NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015
NOTE 1 –
ORGANIZATION AND
NATURE OF OPERATIONS
Avalon
GloboCare Corp. (f/k/a Global Technologies Corp.) (the “Company”) is a Delaware corporation. The Company was incorporated
under the laws of the State of Delaware on July 28, 2014. On October 18, 2016, the Company changed its name to Avalon GloboCare
Corp. and completed a reverse split its shares of common stock at a ratio of 1:4. 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”),
each of which are accredited investors (“AHS Shareholders”) pursuant to which we acquired 100% of the outstanding
securities of AHS in exchange for 50,000,000 shares of our common stock (the “AHS Acquisition”). AHS was
incorporated on May 18, 2015 under the laws of the State of Delaware. As a result of such acquisition, the Company’s operations
now are focused on
integrating and managing global healthcare services and resources, as well as empowering high-impact
biomedical innovations and technologies to accelerate their clinical applications. Operating through three major platforms, namely
“Avalon Cell”, “Avalon Telemedicine” and “Avalon Rehab”, our “technology + service”
ecosystem covers the areas of regenerative medicine, cell-based immunotherapy, exosome technology, telemedicine with medical second
opinion/referral services, as well as fertility and rehabilitation medicine. We plan to integrate these services through joint
ventures and acquisitions that bring shareholder value both in the short term, through operational entities as part of Avalon
Rehab and Avalon Telemedicine, and long term, through biomedical innovations as part of Avalon Cell.
AHS
owns 100% of the capital stock of Avalon (Shanghai) Healthcare Technology Co., Ltd. (“Avalon Shanghai”), which is
a wholly foreign-owned enterprise organized under the laws of the China. Avalon Shanghai was incorporated on April 29, 2016 and
is engaged in medical related consulting services for customers.
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 rather
than a reverse acquisition. The Company did not recognize goodwill or any intangible assets in connection with this transaction.
Accordingly, the Company’s historical financial statements are those of AHS and its wholly-owned subsidiary, Avalon Shanghai
immediately following the consummation of this reverse merger transaction.
NOTE
2 –
BASIS OF PRESENTATION AND GOING CONCERN
Basis of presentation
The
accompanying consolidated financial statements and related notes have been prepared in accordance with accounting principles generally
accepted in the United States of America (U.S. GAAP) and with the rules and regulations of the U.S. Securities and Exchange Commission
for financial information.
The
Company’s consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Avalon
Healthcare System, Inc. and Avalon (Shanghai) Healthcare Technology Co., Ltd. All intercompany accounts and transactions have
been eliminated in consolidation.
Going concern
The Company currently
has limited operations. The Company’s operations now are focused on providing outsourced, customized international healthcare
services to the rapidly changing health care industry primarily focused in the People’s Republic of China. The Company is
also pursuing the provision of these services in the United States as well as certain strategic partnerships and property ownership
and management.
These 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 consolidated financial statements, the Company had an accumulated deficit of $53,369 at December 31, 2016.
The Company has a limited operating history and its continued growth is dependent upon the continuation of providing medical consulting
services to its only three clients who are related parties; 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’s ability to continue as a going concern. The ability of the Company to
continue as a going concern is dependent on the Company’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 or debt instruments 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.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015
NOTE
2 –
BASIS OF PRESENTATION AND GOING CONCERN (continued)
Going concern
(continued)
The accompanying
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 consolidated financial statements in conformity with generally accepted accounting principles in the United
States of America 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 year
ended December 31, 2016 and the period from May 18, 2015 (date of inception) through December 31, 2015 include the allowance for
doubtful accounts, the useful life of property and equipment, assumptions used in assessing impairment of long-term assets, valuation
of deferred tax assets, accruals for taxes due, and the value of stock-based professional fees.
Fair value of financial instruments
and fair value measurements
The Company adopted
the guidance of Accounting Standards Codification (“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 entity’s
own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best
available information.
|
The carrying
amounts reported in the consolidated balance sheets for cash, accounts receivable – related party, prepaid expenses and
other, accounts payable and accrued liabilities, accounts payable and accrued liabilities – related parties, income taxes
payable, VAT and other taxes payable, and due to related parties approximate their fair market value based on the short-term maturity
of these instruments. The Company did not have any non-financial assets or liabilities that are measured at fair value on a recurring
basis as of December 31, 2016 and 2015.
ASC 825-10 “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
Cash
consists of cash on hand and cash in banks. The Company maintains cash with various financial institutions in the PRC and United
States. At December 31, 2016 and 2015, cash balances in the PRC are $2,525,630 and $0, respectively, are uninsured. At December
31, 2016 and 2015, cash balances in United States are $360,559 and $109,586, respectively. The Company has not experienced any
losses in bank accounts and believes it is not exposed to any risks on its cash in bank accounts.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015
NOTE 3 –
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (continued)
Concentrations of credit risk
Currently,
a significant portion of the Company’s operations are carried out in the PRC. Accordingly, the Company’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’s economy. The Company’s operations in the PRC are subject to specific considerations
and significant risks not typically associated with companies in North America. The Company’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 cash and trade accounts
receivable. A portion of the Company’s cash is maintained with state-owned banks within the PRC, and none of these deposits
are covered by 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. A small portion of the Company’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 receivables is limited due to generally short payment terms. The Company also performs ongoing credit evaluations
of its customers to help further reduce credit risk
.
At
December 31, 2016 and 2015, the Company’s cash balances by geographic area were as follows:
Country:
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
United States
|
|
$
|
360,559
|
|
|
|
12.5
|
%
|
|
$
|
109,586
|
|
|
|
100.0
|
%
|
China
|
|
|
2,525,630
|
|
|
|
87.5
|
%
|
|
|
-
|
|
|
|
-
|
|
Total cash
|
|
$
|
2,886,189
|
|
|
|
100.0
|
%
|
|
$
|
109,586
|
|
|
|
100.0
|
%
|
Accounts receivable
– related party and allowance for doubtful accounts
Accounts
receivable – related party are presented net of an allowance for doubtful accounts. The Company maintains allowances for
doubtful accounts for estimated losses. The Company reviews the accounts receivable on a periodic basis and makes general and
specific allowances when there is doubt as to the collectability of individual balances. In evaluating the collectability of individual
receivable balances, the Company considers many factors, including the age of the balance, a customer’s historical payment
history, its current credit-worthiness and current economic trends. Accounts are written off after exhaustive efforts at collection.
Management
believes that the accounts receivable are fully collectable. Therefore, no allowance for doubtful accounts is deemed to be required
on its accounts receivable – related party at December 31, 2016. The Company historically has not experienced uncollectible
accounts from customers granted with credit sales.
Property, plant and equipment
Property,
plant and equipment are carried at cost and are depreciated on a straight-line basis over the estimated useful lives of the assets.
The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized. When assets
are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses
are included in income in the year of disposition. The Company examines the possibility of decreases in the value of fixed assets
when events or changes in circumstances reflect the fact that their recorded value may not be recoverable.
Impairment of long-lived assets
In
accordance with ASC Topic 360, the Company reviews long-lived assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of the assets may not be fully recoverable, or at least annually. The Company recognizes an
impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount
of impairment is measured as the difference between the asset’s estimated fair value and its book value. The
Company did not record any impairment charge for the year ended December 31, 2016 and the period from May 18, 2015 (date of inception)
through December 31, 2015.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015
NOTE 3 –
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (continued)
Value added
tax
The Company is
subject to a value added tax (“
VAT
”) of 6% for providing consulting service. The amount of
VAT
liability
is determined by applying the applicable tax rate to the invoiced amount of consulting services provided (output
VAT
)
less
VAT
paid on purchases made with the relevant supporting invoices (input
VAT
). The Company reports
revenue net of PRC’s value added tax for all the periods presented in the consolidated statements of operations and comprehensive
loss.
