,000 | $ | 261,032 | ||||
Deferred financing costs in accrued liabilities | $ | $ | 16,093 | |||||
Accrued professional fees relieved for shares issued | $ | $ | 202,500 | |||||
Warrants issued with convertible note payable | $ | 498,509 | $ | |||||
Derivative liability | $ | 2,782,569 | $ |
See accompanying notes to the condensed consolidated financial statements.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Six Months Ended June 30, | ||||||||
2021 | 2020 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net loss | $ | (4,732,028 | ) | $ | (6,327,163 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Bad debt provision | - | 4,664 | ||||||
Depreciation | 141,285 | 152,579 | ||||||
Amortization of straight-line rent receivable | 4,934 | 16,910 | ||||||
Amortization of right-of-use asset | 60,254 | - | ||||||
Stock-based compensation and service expense | 1,086,546 | 2,448,748 | ||||||
Loss on equity method investment | 33,932 | 20,416 | ||||||
Loss on fixed assets disposal | - | 2,628 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable - related party | - | 213,274 | ||||||
Rent receivable | 12,093 | (36,749 | ) | |||||
Security deposit | 6,015 | - | ||||||
Deferred leasing costs | 5,492 | - | ||||||
Prepaid expenses and other current assets | 42,555 | (124,246 | ) | |||||
Accrued liabilities and other payables | 714,348 | (385,791 | ) | |||||
Accrued liabilities and other payables - related parties | 91,280 | 83,828 | ||||||
Operating lease obligation | (60,254 | ) | 6,000 | |||||
NET CASH USED IN OPERATING ACTIVITIES | (2,593,548 | ) | (3,924,902 | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Improvement of commercial real estate | (10,332 | ) | - | |||||
Additional investment in equity method investment | (40,179 | ) | (28,437 | ) | ||||
NET CASH USED IN INVESTING ACTIVITIES | (50,511 | ) | (28,437 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Repayments of note payable - related party | - | (200,000 | ) | |||||
Proceeds received from loan payable - related party | 193,188 | 300,000 | ||||||
Proceeds received from equity offering | 2,481,405 | 4,703,890 | ||||||
Disbursements for equity offering costs | (74,442 | ) | (361,947 | ) | ||||
NET CASH PROVIDED BY FINANCING ACTIVITIES | 2,600,151 | 4,441,943 | ||||||
EFFECT OF EXCHANGE RATE ON CASH | 2,635 | (4,394 | ) | |||||
NET (DECREASE) INCREASE IN CASH | (41,273 | ) | 484,210 | |||||
CASH - beginning of period | 726,577 | 764,891 | ||||||
CASH - end of period | $ | 685,304 | $ | 1,249,101 | ||||
NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
Common stock issued for future services | $ | 234,750 | $ | 17,500 | ||||
Common stock issued for accrued liabilities | $ | 261,032 | $ | - | ||||
Deferred financing costs in accrued liabilities | $ | 16,093 | $ | 33,025 | ||||
Accrued professional fees relieved for shares issued | $ | 202,500 | $ | - |
See accompanying notes to the condensed consolidated financial statements.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 –– ORGANIZATION
AND NATURE OF OPERATIONS
Avalon GloboCare Corp. (the “Company”“Company”
or “AVCO”“AVCO”) is a Delaware corporation. The Company was incorporated under the laws of the State of Delaware on July 28, 2014.
On October 19, 2016, the Company entered into and closed a Share Exchange Agreement with the shareholders of Avalon Healthcare System,
Inc., a Delaware corporation (“AHS”(“AHS”), each of which were accredited investors (“(“AHS Shareholders”Shareholders”) pursuant to
which we acquired 100% of the outstanding securities of AHS in exchange for 50,000,000 shares of the Company’sCompany’s common
stock (the “AHS Acquisition”“AHS Acquisition”). AHS was incorporated on May 18, 2015 under the laws of the State of Delaware.
For accounting purposes, AHS was the surviving
entity. The transaction was accounted for as a recapitalization of AHS pursuant to which AHS was treated as the accounting acquirer,
surviving and continuing entity although the Company is the legal acquirer. The Company did not recognize goodwill or any intangible
assets in connection with this transaction. Accordingly, the Company’sCompany’s historical financial statements are those of AHS and its
wholly-owned subsidiary, Avalon (Shanghai) Healthcare Technology Co., Ltd. (“(“Avalon Shanghai”Shanghai”) immediately following the
consummation of this reverse merger transaction. AHS owns 100% of the capital stock of Avalon Shanghai, which is a wholly foreign-owned
enterprise organized under the laws of the People’sPeople’s Republic of China (“PRC”(“PRC”). Avalon Shanghai was incorporated on
April 29, 2016 and is engaged in medical related consulting services for customers.
The Company
is a clinical-stage, vertically integrated, leading CellTech bio-developer dedicated to advancing and empowering innovative, transformative
immune effector cell therapy, exosome technology, as well as COVID-19 related diagnostics and therapeutics.companion diagnostics. The companyCompany also provides strategic advisory and
outsourcing services to facilitate and enhance its clients'clients’ growth and development, as well as competitiveness in healthcare and
CellTech industry markets. Through its subsidiary structure with unique integration of verticalsvertical segments from innovative research and development (“R&D”)&D to automated
bioproduction and accelerated clinical development, the Company is establishing a leading role in the fields of cellular immunotherapy
(including CAR-T/NK), exosome technology (ACTEX™(ACTEX™), and regenerative therapeutics.
On January 23, 2017, the Company incorporated
Avalon (BVI) Ltd., a British Virgin Island company. There was no activity for the subsidiary since its incorporation through June 30,
2021.2022. Avalon (BVI) Ltd. is dormant and is in process of being dissolved.
On February 7, 2017, the Company formed Avalon
RT 9 Properties, LLC (“(“Avalon RT 9”9”), a New Jersey limited liability company. On May 5, 2017, Avalon RT 9 purchased a real
property located in Township of Freehold, County of Monmouth, State of New Jersey, having a street address of 4400 Route 9 South, Freehold,
NJ 07728. This property was purchased to serve as the Company’sCompany’s world-wide headquarters for all corporate administration and operations.
In addition, the property generates rental income. Avalon RT 9 owns this office building. Currently, Avalon RT 9’s9’s business consists of the
ownership and operation of the income-producing real estate property in New Jersey. As of June 30, 2021,2022, the occupancy rate of the building
is 89.4%87.0%.
On July 31, 2017, the Company formed Genexosome
Technologies Inc. (“Genexosome”(“Genexosome”) in Nevada. Genexosome was engaged in developing proprietary diagnostic and therapeutic products
using exosomes. Genexosome owns 100% of the capital stock of Beijing Jieteng (Genexosome) Biotech Co., Ltd., a corporation incorporated
in the People’sPeople’s Republic of China on August 7, 2015 (“(“Beijing Genexosome”Genexosome”), which was dissolved in June 2022, and the
Company holds 60% of Genexosome and Dr. Yu Zhou holds 40% of Genexosome. The Company had not been able to realize the financial
projections provided by Dr. Zhou at the time of the acquisition and has decided to impair the intangible asset associated with this acquisition
to zero. Dr. Zhou was terminated as Co-CEO of Genexosome on August 14, 2019. Since the fourth quarter of 2019, the non-controlling interest
has remained inactive.
On July 18, 2018, the Company formed a wholly owned subsidiary, Avactis Biosciences Inc. (“Avactis”), a Nevada corporation, which will focus on accelerating commercial activities related to cellular therapies, including regenerative medicine with stem/progenitor cells as well as cellular immunotherapy including CAR-T, CAR-NK, TCR-T and others. The subsidiary is designed to integrate and optimize our global scientific and clinical resources to further advance the use of cellular therapies to treat certain cancers. Commencing on April 6, 2022, the Company owns 60% of Avactis and Arbele Biotherapeutics Limited (“Arbele Biotherapeutics”) owns 40% of Avactis.
On June 13, 2019, the Company formed a wholly
owned subsidiary, International Exosome Association LLC, a Delaware company. There was no activity for the subsidiary since its incorporation
through June 30, 2021.2022.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 –– ORGANIZATION
AND NATURE OF OPERATIONS (continued)
Details of the Company’sCompany’s subsidiaries which
are included in these condensed consolidated financial statements as of June 30, 20212022 are as follows:
Name of Subsidiary | Place and date of Incorporation | Percentage of Ownership | Principal Activities | |||
Avalon Healthcare System, Inc.
| Delaware May 18, 2015 | 100% held by AVCO | Provides medical related consulting services and developing Avalon Cell and Avalon Rehab in United States of America | |||
Avalon (BVI) Ltd. ( | British Virgin Island January 23, 2017 | 100% held by AVCO | Dormant, is in process of being dissolved | |||
Avalon RT 9 Properties LLC ( | New Jersey February 7, 2017 | 100% held by AVCO | Owns and operates an income-producing real property and holds and manages the corporate headquarters | |||
Avalon (Shanghai) Healthcare Technology Co., Ltd. ( | PRC April 29, 2016 | 100% held by AHS | Provides medical related consulting services | |||
Genexosome Technologies Inc.
| Nevada July 31, 2017 | 60% held by AVCO | Dormant | |||
|
| |||||
Avactis Biosciences Inc.
| Nevada July 18, 2018 | Integrate and optimize global scientific and clinical resources to further advance cellular therapies, including regenerative medicine with stem/progenitor cells as well as cellular immunotherapy including CAR-T, CAR-NK, TCR-T and others to treat certain cancers | ||||
International Exosome Association LLC
| Delaware June 13, 2019 | 100% held by AVCO | Promotes standardization related to exosome industry |
NOTE 2 –– BASIS OF PRESENTATION
AND GOING CONCERN CONDITION
Basis of Presentation
These interim condensed consolidated financial
statements of the Company and its subsidiaries are unaudited. In the opinion of management, all adjustments (consisting of normal recurring
accruals) and disclosures necessary for a fair presentation of these interim condensed consolidated financial statements have been included.
The results reported in the condensed consolidated financial statements for any interim periods are not necessarily indicative of the
results that may be reported for the entire year. The accompanying condensed consolidated financial statements have been prepared in
accordance with the rules and regulations of the Securities and Exchange Commission and do not include all information and footnotes
necessary for a complete presentation of financial statements in conformity with accounting principles generally accepted in the United
States (“(“U.S. GAAP”GAAP”). The Company’sCompany’s condensed consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.
Certain information and footnote disclosures
normally included in the annual consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted.
These condensed consolidated financial statements should be read in conjunction with the Company’sCompany’s audited consolidated financial
statements and notes thereto included in the Company’sCompany’s Annual Report on Form 10-K for the year ended December 31, 20202021 filed
with the Securities and Exchange Commission on March 30, 2021.
2022.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2 –– BASIS OF PRESENTATION
AND GOING CONCERN CONDITION (continued)
Going Concern
The Company
is a clinical-stage, vertically integrated, leading CellTech bio-developer dedicated to advancing and empowering innovative, transformative
immune effector cell therapy, exosome technology, as well as COVID-19 related diagnostics and therapeutics.companion diagnostics. The Company also provides strategic advisory and outsourcing
services to facilitate and enhance its clients'clients’ growth and development, as well as competitiveness in healthcare and CellTech industry
markets. Through its subsidiary structure with unique integration of verticalsvertical segments from innovative research and development (“R&D”)&D to automated bioproduction
and accelerated clinical development, the Company is establishing a leading role in the fields of cellular immunotherapy (including CAR-T/NK),
exosome technology (ACTEX™(ACTEX™), and regenerative therapeutics.
In addition, the Company owns commercial real
estate that houses its headquarters in Freehold, New Jersey and provides outsourced, customized international healthcare services
to the rapidly changing health care industry primarily focused in the People’sPeople’s Republic of China. The Company did not generate any revenue from medical related consulting services segment during the three and six months ended June 30, 2021. These condensed consolidated
financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates, among other things,
the realization of assets and the satisfaction of liabilities in the normal course of business.
As reflected in the accompanying condensed consolidated
financial statements, the Company had a working capital deficit of $2,354,803$5,557,470 as of June 30, 20212022 and has incurred recurring net
losslosses and generated negative cash flow from operating activities of $4,732,028$4,099,012 and $2,593,548$2,686,722 for the six months ended June
30, 2021,2022, respectively. The Company has a limited operating history and its continued growth is dependent upon the continuation of providing
medical related consulting services to its only few clients who are related parties and generating rental revenue from its income-producing
real estate property in New Jersey; hence generating revenues, and obtaining additional financing to fund future obligations and pay
liabilities arising from normal business operations. In addition, the current cash balance cannot be projected to cover the operating
expenses for the next twelve months from the release date of this report. These matters raise substantial doubt about the Company’sCompany’s
ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company’sCompany’s
ability to raise additional capital, implement its business plan, and generate significant revenues. There are no assurances that the
Company will be successful in its efforts to generate significant revenues, maintain sufficient cash balance or report profitable operations
or to continue as a going concern. The Company plans on raising capital through the sale of equity to implement its business plan. However,
there is no assurance these plans will be realized and that any additional financings will be available to the Company on satisfactory
terms and conditions, if any.
The occurrence of an uncontrollable event such
as the COVID-19 pandemic had negatively impact on the Company’sCompany’s operations. Our general development operations have continued during
the COVID-19 pandemic and we have not had significant disruption. However, we are uncertain if the COVID-19 pandemic will impact future
operations at our laboratory, or our ability to collaborate with other laboratories and universities. In addition, we are unsure if the
COVID-19 pandemic will impact future clinical trials. Given the dynamic nature of these circumstances, the duration of business disruption
and reduced traffic, the related financial effect cannot be reasonably estimated at this time but is expected to adversely impact the
Company’sCompany’s business for the rest of 2021.2022.
The accompanying condensed consolidated financial statements do not include any adjustments related to the recoverability or classification of asset-carrying amounts or the amounts and classification of liabilities that may result should the Company be unable to continue as a going concern.
NOTE 3 –– SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of the condensed consolidated
financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Significant estimates
during the three and six months ended June 30, 20212022 and 20202021 include the useful life of property and equipment and investment in real
estate, assumptions used in assessing impairment of long-term assets, valuation of deferred tax assets and the associated valuation allowances,
and valuation of stock-based compensation.compensation, and assumptions used to determine fair value of warrants and embedded conversion features of convertible
note payable.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 3 –– SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (continued)
Fair Value of Financial Instruments and Fair Value Measurements
The Company adopted
the guidance of Accounting Standards Codification (“ASC”(“ASC”) 820 for fair value measurements which clarifies the definition
of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring
fair value as follows:
Level 1-Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date. |
Level 2-Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data. |
Level 3-Inputs are unobservable inputs which reflect the reporting
|
The fair value of the
Company’s assets and liabilities, which qualify as financial instruments under ASC Topic 820, “Fair Value Measurement,”
approximates the carrying amounts reportedrepresented in the accompanying condensed consolidated balance sheets for cash, rent receivable, accrued liabilities and other payables, accrued liabilities and other payables – related parties, operating lease obligation, and note payable, approximatefinancial statements, primarily due to their
fair market value as of June 30, 2021 and December 31, 2020 based on the short-term maturity of these instruments.nature.
Assets and liabilities measured at fair value on a recurring basis. Certain assets and liabilities are measured at fair value on a recurring basis. These assets and liabilities are measured at fair value on an ongoing basis. These assets and liabilities include derivative liability.
Derivative liability. Derivative liability is carried at fair value and measured on an ongoing basis. The table below reflects the activity of derivative liability measured at fair value for the six months ended June 30, 2022:
Significant Unobservable Inputs (Level 3) | ||||
Balance of derivative liability as of January 1, 2022 | $ | |||
Initial fair value of derivative liability attributable to embedded conversion feature of convertible note payable | 2,782,569 | |||
Gain from change in the fair value of derivative liability | (769,269 | ) | ||
Balance of derivative liability as of June 30, 2022 | $ | 2,013,300 |
ASC 825-10 “Financial Instruments”“Financial
Instruments”, allows entities to voluntarily choose to measure certain financial assets and liabilities at fair value (fair value
option). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable, unless a new election date occurs.
If the fair value option is elected for an instrument, unrealized gains and losses for that instrument should be reported in earnings
at each subsequent reporting date. The Company did not elect to apply the fair value option to any outstanding instruments.
Cash and Cash Equivalents
At June 30, 20212022 and
December 31, 2020,2021, the Company’sCompany’s cash balances by geographic area were as follows:
Country: | June 30, 2021 | December 31, 2020 | ||||||||||||||
United States | $ | 587,538 | 85.7 | % | $ | 559,711 | 77.0 | % | ||||||||
China | 97,766 | 14.3 | % | 166,866 | 23.0 | % | ||||||||||
Total cash | $ | 685,304 | 100.0 | % | $ | 726,577 | 100.0 | % |
Country: | June 30, 2022 | December 31, 2021 | ||||||||||||||
United States | $ | 716,240 | 60.7 | % | $ | 767,605 | 95.1 | % | ||||||||
China | 463,968 | 39.3 | % | 39,933 | 4.9 | % | ||||||||||
Total cash | $ | 1,180,208 | 100.0 | % | $ | 807,538 | 100.0 | % |
For purposes of the condensed consolidated statements
of cash flows, the Company considers all highly liquid instruments with a maturity of three months or less when purchased and money market
accounts to be cash equivalents. The Company had no cash equivalents at June 30, 20212022 and December 31, 2020.2021.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Credit Risk and Uncertainties
A portion of the Company’sCompany’s cash is maintained
with state-owned banks within the PRC. Balances at state-owned banks within the PRC are covered by insurance up to RMB 500,000 (approximately
$77,000)$75,000) per bank. Any balance over RMB 500,000 per bank in PRC will not be covered. At June 30, 2021,2022, cash balances held in the PRC
are RMB 631,2943,108,354 (approximately $98,000)$464,000), of which, RMB 126,5892,582,643 (approximately $20,000)$385,000) was not covered by such limited insurance.
The Company has not experienced any losses in such accounts and believes it is not exposed to any risks on its cash in bank accounts.
The Company maintains a portion of its cash in
bank and financial institution deposits within U.S. that at times may exceed federally-insured limits of $250,000. The Company manages
this credit risk by concentrating its cash balances in high quality financial institutions and by periodically evaluating the credit
quality of the primary financial institutions holding such deposits. The Company has not experienced any losses in such bank accounts
and believes it is not exposed to any risks on its cash in bank accounts. At June 30, 2021,2022, the Company’sCompany’s cash balances in United
States bank accounts had approximately $63,000$137,000 in excess of the federally-insured limits.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Credit Risk and Uncertainties (continued)
Currently, a portion of the Company’sCompany’s operations
are carried out in PRC. Accordingly, the Company’sCompany’s business, financial condition and results of operations may be influenced by
the political, economic and legal environment in the PRC, and by the general state of the PRC’sPRC’s economy. The Company’sCompany’s operations
in PRC are subject to specific considerations and significant risks not typically associated with companies in North America. The Company’sCompany’s
results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures,
currency conversion and remittance abroad, and rates and methods of taxation, among other things.
Financial instruments which potentially subject
the Company to concentrations of credit risk consist principally of trade accounts receivable. A portion of the Company’sCompany’s sales
are credit sales which is to the customer whose ability to pay is dependent upon the industry economics prevailing in these areas; however,
concentrations of credit risk with respect to trade accounts receivable is limited due to short-term payment terms. The Company also
performs ongoing credit evaluations of its customers to help further reduce credit risk.
Investment in Unconsolidated
Company –– Epicon Biosciences Co., Ltd.
The Company uses the equity method of accounting for its investment in, and earning or loss of, company that it does not control but over which it does exert significant influence. The Company considers whether the fair value of its equity method investment has declined below its carrying value whenever adverse events or changes in circumstances indicate that recorded value may not be recoverable. If the Company considers any decline to be other than temporary (based on various factors, including historical financial results and the overall health of the investee), then a write-down would be recorded to estimated fair value. See Note 5 for discussion of equity method investment.
Revenue Recognition
The Company recognizes
revenue under Accounting Standards Codification (“ASC”(“ASC”) Topic 606, Revenue from Contracts with Customers (“(“ASC 606”606”).
The core principle of the revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services
to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or
services. The following five steps are applied to achieve that core principle:
Step 1: Identify the contract with the customer |
Step 2: Identify the performance obligations in the contract |
Step 3: Determine the transaction price |
● | Step 4: Allocate the transaction price to the performance obligations in the contract |
Step |
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Revenue Recognition (continued)
In order to identify
the performance obligations in a contract with a customer, a company must assess the promised goods or services in the contract and identify
each promised goods or service that is distinct. A performance obligation meets ASC 606’s606’s definition of a “distinct”“distinct”
goods or service (or bundle of goods or services) if both of the following criteria are met:
The customer can benefit from the goods or service either on its own or together with other resources that are readily available to the customer (i.e., the goods or service is capable of being distinct). |
The |
If a goods or service is not distinct, the goods or service is combined with other promised goods or services until a bundle of goods or services is identified that is distinct.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Revenue Recognition (continued)
The transaction price is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties (for example, some sales taxes). The consideration promised in a contract with a customer may include fixed amounts, variable amounts, or both. Variable consideration is included in the transaction price only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved.
The transaction price is allocated to each performance obligation on a relative standalone selling price basis. The transaction price allocated to each performance obligation is recognized when that performance obligation is satisfied, at a point in time or over time as appropriate.