Revenue recognition
Pursuant to the
guidance of ASC Topic 605, the Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred
or services have been provided, the purchase price is fixed or determinable and collectability is reasonably assured.
The Company provides
medical related consulting services to its clients. The Company is paid fees for its services by its clients under written consulting
agreements. Each contract calls for a fixed payment in a fixed period of time. The Company recognizes revenue by providing medical
related consulting services under written service contracts with its customers. Revenue related to its service offerings is recognized
as the services are performed and amounts are earned, using the straight-line method over the term of the related services agreement.
Prepayments, if any, received from customers prior to the services being performed are recorded as advance from customers. In
these cases, when the services are performed, the amount recorded as advance from customers is recognized as revenue.
Cost of revenue
Cost of consulting
services includes internal labor and related benefits, travel expenses related to consulting services, subcontractor costs, other
related consulting costs, and other overhead costs.
Stock-based compensation
Stock-based
compensation is accounted for based on the requirements of the Share-Based Payment topic of ASC Topic 718 which requires recognition
in the financial statements of the cost of employee and director services received in exchange for an award of equity instruments
over the period the employee or director is required to perform the services in exchange for the award (presumptively, the vesting
period). The Financial Accounting Standards Board (“FASB”) also requires measurement of the cost of employee and director
services received in exchange for an award based on the grant-date fair value of the award.
Pursuant
to ASC Topic 505-50, for share-based payments to consultants and other third-parties, compensation expense is determined at the
“measurement date.” The expense is recognized over the vesting period of the award. Until the measurement date is
reached, the total amount of compensation expense remains uncertain. The Company records compensation expense based on the fair
value of the award at the reporting date.
Research and
development
Expenditures
for research and product development costs are expensed as incurred. The Company did not incur any research and development costs
during the year ended December 31, 2016 and the period from May 18, 2015 (date of inception) through December 31, 2015.
Advertising
All costs related
to advertising are expensed as incurred. The Company did not incur any advertising expenses during the year ended December 31,
2016 and the period from May 18, 2015 (date of inception) through December 31, 2015.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015
NOTE 3 –
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (continued)
Income taxes
The Company accounts
for income taxes using the asset/liability method prescribed by ASC 740, “Income Taxes.” Under this method, deferred
tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and
liabilities using enacted tax rates that will be in effect in the period in which the differences are expected to reverse. The
Company records a valuation allowance to offset deferred tax assets if, based on the weight of available evidence, it is more-likely-than-not
that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates
is recognized as income or loss in the period that includes the enactment date.
The
Company follows the accounting guidance for uncertainty in income taxes using the provisions of ASC 740 “Income Taxes”.
Using that guidance, tax positions initially need to be recognized in the financial statements when it is more likely than not
the position will be sustained upon examination by the tax authorities. As of December 31, 2016 and 2015, the Company had no uncertain
tax positions that qualify for either recognition or disclosure in the financial statements. Tax year that remains subject to
examination is the years ended December 31, 2016 and 2015. The Company recognizes interest and penalties related to uncertain
income tax positions in other expense. However, no such interest and penalties were recorded as of December 31, 2016 and 2015.
Foreign currency translation
The reporting
currency of the Company is the U.S. dollar. The functional currency of the parent company and its wholly-owned U.S. subsidiary,
Avalon Healthcare System Inc. is the U.S. dollar and the functional currency of the Company’s its wholly-owned PRC subsidiary,
Avalon (Shanghai) Healthcare Technology Co., Ltd., is the Chinese Renminbi (“RMB”). For the subsidiary whose functional
currency is the RMB, result of operations and cash flows are translated at average exchange rates during the period, assets and
liabilities are translated at the unified exchange rate at the end of the period, and equity is translated at historical exchange
rates. As a result, amounts relating to assets and liabilities reported on the statements of cash flows may not necessarily agree
with the changes in the corresponding balances on the balance sheets. Translation adjustments resulting from the process of translating
the local currency financial statements into U.S. dollars are included in determining comprehensive income/loss. Transactions
denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing on the transaction
dates. Assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rates
prevailing at the balance sheet date with any transaction gains and losses that arise from exchange rate fluctuations on transactions
denominated in a currency other than the functional currency are included in the results of operations as incurred.
All
of the Company’s revenue transactions are transacted in the functional currency of the operating subsidiaries. The Company
does not enter into any material transaction in foreign currencies. Transaction gains or losses have not had, and are not expected
to have, a material effect on the results of operations of the Company.
Asset
and liability accounts at December 31, 2016 were translated at 6.9448 RMB to $1.00, which was the exchange rate on the balance
sheet date. Equity accounts were stated at their historical rates. The average translation rate applied to the statements of
operations
and comprehensive loss
for the year ended December 31, 2016 was 6.6435 RMB to $1.00.
Cash flows from the Company’s operations are calculated based upon the local currencies using the average translation rate.
Comprehensive
loss
Comprehensive
loss is comprised of net income (loss) and all changes to the statements of stockholders’ equity (deficit), except those
due to investments by stockholders, changes in paid-in capital and distributions to stockholders. For the Company, comprehensive
loss for the year ended December 31, 2016 consisted of net income (loss) and unrealized loss from foreign currency translation
adjustment.
Earnings (loss)
per share
ASC
Topic 260 “Earnings per Share,” requires presentation of both basic and diluted earnings per share (“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.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015
NOTE 3 –
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (continued)
Earnings (loss)
per share (continued)
Basic
earnings per share are computed by dividing net income (loss) available to common stockholders by the weighted average number
of shares of common stock outstanding during the period. Diluted net income (loss) per share is computed by dividing net income
(loss) by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities
outstanding during each period. Common stock equivalents are not included in the calculation of diluted earnings 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. The Company
did not have any common stock equivalents and potentially dilutive common stock outstanding during the year ended December 31,
2016 and during the period from May 18, 2015 (date of inception) through December 31, 2015.The following table presents a reconciliation
of basic and diluted net income (loss) per share:
|
|
Year Ended
December
31,
2016
|
|
|
Period from May 18,
2015 (Date of
Inception) through
December 31, 2015
|
|
Net income (loss) for basic and diluted
net income (loss) per share of common stock
|
|
$
|
55,581
|
|
|
$
|
(102,372
|
)
|
Weighted average common stock outstanding - basic and
diluted
|
|
|
51,139,475
|
|
|
|
50,000,000
|
|
Net income (loss) per common share - basic and diluted
|
|
$
|
0.001
|
|
|
$
|
(0.002
|
)
|
Segment reporting
The Company uses
“the management approach” in determining reportable operating segments. The management approach considers the internal
organization and reporting used by the Company’s chief operating decision maker for making operating decisions and assessing
performance as the source for determining the Company’s reportable segments. All of the Company's operations are considered
by the chief operating decision maker to be aggregated in one reportable operating segment. Currently, all of the Company’s
customers are in the People’s Republic of China and all income is derived from consulting services.
Related parties
Parties
are considered to be related to the Company if the parties, directly or indirectly, through one or more intermediaries, control,
are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company,
its management, members of the immediate families of principal owners of the Company and its management and other parties with
which the Company may deal with if one party controls or can significantly influence the management or operating policies of the
other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. The
Company discloses all significant related party transactions.
Reverse stock
split
The Company effected
an one-for-four reverse stock split of its common stock on October 18, 2016. All share and per share information has been retroactively
adjusted to reflect this reverse stock split.
Fiscal year end
The Company has
adopted a fiscal year end of December 31st.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015
NOTE 3 –
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (continued)
Recent accounting
pronouncements
In
August 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This ASU addresses the
classification of certain specific cash flow issues including debt prepayment or extinguishment costs, settlement of certain debt
instruments, contingent consideration payments made after a business combination, proceeds from the settlement of certain insurance
claims and distributions received from equity method investees. This ASU is effective for fiscal years beginning after December
15, 2017, and interim periods within those fiscal years, with early adoption permitted. An entity that elects early adoption must
adopt all of the amendments in the same period. The Company is currently evaluating the impact it may have on its 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.
NOTE 4 –
PREPAID
EXPENSES AND OTHER
At December 31, 2016 and 2015, prepaid
expenses and other consisted of the following:
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
Prepayment for acquisition of real property (see note 12 Real property
purchase agreement)
|
|
$
|
700,000
|
|
|
$
|
-
|
|
Other
|
|
|
49,796
|
|
|
|
-
|
|
|
|
$
|
749,796
|
|
|
$
|
-
|
|
NOTE 5 –
PROPERTY, PLANT AND
EQUIPMENT
At December 31, 2016 and 2015, property,
plant and equipment consisted of the following:
|
|
Useful life
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
Office equipment
|
|
3 Years
|
|
$
|
320
|
|
|
$
|
-
|
|
Less: accumulated depreciation
|
|
|
|
|
(25
|
)
|
|
|
-
|
|
|
|
|
|
$
|
295
|
|
|
$
|
-
|
|
For
the year ended December 31, 2016 and the period from May 18, 2015 (date of inception) through December 31, 2015, depreciation
expense amounted to $26 and $0, respectively, which was included in operating expenses.
NOTE 6 –
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
At December 31, 2016 and 2015, accounts payable and accrued
liabilities consisted of the following:
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
Accrued professional fees
|
|
$
|
14,080
|
|
|
$
|
16,600
|
|
Other
|
|
|
8,254
|
|
|
|
-
|
|
|
|
$
|
22,334
|
|
|
$
|
16,600
|
|
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015
NOTE 7 –
VAT AND OTHER TAXES
PAYABLE
At December 31, 2016 and 2015, VAT and
other taxes payable consisted of the following:
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
VAT tax payable
|
|
$
|
8,768
|
|
|
$
|
-
|
|
Other taxes payable
|
|
|
2,502
|
|
|
|
-
|
|
|
|
$
|
11,270
|
|
|
$
|
-
|
|
NOTE 8 –
RELATED
PARTY TRANSACTIONS
Revenue from related parties and accounts
receivable – related party
During the year ended December 31, 2016
and the period from May 18, 2015 (date of inception) through December 31, 2015, revenue from related parties was as follows:
|
|
Year Ended
December
31, 2016
|
|
|
Period from May 18, 2015
(Date of
Inception) through December 31, 2015
|
|
Medical related consulting services provided to:
|
|
|
|
|
|
|
|
|
Shanghai Daopei (1)
|
|
$
|
313,946
|
|
|
$
|
-
|
|
Beijing Nanshan (2)
|
|
|
162,500
|
|
|
|
-
|
|
Hebei Yanda (3)
|
|
|
140,000
|
|
|
|
-
|
|
|
|
$
|
616,446
|
|
|
$
|
-
|
|
|
(1)
|
Shanghai Daopei is a subsidiary
of a company whose chairman is Wenzhao Lu, the major shareholder of the Company.
|
|
(2)
|
Beijing Nanshan is a subsidiary
of a company whose chairman is Wenzhao Lu, the major shareholder of the Company.
|
|
(3)
|
Hebei Yanda is a subsidiary
of a company whose chairman is Wenzhao Lu, the major shareholder of the Company.
|
Accounts receivable
– related party, net of allowance for doubtful accounts, at December 31, 2016 and 2015 amounted to $70,228 and $0, respectively,
and were related to consulting services provided to Shanghai Daopei, a Chinese entity whose chairman is Wenzhao Lu, the major
shareholder of the Company.
Management believes that the accounts receivable are fully collectable.
Therefore, no allowance for doubtful accounts is deemed to be required on its accounts receivable – related party at December
31, 2016.
Accounts payable and accrued liabilities
– related parties
At
December 31, 2016 and 2015, the Company owed David Jin, its shareholder, chief executive officer, president and board member,
of $6,278 and $18,208, respectively, for travel reimbursements which have been included in accounts payable and accrued liabilities
– related parties on the accompanying consolidated balance sheets.
At
December 31, 2016 and 2015, the Company owed Meng Li, its shareholder, chief operating officer and board member, of $309 and $0,
respectively, for travel and other miscellaneous reimbursements which have been included in accounts payable and accrued liabilities
– related parties on the accompanying consolidated balance sheets.
On
October 17, 2016, the Company entered into a lease for office space in New Jersey with a related party (the “Office Lease”).
Pursuant to the Office Lease, the monthly rent is $1,000. The term of the Office Lease is one year commencing on November 1, 2016
and will expire on October 31, 2017. As of December 31, 2016, the accrued and unpaid rent expense related to this Office Lease
amounted to $2,000 which was included in accounts payable and accrued liabilities – related parties on the accompanying
consolidated balance sheets.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015
NOTE 8 –
RELATED
PARTY TRANSACTIONS (continued)
Due to related parties
From time to
time, David Jin, shareholder, chief executive officer, president and board member of the Company, provided advances to the Company
to supplement its working capital needs. Those advances are short-term in nature, non-interest bearing, unsecured and payable
on demand. The working capital advance of $500 at December 31, 2016 and 2015 was reflected as due to related parties on the accompanying
consolidated balance sheets.
From time to
time, Meng Li, shareholder, chief operating officer and board member of the Company, provided advances to the Company to supplement
its working capital needs. Those advances are short-term in nature, non-interest bearing, unsecured and payable on demand. The
working capital advance of $87,650 at December 31, 2016 and 2015 was reflected as due to related parties on the accompanying consolidated
balance sheets.
From time to
time, Wenzhao Lu, major shareholder, chairman of the Board of Directors and board member of the Company, provided advances to
the Company to supplement its working capital needs. Those advances are short-term in nature, non-interest bearing, unsecured
and payable on demand. The working capital advance of $9,000 and $0 at December 31, 2016 and 2015, respectively, was reflected
as due to related parties on the accompanying consolidated balance sheets.
Distribution
to AHS’s founders
On
September 14, 2016, AHS entered into a stock purchase agreement (the "September Agreement") to acquire 1,500,000
shares of restricted common stock (the “Control Shares”) of Global Technologies Corp., which subsequently changed
its name on October 18, 2016 to Avalon GloboCare Corp., for a purchase price of $230,000. Upon purchase of the Control Shares,
AHS beneficially owned shares of common stock representing control of Global Technologies Corp.. AHS subsequently assigned the
Control Shares to its three founders resulting in Wenzhao Lu receiving 900,000 shares, David Jin receiving 450,000 shares and
Meng Li receiving 150,000 shares. AHS recorded the assignment as a distribution to founders/owners with a corresponding debit
to additional paid-in capital of $230,000, which was treated as a return of capital in the equity accounts and was recorded as
a reduction in additional paid-in capital.
Operating lease
On
October 17, 2016, the Company entered into a lease for office space in New Jersey with a related party (the “Office Lease”).
Pursuant to the Office Lease, the monthly rent is $1,000. The term of the Office Lease is one year commencing on November 1, 2016
and will expire on October 31, 2017. For the year ended December 31, 2016, rent expense related to the Office Lease amounted to
$2,000.
Future
minimum rental payment required under the Office Lease is as follows:
Year Ending December 31:
|
|
Amount
|
|
2017
|
|
$
|
10,000
|
|
NOTE 9 –
INCOME TAXES
The Company is
governed by the Income Tax Law of the PRC and the U.S. Internal Revenue Code of 1986, as amended. Under the Income Tax Laws of
PRC, Chinese companies are generally subject to an income tax at an effective rate of 25% on income reported in the statutory
financial statements after appropriate tax adjustments. The Company’s subsidiary, Avalon Shanghai, is subject to the statutory
rate.