The Company’sCompany’s revenues are derived from
providing medial related consulting services for its’its’ related parties. Revenues related to its service offerings are recognized
at a point in time when service is rendered. Any payments received in advance of the performance of services are recorded as deferred
revenue until such time as the services are performed.
The Company has determined that the ASC 606 does not apply to rental contracts, which are within the scope of other revenue recognition accounting standards.
Rental income from operating leases is recognized
on a straight-line basis under the guidance of ASC 842. Lease payments under tenant leases are recognized on a straight-line basis over
the term of the related leases. The cumulative difference between lease revenue recognized under the straight-line method and contractual
lease payments are included in rent receivable on the condensed consolidated balance sheets.
The Company does not offer promotional payments, customer coupons, rebates or other cash redemption offers to its customers.
Per Share Data
ASC Topic 260 “Earnings“Earnings per Share,””
requires presentation of both basic and diluted earnings per share (“EPS”(“EPS”) with a reconciliation of the numerator and denominator
of the basic EPS computation to the numerator and denominator of the diluted EPS computation. Basic EPS excludes dilution. Diluted EPS
reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into
common stock or resulted in the issuance of common stock that then shared in the earnings of the entity.
Basic net loss per share is computed by dividing
net loss available to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted
net loss per share is computed by dividing net loss by the weighted average number of shares of common stock, common stock equivalents
and potentially dilutive securities outstanding during each period. For the three and six months ended June 30, 20212022 and 2020,2021, potentially
dilutive common shares consist of the common shares issuable upon the conversion of convertible note (using the if-converted method)
and exercise of common stock options and warrants (using the treasury stock method). Common stock equivalents are not included in the
calculation of diluted net loss per share if their effect would be anti-dilutive. In a period in which the Company has a net loss, all
potentially dilutive securities are excluded from the computation of diluted shares outstanding as they would have had an anti-dilutive
impact.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Per Share Data (continued)
The following table summarizes the securities that were excluded from the diluted per share calculation because the effect of including these potential shares was antidilutive:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Stock options | 7,700,000 | 6,980,000 | 7,700,000 | 6,980,000 | ||||||||||||
Potentially dilutive securities | 7,700,000 | 6,980,000 | 7,700,000 | 6,980,000 |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Stock options | 8,385,000 | 7,700,000 | 8,385,000 | 7,700,000 | ||||||||||||
Warrants | 1,239,647 | 1,239,647 | - | |||||||||||||
Convertible note (*) | 4,958,590 | 4,958,590 | ||||||||||||||
Potentially dilutive securities | 14,583,237 | 7,700,000 | 14,583,237 | 7,700,000 |
(*) Assumed the convertible note was converted into shares of common stock of the Company at a conversion price of $0.75 per share.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Segment Reporting
The Company uses “the“the management approach”approach”
in determining reportable operating segments. The management approach considers the internal organization and reporting used by the Company’sCompany’s
chief operating decision maker for making operating decisions and assessing performance as the source for determining the Company’sCompany’s
reportable segments. The Company’sCompany’s chief operating decision maker is the Chief Executive Officer (“CEO”(“CEO”) and president
of the Company, who reviews operating results to make decisions about allocating resources and assessing performance for the entire Company.
The Company previously had three reportable business segments: real property operating segment, medical related consulting services segment, and development services and sales of developed products segment. Due to the winding down of the development services and sales of developed products segment in 2020, the Company no longer has any material revenues or expenses in this segment. As a result, commencing from the first quarter of 2021, the Company’s chief operating decision maker no longer reviews development services and sales of developed products operating results and the Company no longer reports in three segments.
During the three and six months ended June 30, 2022 and 2021, the Company operates through two business segments: real property operating segment and medical related consulting services segment. These reportable segments offer different types of services and products, have different types of revenue, and are managed separately as each requires different operating strategies and management expertise.
Reclassification
Certain prior period amounts have been reclassified to conform to the current period presentation. These reclassifications have no effect on the previously reported financial position, results of operations and cash flows.
Recent Accounting Standards
In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity. This ASU (1) simplifies the accounting for convertible debt instruments and convertible preferred stock by removing the existing guidance in ASC 470-20, Debt: Debt with Conversion and Other Options, that requires entities to account for beneficial conversion features and cash conversion features in equity, separately from the host convertible debt or preferred stock; (2) revises the scope exception from derivative accounting in ASC 815-40 for freestanding financial instruments and embedded features that are both indexed to the issuer’s own stock and classified in stockholders’ equity, by removing certain criteria required for equity classification; and (3) revises the guidance in ASC 260, Earnings Per Share, to require entities to calculate diluted earnings per share (EPS) for convertible instruments by using the if-converted method. In addition, entities must presume share settlement for purposes of calculating diluted EPS when an instrument may be settled in cash or shares. ASU 2020-06 is effective for public business entities for fiscal years beginning after December 15, 2021 (or December 15, 2023 for companies who meet the SEC definition of Smaller Reporting Companies), and interim periods within those fiscal years. The guidance is to be adopted through either a fully retrospective or modified retrospective method of transition. However, early adoption is permitted as early as fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The Company adopted the new standard on January 1, 2022, which adoption required the Company to bifurcate the embedded conversion feature from the convertible note it issued during the second quarter of 2022.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Recent Accounting Standards (continued)
In June 2016, the FASB issued ASU 2016-13, Financial
Instruments - Credit Losses (“(“Topic 326”326”). The ASU introduces a new accounting model, the Current Expected Credit
Losses model (“CECL”(“CECL”), which requires earlier recognition of credit losses and additional disclosures related to credit risk.
The CECL model utilizes a lifetime expected credit loss measurement objective for the recognition of credit losses at the time the financial
asset is originated or acquired. ASU 2016-13 is effective for annual period beginning after December 15, 2022, including interim reporting
periods within those annual reporting periods. The Company expects that the adoption will not have a material impact on the Company’sCompany’s
condensed consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes, as part of its Simplification Initiative to reduce the cost and complexity in accounting for income taxes. This standard removes certain exceptions related to the approach for intra period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. It also amends other aspects of the guidance to help simplify and promote consistent application of GAAP. The guidance is effective for interim and annual periods beginning after December 15, 2020, with early adoption permitted. The adoption of ASU 2019 – 12 did not have a material impact on the Company’s consolidated financial statements.
Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its consolidated financial condition, results of operations, cash flows or disclosures.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 4 –– PREPAID EXPENSES
AND OTHER CURRENT ASSETS
At June 30, 20212022 and December 31, 2020,2021, prepaid
expenses and other current assets consisted of the following:
June 30, 2021 | December 31, 2020 | |||||||
Prepaid professional fee | $ | 273,583 | $ | 78,639 | ||||
Prepaid directors and officers liability insurance premium | 33,064 | 64,929 | ||||||
Prepaid NASDAQ listing fee | 43,667 | - | ||||||
Recoverable VAT | 31,676 | 40,446 | ||||||
Deferred leasing costs | 31,422 | 18,220 | ||||||
Prepaid research and development fees | - | 60,610 | ||||||
Other | 34,432 | 39,380 | ||||||
Total | $ | 447,844 | $ | 302,224 |
June 30, 2022 | December 31, 2021 | |||||||
Prepaid directors and officers liability insurance premium | $ | 8,915 | $ | 49,656 | ||||
Prepaid professional fees | 88,185 | 186,609 | ||||||
Recoverable VAT | 20,005 | 23,655 | ||||||
Deferred leasing costs | 33,402 | 31,422 | ||||||
Security deposit | 19,649 | |||||||
Prepaid NASDAQ listing fee | 44,813 | |||||||
Other | 35,333 | 18,313 | ||||||
Total | $ | 250,302 | $ | 309,655 |
NOTE 5 –– EQUITY
METHOD INVESTMENT
As of June 30, 20212022 and December 31, 2020,2021, the
equity method investment amounted to $533,949$517,442 and $521,758,$515,632, respectively. The investment represents the Company’sCompany’s subsidiary,
Avalon Shanghai’sShanghai’s interest in Epicon Biotech Co., Ltd. (“Epicon”(“Epicon”). Epicon was incorporated on August 14, 2018 in PRC.
Avalon Shanghai and the other unrelated company, Jiangsu Unicorn Biological Technology Co., Ltd. (“Unicorn”(“Unicorn”), accounted for 40%
and 60% of the total ownership, respectively. Epicon is focused on cell preparation, third party testing, biological sample repository
for commercial and scientific research purposes and the clinical transformation of scientific achievements.
The Company treats the equity investment in the
condensed consolidated financial statements under the equity method. Under the equity method, the investment is initially recorded at
cost, adjusted for any excess of the Company’sCompany’s share of the incorporated-date fair values of the investee’sinvestee’s identifiable
net assets over the cost of the investment (if any). Thereafter, the investment is adjusted for the post incorporation change in the
Company’sCompany’s share of the investee’sinvestee’s net assets and any impairment loss relating to the investment.
For the three months ended June 30, 2022 and
2021, and 2020, the Company’sCompany’s share of Epicon’sEpicon’s net loss was $15,418$11,882 and $11,332,$15,418, respectively, which was included in loss from
equity method investment in the accompanying condensed consolidated statements of operations and comprehensive loss. For the six months
ended June 30, 2022 and 2021, and 2020, the Company’sCompany’s share of Epicon’sEpicon’s net loss was $33,932$24,798 and $20,416,$33,932, respectively, which
was included in loss from equity method investment in the accompanying condensed consolidated statements of operations and comprehensive
loss.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 5 – EQUITY METHOD INVESTMENT (continued)
In the six months ended June 30, 2021,2022, activity
recorded for the Company’sCompany’s equity method investment in Epicon is summarized in the following table:
Equity investment carrying amount at January 1, 2021 | $ | 521,758 | ||
Payment made for equity method investment | 40,179 | |||
Epicon's net loss attributable to the Company | (33,932 | ) | ||
Foreign currency fluctuation | 5,944 | |||
Equity investment carrying amount at June 30, 2021 | $ | 533,949 |
Equity investment carrying amount at January 1, 2022 | $ | 515,632 | ||
Payment made for equity method investment | 54,008 | |||
Epicon’s net loss attributable to the Company | (24,798 | ) | ||
Foreign currency fluctuation | (27,400 | ) | ||
Equity investment carrying amount at June 30, 2022 | $ | 517,442 |
The tables below present the summarized financial information, as provided to the Company by the investee, for the unconsolidated company:
June 30, 2021 | December 31, 2020 | |||||||
Current assets | $ | 8,575 | $ | 13,023 | ||||
Noncurrent assets | 244,199 | 264,390 | ||||||
Current liabilities | 23,645 | 6,615 | ||||||
Noncurrent liabilities | - | - | ||||||
Equity | 229,129 | 270,798 |
June 30, 2022 | December 31, 2021 | |||||||
Current assets | $ | 14,044 | $ | 5,479 | ||||
Noncurrent assets | 177,093 | 216,864 | ||||||
Current liabilities | 41,645 | 56,626 | ||||||
Noncurrent liabilities | ||||||||
Equity | 149,492 | 165,717 |
For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Net revenue | $ | $ | $ | $ | ||||||||||||
Gross profit | ||||||||||||||||
Loss from operation | 29,703 | 38,543 | 62,026 | 84,829 | ||||||||||||
Net loss | 29,703 | 38,543 | 61,994 | 84,829 |
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 5 – EQUITY METHOD INVESTMENT (continued)
For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Net revenue | $ | - | $ | - | $ | - | $ | - | ||||||||
Gross profit | - | - | - | - | ||||||||||||
Loss from operation | 38,543 | 28,458 | 84,829 | 51,169 | ||||||||||||
Net loss | 38,543 | 28,328 | 84,829 | 51,039 |
NOTE 6 –– ACCRUED
LIABILITIES AND OTHER PAYABLES
At June 30, 20212022 and
December 31, 2020,2021, accrued liabilities and other payables consisted of the following:
June 30, 2021 | December 31, 2020 | |||||||
Accrued professional fees | $ | 1,688,929 | $ | 1,212,822 | ||||
Accrued research and development fees | 587,805 | 513,533 | ||||||
Accrued payroll liability and directors’ compensation | 182,474 | 154,292 | ||||||
Accrued tenants’ improvement reimbursement | 43,500 | 81,900 | ||||||
Tenants’ security deposit | 73,733 | 69,634 | ||||||
Accounts payable | 57,208 | 87,190 | ||||||
Deferred rental income | 17,661 | 23,510 | ||||||
Other | 138,608 | 105,177 | ||||||
Total | $ | 2,789,918 | $ | 2,248,058 |
June 30, 2022 | December 31, 2021 | |||||||
Accrued tenants’ improvement reimbursement | $ | 43,500 | $ | 43,500 | ||||
Tenants’ security deposit | 73,733 | 73,733 | ||||||
Accrued business expense reimbursement | 40,181 | 68,172 | ||||||
Accrued utilities | 12,820 | 14,372 | ||||||
Advance from customer | 12,306 | |||||||
Deferred rental income | 30,344 | 8,638 | ||||||
Accrued equity offering costs | 40,000 | 40,000 | ||||||
Taxes payable | 15,122 | 14,459 | ||||||
Others | 76,346 | 12,446 | ||||||
Total | $ | 344,352 | $ | 275,320 |
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 7 –– CONVERTIBLE NOTE PAYABLE
On March 28, 2022, the Company entered into Securities Purchase Agreement with an accredited investor, which was amended on June 8, 2022, providing for the sale by the Company to the investor of a Convertible Note in the amount of $3,718,943 (“2022 Convertible Note”). In addition to the 2022 Convertible Note, the investor also received a Stock Purchase Warrant (“2022 Warrant”) to acquire an aggregate of 1,239,647 shares of common stock. The 2022 Warrant is exercisable for five years at an exercise price of $1.25. The financing closed with respect to:
● | $2,669,522 of the financing on April 15, 2022, |
● | $659,581 of the financing on April 29, 2022, |
● | $199,840 of the financing on May 18, 2022 and |
● | $190,000 of the financing on May 25, 2022. |
As a result of each of the closings, the Company issued the investor a 2022 Convertible Note in the principal amount of $2,669,522 and a 2022 Warrant to acquire 889,840 shares of common stock dated April 15, 2022, a 2022 Convertible Note in the principal amount of $659,581 and a 2022 Warrant to acquire 219,860 shares of common stock dated April 29, 2022, a 2022 Convertible Note in the principal amount of $199,840 and a 2022 Warrant to acquire 66,614 shares of common stock and a 2022 Convertible Note in the principal amount of $190,000 and a 2022 Warrant to acquire 63,333 shares of common stock.
The 2022 Convertible Note bears interest at 1% per annum payable at maturity and matures ten years from issuance. The investor may elect to convert all or part of the 2022 Convertible Note, plus accrued interest, at any time into shares of common stock of the Company at a conversion price equal to 95% of the average of the highest three trading prices for the common stock during the 20-trading day period ending one trading day prior to the conversion date but in no event will the conversion price be lower than $0.75 per share.
The investor agreed to restrict its ability to convert the 2022 Convertible Note and exercise the 2022 Warrant and receive shares of common stock such that the number of shares of common stock held by the investor after such conversion or exercise does not exceed 4.99% of the then issued and outstanding shares of common stock. Further, the investor agreed to not sell or transfer any or all of the shares of common stock underlying the 2022 Convertible Note or the 2022 Warrant for a period of 90 days beginning on the closing date (the “Lock-Up Period”). Following the expiration of the Lock-Up Period, the investor has agreed to limit its sale or transfer of such shares of common stock to a maximum monthly amount equal to 20% of the shares of common stock issuable upon conversion of the 2022 Convertible Note. The Company agreed to use its reasonable best efforts to file a registration statement on Form S-3 (or other appropriate form) providing for the resale by the investor of the shares of common stock underlying the 2022 Convertible Note and the 2022 Warrant.
Based upon the Company’s analysis of the criteria contained in ASC Topic 815-40, “Derivatives and Hedging - Contracts in an Entity’s Own Equity”, the Company determined that all the warrants issued to the investor with this private placement are classified as equity in additional paid in-capital.
In accordance with ASC 470-20-25-2, proceeds from the sale of a debt instrument with stock purchase warrants are allocated to the two elements based on the relative fair values of the debt instrument without the warrants and of the warrants themselves at time of issuance. The portion of the proceeds so allocated to the warrants are accounted for as additional paid-in capital. The remainder of the proceeds are allocated to the debt instrument portion of the transaction.
The fair values of the warrants issued to the investor with this private placement were computed using the Black-Scholes option-pricing model with the following assumptions: volatility of 111.94%, risk-free rate of 2.71% - 2.92%, annual dividend yield of 0% and expected life of 5 years.
In accordance with ASC 480-10-25-14, the Company determined that the conversion provisions contain an embedded derivative feature and the Company valued the derivative feature separately, recording debt discount and derivative liabilities in accordance with the provisions of the convertible debt (see Note 8). The Company calculates the fair value of conversion option at the commitment dates using the Black-Scholes valuation model with the following assumptions: volatility of 95.97%, risk-free rate of 2.75% - 2.89%, annual dividend yield of 0% and expected life of 10 years.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 7 – CONVERTIBLE NOTE PAYABLE (continued)
The warrants issued to the investor to purchase 1,239,647 shares of the Company’s common stock were treated as a discount on the convertible note payable and were valued at $498,509 and will be amortized over the term of the 2022 Convertible Note. Additionally, the fair value of embedded conversion option at commitment dates, which was valued at $2,782,569, is recorded as a discount on the convertible note payable and will be amortized over the term of the 2022 Convertible Note. Hence, in connection with the issuance of the 2022 Convertible Note and 2022 Warrant, the Company recorded a total debt discount of $3,281,078 to be amortized over the term of the convertible note payable. For the three and six months ended June 30, 2022, amortization of debt discount and interest expense related to the 2022 Convertible Note amounted to $54,685 and $7,204, respectively, which have been reflected as interest expense on the accompanying condensed consolidated statements of operation and comprehensive loss.
At June 30, 2022, convertible note payable consisted of the following:
June 30, 2022 | ||||
Principal amount | $ | 3,718,943 | ||
Less: unamortized debt discount | (3,226,393 | ) | ||
Convertible note payable, net | $ | 492,550 |
In accordance with an agreement signed on July 25, 2022, all outstanding principal and unpaid interest were converted into common stock of the Company at a conversion price of $0.65 per share (see Note 16 - Common Shares Issued for Debt Conversion).
NOTE 8 – DERIVATIVE LIABILITY
As stated in Note 7, 2022 Convertible Note, the Company determined that the convertible note payable contained an embedded derivative feature in the form of a conversion provision which was adjustable based on future prices of the Company’s common stock. In accordance with ASC 815-10-25, each derivative feature was initially recorded at its fair value using the Black-Scholes option valuation method and then re-valued at each reporting date, with changes in the fair value reported in the statements of operations.
The estimated fair value of the derivative feature of convertible debt was $2,782,569 at commitment dates, which was calculated using the following assumptions: volatility of 95.97%, risk-free rate of 2.75% - 2.89%, annual dividend yield of 0% and expected life of 10 years.
The estimated fair value of the derivative feature of convertible debt was $2,013,300 at June 30, 2022, which was computed using the following assumptions: volatility of 95.71%, risk-free rate of 2.98%, annual dividend yield of 0% and expected life of 9.8 – 9.9 years.
Increases or decreases in fair value of the derivative liability is included as a component of total other (expenses) income in the accompanying condensed consolidated statements of operations and comprehensive loss for the respective period. The changes to the derivative liability resulted in a decrease of $769,269 in the derivative liability and the corresponding increase in other income as a gain for the three and six months ended June 30, 2022. There was no derivative liability in the three and six months ended June 30, 2021.
NOTE 9 – RELATED PARTY TRANSACTIONS
Rental Revenue from Related Party and Rent Receivable – Related Party
The Company leases space of its commercial real property located in New Jersey to a company, which is controlled by Wenzhao Lu, the Company’s largest shareholder and chairman of the Board of Directors. The term of the related party lease agreement is five years commencing on May 1, 2021 and will expire on April 30, 2026. For the three months ended June 30, 2022 and 2021, the related party rental revenue amounted to $12,600 and $8,400, respectively, and has been included in real property rental on the accompanying condensed consolidated statements of operations and comprehensive loss. For the six months ended June 30, 2022 and 2021, the related party rental revenue amounted to $25,200 and $8,400, respectively, and has been included in real property rental on the accompanying condensed consolidated statements of operations and comprehensive loss. The related party rent receivable totaled $58,500 and $33,600, respectively, and no allowance for doubtful accounts was deemed to be required on rent receivable – related party at June 30, 2022 and December 31, 2021.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 9 – RELATED PARTY TRANSACTIONS (continued)
Services Provided by Related Party
From time to time, Wilbert Tauzin, a director of the Company, and his son provide consulting services to the Company. As compensation for professional services provided, the Company recognized consulting expenses of $36,460 and $54,545 for the three months ended June 30, 2022 and 2021, respectively, which have been included in professional fees on the accompanying condensed consolidated statements of operations and comprehensive loss. As compensation for professional services provided, the Company recognized consulting expenses of $87,598 and $111,950 for the six months ended June 30, 2022 and 2021, respectively, which have been included in professional fees on the accompanying condensed consolidated statements of operations and comprehensive loss.
Accrued Liabilities and Other Payables ––
Related Parties
TheIn 2017, the Company acquired Beijing Genexosome
for a cash payment of $450,000. As of June 30, 20212022 and December 31, 2020,2021, the unpaid acquisition consideration of $100,000, was payable
to Dr. Yu Zhou, former director and former co-chief executive officer and 40% owner of Genexosome, and has been included in accrued
liabilities and other payables –– related parties on the accompanying condensed consolidated balance sheets.
As of June 30, 20212022 and December 31, 2020, the2021, $439,974
and $368,433 of accrued and unpaid interest related to borrowings from Wenzhao Lu, the Company’sCompany’s largest shareholder and chairman
of the Board of Directors, amounted to $259,236 and $167,956, respectively, and have been included in accrued liabilities and other payables –– related parties on the
accompanying condensed consolidated balance sheets.
Borrowings from Related Party
Promissory Note
On March 18, 2019, the Company issued Wenzhao
Lu, the Company’sCompany’s largest shareholder and Chairman of the Board of Directors, a Promissory Note in the principal amount of $1,000,000 (“(“Promissory
Note”Note”) in consideration of cash in the amount of $1,000,000. The Promissory Note accrues interest at the rate of 5% per annum
and matures March 19, 2022. TheIn March 2022, the Company and Wenzhao Lu entered into a Loan Extension and Modification Agreement (the “Extension”)
to extend the maturity date to March 19, 2024.The Company repaid principal of $410,000, $200,000 and $200,000$390,000 in the third quarter
of 2019, second quarter of 2020 and second quarter of 2020,2022, respectively. As of both June 30, 20212022 and December 31, 2020,2021, the outstanding
principal balance was $390,000.$0 and $390,000, respectively.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 7 – RELATED PARTY TRANSACTIONS (continued)
Borrowings from Related Party (continued)
Line of Credit
On August 29, 2019, the Company entered into
a Line of Credit Agreement (the “Line“Line of Credit Agreement”Agreement”) providing the Company with a $20 million line of credit
(the “Line“Line of Credit”Credit”) from Wenzhao Lu (the “Lender”“Lender”), the largest shareholder and Chairman of the Board of Directors
of the Company. The Line of Credit allows the Company to request loans thereunder and to use the proceeds of such loans for working capital
and operating expense purposes until the facility matures on December 31, 2024. The loans are unsecured and are not convertible
into equity of the Company. Loans drawn under the Line of Credit bears interest at an annual rate of 5% and each individual loan
will be payable three years from the date of issuance. The Company has a right to draw down on the line of credit and not at the discretion
of the related party Lender. The Company may, at its option, prepay any borrowings under the Line of Credit, in whole or in part at any
time prior to maturity, without premium or penalty. The Line of Credit Agreement includes customary events of default. If any such event
of default occurs, the Lender may declare all outstanding loans under the Line of Credit to be due and payable immediately. As of
In the six months ended June 30, 2021 and December 31, 2020, $3,393,188 and $3,200,000 was outstanding under2022, activity
recorded for the Line of Credit respectively.is summarized in the following table:
Outstanding principal under the Line of Credit at January 1, 2022 | $ | 2,750,262 | ||
Draw down from Line of Credit | 100,000 | |||
Repayment of Line of Credit | (410,000 | ) | ||
Outstanding principal under the Line of Credit at June 30, 2022 | $ | 2,440,262 |
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 9 – RELATED PARTY TRANSACTIONS (continued)
Borrowings from Related Party (continued)
For the three months ended June 30, 20212022 and
2020,2021, the interest expense related to above borrowings amounted to $46,131$31,854 and $42,469,$46,131, respectively, and has been included in interest
expense –– related party on the accompanying condensed consolidated statements of operations and comprehensive loss. For the six
months ended June 30, 20212022 and 2020,2021, the interest expense related to above borrowings amounted to $91,280$71,540 and $84,638,$91,280, respectively,
and has been included in interest expense –– related party on the accompanying condensed consolidated statements of operations and
comprehensive loss.
As of June 30, 20212022 and December 31, 2020,2021, the
related accrued and unpaid interest for above borrowings was $259,236$439,974 and $167,956,$368,433, respectively, and has been included in accrued liabilities
and other payables –– related parties on the accompanying condensed consolidated balance sheets.
Office Space fromOn July 25, 2022, the outstanding principal
and related accrued and unpaid interest were settled by issuance of the Company’s common stock (see Note 16 - Common Shares
Issued Pursuant to Related Party
Debt Settlement Agreement and Release).
Beijing Genexosome uses office space of a related party, free of rent, which is considered immaterial.
NOTE 8 –10 – EQUITY
2020 Incentive Stock Plan
The Company held its annual meeting on August 4, 2020. During its annual meeting, the Company approved 2020 Incentive Stock Plan and reserved 5,000,000 shares of common stock for issuance thereunder.
Common Shares Sold for Cash
On December 13, 2019, the Company entered into
an Open Market Sale AgreementSM (the “Sales Agreement”“Sales Agreement”) with Jefferies LLC, as sales agent (“Jefferies”(“Jefferies”),
pursuant to which the Company may offer and sell, from time to time, through Jefferies, shares of its common stock. During the six months
ended June 30, 2021,2022, Jefferies sold an aggregate of 1,848,267170,640 shares of common stock at an average price of $1.34$0.79 per share
to investors. Theinvestors and the Company recorded net proceeds of $2,337,259,$112,328, net of commission and other offering costs of $144,146.$23,239.
Common Shares Issued for Services
During the six months ended June 30, 2021,2022, the
Company issued a total of 790,000408,957 shares of its common stock for services rendered and to be rendered. These shares were valued
at $894,300,$340,950, the fair market values on the grant dates using the reported closing share prices on the dates of grant, and the Company
recorded stock-based compensation expense of $398,518$254,923 for the six months ended June 30, 20212022 and reduced accrued liabilities of
$261,032$30,000 and recorded prepaid expense of $234,750$56,027 as of June 30, 20212022 which will be amortized over the rest of corresponding service
periods.
Common Shares Issued for Settlement of Accrued Professional Fees
In June 2021, the Company issued 167,355 shares of its common stock to settle accrued and unpaid professional fees of $202,500.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 8 – EQUITY (continued)
Options
The following table summarizes the shares of
the Company’sCompany’s common stock issuable upon exercise of options outstanding at June 30, 2021:2022:
Options Outstanding | Options Exercisable | |||||||||||||||||||||
Range of Exercise Price | Number Outstanding at June 30, 2021 | Weighted Average Remaining Contractual Life (Years) | Weighted Average Exercise Price | Number Exercisable at June 30, 2021 | Weighted Average Exercise Price | |||||||||||||||||
$ | 0.50 | 2,000,000 | 5.61 | $ | 0.50 | 2,000,000 | $ | 0.50 | ||||||||||||||
1.00 – 1.93 | 2,930,000 | 5.12 | 1.39 | 2,510,000 | 1.44 | |||||||||||||||||
2.00 – 2.80 | 2,740,000 | 2.27 | 2.17 | 2,740,000 | 2.17 | |||||||||||||||||
4.76 | 30,000 | 2.76 | 4.76 | 30,000 | 4.76 | |||||||||||||||||
$ | 0.50 – 4.76 | 7,700,000 | 4.22 | $ | 1.45 | 7,280,000 | $ | 1.47 |
Options Outstanding | Options Exercisable | |||||||||||||||||||||
Range of Exercise Price | Number Outstanding at June 30, 2022 | Weighted Average Remaining Contractual Life (Years) | Weighted Average Exercise Price | Number Exercisable at June 30, 2022 | Weighted Average Exercise Price | |||||||||||||||||
$ | 0.50 – 0.82 | 2,660,000 | 4.48 | $ | 0.56 | 2,233,334 | $ | 0.53 | ||||||||||||||
1.00 – 1.93 | 2,895,000 | 4.40 | 1.38 | 2,888,333 | 1.39 | |||||||||||||||||
2.00 – 2.80 | 2,560,000 | 1.37 | 2.15 | 2,560,000 | 2.15 | |||||||||||||||||
4.76 | 30,000 | 1.76 | 4.76 | 30,000 | 4.76 | |||||||||||||||||
$ | 0.50 – 4.76 | 8,145,000 | 3.46 | $ | 1.37 | 7,711,667 | $ | 1.40 |
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 10 – EQUITY (continued)
Options (continued)
Stock option activities
for the six months ended June 30, 20212022 were as follows:
Number of Options | Weighted Average Exercise Price | |||||||
Outstanding at January 1, 2021 | 7,140,000 | $ | 1.48 | |||||
Granted | 640,000 | 1.10 | ||||||
Terminated / Exercised / Expired | (80,000 | ) | (1.00 | ) | ||||
Outstanding at June 30, 2021 | 7,700,000 | $ | 1.45 | |||||
Options exercisable at June 30, 2021 | 7,280,000 | $ | 1.47 | |||||
Options expected to vest | 420,000 | $ | 1.08 |
Number of Options | Weighted Average Exercise Price | |||||||
Outstanding at January 1, 2022 | 7,725,000 | $ | 1.45 | |||||
Granted | 660,000 | 0.73 | ||||||
Expired/forfeited/exercised | (240,000 | ) | (2.26 | ) | ||||
Outstanding at June 30, 2022 | 8,145,000 | $ | 1.37 | |||||
Options exercisable at June 30, 2022 | 7,711,667 | $ | 1.40 | |||||
Options expected to vest | 433,333 | $ | 0.69 |
The aggregate intrinsic value of both stock options
outstanding and stock options exercisable at June 30, 20212022 was $965,000.$0.
The fair values of options granted during the six months ended June 30, 2022 were estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions: volatility of 74.8% - 117.46%, risk-free rate of 1.37% - 3.56%, annual dividend yield of 0%, and expected life of 3.00 - 5.00 years. The aggregate fair value of the options granted during the six months ended June 30, 2022 was $373,982.
The fair values of options granted during the six months ended June 30, 2021 were estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions: volatility of 123.27% - 128.42%, risk-free rate of 0.33% - 0.80%, annual dividend yield of 0% and expected life of 3.00 - 5.00 years. The aggregate fair value of the options granted during the six months ended June 30, 2021 was $575,078.
The fair values ofFor the three months ended June 30, 2022 and
2021, stock-based compensation expense associated with stock options granted amounted to $126,301 and $195,209, of which, $93,171 and
$136,392 was recorded as compensation and related benefits, $21,460 and $39,545 was recorded as professional fees, and
$11,670 and $19,272 was recorded as research and development expenses, respectively.
For the six months ended June 30, 2022 and 2021, stock-based compensation expense associated with stock options granted amounted to $278,624 and $397,714, of which, $198,084 and $275,899 was recorded as compensation and related benefits, $57,598 and $82,988 was recorded as professional fees, and $22,942 and $38,827 was recorded as research and development expenses, respectively.
A summary of the status of the Company’s
nonvested stock options granted as of June 30, 2022 and changes during the six months ended June 30, 20202022 is presented below:
Number of Options | Weighted Average Exercise Price | |||||||
Nonvested at January 1, 2022 | 205,834 | $ | 1.04 | |||||
Granted | 660,000 | 0.73 | ||||||
Vested | (432,501 | ) | (0.92 | ) | ||||
Nonvested at June 30, 2022 | 433,333 | $ | 0.69 |
Warrants
On March 28, 2022, the Company entered into Securities Purchase Agreement with an accredited investor, which was amended on June 8, 2022, providing for the sale by the Company to the investor of a Convertible Note in the amount of $3,718,943 (“2022 Convertible Note”). In addition to the 2022 Convertible Note, the investor also received a Stock Purchase Warrant (“2022 Warrant”) to acquire an aggregate of 1,239,647 shares of common stock. The 2022 Warrant is exercisable for five years at an exercise price of $1.25.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 10 – EQUITY (continued)
Warrants (continued)
The fair values of the
warrants issued to the investor with this private placement were estimated at the date of grantcomputed using the Black-Scholes option-pricing model with the following
assumptions: volatility of 137.42% - 139.58%111.94%, risk-free rate of 0.25%2.71% - 1.67%2.92%, annual dividend yield of 0% and expected life
of 3.00 – 10.005 years. The aggregate fair valuewarrants issued to the investor to purchase 1,239,647 shares of the options granted duringCompany’s common stock were treated
as a discount on the convertible note payable and were valued at $498,509 and will be amortized over the term of the 2022 Convertible
Note.
Stock warrant activities
for the six months ended June 30, 2020 was $2,644,161.2022 were as follows:
Number of Warrants | Exercise Price | |||||||
Outstanding at January 1, 2022 | $ | |||||||
Issued | 1,239,647 | 1.25 | ||||||
Expired/exercised | ||||||||
Outstanding and exercisable at June 30, 2022 | 1,239,647 | $ | 1.25 |
ForThe following table summarizes the three months endedshares of
the Company’s common stock issuable upon exercise of warrants outstanding at June 30, 2021 and 2020, stock-based compensation expense associated with stock options granted amounted to $195,209 and $726,600, respectively, of which, $136,392 and $694,692 was recorded as compensation and related benefits, $39,545 and $25,374 was recorded as professional fees, and $19,272 and $6,534 was recorded as research and development expenses, respectively.2022:
Warrants Outstanding | Warrants Exercisable | |||||||||||||||||
Exercise Price | Number Outstanding at June 30, 2022 | Weighted Average Remaining Contractual Life (Years) | Number Exercisable at June 30, 2022 | Exercise Price | ||||||||||||||
$ | 1.25 | 1,239,647 | 4.81 | 1,239,647 | $ | 1.25 |
For the six months endedThe aggregate intrinsic value of both stock warrants
outstanding and stock warrants exercisable at June 30, 2021 and 2020, stock-based compensation expense associated with stock options granted amounted to $397,714 and $1,511,950, respectively, of which, $275,899 and $1,369,6902022 was recorded as compensation and related benefits, $82,988 and $129,192 was recorded as professional fees, and $38,827 and $13,068 was recorded as research and development expenses, respectively.
$0.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 8 – EQUITY (continued)
Options (continued)
A summary of the status of the Company’s nonvested stock options granted as of June 30, 2021 and changes during the six months ended June 30, 2021 is presented below:
Number of Options | Weighted Average Exercise Price | |||||||
Nonvested at January 1, 2021 | 218,334 | $ | 1.18 | |||||
Granted | 640,000 | 1.10 | ||||||
Vested | (438,334 | ) | (1.15 | ) | ||||
Nonvested at June 30, 2021 | 420,000 | $ | 1.08 |
NOTE 9 –11 – STATUTORY
RESERVE AND RESTRICTED NET ASSETS
The Company’s PRC subsidiary, Avalon
Shanghai, is restricted in its ability to transfer a portion of its net asset to the Company. The payment of dividends by entities
organized in China is subject to limitations, procedures and Beijing Genexosome operateformalities. Regulations in the PRC are required to reserve 10%currently permit payment of their net profit after income tax,dividends
only out of accumulated profits as determined in accordance with accounting standards and regulations in China.
The Company is required to make appropriations
to certain reserve funds, comprising the statutory surplus reserve and the discretionary surplus reserve, based on after-tax net income
determined in accordance with generally accepted accounting principles of the PRC accounting rules and regulations. Appropriation(“PRC GAAP”). Appropriations to the statutory
surplus reserve byare required to be at least 10% of the Company is based on profit arrived at underafter-tax net income determined in accordance with PRC accounting standards for business enterprises for each year.
The profit arrived at must be set off against any accumulated losses sustained by the Company in prior years, before allocation is made to the statutory reserve. Appropriation to the statutory reserve must be made before distribution of dividends to shareholders. The appropriation is requiredGAAP until the statutory reserve
reachesis equal to 50% of the entity’s registered capital. ThisAppropriations to the discretionary surplus reserve are made at the discretion
of the Board of Directors. The statutory reserve ismay be applied against prior year losses, if any, and may be used for general business
expansion and production or increase in registered capital, but are not distributable in the form ofas cash dividends. The Company did not make any
appropriation to statutory reserve for Avalon Shanghai and Beijing Genexosome during the three and six months ended June 30, 2021 and 20202022 as theyit incurred net lossesloss in
thesethe periods.
NOTE 10 – RESTRICTED NET ASSETS As of both June 30, 2022 and December 31, 2021, the restricted amount as determined pursuant to PRC statutory laws
totaled $6,578.
A portion of the Company’s operations are conducted through itsRelevant PRC subsidiaries, which can only pay dividends out of their retained earnings determined in accordance with the accounting standardslaws and regulations inrestrict the
Company’s PRC and after they have met the PRC requirements for appropriation to statutory reserve. In addition,subsidiary, Avalon Shanghai, from transferring a portion of the Company’s businesses and assets are denominated in RMB, which is not freely convertible into foreign currencies. All foreign exchange transactions take place either through the People’s Bank of China or other banks authorized to buy and sell foreign currencies at the exchange rates quoted by the People’s Bank of China. Approval of foreign currency payments by the People’s Bank of China or other regulatory institutions requires submitting a payment application form together with suppliers’ invoices, shipping documents and signed contracts. These currency exchange control procedures imposed by the PRC government authorities may restrict the ability of the Company’s PRC subsidiaries to transfer theirits net assets, equivalent to their statutory reserves
and their share capital, to the Parent Company through’s shareholders in the form of loans, advances or cash dividends. Only PRC entity’s
accumulated profit may be distributed as dividend to the Company’s shareholders without the consent of a third party. As of both
June 30, 2022 and December 31, 2021, total restricted net assets amounted to $706,578.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 12 – CONDENSED FINANCIAL INFORMATION OF THE PARENT COMPANY
Schedule IPursuant to the requirements of Article 5-04Rule 12-04(a),
5-04(c) and 4-08(e)(3) of Regulation S-X, requires the condensed financial information of the parent company toshall be filed when the restricted
net assets of consolidated subsidiariessubsidiary exceed 25 percent of consolidated net assets as of the end of the most recently completed
fiscal year. For purposes of this test, restricted net assets of consolidated subsidiariessubsidiary shall mean that amount of the registrant’sCompany’s
proportionate share of net assets of its consolidated subsidiariessubsidiary (after intercompany eliminations) which as of the end of the most recent
fiscal year may not be transferred to the parent company by subsidiary in the form of loans, advances or cash dividends without the consent
of a third party.
The Company’s PRC subsidiaries’Company performed a test on the restricted
net assets of consolidated subsidiary in accordance with such requirement and concluded that it was not applicable to the Company as
the restricted net assets of June 30, 2021 and December 31, 2020the Company’s PRC subsidiary did not exceed 25% of the Company’s consolidated net assets. Accordingly,assets of the Parent Company’sCompany,
therefore, the condensed consolidated financial statements for the parent company have not been required in accordance with Rule 5-04 and Rule 12-04 of SEC Regulation S-X.required.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 11 –13 – CONCENTRATIONS
Customers
The following table sets forth information as
to each customer that accounted for 10% or more of the Company’sCompany’s revenues for the three and six months ended June 30, 20212022
and 2020.2021.
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
Customer | 2021 | 2020 | 2021 | 2020 | ||||||||||||
A | 31 | % | 28 | % | 31 | % | 29 | % | ||||||||
B | 20 | % | 17 | % | 20 | % | 17 | % | ||||||||
C | 13 | % | 14 | % | 13 | % | 14 | % |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
Customer | 2022 | 2021 | 2022 | 2021 | ||||||||||||
A | 32 | % | 31 | % | 30 | % | 31 | % | ||||||||
B | 20 | % | 20 | % | 19 | % | 20 | % | ||||||||
C | 13 | % | 13 | % | 13 | % | 13 | % |
NaN customer,Two customers, of which, one is a related
party and the other is a third party, whose outstanding receivable accounted for 10% or more of the Company’sCompany’s total outstanding
accountsrent receivable accountsand rent receivable –– related party at June 30, 2022, accounted for 81.0% of the Company’s total outstanding
rent receivable and rent receivable – related party at June 30, 2022.
Two customers, of which, one is a related
party and rent receivable at June 30, 2021, accounted for 71.5% of the Company’s total outstanding accounts receivable, accounts receivable – relatedother is a third party, and rent receivable at June 30, 2021.
NaN customers, whose outstanding receivable accounted for 10% or more of the Company’sCompany’s total outstanding
accountsrent receivable accounts receivable – related party, and rent receivable – related party at December 31, 2020,2021, accounted for 78.3%80.6% of the Company’sCompany’s total
outstanding accountsrent receivable accounts receivable – related party, and rent receivable – related party at December 31, 2020.2021.
Suppliers
No supplier accounted for 10% or more of
the Company’sCompany’s purchase during the three and six months ended June 30, 20212022 and 2020.2021.
NaNOne supplier, whose outstanding payable
accounted for 10% or more of the Company’sCompany’s total outstanding accounts payable at June 30, 2021,2022, accounted for 90.2%100.0%
of the Company’sCompany’s total outstanding accounts payable at June 30, 2021.
2022.
NaN supplier, whose outstanding payable accounted for 10% or more of the Company’s total outstanding accounts payable at December 31, 2020, accounted for 93.6% of the Company’s total outstanding accounts payable at December 31, 2020.
NOTE 12 –14 – SEGMENT
INFORMATION
For the three and six months ended June 30, 2020, the Company operated in 3 reportable business segments - (1) the real property operating segment, (2) the medical related consulting services segment,2022
and (3) the performing development services for hospitals and other customers and sales of developed products to hospitals and other customers segment.