The
Company has cumulative undistributed earnings from its foreign subsidiary of approximately $59,000 as of December 31, 2016, which
is included in the consolidated accumulated deficit and will continue to be indefinitely reinvested in the Company’s PRC
operations. Accordingly, no provision has been made for any deferred taxes related to future repatriation of these earnings, nor
is it practicable to estimate the amount of income taxes that would have to be provided if we concluded that such earnings will
be remitted in the future.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015
NOTE 9 –
INCOME TAXES
(continued)
As
of December 31, 2016, the Company has incurred an aggregate net operating loss of approximately $113,000 for income taxes purposes.
The net operating loss carries forward for United States income taxes and may be available to reduce future years’ taxable
income. These carry forwards will expire, if not utilized, through 2036. Management believes that it appears more likely than
not that the Company will not realize these tax benefits due to the Company’s limited operating history and continuing losses
for United States income taxes purposes. Accordingly, the Company has provided a 100% valuation allowance on the deferred tax
asset benefit related to the U.S. net operating loss carry forward to reduce the asset to zero. Management will review this valuation
allowance periodically and make adjustments as necessary.
The Company’s
income (loss) before income taxes includes the following components:
|
|
For the Year Ended
December 31, 2016
|
|
|
For the Period from May
18, 2015 (Date of
Inception) through December 31, 2015
|
|
United States
|
|
$
|
(10,202
|
)
|
|
$
|
(102,372
|
)
|
China
|
|
|
87,710
|
|
|
|
-
|
|
Total
|
|
$
|
77,508
|
|
|
$
|
(102,372
|
)
|
The table below
summarizes the Company’s income taxes provision:
Income taxes provision:
|
|
Year Ended
December
31, 2016
|
|
|
Period from May 18, 2015
(Date of
Inception) through December 31, 2015
|
|
Current
|
|
$
|
21,927
|
|
|
$
|
-
|
|
Deferred
|
|
|
-
|
|
|
|
-
|
|
Total provision for income taxes
|
|
$
|
21,927
|
|
|
$
|
-
|
|
The table below summarizes the differences
between the U.S. statutory rate and the Company’s effective tax rate for the year ended December 31, 2016 and the period
from May 18, 2015 (date of inception) through December 31, 2015:
|
|
Year
Ended
December 31, 2016
|
|
|
Period
from May 18, 2015 (Date of
Inception) through December 31, 2015
|
|
U.S. statutory rate
|
|
|
34.0
|
%
|
|
|
34.0
|
%
|
Delaware state rate
|
|
|
5.0
|
%
|
|
|
5.0
|
%
|
U.S. effective rate in excess of China tax rate
|
|
|
(15.8
|
)%
|
|
|
-
|
|
U.S. valuation allowance
|
|
|
5.1
|
%
|
|
|
(39.0
|
)%
|
Total provision for income taxes
|
|
|
28.3
|
%
|
|
|
-
|
|
For the year
ended December 31, 2016, income taxes expense related to our operations in the PRC amounted to $21,927.
The Company’s approximate net
deferred tax assets as of December 31, 2016 and 2015 were as follows:
Deferred tax assets:
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
Net U.S. operating loss carryforward
|
|
$
|
43,904
|
|
|
$
|
39,925
|
|
Valuation allowance
|
|
|
(43,904
|
)
|
|
|
(39,925
|
)
|
Net deferred tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
At
December 31, 2016 and 2015, the valuation allowance was $43,904 and $39,925 related to the U.S. net operating loss carryforward,
respectively. During the year ended December 31, 2016, the valuation allowance increased by approximately $4,000.
The
Company provided a valuation allowance equal to the deferred income tax assets for the year ended December 31, 2016 and the period
from May 18, 2015 (date of inception) through December 31, 2015 because it was not known whether future taxable income will be
sufficient to utilize the loss carryforward. The potential tax benefit arising from the loss carryforward will expire in 2036.
Additionally, the future utilization of the net operating loss carryforward to offset future taxable income may be subject to
special tax rules which may limit their usage under the Separate Return Limitation Year (“SRLY”) rules. If necessary,
the deferred tax assets will be reduced by any carryforward that expires prior to utilization as a result of such limitations,
with a corresponding reduction of the valuation allowance.
The Company does
not have any uncertain tax positions or events leading to uncertainty in a tax position. The Company’s 2016 and 2015 Corporate
Income Tax Returns are subject to Internal Revenue Service examination.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015
NOTE 10 –
STOCKHOLDERS’
EQUITY (DEFICIT)
Shares authorized
The Company is authorized to issue
10,000,000 shares of preferred stock and 490,000,000 shares of common shares with a par value of $0.0001.
There are no shares of its preferred
stock issued and outstanding as of December 31, 2016 and 2015.
There are 61,628,622 and 50,000,000
shares of its common stock issued and outstanding as of December 31, 2016 and 2015.
AHS’s
founders’ contribution
Between
May 18, 2015 (date of inception) and December 31, 2015, AHS’s founders contributed $89,000 to the Company for working capital
needs and the Company recorded an increase in additional paid-in capital.
During the year
ended December 31, 2016, AHS’s founders contributed $141,000 to the Company for working capital needs and the Company recorded
an increase in additional paid-in capital.
Common shares issued for services
On October 19,
2016, pursuant to a legal service agreement, the Company issued 1,056,122 shares of its common stock to a third party for legal
services rendered. These shares were valued at the fair value of services rendered at $21,500. For the year ended December 31,
2016, in connection with the issuance of these shares, the Company recorded stock-based professional fees of $21,500.
On October 19,
2016, pursuant to a consulting service agreement, the Company issued 1,552,500 shares of its common stock to a third party for
consulting services rendered in the areas of capital markets advisory. These shares were valued at the fair value of services
at $31,050. In connection with the issuance of these shares, the Company recorded stock-based professional fees of $31,050 for
the year ended December 31, 2016.
Common shares
sold for cash
On December 19,
2016, the Company sold 7,270,000 shares of common stock at a purchase price of $0.50 per share to several investors pursuant to
subscription agreements. The Company did not engage a placement agent with respect to the sale. The Company received proceeds
of $3,635,000.
Distribution
of Avalon GloboCare Corp’s shares to AHS’s founders
During
the year ended December 31, 2016, AHS made a distribution of Avalon GloboCare Corp.’s shares to three founders/owners which
was treated as a return of capital in the equity accounts and was recorded as a reduction in additional paid-in capital (See note
8, Distribution to founders).
NOTE 11 -
STATUTORY RESERVE
Avalon
Shanghai operates in the PRC, are required to reserve 10% of its net profit after income tax, as determined in accordance with
the PRC accounting rules and regulations. Appropriation to the statutory reserve by the Company is based on profit arrived at
under 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 required until the statutory reserve reaches 50% of the registered capital. This statutory reserve is not
distributable in the form of cash dividends. The Company made an appropriation to statutory reserve for Avalon Shanghai of $6,578
during the year ended December 31, 2016.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015
NOTE 12 –
COMMITMENTS
AND CONTINCENGIES
Severance
payments
The Company has
employment agreements with certain employees that provided severance payments upon termination of employment under certain circumstances,
as defined in the applicable agreements. The Company has estimated its possible severance payments of approximately $302,000 as
of December 31, 2016, which have not been reflected in its consolidated financial statements since the Company concluded that
the likelihood is remote at this moment.
Capital market
consulting service contract
On October 19, 2016, the Company entered
into a one-year consulting service agreement with a third party who has agreed to provide certain consulting service in the areas
of capital markets advisory to the Company. The agreement expires on October 15, 2017. In accordance with this agreement, the
Company pays a flat cash fee of $12,000 per month.
Legal
service contract
On
November 22, 2016, the Company entered into a legal service agreement with a law firm who has agreed to provide legal and corporate
advisory services to the Company. The term of this agreement is on a month to month basis. In accordance to this service agreement,
the Company pays a flat cash fee of $15,000 per month.
At December 31, 2016, the accrued legal service fees related to
the service agreement was $10,000 which was included in accounts payable and accrued liabilities on the accompanying consolidated
balance sheets.