Due to the winding down of the development services and sales of developed products segment in 2020, the Company no longer has any material revenues or expenses in this segment. As a result, commencing from the first quarter of 2021, the Company’s chief operating decision maker no longer reviews development services and sales of developed products operating results.
For the three and six months ended June 30, 2021, the Company operated in 2two reportable business segments - (1) the real property operating segment, and (2) the medical
related consulting services segment.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 14 – SEGMENT INFORMATION (continued)
The Company’sCompany’s reportable segments are strategic
business units that offer different services and products. They are managed separately based on the fundamental differences in their
operations. Information with respect to these reportable business segments for the three and six months ended June 30, 20212022 and 20202021
was as follows:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Revenues | ||||||||||||||||
Real property operations | $ | 290,821 | $ | 280,232 | $ | 588,452 | $ | 570,006 | ||||||||
Costs and expenses | ||||||||||||||||
Real property operations | 211,703 | 205,147 | 430,151 | 422,041 | ||||||||||||
Gross profit | ||||||||||||||||
Real property operations | 79,118 | 75,085 | 158,301 | 147,965 | ||||||||||||
Other operating expenses | ||||||||||||||||
Real property operations | 81,899 | 78,830 | 188,952 | 180,253 | ||||||||||||
Medical related consulting services | 106,235 | 167,275 | 193,350 | 328,828 | ||||||||||||
Corporate/Other | 1,384,555 | 2,131,260 | 3,396,512 | 4,244,752 | ||||||||||||
Total | 1,572,689 | 2,377,365 | 3,778,814 | 4,753,833 | ||||||||||||
Other (expense) income | ||||||||||||||||
Interest expense | ||||||||||||||||
Corporate/Other | (93,743 | ) | (46,131 | ) | (133,429 | ) | (91,280 | ) | ||||||||
Total | (93,743 | ) | (46,131 | ) | (133,429 | ) | (91,280 | ) | ||||||||
Other income (expense) | ||||||||||||||||
Real property operations | 3 | 4 | 7 | 108 | ||||||||||||
Medical related consulting services | 136,497 | (16,503 | ) | 232,583 | (34,989 | ) | ||||||||||
Corporate/Other | (577,660 | ) | (577,660 | ) | 1 | |||||||||||
Total | (441,160 | ) | (16,499 | ) | (345,070 | ) | (34,880 | ) | ||||||||
Total other expense, net | (534,903 | ) | (62,630 | ) | (478,499 | ) | (126,160 | ) | ||||||||
Net (loss) income | ||||||||||||||||
Real property operations | (2,778 | ) | (3,741 | ) | (30,644 | ) | (32,180 | ) | ||||||||
Medical related consulting services | 30,262 | (183,778 | ) | 39,233 | (363,817 | ) | ||||||||||
Corporate/Other | (2,055,958 | ) | (2,177,391 | ) | (4,107,601 | ) | (4,336,031 | ) | ||||||||
Total | $ | (2,028,474 | ) | $ | (2,364,910 | ) | $ | (4,099,012 | ) | $ | (4,732,028 | ) |
Identifiable long-lived tangible assets at June 30, 2022 and December 31, 2021 | June 30, 2022 | December 31, 2021 | ||||||
Real property operations | $ | 7,452,856 | $ | 7,537,281 | ||||
Medical related consulting services | 515 | 742 | ||||||
Corporate/Other | 256,766 | 352,294 | ||||||
Total | $ | 7,710,137 | $ | 7,890,317 |
Identifiable long-lived tangible assets at June 30, 2022 and December 31, 2021 | June 30, 2022 | December 31, 2021 | ||||||
United States | $ | 7,489,017 | $ | 7,583,880 | ||||
China | 221,120 | 306,437 | ||||||
Total | $ | 7,710,137 | $ | 7,890,317 |
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 12 – SEGMENT INFORMATION (continued)
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Revenues | ||||||||||||||||
Real property operations | $ | 280,232 | $ | 301,267 | $ | 570,006 | $ | 598,223 | ||||||||
Costs and expenses | ||||||||||||||||
Real property operations | 205,147 | 272,764 | 422,041 | 527,265 | ||||||||||||
Gross profit | ||||||||||||||||
Real property operations | 75,085 | 28,503 | 147,965 | 70,958 | ||||||||||||
Other operating expenses | ||||||||||||||||
Real property operations | 78,830 | 103,218 | 180,253 | 214,034 | ||||||||||||
Medical related consulting services - related parties | 167,275 | 175,891 | �� | 328,828 | 331,126 | |||||||||||
Development services and sales of developed products | - | 30,240 | - | 66,239 | ||||||||||||
Corporate/Other | 2,131,260 | 2,721,981 | 4,244,752 | 5,684,578 | ||||||||||||
Total | 2,377,365 | 3,031,330 | 4,753,833 | 6,295,977 | ||||||||||||
Other income (expense) | ||||||||||||||||
Interest expense | ||||||||||||||||
Corporate/Other | (46,131 | ) | (42,469 | ) | (91,280 | ) | (84,638 | ) | ||||||||
Total | (46,131 | ) | (42,469 | ) | (91,280 | ) | (84,638 | ) | ||||||||
Other income (expense) | ||||||||||||||||
Real property operations | 4 | 4 | 108 | (931 | ) | |||||||||||
Medical related consulting services - related parties | (16,503 | ) | (11,091 | ) | (34,989 | ) | (16,578 | ) | ||||||||
Development services and sales of developed products | - | 1 | - | 3 | ||||||||||||
Corporate/Other | - | - | 1 | - | ||||||||||||
Total | (16,499 | ) | (11,086 | ) | (34,880 | ) | (17,506 | ) | ||||||||
Total other expense, net | (62,630 | ) | (53,555 | ) | (126,160 | ) | (102,144 | ) | ||||||||
Net loss | ||||||||||||||||
Real property operations | 3,741 | 74,711 | 32,180 | 144,007 | ||||||||||||
Medical related consulting services - related parties | 183,778 | 186,982 | 363,817 | 347,704 | ||||||||||||
Development services and sales of developed products | - | 30,239 | - | 66,236 | ||||||||||||
Corporate/Other | 2,177,391 | 2,764,450 | 4,336,031 | 5,769,216 | ||||||||||||
Total | $ | 2,364,910 | $ | 3,056,382 | $ | 4,732,028 | $ | 6,327,163 |
Identifiable long-lived tangible assets at June 30, 2021 and December 31, 2020 | June 30, 2021 | December 31, 2020 | ||||||
Real property operations | $ | 7,623,260 | $ | 7,697,473 | ||||
Medical related consulting services | 196,347 | 223,459 | ||||||
Development services and sales of developed products | - | 243,869 | ||||||
Corporate/Other | 236,172 | - | ||||||
Total | $ | 8,055,779 | $ | 8,164,801 |
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 12 – SEGMENT INFORMATION (continued)
Identifiable long-lived tangible assets at June 30, 2021 and December 31, 2020 | June 30, 2021 | December 31, 2020 | ||||||
United States | $ | 7,680,296 | $ | 7,764,947 | ||||
China | 375,483 | 399,854 | ||||||
Total | $ | 8,055,779 | $ | 8,164,801 |
NOTE 13 –15 – COMMITMENTS
AND CONTINGENCIES
Litigation
From time to time, the Company is subject to ordinary routine litigation incidental to its normal business operations. The Company is not currently a party to, and its property is not subject to, any material legal proceedings, except as set forth below.
On October 25, 2017, Genexosome entered into
and closed a Stock Purchase Agreement with Beijing Genexosome and Yu Zhou, MD, PhD, the sole shareholder of Beijing Genexosome, pursuant
to which Genexosome acquired all of the issued and outstanding securities of Beijing Genexosome in consideration of a cash payment in
the amount of $450,000, of which $100,000 is still owed. Further, on October 25, 2017, Genexosome entered into and closed an Asset Purchase
Agreement with Dr. Zhou, pursuant to which the Company acquired all assets, including all intellectual property and exosome separation
systems, held by Dr. Zhou pertaining to the business of researching, developing and commercializing exosome technologies. In consideration
of the assets, Genexosome paid Dr. Zhou $876,087 in cash, transferred 500,000 shares of common stock of the Company to Dr. Zhou and issued
Dr. Zhou 400 shares of common stock of Genexosome. Further, the Company had not been able to realize the financial projections provided
by Dr. Zhou at the time of the acquisition and has decided to impair the intangible asset associated with this acquisition to zero on September 30, 2019.zero. Dr.
Zhou was terminated as Co-CEO of Genexosome on August 14, 2019. Further, on October 28, 2019, Research Institute at Nationwide Children’sChildren’s
Hospital (“(“Research Institute”Institute”) filed a Complaint in the United States District Court for the Southern District of Ohio Eastern
Division against Dr. Zhou, Li Chen, the Company and Genexosome with various claims against the Company and Genexosome including misappropriation of trade secrets in violation of the Defend Trade Secrets Act of 2016 and violation of Ohio Uniform Trade Secrets Act. Research Institute is seeking monetary damages, injunctive relief, exemplary damages, injunctive relief and other equitable relief. The Company intends to vigorously defend against this action and pursue all available legal remedies.Genexosome. The criminal proceedings
against Dr. Zhou and Li Chen have been concluded,concluded. The Company, Genexosome and the civil litigation continues. While there can be no assurances,Research Institute entered into a Settlement Agreement
dated June 7, 2022 (the “Settlement Date”) whereby the Company believes it has substantial legal and factual defensesagreed to pay the Research Institute’s claimsInstitute $450,000 on each of the
sixty-day, one year and two-year anniversaries of the likelihood of any findings of liability forSettlement Date. In addition, the Company cannot be assessed at this time.agreed to pay the Research Institute
30% of the Company’s initial pre-tax profit of $3,333,333, 20% of the Company’s second pre-tax profit of $3,333,333 and 10%
of the Company’s third pre-tax profit of $3,333,333. The parties provided a mutual release as well.
Operating Leases Commitment
The Company is a party to leases for office space.
Rent expense under all operating leases amounted to approximately $73,000$72,000 and $78,000$73,000 for the six months ended June 30, 2022
and 2021, and 2020, respectively.
Supplemental cash flow information related to leases for the six months ended June 30, 20212022 and 20202021 is as follows:
Six Months ended June 30, | ||||||||
2021 | 2020 | |||||||
Cash paid for amounts included in the measurement of lease liabilities: | ||||||||
Operating cash flows paid for operating lease | $ | 65,035 | $ | 30,000 | ||||
Right-of-use assets obtained in exchange for lease obligation: | ||||||||
Operating lease | $ | 133,473 | $ | 169,578 |
Six Months Ended June 30, | ||||||||
2022 | 2021 | |||||||
Cash paid for amounts included in the measurement of lease liabilities: | ||||||||
Operating cash flows paid for operating lease | $ | 82,792 | $ | 65,035 | ||||
Right-of-use assets obtained in exchange for lease obligation: | ||||||||
Operating lease | $ | $ | 133,473 |
The following table summarizes the lease term
and discount rate for the Company’sCompany’s operating lease as of June 30, 2021:2022:
Operating Lease | ||||
Weighted average remaining lease term (in years) | ||||
Weighted average discount rate | 4.88 | % |
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 13 – COMMITMENTS AND CONTINCENGIES (continued)
Operating Leases Commitment (continued)
The following table summarizes the maturity of lease liabilities under
operating lease as of June 30, 2021:2022:
For the Twelve-month Period Ending June 30: | Operating Lease | |||
2022 | $ | 147,834 | ||
2023 | 76,737 | |||
2024 and thereafter | - | |||
Total lease payments | 224,571 | |||
Amount of lease payments representing interest | (7,790 | ) | ||
Total present value of operating lease liabilities | $ | 216,781 | ||
Current portion | $ | 140,978 | ||
Long-term portion | 75,803 | |||
Total | $ | 216,781 |
For the Twelve-month Period Ending June 30: | Operating Lease | |||
2023 | $ | 75,263 | ||
2024 and thereafter | ||||
Total lease payments | 75,263 | |||
Amount of lease payments representing interest | (915 | ) | ||
Total present value of operating lease liabilities | $ | 74,348 | ||
Current portion | $ | 74,348 |
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 15 – COMMITMENTS AND CONTINCENGIES (continued)
Equity Investment Commitment
On May 29, 2018, Avalon Shanghai entered
into a Joint Venture Agreement with Jiangsu Unicorn Biological Technology Co., Ltd. (“Unicorn”(“Unicorn”), pursuant to which a company
named Epicon Biotech Co., Ltd. (“Epicon”(“Epicon”) was formed on August 14, 2018. Epicon is owned 60% by Unicorn and 40% by Avalon
Shanghai. Within five years of execution of the Joint Venture Agreement, Unicorn shall invest cash into Epicon in an amount not less
than RMB 8,000,000 (approximately $1.2 million) and the premises of the laboratories of Nanjing Hospital of Chinese Medicine for exclusive
use by Epicon, and Avalon Shanghai shall invest cash into Epicon in an amount not less than RMB 10,000,000 (approximately $1.5 million).
Epicon is focused on cell preparation, third party testing, biological sample repository for commercial and scientific research purposes
and the clinical transformation of scientific achievements. As of June 30, 2021,2022, Avalon Shanghai has contributed RMB 4,760,0005,110,000 (approximately
$0.7$0.8 million) that was included in equity method investment on the accompanying condensed consolidated balance sheets. The Company
intends to use its present working capital together with borrowings from related party and equity raises to fund the project cost.
Joint Venture – AVAR BioTherapeutics (China) Co. Ltd.– Avactis Biosciences
Inc.
On July 18, 2018, the Company formed Avactis
Biosciences Inc. (“Avactis”), a Nevada corporation, as a wholly owned subsidiary. On October 23, 2018, Avactis Biosciences, Inc. (“Avactis”), a wholly-owned subsidiary of the Company, and Arbele
Limited (“Arbele”(“Arbele”) agreed to the establishment of AVAR BioTherapeutics (China) Co. Ltd. (“AVAR”(“AVAR”), a Sino-foreign
equity joint venture, pursuant to an Equity Joint Venture Agreement (the “AVAR Agreement”“AVAR Agreement”), which willwas to be owned 60% by
Avactis and 40% by Arbele. TheOn April 6, 2022, the Company, Acactis, Arbele and Arbele Biotherapeutics Limited (“Arbele Biotherapeutics”),
a wholly owned subsidiary of Arbele, entered into an Amendment No. 1 to the Equity Joint Venture Agreement pursuant to which Arbele Biotherapeutics
acquired 40% of Avactis for the purpose of the Company and Arbele establishing a joint venture in the United States and the parties agreed
that they would no longer pursue AVAR as a joint venture. Further, all rights and obligations under the AVAR Agreement were assigned
by Avactis to Avalon and by Arbele to Arbele Biotherapeutics. Avactis established Avactis Nanjing Biosciences Ltd., a wholly owned foreign
entity in the PRC. Further, the parties agreed that the Exclusive Patent License Agreement dated January 3, 2019 entered between Arbele,
as licensor, and AVAR, as licensee (the “Arbele License Agreement”), was assigned to Avactis and Avalon and Arbele agreed
to enter into a new Arbele License Agreement with Avactis on the same/similar terms as the Arbele License Agreement. Further, Dr. Anthony
Chan was appointed to the Board of Directors of Avactis and as the Chief Scientific Officer of Avactis. Avactis purpose and business
scope of the Joint Venture is to research, research, develop, produce, sell, distribute and generally commercialize CAR-T/CAR-NK/TCR-T/universal cellular
immunotherapy globally including in China. Avactisthe PRC. The Company is required to contribute $10$10 million (or(or equivalent in RMB) in cash
and/or services, which shall be contributed in tranches based on milestones to be determined jointly by AVARAvactis and Avactisthe Company in writing
subject to Avactis’the Company’s cash reserves. Within 30 days, Arbele Biotherapeutics shall make a contribution of $6.66 million in the
form of entering into a License Agreement with AVARAvactis granting AVARAvactis with an exclusive right and license in China to its technology
and intellectual property pertaining to CAR-T/CAR-NK/TCR-T/universal cellular immunotherapy technology and any additional technology
developed in the future with terms and conditions to be mutually agreed upon the Company and Avactis and AVAR and services.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 13 – COMMITMENTS AND CONTINGENCIES (continued)
Joint Venture – AVAR BioTherapeutics (China) Co. Ltd. (continued)
As of the date hereof,
the License Agreement has not been finalized. In addition, Avactisthe Company is responsible for:
Contributing registered capital of RMB 5,000,000 (approximately |
assist
|
assisting
|
providing
|
assisting
|
providing
|
Within 6 days of signing the AVAR Agreement, |
As of June 30, 2021, Avactis has paid the $900,000 to Arbele as research and development fee.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 15 – COMMITMENTS AND CONTINCENGIES (continued)
Joint Venture – Avactis Biosciences Inc. (continued)
Under AVAR Agreement, as amended, Arbele Biotherapeutics shall be responsible for the following:
Entering into a License Agreement with | ||
● | Providing |
As of both June 30, 2022 and December 31, 2021,
the Company paid the $900,000 to Arbele Biotherapeutics as research and development fee. As of June 30, 2021,2022, License Agreement
has not been finalized.
Line of Credit Agreement
On August 29, 2019, the Company entered into
a Line of Credit Agreement (the “Line“Line of Credit Agreement”Agreement”) providing the Company with a $20 million line of credit
(the “Line“Line of Credit”Credit”) from Wenzhao Lu (the “Lender”“Lender”), a significant shareholder and director of the Company.
The Line of Credit allows the Company to request loans thereunder and to use the proceeds of such loans for working capital and operating
expense purposes until the facility matures on December 31, 2024. The loans are unsecured and are not convertible into equity of the
Company. Loans drawn under the Line of Credit bears interest at an annual rate of 5% and each individual loan will be payable three
years from the date of issuance. The Company has a right to draw down on the line of credit and not at the discretion of the related
party Lender. The Company may, at its option, prepay any borrowings under the Line of Credit, in whole or in part at any time prior to
maturity, without premium or penalty. The Line of Credit Agreement includes customary events of default. If any such event of default
occurs, the Lender may declare all outstanding loans under the Line of Credit to be due and payable immediately. As of June 30, 2021, $3,393,1882022,
$2,440,262 was outstanding under the Line of Credit. On July 25, 2022, the outstanding principal and related accrued and unpaid interest were settled
by issuance of the Company’s common stock (see Note 16 - Common Shares Issued Pursuant to Related Party Debt Settlement Agreement
and Release).
NOTE 14 –16 – SUBSEQUENT
EVENTS
MergerThe Company evaluated subsequent events and transactions
that occurred after the balance sheet date up to the date that the financial statements were issued. Based upon this review, other than
as described below, the Company did not identify any subsequent events that would have required adjustment or disclosure in the financial
statements.
Common Shares Issued for Debt Conversion
On June 13, 2021,July
25, 2022, the Company and a convertible note holder entered into a Share PurchaseConversion Agreement (the “Purchase Agreement”), bypursuant to which the convertible note holder
converted its Convertible Notes in the principal amount of $3,718,943 and amongunpaid interest of $9,751 into
5,736,452 shares of common stock of the Company Lonlon Biotech Ltd.,at a company incorporatedper share price of $0.65.
Common Shares Issued Pursuant to Related Party Debt Settlement Agreement and Release
On July 25, 2022, the Company and Mr. Lu entered into and closed a Debt Settlement Agreement and Release pursuant to which the Company settled $2,440,262 debt owed under the Line of Credit and unpaid interest of $448,331 by issuance of 4,443,990 shares of common stock, with a fair value of $2,888,593, of the Company at a per share price of $0.65.
Unaudited Pro Forma Condensed Consolidated Balance Sheet As of June 30, 2022
On July
25, 2022, the Company and a convertible note holder entered into a Conversion Agreement pursuant to which the convertible note holder
converted its Convertible Notes in the British Virgin Islands (“BVI”) (“Sen Lang”), the holdersprincipal amount of $3,718,943 and unpaid interest of $9,751 into
5,736,452 shares of common stock of the Company at a per share capitalprice of Sen Lang (the “Sen Lang Shareholders”),$0.65.
On July 25, 2022, the ultimate beneficial ownersCompany and Mr. Lu entered
into and closed a Debt Settlement Agreement and Release pursuant to which the Company settled $2,440,262 debt owed under the Line
of Credit and unpaid interest of $448,331 by issuance of 4,443,990 shares of common stock of the Sen Lang Shareholders (the “Sen Lang Beneficial Shareholders”Company at a per share price of $0.65.
The 4,443,990 shares issued had a fair value of $2,888,593.
The unaudited pro forma
condensed consolidated balance sheet as of June 30, 2022 combines the historical unaudited condensed consolidated balance sheet as of
June 30, 2022 and together with the Sen Lang Shareholders, the “Sen Lang Owners”) and a representative of the Sen Lang Owners (the “Sen Lang Representative”). Pursuantdebt conversion transactions mentioned above, giving effect to the Purchase Agreement, subject to the satisfaction of the conditions to closing therein, including approval by the Avalon stockholders pursuant to the rules of the Nasdaq Stock Market (“Nasdaq”), Avalon agreed to purchase (the “Acquisition”) all of the issued and outstanding share capital of Sen Lang (the “Sen Lang Shares”).conversions as if they had been consummated on
June 30, 2022.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
As of June 30, 2022
Pro Forma Adjustments | ||||||||||||||||
Historical | Dr. | Cr. | Pro Forma | |||||||||||||
ASSETS | ||||||||||||||||
CURRENT ASSETS: | ||||||||||||||||
Cash | $ | 1,180,208 | $ | $ | $ | 1,180,208 | ||||||||||
Rent receivable | 24,778 | 24,778 | ||||||||||||||
Rent receivable - related party | 58,500 | 58,500 | ||||||||||||||
Deferred financing costs, net | 139,170 | 139,170 | ||||||||||||||
Prepaid expenses and other current assets | 250,302 | 250,302 | ||||||||||||||
Total Current Assets | 1,652,958 | 1,652,958 | ||||||||||||||
NON-CURRENT ASSETS: | ||||||||||||||||
Rent receivable - noncurrent portion | 147,964 | 147,964 | ||||||||||||||
Deferred financing costs - noncurrent portion, net | 74,937 | 74,937 | ||||||||||||||
Deferred leasing costs | 97,216 | 97,216 | ||||||||||||||
Operating lease right-of-use assets, net | 74,348 | 74,348 | ||||||||||||||
Property and equipment, net | 265,709 | 265,709 | ||||||||||||||
Investment in real estate, net | 7,444,428 | 7,444,428 | ||||||||||||||
Equity method investment | 517,442 | 517,442 | ||||||||||||||
Total Non-current Assets | 8,622,044 | 8,622,044 | ||||||||||||||
Total Assets | $ | 10,275,002 | $ | $ | $ | 10,275,002 | ||||||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||||||||
CURRENT LIABILITIES: | ||||||||||||||||
Accounts payable | $ | 376,386 | $ | $ | $ | 376,386 | ||||||||||
Accrued professional fees | 1,485,695 | 1,485,695 | ||||||||||||||
Accrued research and development fees | 609,222 | 609,222 | ||||||||||||||
Accrued payroll liability and directors' compensation | 374,601 | 374,601 | ||||||||||||||
Accrued settlement of lawsuit | 900,000 | 900,000 | ||||||||||||||
Accrued liabilities and other payables | 344,352 | 7,204 | 337,148 | |||||||||||||
Accrued liabilities and other payables - related parties | 539,974 | 439,974 | 100,000 | |||||||||||||
Operating lease obligation | 74,348 | 74,348 | ||||||||||||||
Convertible note payable, net | 492,550 | 3,718,943 | 3,226,393 | |||||||||||||
Derivative liability | 2,013,300 | 2,013,300 | ||||||||||||||
Total Current Liabilities | 7,210,428 | 6,179,421 | 3,226,393 | 4,257,400 | ||||||||||||
NON-CURRENT LIABILITIES: | ||||||||||||||||
Accrued settlement of lawsuit - noncurrent portion | 450,000 | 450,000 | ||||||||||||||
Loan payable - related party | 2,440,262 | 2,440,262 | ||||||||||||||
Total Non-current Liabilities | 2,890,262 | 2,440,262 | 450,000 | |||||||||||||
Total Liabilities | 10,100,690 | 8,619,683 | 3,226,393 | 4,707,400 | ||||||||||||
STOCKHOLDERS' EQUITY: | ||||||||||||||||
Preferred stock, $0.0001 par value; 10,000,000 shares authorized; | shares issued and outstanding||||||||||||||||
Common stock, $0.0001 par value; 490,000,000 shares authorized; 89,554,766 shares issued and 89,034,766 shares outstanding; 99,735,208 pro forma shares issued and 99,215,208 pro forma shares outstanding | 8,955 | 1,016 | 9,971 | |||||||||||||
Additional paid-in capital | 56,118,913 | 8,618,667 | 64,737,580 | |||||||||||||
Less: common stock held in treasury, at cost; 520,000 shares | (522,500 | ) | (522,500 | ) | ||||||||||||
Accumulated deficit | (55,230,886 | ) | 3,226,393 | (58,457,279 | ) | |||||||||||
Statutory reserve | 6,578 | 6,578 | ||||||||||||||
Accumulated other comprehensive loss | (206,748 | ) | (206,748 | ) | ||||||||||||
Total Stockholders' Equity | 174,312 | 3,226,393 | 8,619,683 | 5,567,602 | ||||||||||||
Total Liabilities and Stockholders' Equity | $ | 10,275,002 | $ | 11,846,076 | $ | 11,846,076 | $ | 10,275,002 |
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 14 – SUBSEQUENT EVENTS (continued)
Merger (continued)
Sen Lang, through a variable interest entity (“VIE”) structure of contractual rights held by its wholly-owned subsidiary Beijing Langlang Runfeng Biotechnology Co., Ltd., a wholly foreign owned enterprise with limited liability organized and existing under the laws of the People’s Republic of China (the “PRC”) (the “PRC Subsidiary”), has full economic benefit and management control over, and is consolidated for accounting purposes with, Senlang Biotechnology Co. Ltd., a PRC domestic company with limited liability organized and existing under the laws of the PRC (the “OpCo” or “SenlangBio”). The OpCo is mainly engaged in the business of research and development in relation to CAR-T cell therapy, immune cell therapy and related drug development. The OpCo is owned 100% by certain of the Sen Lang Beneficial Shareholders. A wholly-owned subsidiary of the OpCo, Shijiazhuang Senlang Medical Laboratory Co., Ltd., a company with limited liability organized and existing under the laws of the PRC (“SenlangBio Clinical Laboratory”) is engaged in the business of testing of immunology, serology and molecular genetics specialties for patients, including hematology-tumor diagnostics and testing prior to clinical trials for cell therapy.
PriorUnaudited Pro Forma Adjustment Reflects the Following Four Transactions:
Transaction 1:
Derivative liability | 2,013,300 | |||||||
Additional paid-in capital | 2,013,300 |
The transaction reflects the embedded conversion
option derivative liability was reclassified to additional paid-in capital upon the executionrelated note conversion.
Transaction 2:
Interest expense | 3,226,393 | |||||||
Discount on convertible note payable | 3,226,393 |
To amortize the discount upon conversion.
Transaction 3:
Convertible note payable | 3,718,943 | |||||||
Interest payable | 7,204 | |||||||
Common stock | 573 | |||||||
Additional paid-in capital | 3,725,574 |
The transaction reflects the principal and unpaid
interest were converted into shares of common stock of the Purchase Agreement,Company pursuant to a Conversion
Agreement.
Transaction 4:
Loan payable - related party | 2,440,262 | |||||||
Accrued liabilities and other payables - related parties | 439,974 | |||||||
Common stock | 443 | |||||||
Additional paid-in capital | 2,879,793 |
The transaction reflects debt owed under the BoardLine of DirectorsCredit and unpaid
interest were settled by issuance of Avalon (the “Board”), unanimously (i) determined that the terms and provisionsshares of the Purchase Agreement and the transactions contemplated thereby, including the Acquisition, are fair to, advisable and in the best interestscommon stock of the Company and its stockholders, (ii) approved the Purchasepursuant to a Debt Settlement Agreement and the transactions contemplated thereby, including the Acquisition, (iii) authorized, empowered and directed the Company to perform all of its obligations under the Purchase Agreement and related documents, and (iv) resolved to recommend the adoption of the Purchase Agreement by the stockholders of the Company in compliance with the rules of Nasdaq (the “Company Board Recommendation”).Release.
The purchase price being paid by Avalon to the Sen Lang Shareholders under the Purchase Agreement for the Sen Lang Shares is an aggregate of 81 million shares (the “Acquisition Shares”) of the common stock, par value US$0.0001 per share, of Avalon (the “Avalon Common Stock”). Ten percent (10%), or 8.1 million, of such shares will be held in escrow for 12 months following the closing to satisfy any indemnification obligations of the Sen Lang Shareholders under the Share Purchase Agreement. In addition, at the closing of the Acquisition, it is expected that Dr. Jianqiang Li, scientific founder and CSO of the OpCo, will join the board of the Company, and Dr. Li will also be appointed as Chief Technology Officer of the Company. The Acquisition Shares will not be registered under the Securities Act of 1933, as amended (the “Securities Act”) and, therefore, will be restricted securities under Rule 144 under the Securities Act for six months or longer after the closing of the Acquisition, subject to “affiliate” status with the Company under the Securities Act.
The Purchase Agreement contains customary representations, warranties and covenants made by the parties thereto, including covenants relating to obtaining the requisite approvals of the stockholders of Avalon and Sen Lang, regulatory approvals and Avalon’s and Sen Lang’s conduct of their respective businesses (and that of the OpCo) between the date of signing of the Purchase Agreement and the closing of the Acquisition.
The Acquisition is expected to be accounted for as a business acquisition, with the Company identified as the accounting acquirer. The Company is considered the accounting acquirer since immediately following the closing: (i) the Company’s stockholders will own a majority of the voting rights of the post-Acquisition company; (ii) the Company will have designate a majority (eight of nine) of the initial members of the board of directors of the post-Acquisition company; (iii) the Company’s senior management will hold the majority of the key positions in senior management of the post-Acquisition company; and (iv) the Company will continue to maintain its corporate headquarters in Freehold, New Jersey, United States. SenlangBio will continue to maintain operations in the Shijiazhuang High-tech Development Zone, Hebei Province, China.
The acquisition consideration is 81,000,000 shares of the Company’s Common Stock. The purchase price will be allocated to the acquired assets and assumed liabilities based on their fair values at the closing date, and any excess is initially allocated to identifiable intangible assets mainly consisting of cell and gene engineering technologies with the ability to generate innovative and transformative cellular immunotherapies for solid and hematologic cancers, which will be amortized over 10 years. The initial allocation is subject to change upon the final valuation which is to be done at the time of closing. Such change could have a material impact on the Company’s financial statements.
As of June 30, 2020, the Company had incurred costs of $938,073 with respect to the Merger and these costs have been expensed.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 14 – SUBSEQUENT EVENTS (continued)
Equity Financing
In connection with the Acquisition mentioned above, on June 13, 2021, an institutional investor (the “Investor”) entered into an agreement with the OpCo related to the purchase of registered capital of the OpCo (the “OpCo Capital Increase Agreement”) pursuant to which the Investor will acquire an aggregate of up to 13.5% of the equity ownership of the OpCo for an aggregate purchase price of approximately US$30,000,000 (the “Equity Financing”), which funds will be invested in the OpCo in three equal installments of US$10,000,000, at a fixed price, the first to be upon the closing of the Acquisition, the second to be within three months after the closing and the third to be within six months after the closing. In addition, pursuant to a Securities Exchange Agreement (the “Exchange Agreement”), by and among the Company, Sen Lang, the OpCo and the Investor, dated June 13, 2021, the Investor has the right, exercisable between the six-month and five year-anniversaries of the respective initial closing and installment closings, to elect to exchange, from time to time, all or part of its then-owned equity ownership of the OpCo for shares (the “Exchange Shares”) of Avalon Common Stock at a fixed exchange price of US$1.21 per share of Avalon Common Stock, which was the market price of the Avalon Common Stock as of the date of the Exchange Agreement under Nasdaq rules. In addition, the Exchange Agreement provides that the Investor may only exchange up to 10% of its total investment amount in any 30-day period.
China eCapital Holdings, Ltd. (CEC Capital) served as financial advisor to Avalon in connection with the Equity Financing and will receive a cash fee of approximately $900,000, representing 3% of the gross proceeds from the Equity Financing.
Common Shares Issued for Services
In August 2021, the Company issued a total of 325,000 shares of its common stock for services rendered and to be rendered. These shares were valued at $301,750, the fair market values on the grant dates using the reported closing share prices on the dates of grant.
ITEM 2. MANAGEMENT’SMANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our
financial condition and results of operations for the three and six months ended June 30, 20212022 and 20202021 should be read in conjunction
with our condensed consolidated financial statements and related notes to those condensed consolidated financial statements that are
included elsewhere in this report. Our discussion includes forward-looking statements based upon current expectations that involve risks
and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially
from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under the Risk
Factors, Special Note Regarding Forward-Looking Statements and Business sections in our Form 10-K as filed with the Securities and Exchange
Commission on March 30, 2021.2022. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,”“anticipate,” “estimate,” “plan,” “project,”
“continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,”
“will,” “should,” “could,” and similar expressions to identify forward-looking statements.
Impact of COVID-19 on Our Operations, Financial Condition, Liquidity and Results of Operations
Although the COVID-19 vaccines have generally been introduced to the public, the ultimate impact of the COVID-19 pandemic on our operations is unknown and will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the COVID-19 outbreak, new information which may emerge concerning the severity of the COVID-19 pandemic, a significant increase in new and variant strains of COVID-19 cases, availability and effectiveness of COVID-19 vaccines and therapeutics, the level of acceptance of the vaccine by the general population and any additional preventative and protective actions that governments, or us, may determine are needed.
The occurrence of COVID-19
pandemic had negative impact on our operations. Some of the universities and laboratories with which we collaborate were temporarily
closed. Our general development operations have continued during the COVID-19 pandemic and we have not had significant disruption. However,
we are uncertain if the COVID-19 pandemic will impact future operations at our laboratory, or our ability to collaborate with other laboratories
and universities. In addition, we are unsure if the COVID-19 pandemic will impact future clinical trials. Given the dynamic nature of
these circumstances, the duration of business disruption and reduced traffic, the related financial effect cannot be reasonably estimated
at this time but is expected to adversely impact the Company’sCompany’s business for the rest of 2021.2022.
We have limited cash
available to fund planned operations and although we have other sources of capital described below under “Liquidity“Liquidity and Capital
Resources,”” management continues to pursue various financing alternatives to fund our operations so we can continue as a going
concern. However, the COVID-19 pandemic has created significant economic uncertainty and volatility in the credit and capital markets.
Management plans to secure the necessary financing through the issue of new equity and/or the entering into of strategic partnership
arrangements but the ultimate impact of the COVID-19 pandemic on our ability to raise additional capital is unknown and will depend on
future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the COVID-19 outbreak
and new information which may emerge concerning the severity of the COVID-19 pandemic. We may not be able to raise sufficient additional
capital and may tailor our operations based on the amount of funding we are able to raise in the future. Nevertheless, there is no assurance
that these initiatives will be successful. Further, there is no assurance that capital available to us in any future financing will be
on acceptable terms.
Overview
The Company
is a clinical-stage, vertically integrated, leading CellTech bio-developer dedicated to advancing and empowering innovative, transformative
immune effector cell therapy, exosome technology, as well as COVID-19 related diagnostics and therapeutics.companion diagnostics. The companyCompany also provides strategic advisory and outsourcing
services to facilitate and enhance its clients'clients’ growth and development, as well as competitiveness in healthcare and CellTech industry
markets. Through its subsidiary structure with unique integration of verticalsvertical segments from innovative research and development (“R&D”)&D to automated bioproduction
and accelerated clinical development, the Company is establishing a leading role in the fields of cellular immunotherapy (including CAR-T/NK),
exosome technology (ACTEX™(ACTEX™), and regenerative therapeutics.
Avalon achieves
and fosters seamless integration of unique verticals to bridge and accelerate innovative research, bio-process development, clinical programs
and product commercialization. Avalon’sAvalon’s upstream innovative research includes:
Development of Avalon Clinical-grade Tissue-specific Exosome |
● |
Novel therapeutic and diagnostic targets development utilizing QTY-code protein design technology with Massachusetts Institute of Technology (MIT) including using the QTY code protein design technology for development of a hemofiltration device to treat Cytokine Storm. |
● | Co-development of next generation, mRNA-based immune effector cell therapeutic modalities with |
Avalon’sAvalon’s
midstream bio-processing and bio-production facility is located in Nanjing, Chinaco-developed at the University of Pittsburgh Medical Center (UPMC) with state-of-the-art
automated GMPinfrastructure and standardization accredited with cGMP, FACT, aaBB, CLIA and CAP, as well as stringent QC/QA infrastructurefacility for standardized
bio-manufacturing of clinical-grade cellular products involved in our clinical programs in immune effector cell therapy and ACTEX-based
regenerative therapeutics, as well as bio-banking. As a result of the COVID pandemic, the operation of this facility has not been at full capacity. However, the Company expects to slowly increase operations during 2021.therapeutics.
Avalon’sAvalon’s
downstream medical team and facility consists of top-rated affiliated hospital network and experts specialized in hematology, oncology,
cellular immunotherapy, hematopoietic stem/progenitor cell transplant, as well as regenerative therapeutics. Our major clinical programs
include:
● | AVA-001: Avalon has initiated its first-in-human clinical trial of CD19 CAR-T candidate, AVA-001 in August 2019 at the Hebei Yanda Lu Daopei Hospital and Beijing Lu Daopei Hospital in China (the |
● | AVA-011 and FLASH-CAR™: The Company advanced its next generation immune cell therapy using RNA-based, non-viral FLASH-CAR™ technology co-developed with the Company’s strategic partner Arbele Limited. The multiplex FLASH-CAR™ platform can be used to create personalized ("autologous') cell therapy from a patient’s own cells, as well as "off-the-shelf" cell therapy from a universal donor. Our leading candidate, AVA-011, is a dual-target (anti-CD19/CD22) CAR-T which has completed pre-clinical research stage, and currently at IND-enabling process development stage at UPMC (Dr. Yen-Michael Hsu as Principal Investigator) to generate clinical-grade cell-therapy products for |
● |
● |
Going Concern
We provide medical related consulting services in advanced areas of immunotherapy and second opinion/referral services through our wholly-owned subsidiary Avalon (Shanghai) Healthcare Technology Co., Ltd., or Avalon Shanghai. We also own and operate rental commercial real property in New Jersey, where we are headquartered.
During the three and six months ended June 30, 2021, we did not have any revenue from medical related consulting services. Although we maintain close working relationships with our related parties, the consulting agreements with our related parties expired as of December 31, 2020. There was no order from related party and third party customers in the three and six months ended June 30, 2021. Currently, we are negotiating with our potential customers and consulting services agreements are not finalized. In addition, during the three and six months ended June 30, 2021, we did not receive any revenue from our COVID 19 testing distribution agreements and the Company discontinued plans to develop its own testing kits at this time. The competitive landscape for these products made sales difficult during this period and there can be no assurance that there will be sales of these testing kits in the future.
The value of the Renminbi (“RMB”), the main currency used in China, fluctuates and is affected by, among other things, changes in China’s political and economic conditions. The conversion of RMB into foreign currencies such as the U.S. dollar have generally been based on rates set by the People’s Bank of China, which are set daily based on the previous day’s interbank foreign exchange market rates and current exchange rates on the world financial markets.
Going Concern
The Company
is a clinical-stage, vertically integrated, leading CellTech bio-developer dedicated to advancing and empowering innovative, transformative
immune effector cell therapy, exosome technology, as well as COVID-19 related diagnostics and therapeutics.companion diagnostics. The companyCompany also provides strategic advisory and
outsourcing services to facilitate and enhance its clients'clients’ growth and development, as well as competitiveness in healthcare and
CellTech industry markets. Through its subsidiary structure with unique integration of verticalsvertical segments from innovative research and development (“R&D”)&D to automated
bioproduction and accelerated clinical development, the Company is establishing a leading role in the fields of cellular immunotherapy
(including CAR-T/NK), exosome technology (ACTEX™(ACTEX™), and regenerative therapeutics.
In addition, the Company
owns commercial real estate that houses its headquarters in Freehold, New Jersey and provides outsourced and customized international
healthcare services to the rapidly changing health care industry primarily focused in the People’sPeople’s Republic of China. The Company did not generate any revenue from medical related consulting services segment during the three and six months ended June 30, 2021. These condensed
consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates,
among other things, the realization of assets and the satisfaction of liabilities in the normal course of business.
As reflected in the
accompanying condensed consolidated financial statements, the Company had a working capital deficit of $2,354,803$5,557,470 as of June 30, 20212022
and has incurred recurring net losslosses and generated negative cash flow from operating activities of $4,732,028$4,099,012 and $2,593,548$2,686,722 for the
six months ended June 30, 2021,2022, respectively. The Company has a limited operating history and its continued growth is dependent upon
the continuation of providing medical related consulting services to its only few clients who are related parties and generating rental
revenue from its income-producing real estate property in New Jersey; hence generating revenues, and obtaining additional financing to
fund future obligations and pay liabilities arising from normal business operations. In addition, the current cash balance cannot be
projected to cover the operating expenses for the next twelve months from the release date of this report. These matters raise substantial
doubt about the Company’sCompany’s ability to continue as a going concern. The ability of the Company to continue as a going concern is
dependent on the Company’sCompany’s ability to raise additional capital, implement its business plan, and generate significant revenues.
There are no assurances that the Company will be successful in its efforts to generate significant revenues, maintain sufficient cash
balance or report profitable operations or to continue as a going concern. The Company plans on raising capital through the sale of equity
to implement its business plan. However, there is no assurance these plans will be realized and that any additional financings will be
available to the Company on satisfactory terms and conditions, if any.
The occurrence of an
uncontrollable event such as the COVID-19 pandemic had negatively impact on the Company’sCompany’s operations. Our general development operations
have continued during the COVID-19 pandemic and we have not had significant disruption. However, we are uncertain if the COVID-19 pandemic
will impact future operations at our laboratory, or our ability to collaborate with other laboratories and universities. In addition,
we are unsure if the COVID-19 pandemic will impact future clinical trials. Given the dynamic nature of these circumstances, the duration
of business disruption and reduced traffic, the related financial effect cannot be reasonably estimated at this time but is expected
to adversely impact the Company’sCompany’s business for the rest of 2021.2022.