Financial consulting service contract
On
October 17, 2016, the Company entered into a one-year consulting service agreement with a consultant who has agreed to provide
financial consulting service to the Company. In accordance with this agreement, the Company pays a flat fee of $4,800 per month
commencing on October 20, 2016. At December 31, 2016, the accrued service fees related to the service agreement was $1,600
which was included in accounts payable and accrued liabilities on the accompanying consolidated balance sheets.
Real property purchase agreement
On December 22, 2016, the Company entered
into an Agreement of Sale (the “Purchase Agreement”) with Freehold Craig Road Partnership (“Seller”),
a New Jersey partnership, to purchase certain real property located in the Township of Freehold, County of Monmouth, State of
New Jersey, having a street address of 4400 Route 9, Freehold, NJ 07798 (the “Property”). The purchase price to be
paid by the Company for the Property is $7,600,000 in cash. Upon execution of the Purchase Agreement, the Company was required
to deposit $700,000 with Seller's escrow agent. The purchase of the Property was expected to close on February 15, 2017. The Company
made the payment of $700,000 in December 2016 which was included in prepaid expenses and other on the accompanying consolidated
balance sheets. The Company signed a supplemental and amendatory agreement with the seller and the purchase was closed on May
5, 2017 (see note 15 Real property purchase supplemental and amendatory agreement).
NOTE 13 -
CONCENTRATIONS
Customers
The
following table sets forth information as to each customer that accounted for 10% or more of the Company’s revenue for the
year ended December 31, 2016 and the period from May 18, 2015 (date of inception) through December 31, 2015.
Customer
|
|
Year Ended
December
31, 2016
|
|
|
Period from May 18, 2015
(Date of
Inception) through December 31, 2015
|
|
A (Shanghai Daopei, a related party)
|
|
|
51
|
%
|
|
|
0
|
|
B (Beijing Nanshan, a related party)
|
|
|
26
|
%
|
|
|
0
|
|
C (Hebei Yanda, a related party)
|
|
|
23
|
%
|
|
|
0
|
|
One customer,
who was a related party, accounted for 100% of the Company’s total outstanding accounts receivable at December 31, 2016.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015
NOTE 13 –
CONCENTRATIONS
(continued)
Suppliers
No supplier accounted
for 10% or more of the Company’s purchase during the year ended December 31, 2016 and the period from May 18, 2015 (date
of inception) through December 31, 2015.
No
supplier accounted for 10% of the Company’s total outstanding accounts payable at December 31, 2016 and 2015.
Concentrations
of credit risk
At
December 31, 2016 and 2015, cash balances in the PRC are $2,525,630 and $0, respectively, are uninsured. The Company has not experienced
any losses in PRC bank accounts and believes it is not exposed to any risks on its cash in PRC bank accounts.
The Company maintains its cash in United
States bank and financial institution deposits that at times may exceed federally insured limits. As of December 31, 2016 and
2015, the Company’s cash balances in United States bank accounts had approximately $80,000 and $0 in excess of the federally-insured
limits, respectively. The Company has not experienced any losses in its United States bank accounts through and as of the date
of this report.
NOTE 14 –
RESTRICTED NET ASSETS
A portion of
the Company’s operations are conducted through its PRC subsidiary, which can only pay dividends out of its retained earnings
determined in accordance with the accounting standards and regulations in the PRC and after it has met the PRC requirements for
appropriation to statutory reserve. In addition, the Company’s businesses and assets are primarily 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 subsidiary to transfer its net assets to the Parent Company through loans, advances or cash dividends.
The Company’s
PRC subsidiary’s net assets as of December 31, 2016 and 2015 did not exceed 25% of the Company’s consolidated net
assets. Accordingly, condensed Parent Company financial statements have not been required in accordance with Rule 5-04 and Rule
12-04 of SEC Regulation S-X.
NOTE 15 –
SUBSEQUENT EVENTS
Subscription agreement
On
March 3, 2017, the Company entered into and closed a Subscription Agreement with an accredited investor (the "March 2017
Accredited Investor") pursuant to which the March 2017 Accredited Investor purchased 3,000,000 shares of the Company’s
common stock (“March 2017 Shares”) for a purchase price of $3,000,000 (the “Purchase Price”).
The
offer, sale and issuance of the above securities was made to an accredited investor and the Company relied upon the exemptions
contained in Section 4(2) of the Securities Act and/or Rule 506 of Regulation D promulgated there under with regard to the sale.
No advertising or general solicitation was employed in offering the securities. The offer and sale was made to an accredited investor
and transfer of the common stock issued was restricted by the Company in accordance with the requirements of the Securities Act
of 1933, as amended.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015
NOTE 15 –
SUBSEQUENT EVENTS
(continued)
Subscription agreement (continued)
The Company,
Avalon (Shanghai) Healthcare Technology Co., Ltd. (“Avalon Shanghai”), Beijing DOING Biomedical Technology Co., Ltd.
(“DOING”), who is an unaffiliated third party, and the March 2017 Accredited Investor entered into a Share Subscription
Agreement whereby the parties acknowledged, among other things, that DOING agreed to transfer the Purchase Price to Avalon Shanghai
on behalf of the March 2017 Investor and the March 2017 Accredited Investor agreed to transfer the March 2017 Shares to DOING
upon DOING completing the registration of the acquisition of the March 2017 Shares with the Beijing Commerce Commission (“BCC”)
and obtaining an Enterprise Overseas Investment Certificate (the “Investment Certificate”) from BCC. If DOING fails
to complete the registration and acquire the Investment Certificate within one year of the closing then Avalon Shanghai shall
transfer $3,000,000 with interest of 20% to DOING upon the request of DOING (the “BCC Repayment Obligation”).
As of the date hereof, the Company is obligated to DOING in the principal amount of $3,000,000. The BCC Repayment Obligation
is a debt obligation arising other than in the ordinary course of business, which constitutes a direct financial obligation
of the Company. Further, Wenzhao Lu, a director and shareholder of the Company, and DOING entered into a Warranty Agreement.
Pursuant to the Warranty Agreement, Mr. Wenzhao Lu agreed to (i) cause the Company to be liable to DOING in the event the March
2017 Accredited Investor defaults in its obligations to DOING, (ii) cause the March 2017 Accredited Investor to transfer the March
2017 Shares to DOING upon DOING’s receipt of the Investment Certificate from BCC, (iii) within three years from the date
of the Warranty Agreement, DOING may require Mr. Wenzhao Lu to acquire the March 2017 Shares at $1.20 per share upon three-month
notice, and (iv) in the event Mr. Wenzhao Lu does not acquire the March 2017 Shares within the three-month period, interest of
15% per annum will be added to the purchase price.
These March 2017
Shares were deemed as debt due to the mandatorily redeemable feature of the shares that embody an unconditional obligation requiring
the Company to repurchase the shares by transferring $3,000,000 with interest of 20% should the terms of the BCC Repayment Obligation
not met within one year pursuant to ASC 480 “Distinguishing Liabilities from Equity”.
Real property purchase supplemental
and amendatory agreement
On
December 22, 2016, the Company entered into an Agreement of Sale (the “Purchase Agreement”) with Freehold Craig Road
Partnership (“Seller”), a New Jersey partnership, to purchase certain real property located in the Township of Freehold,
County of Monmouth, State of New Jersey, having a street address of 4400 Route 9, Freehold, NJ 07798 (the “Property”).
The purchase price to be paid by the Company for the Property is $7,600,000 in cash. Upon execution of the Purchase Agreement,
the Company was required to deposit $700,000 with Seller’s escrow agent, which the Company paid in December 2016. The purchase
of the Property was expected to close on February 15, 2017. The Company signed a supplemental and amendatory agreement with the
seller and the purchase was closed on May 5, 2017 (see Note 12 under Real property purchase agreement).