The accompanying condensed consolidated financial statements do not include any adjustments related to the recoverability or classification of asset-carrying amounts or the amounts and classification of liabilities that may result should the Company be unable to continue as a going concern.
Critical Accounting Policies
Use of Estimates
Our discussion and analysis of our financial
condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance
with accounting principles generally accepted in the United States. The preparation of these condensed consolidated financial statements
requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities. We continually evaluate our estimates, including those related to the useful life of
property and equipment and investment in real estate, assumptions used in assessing impairment of long-term assets, valuation of deferred
tax assets and the associated valuation allowances, and valuation of stock-based compensation.compensation, and assumptions used to determine fair
value of warrants and embedded conversion features of convertible note payable.
We base our estimates on historical experience and on various other assumptions that we believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Any future changes to these estimates and assumptions could cause a material change to our reported amounts of revenues, expenses, assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions.
Revenue Recognition
We recognize revenue
under Accounting Standards Codification (“ASC”(“ASC”) Topic 606, Revenue from Contracts with Customers (“(“ASC 606”606”).
The core principle of the revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services
to customers in an amount that reflects the consideration to which the company expects to be entitledentitled
in exchange for those goods or services. The following five steps are applied to achieve that core principle:
Step 1: Identify the contract with the customer |
Step 2: Identify the performance obligations in the contract |
Step 3: Determine the transaction price |
Step 4: Allocate the transaction price to the performance obligations in the contract |
Step 5: Recognize revenue when the company satisfies a performance obligation |
In
order to identifyidentify the performance obligations in a contract with a customer, a company must assess the promised goods or services
in the contract and identify each promised goods or service that is distinct. A performance obligation meets ASC 606’s definition606’s definition
of a “distinct”“distinct” goods or service (or bundle of goods or services) if both of the following criteria are met:
The customer can benefit from the goods or service either on its own or together with other resources that are readily available to the customer (i.e., the goods or service is capable of being distinct). |
The
|
If a goods or service is not distinct, the goods or service is combined with other promised goods or services until a bundle of goods or services is identified that is distinct.
The transaction price is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties (for example, some sales taxes). The consideration promised in a contract with a customer may include fixed amounts, variable amounts, or both. Variable consideration is included in the transaction price only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved.
The transaction price is allocated to each performance obligation on a relative standalone selling price basis. The transaction price allocated to each performance obligation is recognized when that performance obligation is satisfied, at a point in time or over time as appropriate.
The Company’sCompany’s
revenues are derived from providing medial related consulting services for its’its’ related parties. Revenues related to its service
offerings are recognized at a point in time when service is rendered. Any payments received in advance of the performance of services
are recorded as deferred revenue until such time as the services are performed.
We have determined that the ASC 606 does not apply to rental contracts, which are within the scope of other revenue recognition accounting standards.
Rental income from operating leases is recognized on a straight-line basis under the guidance of ASC 842. Lease payments under tenant leases are recognized on a straight-line basis over the term of the related leases. The cumulative difference between lease revenue recognized under the straight-line method and contractual lease payments are included in rent receivable on the condensed consolidated balance sheets.
We do not offer promotional payments, customer coupons, rebates or other cash redemption offers to our customers.
Income Taxes
We are governed by the
income tax laws of China and the United States. Income taxes are accounted for pursuant to ASC 740 “Accounting“Accounting for Income Taxes,””
which is an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future
tax consequences of events that have been recognized in our financial statements or tax returns. The charge for taxes is based on the
results for the period as adjusted for items, which are non-assessable or disallowed. It is calculated using tax rates that have been
enacted or substantively enacted by the balance sheet date.
Deferred tax is accounted for using the balance sheet liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax basis used in the computation of assessable tax profit. In principle, deferred tax liabilities are recognized for all taxable temporary differences, and deferred tax assets are recognized to the extent that it is probably that taxable profit will be available against which deductible temporary differences can be utilized.
Deferred tax is calculated using tax rates that are expected to apply to the period when the asset is realized or the liability is settled. Deferred tax is charged or credited in the income statement, except when it is related to items credited or charged directly to equity, in which case the deferred tax is changed to equity. Deferred tax assets and liabilities are offset when they related to income taxes levied by the same taxation authority and we intend to settle its current tax assets and liabilities on a net basis.
Recent Accounting Standards
For details of applicable new accounting standards, please, refer to Recent Accounting Standards in Note 3 of our condensed consolidated financial statements accompanying this report.
RESULTS OF OPERATIONS
Comparison of Results of Operations for the
Three and Six Months Ended June 30, 20212022 and 20202021
Revenues
For the three months
ended June 30, 2021,2022, we had real property rental revenue of $280,232,$290,821, as compared to $301,267$280,232 for the three months ended June 30, 2020, a decrease2021,
an increase of $21,035,$10,589, or 7.0%3.8%. For the six months ended June 30, 2021,2022, we had real property rental revenue of $570,006,$588,452, as compared
to $598,223$570,006 for the six months ended June 30, 2020, a decrease2021, an increase of $28,217,$18,446, or 4.7%3.2%. The decreaseslight increase was primarily attributable to
twothe increase of tenants moved out in August 2020 and March 2021, respectively.the first half of 2022. We expect that our revenue from real property rent will remain in its current quarterly
level with minimal increase in the near future.
Costs and Expenses
Real property operating expenses consist of property management fees, property insurance, real estate taxes, depreciation, repairs and maintenance fees, utilities and other expenses related to our rental properties.
For the three months
ended June 30, 2021,2022, our real property operating expenses amounted to $205,147,$211,703, as compared to $272,764$205,147 for the three months ended June
30, 2020, a decrease2021, an increase of $67,617,$6,556, or 24.8%3.2%. The decrease was mainly due to a decrease in utilities of approximately $19,000, a decrease in janitorial supplies of approximately $4,000, and a decrease in other miscellaneous items of approximately $44,000.
For the six months ended
June 30, 2021,2022, our real property operating expenses amounted to $422,041,$430,151, as compared to $527,265$422,041 for the six months ended June 30, 2020, a decrease2021,
an increase of $105,224,$8,110, or 20.0%1.9%. The decrease was mainly due to a decrease in repairs and maintenance fees of approximately $21,000, a decrease in utilities of approximately $17,000, a decrease in janitorial supplies of approximately $7,000, and a decrease in other miscellaneous items of approximately $60,000.
Real Property Operating Income
Our real property operating income for the three
months ended June 30, 20212022 was $75,085,$79,118, representing an increase of $46,582,$4,033, or 163.4%5.4%, as compared to $28,503$75,085 for the three months ended
June 30, 2020.2021. Our real property operating income for the six months ended June 30, 20212022 was $147,965,$158,301, representing an increase of $77,007,$10,336,
or 108.5%7.0%, as compared to $70,958$147,965 for the six months ended June 30, 2020.2021. The increase was mainly attributable to the decreaseincrease in real
property operating expensesrental revenue as described above. We expect our real property operating income will remain in its current quarterly level with
minimal increase in the near future.
Other Operating Expenses
For the three and six
months ended June 30, 20212022 and 2020,2021, other operating expenses consisted of the following:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Advertising and marketing expenses | $ | 130,395 | $ | 7,500 | $ | 657,201 | $ | 16,323 | ||||||||
Professional fees | 436,447 | 1,357,079 | 1,257,755 | 2,738,257 | ||||||||||||
Compensation and related benefits | 503,541 | 547,829 | 1,026,586 | 1,109,835 | ||||||||||||
Research and development | 254,476 | 238,793 | 371,160 | 451,981 | ||||||||||||
Litigation settlement | 1,350,000 | - | 1,350,000 | - | ||||||||||||
Directors and officers liability insurance premium | 103,584 | 81,141 | 207,168 | 162,282 | ||||||||||||
Travel and entertainment | 41,282 | 40,069 | 79,562 | 72,219 | ||||||||||||
Rent and related utilities | 19,656 | 18,661 | 40,212 | 41,288 | ||||||||||||
Other general and administrative | 83,308 | 86,293 | 139,170 | 161,648 | ||||||||||||
$ | 2,922,689 | $ | 2,377,365 | $ | 5,128,814 | $ | 4,753,833 |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Professional fees | $ | 1,357,079 | $ | 1,561,650 | $ | 2,738,257 | $ | 3,115,348 | ||||||||
Compensation and related benefits | 547,829 | 1,054,052 | 1,109,835 | 2,182,520 | ||||||||||||
Research and development | 238,793 | 161,101 | 451,981 | 436,503 | ||||||||||||
Directors and officers liability insurance premium | 81,141 | 58,012 | 162,282 | 116,025 | ||||||||||||
Travel and entertainment | 40,069 | 31,233 | 72,219 | 104,813 | ||||||||||||
Rent and related utilities | 18,661 | 22,536 | 41,288 | 45,277 | ||||||||||||
Advertising expenses | 7,500 | 42,942 | 16,323 | 113,845 | ||||||||||||
Other general and administrative | 86,293 | 99,804 | 161,648 | 181,646 | ||||||||||||
$ | 2,377,365 | $ | 3,031,330 | $ | 4,753,833 | $ | 6,295,977 |
● | For the three months ended June 30, 2022, advertising and marketing expenses increased by $122,895 or 1,638.6% as compared to the three months ended June 30, 2021. For the six months ended June 30, 2022, advertising and marketing expenses increased by $640,878 or 3,926.2% as compared to the six months ended June 30, 2021. The increase was primarily due to increased advertising activities. We expect that our advertising expenses will remain in its current quarterly level with minimal increase in the near future. |
Professional
fees primarily consisted of accounting fees, audit fees, legal service fees, consulting fees,
investor relations service charges, valuation service fees and other |
For the
three months ended June 30, |
For the
three months ended June 30, |
For the three months ended June 30, |
● | For the three months ended June 30, 2022, Directors and Officers Liability Insurance premium increased by $22,443, or 27.7%, as compared to the three months ended June 30, 2021. For the six months ended June 30, 2022, Directors and Officers Liability Insurance premium increased by $44,886, or 27.7%, as compared to the six months ended June 30, 2021. The increase was mainly due to different insurance provider with different premium. |
For the
three months ended June 30, |
For
the three months ended June 30, |
Other general
and administrative expenses mainly consisted of NASDAQ listing fee, office supplies, and
other miscellaneous items. For the three months ended June 30, |
Loss from Operations
As a result of the foregoing,
for the three months ended June 30, 2021,2022, loss from operations amounted to $2,302,280,$2,843,571, as compared to $3,002,827$2,302,280 for the three months
ended June 30, 2020, a decrease2021, an increase of $700,547,$541,291 or 23.3%23.5%.
As a result of the foregoing,
for the six months ended June 30, 2021,2022, loss from operations amounted to $4,605,868,$4,970,513, as compared to $6,225,019$4,605,868 for the six months ended
June 30, 2020, a decrease2021, an increase of $1,619,151,$364,645 or 26.0%7.9%.
Other (Expense)
Income (Expense)
Other (expense) income (expense)
mainly includes interest expense, and loss from equity method investment.investment, change in fair value of derivative liability, and other miscellaneous income (expense).
Other income, net, totaled
$815,097 for the three months ended June 30, 2022, as compared to other expense, net, totaledof $62,630 for the three months ended June 30,
2021, as compared to $53,555 for the three months ended June 30, 2020, an increasea change of $9,075,$877,727, or 16.9%1,401.4%, which was primarily attributable to an increase in other miscellaneous income of approximately
$153,000 mainly driven by reagent sale in the second quarter of 2022, an increase in gain from change in fair value of derivative liability
of approximately $769,000, and a decrease in loss from equity method investment of approximately $4,000, offset by an increase in interest
expense of approximately $4,000, and a decrease$48,000 due to the increase in miscellaneousoutstanding borrowings.
Other income, of approximately $1,000.
Othernet, totaled
$871,501 for the six months ended June 30, 2022, as compared to other expense, net, totaledof $126,160 for the six months ended June 30, 2021,
as compared to $102,144 for the six months ended June 30, 2020, an increasea change of $24,016,$997,661, or 23.5%790.8%, which was primarily attributable to an increase in other miscellaneous income of approximately $261,000
mainly driven by reagent sale in the first half of 2022, an increase in gain from change in fair value of derivative liability of approximately
$769,000, and a decrease in loss from equity method investment of approximately $13,000,$9,000, offset by an increase in interest expense of
approximately $7,000, and a decrease$42,000 due to the increase in miscellaneous income of approximately $4,000.outstanding borrowings.
Income Taxes
We did not have any income taxes expense for
the three months ended June 30, 20212022 and 20202021 since we incurred losses in these periods. We did not have any income taxes expense for
the six months ended June 30, 20212022 and 20202021 since we incurred losses in these periods.
Net Loss
As a result
of the factors described above, our net loss was $2,028,474 for the three months ended June 30, 2022, as compared to $2,364,910 for the
three months ended June 30, 2021, as compared to $3,056,382 for the three months ended June 30, 2020, a decrease of $691,472$336,436 or 22.6%14.2%.
As a result
of the factors described above, our net loss was $4,099,012 for the six months ended June 30, 2022, as compared to $4,732,028 for the
six months ended June 30, 2021, as compared to $6,327,163 for the six months ended June 30, 2020, a decrease of $1,595,135$633,016 or 25.2%13.4%.
Net Loss Attributable to Avalon GloboCare Corp. Common Shareholders
The net
loss attributable to Avalon GloboCare Corp. common shareholders was $2,028,474 or $0.02 per share (basic and diluted) for the three months
ended June 30, 2022, as compared with $2,364,910, or $0.03 per share (basic and diluted) for the three months ended June 30, 2021, as compared with $3,056,382, or $0.04 per share (basic and diluted) for the three months ended June 30, 2020, a change
of $691,472$336,436 or 22.6%14.2%.
The net
loss attributable to Avalon GloboCare Corp. common shareholders was $4,099,012 or $0.05 per share (basic and diluted) for the six months
ended June 30, 2022, as compared with $4,732,028, or $0.06 per share (basic and diluted) for the six months ended June 30, 2021, as compared with $6,327,163, or $0.08 per share (basic and diluted) for the six months ended June 30, 2020, a change
of $1,595,135$633,016 or 25.2%13.4%.
Foreign Currency Translation Adjustment
Our reporting
currency is the U.S. dollar. The functional currency of our parent company, AHS, Avalon RT 9, Genexosome, Avactis, and Exosome, is the
U.S. dollar and the functional currency of Avalon Shanghai and Beijing Genexosome is the Chinese Renminbi (“RMB”(“RMB”). The financial
statements of our subsidiaries whose functional currency is the RMB are translated to U.S. dollars using period end rates of exchange
for assets and liabilities, average rate of exchange for revenues, costs, and expenses and cash flows, and at historical exchange rates
for equity. Net gains and losses resulting from foreign exchange transactions are included in the results of operations. As a result of
foreign currency translations, which are a non-cash adjustment, we reported a foreign currency translation loss of $43,503 and a foreign
currency translation gain of $14,786 and $3,309 for the three months ended June 30, 20212022 and 2020,2021, respectively. As a result of foreign currency
translations, which are a non-cash adjustment, we reported a foreign currency translation gainloss of $12,064$41,482 and a foreign currency translation
lossgain of $18,757$12,064 for the six months ended June 30, 20212022 and 2020,2021, respectively. This non-cash gain/lossloss/gain had the effect of decreasing/increasingincreasing/decreasing
our reported comprehensive loss.
Comprehensive Loss
As a result of our foreign
currency translation adjustment, we had comprehensive loss of $2,350,124$2,071,977 and $3,053,073$2,350,124 for the three months ended June 30, 2022 and 2021,
and 2020, respectively.
As a result of our foreign
currency translation adjustment, we had comprehensive loss of $4,719,964$4,140,494 and $6,345,920$4,719,964 for the six months ended June 30, 2022 and 2021,
and 2020, respectively.
Liquidity and Capital Resources
The Company has a limited
operating history and its continued growth is dependent upon the continuation of providing medical related consulting services to its
only few clients who are related parties and generating rental revenue from its income-producing real estate property in New Jersey; hence
generating revenues, and obtaining additional financing to fund future obligations and pay liabilities arising from normal business operations.
In addition, the current cash balance cannot be projected to cover the operating expenses for the next twelve months from the release
date of this report. These matters raise substantial doubt about the Company’sCompany’s ability to continue as a going concern. The ability
of the Company to continue as a going concern is dependent on the Company’sCompany’s ability to raise additional capital, implement its business
plan, and generate significant revenues. There are no assurances that the Company will be successful in its efforts to generate significant
revenues, maintain sufficient cash balance or report profitable operations or to continue as a going concern. The Company plans on raising
capital through the sale of equity to implement its business plan. However, there is no assurance these plans will be realized and that
any additional financings will be available to the Company on satisfactory terms and conditions, if any.
The occurrence of an
uncontrollable event such as the COVID-19 pandemic is likely to negatively affect the Company’sCompany’s operations. Efforts to contain the
spread of the coronavirus have intensified, including social distancing, travel bans and quarantine, and these are likely to
negatively impact our tenants, employees and consultants. These, in turn, will not only impact our operations, financial condition and
demand for our medical related consulting services but our overall ability to react timely to mitigate the impact of this event. Given
the dynamic nature of these circumstances, the duration of business disruption and reduced traffic, the related financial effect cannot
be reasonably estimated at this time but is expected to adversely impact our business for the rest of 2021.2022.
Liquidity is the ability
of a company to generate funds to support its current and future operations, satisfy its obligations and otherwise operate on an ongoing
basis. At June 30, 20212022 and December 31, 2020,2021, we had cash balance of approximately $685,000$1,180,000 and $727,000,$808,000, respectively. These
funds are kept in financial institutions located as follows:
Country: | June 30, 2021 | December 31, 2020 | ||||||||||||||
United States | $ | 587,538 | 85.7 | % | $ | 559,711 | 77.0 | % | ||||||||
China | 97,766 | 14.3 | % | 166,866 | 23.0 | % | ||||||||||
Total cash | $ | 685,304 | 100.0 | % | $ | 726,577 | 100.0 | % |
Country: | June 30, 2022 | December 31, 2021 | ||||||||||||||
United States | $ | 716,240 | 60.7 | % | $ | 767,605 | 95.1 | % | ||||||||
China | 463,968 | 39.3 | % | 39,933 | 4.9 | % | ||||||||||
Total cash | $ | 1,180,208 | 100.0 | % | $ | 807,538 | 100.0 | % |
Under applicable PRC regulations, foreign invested enterprises, or FIEs, in China may pay dividends only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, a foreign invested enterprise in China is required to set aside at least 10% of its after-tax profit based on PRC accounting standards each year to its general reserves until the cumulative amount of such reserves reach 50% of its registered capital. These reserves are not distributable as cash dividends.
In addition, a portion
of our businesses and assets are denominated in RMB, which is not freely convertible into foreign currencies. All foreign exchange transactions
take place either through the People’sPeople’s Bank of China or other banks authorized to buy and sell foreign currencies at the exchange
rates quoted by the People’sPeople’s Bank of China. Approval of foreign currency payments by the People’sPeople’s Bank of China or other regulatory
institutions requires submitting a payment application form together with suppliers’suppliers’ invoices, shipping documents and signed contracts.
These currency exchange control procedures imposed by the PRC government authorities may restrict the ability of our PRC subsidiary to
transfer its net assets to the Parent Company through loans, advances or cash dividends.
The current PRC Enterprise
Income Tax (“EIT”(“EIT”) Law and its implementing rules generally provide that a 10% withholding tax applies to China-sourced income
derived by non-resident enterprises for PRC enterprise income tax purposes unless the jurisdiction of incorporation of such enterprises’enterprises’
shareholder has a tax treaty with China that provides for a different withholding arrangement.
The following table sets
forth a summary of changes in our working capital from December 31, 20202021 to June 30, 2021:2022:
June 30, | December 31, | Changes in | ||||||||||||||
2021 | 2020 | Amount | Percentage | |||||||||||||
Working capital deficit: | ||||||||||||||||
Total current assets | $ | 1,325,329 | $ | 1,286,337 | $ | 38,992 | 3.0 | % | ||||||||
Total current liabilities | 3,680,132 | 2,592,393 | 1,087,739 | 42.0 | % | |||||||||||
Working capital deficit | $ | (2,354,803 | ) | $ | (1,306,056 | ) | $ | (1,048,747 | ) | 80.3 | % |
June 30, | December 31, | Changes in | ||||||||||||||
2022 | 2021 | Amount | Percentage | |||||||||||||
Working capital deficit: | ||||||||||||||||
Total current assets | $ | 1,652,958 | $ | 1,323,042 | $ | 329,916 | 24.9 | % | ||||||||
Total current liabilities | 7,210,428 | 4,401,658 | 2,808,770 | 63.8 | % | |||||||||||
Working capital deficit | $ | (5,557,470 | ) | $ | (3,078,616 | ) | $ | (2,478,854 | ) | 80.5 | % |
Our working capital
deficit increased by $1,048,747$2,478,854 to $2,354,803$5,557,470 at June 30, 20212022 from $1,306,056$3,078,616 at December 31, 2020.2021. The increase in working
capital deficit was primarily attributable to a decreasean increase in deferred financing costsaccounts payable of approximately $54,000,$376,000, an increase in accrued
settlement of lawsuit of $900,000 due to a settlement signed in June 2022, an increase in convertible note payable, net,
of approximately $493,000 resulting from the issuance of 2022 Convertible Note, and an increase in derivative liability of
approximately $2,013,000 which was related to our 2022 Convertible Note, offset by an increase in cash of approximately $373,000, a
decrease in accrued professional fees of approximately $476,000, an increase$396,000, which was mainly due to payments made to our professional service
providers in the first half of 2022, a decrease in accrued research and development fees of approximately $74,000, an increase$319,000 resulting from
payments made to research and development service provider in accrued liabilitiesthe six months ended June 30, 2022 , and other payables – related parties of approximately $91,000, an increase in operating lease obligation of approximately $65,000, and an increasea decrease in note payable
–– related party of $390,000 offset by an increasedue to repayment made to this related party in prepaid expenses and other current assetsthe first half of approximately $146,000.2022.
Because the exchange rate conversion is different for the condensed consolidated balance sheets and the condensed consolidated statements of cash flows, the changes in assets and liabilities reflected on the condensed consolidated statements of cash flows are not necessarily identical with the comparable changes reflected on the condensed consolidated balance sheets.
Cash Flows for the Six Months Ended June 30,
20212022 Compared to the Six Months Ended June 30, 20202021
The following summarizes the key components of
our cash flows for the six months ended June 30, 20212022 and 2020:2021:
Six Months Ended June 30, | ||||||||
2022 | 2021 | |||||||
Net cash used in operating activities | $ | (2,686,722 | ) | $ | (2,593,548 | ) | ||
Net cash used in investing activities | (55,757 | ) | (50,511 | ) | ||||
Net cash provided by financing activities | 3,130,443 | 2,600,151 | ||||||
Effect of exchange rate on cash | (15,294 | ) | 2,635 | |||||
Net increase (decrease) in cash | $ | 372,670 | $ | (41,273 | ) |
Net cash flow used in operating activities for the six months ended June 30, 2022 was $2,686,722, which primarily reflected our consolidated net loss of approximately $4,099,000, and the non-cash item adjustment consisting of change in fair market value of derivative liability of approximately $769,000, and the changes in operating assets and liabilities, primarily consisting of a decrease in operating lease obligation of approximately $80,000, offset by an increase in accounts payable of approximately $389,000, an increase in accrued liabilities and other payables of approximately $675,000, which was mainly attributable the increase in accrued settlement of lawsuit of $1,350,000 resulting from a settlement signed in June 2022 offset by the decrease in accrued professional fees of approximately $396,000 due to payments made to our professional service providers in the first half of 2022 and the decrease in accrued research and development fees of approximately $319,000 resulting from payments made to research and development service provider in the six months ended June 30, 2022, and an increase in accrued liabilities and other payables – related parties of approximately $72,000, and the non-cash items adjustment primarily consisting of depreciation of approximately $169,000, amortization of right-of-use asset of approximately $68,000, stock-based compensation and service expense of approximately $821,000, and amortization of debt discount of approximately $55,000.
Six Months Ended June 30, | ||||||||
2021 | 2020 | |||||||
Net cash used in operating activities | $ | (2,593,548 | ) | $ | (3,924,902 | ) | ||
Net cash used in investing activities | (50,511 | ) | (28,437 | ) | ||||
Net cash provided by financing activities | 2,600,151 | 4,441,943 | ||||||
Effect of exchange rate on cash | 2,635 | (4,394 | ) | |||||
Net (decrease) increase in cash | $ | (41,273 | ) | $ | 484,210 |
Net
cash flow used in operating activities for the six months ended June 30, 2021 was $2,593,548, which primarily reflected our consolidated
net loss of approximately $4,732,000, and the changes in operating assets and liabilities, primarily consisting of a decrease in operating
lease obligation of approximately $60,000, offset by an increase accrued liabilities and other payables of approximately $714,000, and
an increase in accrued liabilities and other payables –– related parties of approximately $91,000, and the non-cash items adjustment
primarily consisting of depreciation of approximately $141,000, amortization of right-of-use asset of approximately $60,000, and stock-based
compensation and service expense of approximately $1,087,000.
Net cash flow used in operating activities for the six months ended June 30, 2020 was $3,924,902, which primarily reflected our consolidated net loss of approximately $6,327,000, and the changes in operating assets and liabilities, primarily consisting of an increase in prepaid expenses and other current assets of approximately $124,000, and a decrease in accrued liabilities and other payables of approximately $386,000, offset by a decrease in accounts receivable – related party of approximately $213,000, an increase in accrued liabilities and other payables – related parties of approximately $84,000, and the non-cash items adjustment primarily consisting of depreciation of approximately $153,000, and stock-based compensation and service expense of approximately $2,449,000.
We expect our cash used in operating activities to increase due to the following:
the development and commercialization of new products; |
an increase in professional staff and services; and |
an increase in public relations and/or sales promotions for existing and/or new brands as we expand within existing markets or enter new markets. |
Net cash flow used in
investing activities was $55,757 for the six months ended June 30, 2022 as compared to $50,511 for the six months ended June 30,
2021 as compared to $28,437 for2021. During the six months ended June 30, 2020. 2022, we made payments for purchase of property and equipment of approximately $2,000 and made
additional investment in equity method investment of approximately $54,000. During the six
months ended June 30, 2021, we made payment for improvement of commercial real estate of approximately $10,000 and made additional investment
in equity method investment of approximately $40,000. During the six months ended June 30, 2020, we made additional investment in equity method investment of approximately $28,000.
Net cash flow provided
by financing activities was $3,130,443 for the six months ended June 30, 2022 as compared to $2,600,151 for the six months ended June
30, 2021 as compared to $4,441,943 for2021. During the six months ended June 30, 2020.2022, we received proceeds from related party borrowings of approximately $100,000 and
net proceeds from equity offering of approximately $112,000 (net of cash paid for commission and other offering costs of approximately
$24,000) and proceeds from issuance of convertible debt and warrants of approximately $3,719,000 to fund our working capital needs, offset
by repayments made for note payable – related party of $390,000 and repayments made for loan
payable – related party of $410,000. During the six months ended June 30, 2021, we received proceeds from related party borrowings
of approximately $193,000 and net proceeds from equity offering of approximately $2,407,000 (net of cash paid for commission of approximately
$74,000). During the six months ended June 30, 2020, we received proceeds from related party borrowings of $300,000 and net proceeds from equity offering of approximately $4,342,000 (net of cash paid for commission and offering costs of approximately $362,000), offset by repayments made for note payable – related party of $200,000.
Our capital requirements
for the next twelve months primarily relate to working capital requirements, including salaries, fees related to third parties’parties’
professional services, reduction of accrued liabilities, mergers, acquisitions and the development of business opportunities. These uses
of cash will depend on numerous factors including our sales and other revenues, and our ability to control costs. All funds received have
been expended in the furtherance of growing the business. The following trends are reasonably likely to result in a material decrease
in our liquidity over the near to long term:
an increase in working capital requirements to finance our current business, including ongoing research and development programs, clinical studies, as well as commercial strategies; |
the use of capital for mergers, acquisitions and the development of business opportunities; |
addition of administrative personnel as the business grows; and |
the cost of being a public company. |
In the third quarter
of 2019, we had secured a $20 million credit facility (Line of Credit) provided by our Chairman, Wenzhao Lu. The unsecured credit facility
bears interest at a rate of 5% and provides for maturity on drawn loans 36 months after funding. The note is not convertible to equity. As of June 30, 2021,2022, the total principal
amount outstanding under the Credit Line was approximately $3.4$2.4 million and we have approximately $16.6$14.1 million remaining available under the Line
Credit.
On December 13,
2019, we entered into an Open Market Sale AgreementSM (the “Sales Agreement”“Sales Agreement”) with Jefferies LLC, as sales
agent (“Jefferies”(“Jefferies”), pursuant to which we may offer and sell, from time to time, through Jefferies, shares of our common stock,
par value $0.0001 per share, having an aggregate offering price of up to $20.0 million. On April 6, 2020, the date on which we filed our
Annual Report on Form 10-K for the fiscal year ended December 31, 2019, our registration statement became subject to the
offering limits set forth in General Instruction I.B.6 of Form S-3. As of April 6, 2020, the aggregate market value of our outstanding
common stock held by non-affiliates, or public float, was $39,564,237, based on 23,691,160 shares of our outstanding common
stock that were held by non-affiliates on such date and a price of $1.67 per share, which was the price at which our common
stock was last sold on The Nasdaq Capital Market on February 19, 2020 (a date within 60 days of the date hereof), calculated in accordance
with General Instruction I.B.6 of Form S-3. We have not offered any securities pursuant to General Instruction I.B.6 of
Form S-3 in the 12 calendar months preceding the date of this prospectus supplement. We filed a prospectus supplement to amend
and supplement the information in our prospectus and original prospectus supplement based on the amount of securities that we are eligible
to sell under General Instruction I.B.6 of Form S-3. After giving effect to the $13,000,000 offering limit imposed by General
Instruction I.B.6 of Form S-3, we may offer and sell additional shares of our common stock having an aggregate offering
price of up to $13,000,000 from time to time through Jefferies acting as our sales agent in accordance with the terms of the sales
agreement. As of June 30, 2021,2022, we sold a total of 5,900,2756,429,486 shares of our common stock through Jefferies with an aggregate offering price
of $9,559,240$10,073,707 and we have approximately $5.4$4.9 million offering price remaining available under the Sales Agreement.
We estimate that based on current plans and assumptions, that our available cash will be insufficient to satisfy our cash requirements under our present operating expectations through cash available under our Credit Line and sales of equity through our Sales Agreement. Other than funds received from the sale of our equity and advances from our related party, and cash resource generating from our operations, we presently have no other significant alternative source of working capital. We have used these funds to fund our operating expenses, pay our obligations and grow our company. We will need to raise significant additional capital to fund our operations and to provide working capital for our ongoing operations and obligations. Therefore, our future operation is dependent on our ability to secure additional financing. Financing transactions may include the issuance of equity or debt securities, obtaining credit facilities, or other financing mechanisms. However, the trading price of our common stock and a downturn in the U.S. equity and debt markets could make it more difficult to obtain financing through the issuance of equity or debt securities. Even if we are able to raise the funds required, it is possible that we could incur unexpected costs and expenses or experience unexpected cash requirements that would force us to seek alternative financing. Furthermore, if we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our common stock. The inability to obtain additional capital may restrict our ability to grow and may reduce our ability to continue to conduct business operations. If we are unable to obtain additional financing, we will be required to cease our operations. To date, we have not considered this alternative, nor do we view it as a likely occurrence.
Contractual Obligations and Off-Balance Sheet Arrangements
Contractual Obligations
We have
certain fixed contractual obligations and commitments that include future estimated payments. Changes in our business needs, cancellation
provisions, and other factors may result in actual payments differing from the estimates. We cannot provide certainty regarding the timing
and amounts of payments. We have presented below a summary of the most significant assumptions used in our determination of amounts presented
in the tables, in order to assist in the review of this information within the context of our consolidated financial position, results
of operations, and cash flows. The following tables summarize our contractual obligations as of June 30, 2021,2022, and the effect these obligations
are expected to have on our liquidity and cash flows in future periods.
Payments Due by Period | ||||||||||||||||||||
Contractual obligations: | Total | Less than 1 year | 1-3 years | 3-5 years | 5+ years | |||||||||||||||
Operating lease commitment | $ | 237,820 | $ | 149,892 | $ | 87,928 | $ | - | $ | - | ||||||||||
Acquisition consideration | 100,000 | 100,000 | - | - | - | |||||||||||||||
Borrowings from related party (principal) | 3,783,188 | 390,000 | 3,393,188 | - | - | |||||||||||||||
Accrued interest – related party | 259,236 | 259,236 | - | - | - | |||||||||||||||
Epicon equity investment obligation | 811,497 | 270,499 | 540,998 | - | - | |||||||||||||||
AVAR joint venture commitment | 10,774,329 | 774,329 | 5,000,000 | 5,000,000 | - | |||||||||||||||
Total | $ | 15,966,070 | $ | 1,943,956 | $ | 9,022,114 | $ | 5,000,000 | $ | - |
Payments Due by Period | ||||||||||||||||||||
Contractual obligations: | Total | Less than 1 year | 1-3 years | 3-5 years | 5+ years | |||||||||||||||
Operating lease commitment | $ | 79,792 | $ | 79,792 | $ | - | $ | - | $ | - | ||||||||||
Acquisition consideration | 100,000 | 100,000 | - | - | - | |||||||||||||||
Borrowings from related party (principal) | 2,440,262 | - | 2,440,262 | - | - | |||||||||||||||
Accrued interest – related party | 439,974 | 439,974 | - | - | - | |||||||||||||||
Convertible debt | 3,718,943 | 3,718,943 | - | - | - | |||||||||||||||
Accrued interest for convertible debt | 7,204 | 7,204 | - | - | - | |||||||||||||||
Epicon equity investment obligation | 729,905 | 243,302 | 486,603 | - | - | |||||||||||||||
Avactis joint venture commitment | 10,746,324 | - | 5,746,324 | 5,000,000 | - | |||||||||||||||
Total | $ | 18,262,404 | $ | 4,589,215 | $ | 8,673,189 | $ | 5,000,000 | $ | - |
Off-balance Sheet Arrangements
We presently do not have off-balance sheet arrangements.
Foreign Currency Exchange Rate Risk
A portion
of our operations are in China. Thus, a portion of our revenues and operating results may be impacted by exchange rate fluctuations between
RMB and US dollars. For the three months ended June 30, 20212022 and 2020,2021, we had an unrealized foreign currency translation loss of approximately
$44,000 and an unrealized foreign currency translation gain of approximately $15,000, and $3,000, respectively, because of changes in the exchange
rate. For the six months ended June 30, 20212022 and 2020,2021, we had an unrealized foreign currency translation loss of approximately $42,000
and an unrealized foreign currency translation gain of approximately $12,000, and an unrealized foreign currency translation loss of approximately of $19,000, respectively, because of changes in the exchange rate.
Inflation
The effect of inflation on our revenue and operating results was not significant.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
As a smaller reporting
company, as defined in Rule 12b-2 of the Exchange Act, we are not required to provide the information required by this Item.Item.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Disclosure controls and
procedures are designed to ensure that information required to be disclosed by us in reports filed or submitted under the Securities Exchange
Act of 1934, as amended (“(“Exchange Act”Act”) is recorded, processed, summarized and reported within the time periods specified
in the SEC’sSEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed under the Exchange Act is accumulated and communicated to management, including the principal
executive and financial officers, as appropriate to allow timely decisions regarding required disclosure. There are inherent limitations
to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention
or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable
assurance of achieving their control objectives.
In connection with the
preparation of the quarterly report on Form 10-Q for the quarter ended June 30, 2021,2022, our management, including our principal executive
officer and principal financial officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures, which
are defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Disclosure controls and procedures include, without limitation, controls
and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under
the Exchange Act is accumulated and communicated to the issuer’sissuer’s management, including its principal executive and principal financial
officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Based on this evaluation,
management concluded that our internal control over financial reporting were not effective as of June 30, 20212022 due to the significant
deficiencies which aggregate to a material weakness and was previously reported in our Form 10-K Annual Report for the year ended December 31,
2020 (“2020 10-K”2021 (“2021 10-K”), that have not yet been remediated.
Changes in Internal Controls Over Financial Reporting
There were no changes in our internal controls over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we are subject to ordinary routine litigation incidental to our normal business operations. We are not currently a party to, and our property is not subject to, any material legal proceedings, except as set forth below.
On October
25, 2017, Genexosome entered into and closed a Stock Purchase Agreement with Beijing Genexosome and Yu Zhou, MD, PhD, the sole shareholder
of Beijing Genexosome, pursuant to which Genexosome acquired all of the issued and outstanding securities of Beijing Genexosome in consideration
of a cash payment in the amount of $450,000, of which $100,000 is still owed. Further, on October 25, 2017, Genexosome entered into and
closed an Asset Purchase Agreement with Dr. Zhou, pursuant to which the Company acquired all assets, including all intellectual property
and exosome separation systems, held by Dr. Zhou pertaining to the business of researching, developing and commercializing exosome technologies.
In consideration of the assets, Genexosome paid Dr. Zhou $876,087 in cash, transferred 500,000 shares of common stock of the Company to
Dr. Zhou and issued Dr. Zhou 400 shares of common stock of Genexosome. Further, Thethe Company had not been able to realize the financial
projections provided by Dr. Zhou at the time of the acquisition and has decided to impair the intangible asset associated with this acquisition
to zero. Dr. Zhou was terminated as Co-CEO of Genexosome on August 14, 2019. Further, on October 28, 2019, Research Institute at Nationwide
Children’sChildren’s Hospital (“(“Research Institute”Institute”) filed a Complaint in the United States District Court for the Southern District
of Ohio Eastern Division against Dr. Zhou, Li Chen, the Company and Genexosome with various claims against the Company and Genexosome including misappropriation of trade secrets in violation of the Defend Trade Secrets Act of 2016 and violation of Ohio Uniform Trade Secrets Act. Research Institute is seeking monetary damages, injunctive relief, exemplary damages, injunctive relief and other equitable relief. The Company intends to vigorously defend against this action and pursue all available legal remedies.Genexosome.
The criminal proceedings against Dr. Zhou and Li Chen have been concludedconcluded. The Company, Genexosome and the civil litigation continue. While there can be no assurances,Research Institute entered
into a Settlement Agreement dated June 7, 2022 (the “Settlement Date”) whereby the Company believes it has substantial legal and factual defensesagreed to pay the Research Institute’s claimsInstitute
$450,000 on each of the sixty-day, one year and two-year anniversaries of the likelihood of any findings of liability forSettlement Date. In addition, the Company cannot be assessed at this time.
agreed to pay the Research Institute 30% of the Company’s initial pre-tax profit of $3,333,333, 20% of the Company’s second pre-tax profit of $3,333,333 and 10% of the Company’s third pre-tax profit of $3,333,333. The parties provided a mutual release as well.
ITEM 1A. RISK FACTORS
Except for the additional risk factors addressed below, thereThere were
no material changes from the risk factors set forth under Part I, Item 1A., “Risk Factors”“Risk Factors” in our Annual Report on Form 10-K
for the fiscal year ended December 31, 2020.2021. You should carefully consider these factors in addition to the other information set
forth in this report which could materially affect our business, financial condition or future results. The risks and uncertainties described
in this report and in our Annual Report on Form 10-K for the year ended December 31, 2020,2021, as well as other reports and statements
that we file with the SEC, are not the only risks and uncertainties facing us. Additional risks and uncertainties not currently known
to us or that we currently deem to be immaterial may also have a material adverse effect on our financial position, results of operations
or cash flows.
Our general development operations have continued during the COVID-19 pandemic and we have not had significant disruption. Currently we are unable to accurately predict the future impact of COVID-19 due to the developing circumstances and uncertainty surrounding this current pandemic, including the ultimate geographic spread of COVID-19, the severity of the disease, the duration of the outbreak, and effectiveness of the actions that may be taken by governmental authorities. Our management has been closely monitoring the impact caused by COVID-19 and we will continue to operate our business as steadily and safely as we can.
General Risk Factors
We have entered into two third-party research agreements to advance our sponsored research programs. These arrangements may not ultimately yield any promising product candidates for preclinical or clinical development. We may not be able to fully realize the benefits of any intellectual property generated by these arrangements.
Part of our strategy involves collaborative sponsored research to be performed by third-party research institutions. Avalon has entered into various research agreements including an agreement with Massachusetts Institute of Technology (MIT) to research novel therapeutic and diagnostic targets development utilizing QTY-code protein design technology including using the QTY code protein design technology for development of a hemofiltration device to treat Cytokine Storm Strategic as well as a partnership with the University of Natural Resources and Life Sciences (BOKU) in Vienna, Austria to develop an S-layer vaccine that can be administered by an intranasal or oral route against SARS-CoV-2, the novel coronavirus that causes COVID-19 disease.
Although we seek to direct this research and advise on the design of these projects as well as critical development decisions, this research is being performed by individuals who are not our employees and the timeline and quality of the research efforts are outside of our direct control. Academic investigators and other researchers may have different priorities than we do as a CellTech bio-developer. The sponsored research agreements we enter into for these programs generally provide that any inventions resulting from the research will be owned by the research institution performing the research, and that we have an option to negotiate for a license to develop and exploit any such inventions. Confidential information and new inventions derived from these research efforts may be disclosed through publications or other means prior to our third-party research collaborators being able to protect such intellectual property through the filing of patent applications. Our third-party research collaborators may not be able to obtain or maintain full ownership of inventions that are derived from the research or associated rights, which may limit their ability to provide us with a license to all relevant intellectual property on terms and conditions that are acceptable to us. Even if our collaborative research efforts yield promising results or new technological advances, they may not ultimately result in our being able to protect, develop or exploit the resulting intellectual property.
Risks Related to the VIE Structure and SenlangBio being a PRC Domestic Entity
There are uncertainties regarding the interpretation and enforcement of PRC laws, rules, and regulations in general.
SenlangBio’s operations are conducted in the PRC, and are governed by PRC laws, rules, and regulations. The PRC legal system is a civil law system based on written statutes. Unlike the common law system, prior court decisions may be cited for reference but have limited precedential value.