AVALON GLOBOCARE CORP.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(Unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
5,431,228
|
|
|
$
|
2,886,189
|
|
Accounts receivable - related party, net of allowance for
doubtful accounts
|
|
|
70,213
|
|
|
|
70,228
|
|
Prepaid expenses and other
|
|
|
749,668
|
|
|
|
749,796
|
|
|
|
|
|
|
|
|
|
|
Total Current Assets
|
|
|
6,251,109
|
|
|
|
3,706,213
|
|
|
|
|
|
|
|
|
|
|
OTHER ASSETS:
|
|
|
|
|
|
|
|
|
Security deposit
|
|
|
23,905
|
|
|
|
-
|
|
Property, plant and equipment, net
|
|
|
271
|
|
|
|
295
|
|
|
|
|
|
|
|
|
|
|
Total Other Assets
|
|
|
24,176
|
|
|
|
295
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
6,275,285
|
|
|
$
|
3,706,508
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
51,539
|
|
|
$
|
22,334
|
|
Accounts payable and accrued liabilities - related parties
|
|
|
24,846
|
|
|
|
8,587
|
|
Income taxes payable
|
|
|
-
|
|
|
|
20,976
|
|
VAT and other taxes payable
|
|
|
6,329
|
|
|
|
11,270
|
|
Due to related parties
|
|
|
97,150
|
|
|
|
97,150
|
|
Refundable deposit
|
|
|
3,000,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities
|
|
|
3,179,864
|
|
|
|
160,317
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies - (Note 11)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS' EQUITY:
|
|
|
|
|
|
|
|
|
Preferred stock, $0.0001 par value; 10,000,000 shares
authorized; no shares issued and outstanding at March 31, 2017 and December 31, 2016
|
|
|
-
|
|
|
|
-
|
|
Common stock, $0.0001 par value;
490,000,000 shares authorized; 64,628,622 and 61,628,622 shares issued and outstanding at March 31, 2017 and December 31,
2016, respectively
|
|
|
6,463
|
|
|
|
6,163
|
|
Additional paid-in capital
|
|
|
3,819,421
|
|
|
|
3,681,387
|
|
Accumulated deficit
|
|
|
(602,702
|
)
|
|
|
(53,369
|
)
|
Statutory reserve
|
|
|
6,578
|
|
|
|
6,578
|
|
Accumulated
other comprehensive loss - foreign currency translation adjustment
|
|
|
(134,339
|
)
|
|
|
(94,568
|
)
|
|
|
|
|
|
|
|
|
|
Total Stockholders' Equity
|
|
|
3,095,421
|
|
|
|
3,546,191
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders'
Equity
|
|
$
|
6,275,285
|
|
|
$
|
3,706,508
|
|
The accompanying notes
are an integral part of these unaudited condensed consolidated financial statements.
AVALON GLOBOCARE CORP.
AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS
OF OPERATIONS AND COMPREHENSIVE LOSS
|
|
For the Three Months Ended
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
REVENUE
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
-
|
|
|
$
|
-
|
|
Revenue - related party
|
|
|
66,286
|
|
|
|
-
|
|
Total Revenue
|
|
|
66,286
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
COST OF REVENUE
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
|
-
|
|
|
|
-
|
|
Cost of revenue - related party
|
|
|
99,581
|
|
|
|
-
|
|
Total Cost of Revenue
|
|
|
99,581
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
GROSS LOSS
|
|
|
(33,295
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES:
|
|
|
|
|
|
|
|
|
Selling expense
|
|
|
8,711
|
|
|
|
-
|
|
Professional fees
|
|
|
207,218
|
|
|
|
36,075
|
|
Other general and administrative
|
|
|
243,659
|
|
|
|
23,404
|
|
|
|
|
|
|
|
|
|
|
Total Operating Expenses
|
|
|
459,588
|
|
|
|
59,479
|
|
|
|
|
|
|
|
|
|
|
LOSS FROM OPERATIONS
|
|
|
(492,883
|
)
|
|
|
(59,479
|
)
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
Interest Income
|
|
|
794
|
|
|
|
8
|
|
Foreign currency transaction loss
|
|
|
(57,244
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total Other (Expense) Income, net
|
|
|
(56,450
|
)
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
LOSS BEFORE INCOME TAXES
|
|
|
(549,333
|
)
|
|
|
(59,471
|
)
|
|
|
|
|
|
|
|
|
|
INCOME TAXES
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
NET LOSS
|
|
$
|
(549,333
|
)
|
|
$
|
(59,471
|
)
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE LOSS
|
|
|
|
|
|
|
|
|
NET LOSS
|
|
|
(549,333
|
)
|
|
|
(59,471
|
)
|
OTHER COMPREHENSIVE LOSS
|
|
|
|
|
|
|
|
|
Unrealized foreign currency translation
loss
|
|
|
(39,771
|
)
|
|
|
-
|
|
COMPREHENSIVE LOSS
|
|
$
|
(589,104
|
)
|
|
$
|
(59,471
|
)
|
|
|
|
|
|
|
|
|
|
NET LOSS PER COMMON SHARES:
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(0.009
|
)
|
|
$
|
(0.001
|
)
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
62,595,289
|
|
|
|
50,000,000
|
|
The accompanying notes
are an integral part of these unaudited condensed consolidated financial statements.
AVALON GLOBOCARE CORP.
AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENT
OF CHANGES IN STOCKHOLDERS' EQUITY
For the Three Months Ended
March 31, 2017
|
|
Preferred
Stock
|
|
|
Common
Stock
|
|
|
Additional
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
Total
|
|
|
|
Number of
|
|
|
|
|
|
Number of
|
|
|
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
Statutory
|
|
|
Other
|
|
|
Stockholders'
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Reserve
|
|
|
Comprehensive
Loss
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2016
|
|
|
-
|
|
|
$
|
-
|
|
|
|
61,628,622
|
|
|
$
|
6,163
|
|
|
$
|
3,681,387
|
|
|
$
|
(53,369
|
)
|
|
$
|
6,578
|
|
|
$
|
(94,568
|
)
|
|
$
|
3,546,191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued in connection with Share Subscription
Agreement
|
|
|
-
|
|
|
|
-
|
|
|
|
3,000,000
|
|
|
|
300
|
|
|
|
(300
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options granted for service
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
138,334
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
138,334
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(39,771
|
)
|
|
|
(39,771
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the three months ended March 31, 2017
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(549,333
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(549,333
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2017
|
|
|
-
|
|
|
$
|
-
|
|
|
|
64,628,622
|
|
|
$
|
6,463
|
|
|
$
|
3,819,421
|
|
|
$
|
(602,702
|
)
|
|
$
|
6,578
|
|
|
$
|
(134,339
|
)
|
|
$
|
3,095,421
|
|
The accompanying notes are an integral
part of these unaudited condensed consolidated financial statements.
AVALON GLOBOCARE CORP.
AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS
OF CASH FLOWS
|
|
For the Three Months Ended
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(549,333
|
)
|
|
$
|
(59,471
|
)
|
Adjustments to reconcile net loss
from operations to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation expense
|
|
|
26
|
|
|
|
-
|
|
Stock-based compensation
|
|
|
138,334
|
|
|
|
-
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable - related party
|
|
|
547
|
|
|
|
-
|
|
Prepaid expense and other
|
|
|
2,254
|
|
|
|
-
|
|
Security deposit
|
|
|
(23,922
|
)
|
|
|
-
|
|
Accounts payable and accrued liabilities
|
|
|
29,202
|
|
|
|
(9,700
|
)
|
Accounts payable and accrued liabilities - related parties
|
|
|
16,257
|
|
|
|
(2,138
|
)
|
Income taxes payable
|
|
|
(21,150
|
)
|
|
|
-
|
|
VAT and other taxes payable
|
|
|
(5,029
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
NET CASH USED IN OPERATING ACTIVITIES
|
|
|
(412,814
|
)
|
|
|
(71,309
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Prepayment made for acquisition of real property
|
|
|
(2,000
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
NET CASH USED IN INVESTING ACTIVITIES
|
|
|
(2,000
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Proceeds received from related parties' advance
|
|
|
-
|
|
|
|
9,000
|
|
Proceeds received from AHS's founders' contribution
|
|
|
-
|
|
|
|
141,000
|
|
Refundable deposit in connection with Share Subscription
Agreement
|
|
|
3,000,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
NET CASH PROVIDED BY FINANCING ACTIVITIES
|
|
|
3,000,000
|
|
|
|
150,000
|
|
|
|
|
|
|
|
|
|
|
EFFECT OF EXCHANGE RATE ON CASH
|
|
|
(40,147
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE IN CASH
|
|
|
2,545,039
|
|
|
|
78,691
|
|
|
|
|
|
|
|
|
|
|
CASH - beginning of period
|
|
|
2,886,189
|
|
|
|
109,586
|
|
|
|
|
|
|
|
|
|
|
CASH - end of period
|
|
$
|
5,431,228
|
|
|
$
|
188,277
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
Cash paid for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
-
|
|
|
$
|
-
|
|
Income taxes
|
|
$
|
21,150
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
NON-CASH INVESTING AND FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Stock issued in connection with Share
Subscription Agreement
|
|
$
|
300
|
|
|
$
|
-
|
|
The accompanying notes are an integral part
of these unaudited condensed consolidated financial statements.
AVALON GLOBOCARE CORP.
AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
MARCH 31, 2017
NOTE 1 –
ORGANIZATION
AND NATURE OF OPERATIONS
Avalon
GloboCare Corp. (f/k/a Global Technologies Corp.) (the “Company”) is a Delaware corporation. The Company was incorporated
under the laws of the State of Delaware on July 28, 2014. On October 18, 2016, the Company changed its name to Avalon GloboCare
Corp. and completed a reverse split its shares of common stock at a ratio of 1:4. 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”),
each of which are accredited investors (“AHS Shareholders”) pursuant to which we acquired 100% of the outstanding
securities of AHS in exchange for 50,000,000 shares of our common stock (the “AHS Acquisition”). AHS was
incorporated on May 18, 2015 under the laws of the State of Delaware. As a result of such acquisition, the Company’s operations
now are focused on
integrating and managing global healthcare services and resources, as well as empowering high-impact
biomedical innovations and technologies to accelerate their clinical applications. Operating through two major platforms, namely
“Avalon Cell”, and “Avalon Rehab”, our “technology + service” ecosystem covers the areas of
regenerative medicine, cell-based immunotherapy, exosome technology, as well as fertility and rehabilitation medicine. We plan
to integrate these services through joint ventures and acquisitions that bring shareholder value both in the short term, through
operational entities as part of Avalon Rehab and in the long term, through biomedical innovations as part of Avalon Cell.
AHS
owns 100% of the capital stock of Avalon (Shanghai) Healthcare Technology Co., Ltd. (“Avalon Shanghai”), which is
a wholly foreign-owned enterprise organized under the laws of the China. Avalon Shanghai was incorporated on April 29, 2016 and
is engaged in medical related consulting services for customers.
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’s
historical financial statements are those of AHS and its wholly-owned subsidiary, Avalon Shanghai immediately following the consummation
of this reverse merger transaction.
On
February 7, 2017, the Company formed Avalon RT 9 Properties, LLC, a New Jersey limited liability company, and on January 23, 2017,
the Company incorporated Avalon (BVI) Ltd, a British Virgin Island company. There was no activity for these two newly formed subsidiaries
since their formation and/or incorporation through March 31, 2017.
NOTE
2 –
BASIS OF PRESENTATION AND GOING CONCERN
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 unaudited 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
unaudited 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”). The Company’s
unaudited 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 unaudited condensed consolidated financial statements should be read in conjunction
with the Company’s audited consolidated financial statements and notes thereto included in the Company’s Annual Report
on Form 10-K for the year ended December 31, 2016 filed with the Securities and Exchange Commission on March 28, 2017.
Going concern
The Company currently
has limited operations. The Company’s operations now are focused on providing outsourced, customized international healthcare
services to the rapidly changing health care industry primarily focused in the People’s Republic of China. The Company is
also pursuing the provision of these services in the United States as well as certain strategic partnerships and property ownership
and management. These unaudited 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.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
MARCH 31, 2017
NOTE
2 –
BASIS OF PRESENTATION AND GOING CONCERN (continued)
Going concern
(continued)
As reflected in the
accompanying unaudited condensed consolidated financial statements, the Company had an accumulated deficit of $602,702 at March
31, 2017 and had a net loss and net cash flow used in operating activities of $549,333 and $412,814 for the three months ended
March 31, 2017, respectively. The Company has a limited operating history and its continued growth is dependent upon the continuation
of providing medical consulting services to its only three clients who are related parties; 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’s ability to
continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company’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 or debt instruments
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
accompanying unaudited 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 unaudited condensed consolidated financial statements in conformity with generally accepted accounting principles
in the United States of America 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 months ended March 31, 2017 and 2016 include the allowance for doubtful accounts, the useful life of property
and equipment, assumptions used in assessing impairment of long-term assets, valuation of deferred tax assets, accruals for taxes
due, and valuation of options.
Fair value of financial instruments
and fair value measurements
The Company adopted
the guidance of Accounting Standards Codification (“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 entity’s own
assumptions on what assumptions the market participants would use in pricing the asset
or liability based on the best available information.
|
The carrying amounts
reported in the consolidated balance sheets for cash, accounts receivable – related party, prepaid expenses and other, accounts
payable and accrued liabilities, accounts payable and accrued liabilities – related parties, income taxes payable, Value
Added Tax (“VAT”) and other taxes payable, due to related parties, and refundable deposit, approximate their fair
market value based on the short-term maturity of these instruments. The Company did not have any non-financial assets or liabilities
that are measured at fair value on a recurring basis as of March 31, 2017 and December 31, 2016.
ASC 825-10 “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.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
MARCH 31, 2017
NOTE 3 –
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (continued)
Cash
Cash
consists of cash on hand and cash in banks. The Company maintains cash with various financial institutions in the PRC and United
States. At March 31, 2017 and December 31, 2016, cash balances in the PRC are $310,881 and $2,525,630, respectively, are uninsured.
At March 31, 2017 and December 31, 2016, cash balances in United States are $5,120,347 and $360,559, respectively. The Company
has not experienced any losses in bank accounts and believes it is not exposed to any risks on its cash in bank accounts.
Concentrations
of credit risk
Currently,
a significant portion of the Company’s operations are carried out in the PRC. Accordingly, the Company’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’s economy. The Company’s operations in the PRC are subject to specific considerations
and significant risks not typically associated with companies in North America. The Company’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 cash and trade accounts
receivable. A portion of the Company’s cash is maintained with state-owned banks within the PRC, and none of these deposits
are covered by 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. A small portion of the Company’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 receivables is limited due to generally short payment terms. The Company also performs ongoing credit evaluations
of its customers to help further reduce credit risk
.
At
March 31, 2017 and December 31, 2016, the Company’s cash balances by geographic area were as follows:
Country:
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
United States
|
|
$
|
5,120,347
|
|
|
|
94.3
|
%
|
|
$
|
360,559
|
|
|
|
12.5
|
%
|
China
|
|
|
310,881
|
|
|
|
5.7
|
%
|
|
|
2,525,630
|
|
|
|
87.5
|
%
|
Total cash
|
|
$
|
5,431,228
|
|
|
|
100.0
|
%
|
|
$
|
2,886,189
|
|
|
|
100.0
|
%
|
Accounts receivable
– related party and allowance for doubtful accounts
Accounts
receivable – related party are presented net of an allowance for doubtful accounts. The Company maintains allowances for
doubtful accounts for estimated losses. The Company reviews the accounts receivable on a periodic basis and makes general and
specific allowances when there is doubt as to the collectability of individual balances. In evaluating the collectability of individual
receivable balances, the Company considers many factors, including the age of the balance, a customer’s historical payment
history, its current credit-worthiness and current economic trends. Accounts are written off after exhaustive efforts at collection.