Recently enacted laws, rules and regulations may not sufficiently cover all aspects of economic activities in China or may be subject to a significant degree of interpretation by PRC regulatory agencies and courts. Because these laws, rules and regulations are relatively new, and because of the limited number of published decisions and the non-precedential nature of these decisions, and because the laws, rules and regulations often give the relevant regulator significant discretion in how to enforce them, the interpretation and enforcement of these laws, rules and regulations involve uncertainties and can be inconsistent and unpredictable. Therefore, it is possible that our existing operations may be found not to be in full compliance with relevant laws and regulations in the future. 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, and which may have a retroactive effect. As a result, we may not be aware of our violation of these policies and rules until after the occurrence of the violation.
Any administrative and court proceedings in China may be protracted, resulting in substantial costs and diversion of resources and management attention. Since PRC administrative and court authorities have significant discretion in interpreting and implementing statutory and contractual terms, it may be more difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection we enjoy than in more developed legal systems. These uncertainties may impede our ability to enforce the contracts, including the VIE agreements, and could materially and adversely affect our business, financial condition, and results of operations.
In addition, the PRC government has recently announced its plans to enhance its regulatory oversight of Chinese companies listing overseas. The Opinions on Intensifying Crack Down on Illegal Securities Activities issued on July 6, 2021, called for extraterritorial application of China’s securities laws. As the Opinions on Intensifying Crack Down on Illegal Securities Activities were recently issued, there are great uncertainties with respect to the interpretation and implementation thereof. The Chinese government may promulgate relevant laws, internal rules and regulations that may impose additional and significant obligations and liabilities on overseas listed Chinese companies regarding data security, cross-border data flow, and compliance with China’s securities laws. These laws and regulations can be complex and stringent, and many are subject to change and uncertain interpretation, which could result in claims, change to our data and other business practices, regulatory investigations, penalties, increased cost of operations, or declines in user growth or engagement, or otherwise affect our business.” It is uncertain whether or how these new laws, rules and regulations and the interpretation and implementation thereof may affect SenlangBio.
The business of SenlangBio may fall into the prohibited foreign investment category under currently effective PRC laws.
On March 15, 2019, the National People’s Congress (“NPC”) promulgated the Foreign Investment Law, which took effect on January 1, 2020, and replaced three existing laws regulating foreign investment in China, namely, the PRC Equity Joint Venture Law, the PRC Cooperative Joint Venture Law and the Wholly Foreign-owned Enterprise Law, together with their implementation rules and ancillary regulations. The Foreign Investment Law grants foreign invested entities the same treatment as PRC domestic entities, except for those foreign invested entities that operate in industries deemed to be either “restricted” or “prohibited” in the “negative list” published by the State Council. Sen Lang is a BVI company and the PRC Subsidiary is currently considered to be a foreign invested entity.
The latest version of the “negative list,” namely, the Special Management Measures (Negative List) for the Access of Foreign Investment (2020), which became effective on July 23, 2020, provides that foreign investment is prohibited in the development and application of human stem cells, genetic diagnosis and treatment technology. However, the PRC laws do not clarify the meaning of “development and application of human stem cells, genetic diagnosis and treatment technology” and do not explain whether transactions involving a VIE Structure should be considered as “investment” in the context of the prohibition of foreign investment. SenlangBio’s main business is conducting R&D and clinical transformation of immunotherapy cell therapy, which involves modifying the patient’s T-Cells genetically. Despite the foregoing lack of clarity, the applicable rules could be interpreted in a way unfavorable to the business of SenlangBio. In the context of law enforcement, if the competent PRC authorities and courts interpret “development and application of human stem cells, genetic diagnosis and treatment technology” broadly, the modification of T-Cells genetically could be considered as falling into the prohibited foreign investment category. If SenlangBio’s CAR-T cell therapies or other technologies that are being researched and developed are deemed by relevant PRC regulatory agencies as falling into the category of “human stem cells, genetic diagnosis and treatment technology,” SenlangBio would be prohibited from engaging in the research or development of such technologies. In that event, Avalon and the Sen Lang Beneficial Shareholders would have to restructure Avalon’s control over SenlangBio. SenlangBio may also have to forfeit its income derived from the research and development of such technologies. Any of these occurrences may harm Avalon’s and SenlangBio’s business, prospects, financial condition, and results of operations significantly.
Substantial uncertainties exist with respect to the interpretation and implementation of the PRC Foreign Investment Law, its implementing rules, Foreign Investment Security Review Measures, other regulations and how they may impact the viability of the VIE structure, business, financial condition, and results of operations.
The VIE structure has been adopted by many China-based companies to obtain licenses and permits necessary to operate in industries that currently are subject to restrictions on or prohibitions for foreign investment in China. The Ministry of Commerce (“MOFCOM”) published a discussion draft of the proposed Foreign Investment Law in January 2015, or the 2015 Draft Foreign Investment Law, according to which, variable interest entities that are controlled via contractual arrangements would be deemed as foreign-invested enterprises if they are ultimately “controlled” by foreign investors. Even though such language did not appear in the official Foreign Investment Law promulgated by the PRC State Council in 2019, there can be no assurance that the concept of “control” as reflected in the 2015 Draft of the Foreign Investment Law, will not be reintroduced, or that the VIE structure adopted by us will not be deemed as a method of foreign investment by other laws, regulations and rules. In addition, as the 2019 Foreign Investment Law has a catch-all provision that broadly defines “foreign investments” as those made by foreign investors in China through methods as specified in laws, administrative regulations, or as stipulated by the PRC State Council, relevant government authorities may promulgate additional rules and regulations as to the interpretation and implementation of the 2019 Foreign Investment Law. Therefore, the use of a VIE Structure could be considered a violation of the applicable PRC laws.
Accordingly, there are substantial uncertainties as to whether the VIE structure may be deemed as a method of foreign investment in a restricted industry in the future. If the VIE structure were to be deemed as a method of foreign investment under any future laws, regulations and rules, and if any of our business operations were to fall under the “negative list” for foreign investment, the VIE structure may be found to be in violation of any existing or future PRC laws, rules or regulations, then the relevant PRC regulatory authorities would have broad discretion to take action in dealing with these violations or failures, including revoking the business and operating licenses of SenlangBio, requiring it to discontinue or restrict its operations, restricting its right to collect revenue, requiring it to restructure our operations or taking other regulatory or enforcement actions against it. The imposition of any of these measures could result in a material adverse effect on SenlangBio’s ability to conduct all or any portion of its business operations. In addition, it is unclear what impact the PRC government actions would have on us and on our ability to consolidate the financial results of SenlangBio in our consolidated financial statements, if the PRC government authorities were to find our legal structure and contractual arrangements to be in violation of PRC laws, rules, and regulations. If the imposition of any of these government actions causes us to lose our right to direct the activities of SenlangBio or otherwise separate from SenlangBio and if we are not able to restructure our ownership structure and operations in a satisfactory manner, we would no longer be able to consolidate the financial results of SenlangBio in our consolidated financial statements. Any of these events would have a material adverse effect on our business, financial condition, and results of operations.
Furthermore, on December 19, 2020, the National Development and Reform Commission and MOFCOM promulgated the Foreign Investment Security Review Measures, which took effect on January 18, 2021. There are great uncertainties with respect to its interpretation and implementation. Under the Foreign Investment Security Review Measures, investments in military, national defense-related areas or in locations in proximity to military facilities, or investments that would result in acquiring the actual control of assets in certain key sectors, such as critical agricultural products, energy and resources, equipment manufacturing, infrastructure, transport, cultural products and services, IT, Internet products and services, financial services and technology sectors, are required to be approved by designated governmental authorities in advance. Since SenlangBio’s main business is conducting R&D and clinical transformation of immunotherapy cell therapy, we cannot rule out the possibility that investment in SenlangBio may be regarded as “investment in technology sectors,” which would require approval from governmental authorities. Moreover, because the term “investment through other means” is not clearly defined under the Foreign Investment Security Review Measures, we cannot rule out the possibility that control through contractual arrangement may be regarded as a form of actual control and therefore require approval from the competent governmental authority.
The filing or change of the medical institution practice license of SenlangBio Clinical Laboratory may be affected by the VIE Structure.
As SenlangBio Clinical Laboratory is a medical institution under the PRC laws, its operation is subject to the PRC regulation of foreign investment in the area of medical institution, which provides that a foreign investor can acquire 70% (to the highest extent) of the equity interests in a PRC medical institution. The relevant PRC laws also provide that the related government authority shall not approve any application of licenses/permits if the application is related to a company failing to comply with PRC foreign investment regulation. Therefore, if the competent PRC authority responsible for the registration of the medical institution practice license of SenlangBio Clinical Laboratory adopts a broad understanding of foreign investment rules that controlling via agreements can be deemed as a way of investment, the authority may disapprove SenlangBio Clinical Laboratory’s application in relation to its medical institution practice license, including any extension of such license. In the worst case, theoretically, the competent authorities may deem the VIE Agreements unenforceable because they are in violation of the PRC laws. In that event, SenlangBio Clinical Laboratory would not be qualified to conduct any business of testing of immunology, serology and molecular genetics specialties for patients, including hematology-tumor diagnostics and testing prior to clinical trials for cell therapy, which would result in the loss of the license and thereby the loss of income to SenlangBio from this business.
Changes in the policies of the PRC government could have a significant impact upon the business we may be able to conduct in the PRC and the profitability of our business.
The PRC’s economy is in a transition from a planned economy to a market-oriented economy subject to five-year and annual plans adopted by the government that set national economic development goals. Policies of the PRC government can have significant effects on the economic conditions within the PRC. There can be no assurance that the PRC government will continue to support a market orientated economy. A change in policies by the PRC government could adversely affect our interests by, among other factors: changes in laws, regulations or the interpretation thereof, confiscatory taxation, restrictions on currency conversion, imports or sources of supplies, or the expropriation or nationalization of private enterprises. Although the PRC government has been pursuing economic reform policies for more than two decades, there is no assurance that the government will continue to pursue such policies or that such policies may not be significantly altered, especially in the event of a change in leadership, social or political disruption, or other circumstances affecting the PRC’s political, economic and social environment.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Common Shares Issued for Services
During the
six months ended June 30, 2021,2022, the Company issued a total of 790,000408,957 shares of its common stock for services rendered and to
be rendered. These shares were valued at $894,300,$340,950, the fair market values on the grant dates using the reported closing share prices on
the dates of grant, and the Company recorded stock-based compensation expense of $398,518$254,923 for the six months ended June 30,
20212022 and reduced accrued liabilities of $261,032$30,000 and recorded prepaid expense of $234,750$56,027 as
of June 30, 20212022 which will be amortized over the rest of corresponding service periods.
Common Shares Issued for Settlement of Accrued Professional FeesSubsequent Event Issuances
In June 2021,On July 25, 2022, the
Company issued 167,355and Wenzhao “Daniel” Lu entered into and closed a Debt Settlement Agreement and Release pursuant to which Mr. Lu converted
approximately $2.4 million principal and approximately $0.4 million unpaid interest owed under the Line of Credit into 4,443,990 shares
of its common stock of the Company at a per share price of $0.65. As a result of the conversion, the total principal amount outstanding under
the Credit Line amounted to settle accrued$0.
On July 25, 2022, the
Company and unpaid professional feesFsunshine Trading PTE. Ltd. (“Fsunshine”) entered into a Conversion Agreement pursuant to which Fsunshine converted
its Convertible Notes in the amount of $202,500.approximately $3.7 million, including interest, into 5,736,452 shares of common stock of the Company
at a per share price of $0.65.
The offers, sales, and issuances of the securities described above were deemed to be exempt from registration under the Securities Act of 1933 in reliance on Section 4(a)(2) of the Securities Act of 1933 or Regulation D promulgated thereunder as transactions by an issuer not involving a public offering. The recipients of securities in each of these transactions acquired the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the securities issued in these transactions. Each of the recipients of securities in these transactions was an accredited or sophisticated person and had adequate access, through employment, business or other relationships, to information about us.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
None.
ITEM 5. OTHER INFORMATION
Equity Offering
On December 13,
2019, the Company entered into an Open Market Sale AgreementSM (the “Sales Agreement”“Sales Agreement”) with Jefferies LLC,
as sales agent (“Jefferies”(“Jefferies”), pursuant to which the Company may offer and sell, from time to time, through Jefferies, shares
of its common stock, par value $0.0001 per share, having an aggregate offering price of up to $20.0 million. On April 6, 2020, the date
on which the Company filed its Annual Report on Form 10-K for the fiscal year ended December 31, 2019, the Company’sCompany’s
registration statement became subject to the offering limits set forth in General Instruction I.B.6 of Form S-3. From
December 13, 2019 through August 16 2021,4, 2022, Jefferies sold an aggregate of 5,900,2756,429,486 shares of common stock at an average price of $1.62$1.57
per share to investors. The Company received net cash proceeds of $9,272,463,$9,771,496, net of commission paid to sales agent of $286,777.$302,211.
MergerNasdaq Notice
On June 13, 2021,February 9, 2022,
the Company entered into a Share Purchase Agreement (the “Purchase Agreement”), by and among the Company, Lonlon Biotech Ltd., a company incorporated in the British Virgin Islands (“BVI”) (“Sen Lang”), the holders of the share capital of Sen Lang (the “Sen Lang Shareholders”), the ultimate beneficial owners of the Sen Lang Shareholders (the “Sen Lang Beneficial Shareholders” and, together with the Sen Lang Shareholders, the “Sen Lang Owners”) and a representative of the Sen Lang Owners (the “Sen Lang Representative”). Pursuant to the Purchase Agreement, subject to the satisfaction of the conditions to closing therein, including approval by the Avalon stockholders pursuant to the rules of thereceived notice from The Nasdaq Stock Market (“Nasdaq”(“Nasdaq”), Avalon agreed to purchase (the “Acquisition”) all of the issued and outstanding share capital of Sen Lang (the “Sen Lang Shares”).
Sen Lang, through a “variable interest entity” structure of contractual rights held by its wholly-owned subsidiary Beijing Langlang Runfeng Biotechnology Co., Ltd., a wholly foreign owned enterprise with limited liability organized and existing under the laws of the People’s Republic of China (the “PRC”) (the “PRC Subsidiary”), has full economic benefit and management control over, and is consolidated for accounting purposes with, Senlang Biotechnology Co. Ltd., a PRC domestic company with limited liability organized and existing under the laws of the PRC (the “OpCo” or “SenlangBio”). The OpCo is mainly engaged in the business of research and development in relation to CAR-T cell therapy, immune cell therapy and related drug development. The OpCo is owned 100% by certain of the Sen Lang Beneficial Shareholders. A wholly-owned subsidiary of the OpCo, Shijiazhuang Senlang Medical Laboratory Co., Ltd., a company with limited liability organized and existing under the laws of the PRC (“SenlangBio Clinical Laboratory”) is engaged in the business of testing of immunology, serology and molecular genetics specialties for patients, including hematology-tumor diagnostics and testing prior to clinical trials for cell therapy.
Prior to the execution of the Purchase Agreement, the Board of Directors of Avalon (the “Board”), unanimously (i) determined that the termsclosing bid price for the Company’s common
stock had been below $1.00 per share for the previous 30 consecutive business days, and provisions of the Purchase Agreement and the transactions contemplated thereby, including the Acquisition, are fair to, advisable and in the best interests ofthat the Company and its stockholders, (ii) approved the Purchase Agreement and the transactions contemplated thereby, including the Acquisition, (iii) authorized, empowered and directed the Company to perform all of its obligations under the Purchase Agreement and related documents, and (iv) resolved to recommend the adoption of the Purchase Agreement by the stockholders of the Companyis therefore not in compliance
with the rules ofminimum bid price requirement for continued inclusion on The Nasdaq Capital Market under Nasdaq Listing Rule 5550(a)(2) (the
“Company Board Recommendation”“Rule”).
The purchase price being paid by Avalon to Nasdaq’s notice has no immediate effect on the Sen Lang Shareholders under the Purchase Agreement for the Sen Lang Shares is an aggregate of 81 million shares (the “Acquisition Shares”)listing or trading of the Company’s common stock par value US$0.0001 per share, of Avalon (the “Avalon Common Stock”). Ten percent (10%), or 8.1 million, of such shares will be held in escrow for 12 months following the closing to satisfy any indemnification obligations of the Sen Lang Shareholders under the Share Purchase Agreement. In addition, at the closing of the Acquisition, it is expectedon The
Nasdaq Capital Market. The notice indicates that Dr. Jianqiang Li, scientific founder and CSO of the OpCo, will join the board of the Company, and Dr. Li will also be appointed as Chief Technology Officer of the Company. The Acquisition Shares will not be registered under the Securities Act of 1933, as amended (the “Securities Act”) and, therefore, will be restricted securities under Rule 144 under the Securities Act for six months or longer after the closing of the Acquisition, subject to “affiliate” status with the Company under the Securities Act.
The Purchase Agreement contains customary representations, warranties and covenants made by the parties thereto, including covenants relating to obtaining the requisite approvals of the stockholders of Avalon and Sen Lang, regulatory approvals and Avalon’s and Sen Lang’s conduct of their respective businesses (and that of the OpCo) between the date of signing of the Purchase Agreement and the closing of the Acquisition.
The Acquisition is expected to be accounted for as a business acquisition, with the Company identified as the accounting acquirer. The Company is considered the accounting acquirer since immediately following the closing: (i) the Company’s stockholders will own a majority of the voting rights of the post-Acquisition company; (ii) the Company will have designate180 calendar days, until August 8, 2022, to regain compliance with
this requirement. The Company can regain compliance with the $1.00 minimum bid listing requirement if the closing bid price of its common
stock is at least $1.00 per share for a majority (eightminimum of nine) often (10) consecutive business days during the 180-day compliance period. If the Company
does not regain compliance during the initial members of the board of directors of the post-Acquisition company; (iii) the Company’s senior management will hold the majority of the key positions in senior management of the post-Acquisition company; and (iv)compliance period, it may be eligible for additional time to regain compliance. To qualify,
the Company will continuebe required to maintainmeet the continued listing requirement for market value of its corporate headquarters in Freehold, New Jersey, United States. SenlangBiopublicly held shares and all other Nasdaq
initial listing standards, except the bid price requirement, and will continueneed to maintain operations inprovide written notice to Nasdaq of its intention to cure
the Shijiazhuang High-tech Development Zone, Hebei Province, China.
The acquisition considerationdeficiency during the second compliance period by effecting a reverse stock split, if necessary. If the Company is 81,000,000 shares ofnot eligible or
it appears to Nasdaq that the Company’s Common Stock. The purchase priceCompany will not be able to cure the deficiency during the second compliance period, Nasdaq will provide
written notice to the Company that the Company’s common stock will be allocatedsubject to delisting. In the acquired assetsevent of such notification, the
Company may appeal Nasdaq’s determination to delist its securities, but there can be no assurance that Nasdaq would grant the Company’s
request for continued listing. The Company intends to actively monitor the minimum bid price of its common stock and assumed liabilities based on their fair values at the closing date, and any excess is initially allocatedmay, as appropriate,
consider available options to identifiable intangible assets mainly consisting of cell and gene engineering technologiesregain compliance with the Rule. There can be no assurance that the Company will be able to regain compliance
with the Rule or will otherwise be in compliance with other Nasdaq listing criteria.
A delisting of our common
stock is likely to reduce the liquidity of our common stock and may inhibit or preclude our ability to generate innovative and transformative cellular immunotherapies for solid and hematologic cancers, which will be amortized over 10 years. The initial allocation is subject to change upon the final valuation which is to be done at the time of closing. Such change could have a material impact on the Company’s financial statements.raise additional financing.
As of June 30, 2020, the Company had incurred costs of $938,073 with respect to the Merger and these costs have been expensed.
Equity Financing
In connection with the Acquisition mentioned above, on June 13, 2021, an institutional investor (the “Investor”) entered into an agreement with the OpCo related to the purchase of registered capital of the OpCo (the “OpCo Capital Increase Agreement”) pursuant to which the Investor will acquire an aggregate of up to 13.5% of the equity ownership of the OpCo for an aggregate purchase price of approximately US$30,000,000 (the “Equity Financing”), which funds will be invested in the OpCo in three equal installments of US$10,000,000, at a fixed price, the first to be upon the closing of the Acquisition, the second to be within three months after the closing and the third to be within six months after the closing. In addition, pursuant to a Securities Exchange Agreement (the “Exchange Agreement”), by and among the Company, Sen Lang, the OpCo and the Investor, dated June 13, 2021, the Investor has the right, exercisable between the six-month and five year-anniversaries of the respective initial closing and installment closings, to elect to exchange, from time to time, all or part of its then-owned equity ownership of the OpCo for shares (the “Exchange Shares”) of Avalon Common Stock at a fixed exchange price of US$1.21 per share of Avalon Common Stock, which was the market price of the Avalon Common Stock as of the date of the Exchange Agreement under Nasdaq rules. In addition, the Exchange Agreement provides that the Investor may only exchange up to 10% of its total investment amount in any 30-day period.
China eCapital Holdings, Ltd. (CEC Capital) served as financial advisor to Avalon in connection with the Equity Financing and will receive a cash fee of approximately $900,000, representing 3% of the gross proceeds from the Equity Financing.
ITEM 6. EXHIBITS
The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.
* | Filed herewith | |
† | Management contract or compensatory plan or arrangement. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
AVALON GLOBOCARE CORP. | ||
(Registrant) | ||
Date: August | By: | /s/ David K. Jin |
David K. Jin | ||
Chief Executive Officer, President and Director (Principal | ||
Date: August | By: | /s/ Luisa Ingargiola |
Luisa Ingargiola | ||
Chief Financial Officer (Principal |
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