Management
believes that the accounts receivable are fully collectable. Therefore, no allowance for doubtful accounts is deemed to be required
on its accounts receivable – related party at March 31, 2017 and December 31, 2016. The Company historically has not experienced
uncollectible accounts from customers granted with credit sales.
Property, plant
and equipment
Property,
plant and equipment are carried at cost and are depreciated on a straight-line basis over the estimated useful lives of the assets.
The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized. When assets
are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses
are included in income in the year of disposition. The Company examines the possibility of decreases in the value of fixed assets
when events or changes in circumstances reflect the fact that their recorded value may not be recoverable.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
MARCH 31, 2017
NOTE 3 –
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Impairment of
long-lived assets
In
accordance with ASC Topic 360, the Company reviews long-lived assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of the assets may not be fully recoverable, or at least annually. The Company recognizes an
impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount
of impairment is measured as the difference between the asset’s estimated fair value and its book value. The
Company did not record any impairment charge for the three months ended March 31, 2017 and 2016.
Value added tax
The Company is subject
to a value added tax (“
VAT
”) of 6% for providing consulting service. The amount of
VAT
liability
is determined by applying the applicable tax rate to the invoiced amount of consulting services provided (output
VAT
)
less
VAT
paid on purchases made with the relevant supporting invoices (input
VAT
).
The Company reports revenue net of PRC’s value added tax for all the periods presented in the unaudited condensed consolidated
statements of operations and comprehensive loss.
Revenue recognition
Pursuant to the guidance
of ASC Topic 605, the Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or services
have been provided, the purchase price is fixed or determinable and collectability is reasonably assured.
The Company provides
medical related consulting services to its clients. The Company is paid for its services by its clients pursuant to the terms
of the written consulting agreements. Each contract calls for a fixed payment in a fixed period of time. The Company recognizes
revenue by providing medical related consulting services under written service contracts with its customers. Revenue related to
its service offerings is recognized as the services are performed and amounts are earned, using the straight-line method over
the term of the related services agreement. Prepayments, if any, received from customers prior to the services being performed
are recorded as advance from customers. In these cases, when the services are performed, the amount recorded as advance from customers
is recognized as revenue.
Cost of revenue
Cost of consulting
services includes internal labor and related benefits, travel expenses related to consulting services, subcontractor costs, other
related consulting costs, and other overhead costs.
Stock-based compensation
Stock-based
compensation is accounted for based on the requirements of the Share-Based Payment topic of ASC Topic 718 which requires recognition
in the financial statements of the cost of employee and director services received in exchange for an award of equity instruments
over the period the employee or director is required to perform the services in exchange for the award (presumptively, the vesting
period). The Financial Accounting Standards Board (“FASB”) also requires measurement of the cost of employee and director
services received in exchange for an award based on the grant-date fair value of the award
.
Pursuant
to ASC Topic 505-50, for share-based payments to consultants and other third-parties, compensation expense is determined at the
“measurement date.” The expense is recognized over the vesting period of the award. Until the measurement date is
reached, the total amount of compensation expense remains uncertain. The Company records compensation expense based on the fair
value of the award at the reporting date.
Research and development
Expenditures for
research and product development costs are expensed as incurred. The Company did not incur any research and development costs
during the three months ended March 31, 2017 and 2016.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
MARCH 31, 2017
NOTE 3 –
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Advertising
All costs related
to advertising are expensed as incurred. The Company did not incur any advertising expenses during the three months ended March
31, 2017 and 2016.
Income taxes
The Company accounts
for income taxes using the asset/liability method prescribed by ASC 740, “Income Taxes.” Under this method, deferred
tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and
liabilities using enacted tax rates that will be in effect in the period in which the differences are expected to reverse. The
Company records a valuation allowance to offset deferred tax assets if, based on the weight of available evidence, it is more-likely-than-not
that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates
is recognized as income or loss in the period that includes the enactment date.
The
Company follows the accounting guidance for uncertainty in income taxes using the provisions of ASC 740 “Income Taxes”.
Using that guidance, tax positions initially need to be recognized in the financial statements when it is more likely than not
the position will be sustained upon examination by the tax authorities. As of March 31, 2017 and December 31, 2016, the Company
had no uncertain tax positions that qualify for either recognition or disclosure in the financial statements. Tax year that remains
subject to examination is the years ended December 31, 2016 and 2015. The Company recognizes interest and penalties related to
uncertain income tax positions in other expense. However, no such interest and penalties were recorded as of March 31, 2017 and
December 31, 2016.
Foreign currency translation
The reporting currency
of the Company is the U.S. dollar. The functional currency of the parent company and its wholly-owned U.S. subsidiaries, Avalon
Healthcare System Inc., Avalon RT 9 Properties, LLC, and Avalon (BVI) Ltd., is the U.S. dollar and the functional currency of
the Company’s its wholly-owned PRC subsidiary, Avalon (Shanghai) Healthcare Technology Co., Ltd., is the Chinese Renminbi
(“RMB”). For the subsidiary whose functional currency is the RMB, result of operations and cash flows are translated
at average exchange rates during the period, assets and liabilities are translated at the unified exchange rate at the end of
the period, and equity is translated at historical exchange rates. As a result, amounts relating to assets and liabilities reported
on the statements of cash flows may not necessarily agree with the changes in the corresponding balances on the balance sheets.
Translation adjustments resulting from the process of translating the local currency financial statements into U.S. dollars are
included in determining comprehensive income/loss. Transactions denominated in foreign currencies are translated into the functional
currency at the exchange rates prevailing on the transaction dates. Assets and liabilities denominated in foreign currencies are
translated into the functional currency at the exchange rates prevailing at the balance sheet date with any transaction gains
and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency
are included in the results of operations as incurred.
All
of the Company’s revenue transactions are transacted in the functional currency of the operating subsidiaries. The Company
does not enter into any material transaction in foreign currencies. Transaction gains or losses have not had, and are not expected
to have, a material effect on the results of operations of the Company.
Asset
and liability accounts at March 31, 2017 and December 31, 2016 were translated at 6.8926 RMB to $1.00 and at 6.9448 RMB to $1.00,
respectively, which were the exchange rates on the balance sheet dates. Equity accounts were stated at their historical rates.
The average translation rate applied to the statements of
operations
for the
three months ended March 31, 2017 was 6.8877 RMB to $1.00. Cash flows from the Company’s operations are calculated based
upon the local currencies using the average translation rate.
Comprehensive loss
Comprehensive
loss is comprised of net loss and all changes to the statements of stockholders’ equity, except those due to investments
by stockholders, changes in paid-in capital and distributions to stockholders. For the Company, comprehensive loss for the three
months ended March 31, 2017 and 2016 consisted of net loss and unrealized loss from foreign currency translation adjustment.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
MARCH 31, 2017
NOTE 3 –
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Earnings (loss)
per share
ASC Topic 260 “Earnings
per Share,” requires presentation of both basic and diluted earnings (loss) per share (“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 are 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. Potentially dilutive
common shares consist of the common shares issuable upon the exercise of common stock options (using the treasury stock method).
Common stock equivalents are not included in the calculation of diluted earnings (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. The following table presents a reconciliation of basic
and diluted net loss per share:
|
|
Three Months Ended March
31,
|
|
|
|
2017
|
|
|
2016
|
|
Net loss for basic and diluted net loss per
share of common stock
|
|
$
|
(549,333
|
)
|
|
$
|
(59,471
|
)
|
Weighted average common stock outstanding - basic and diluted
|
|
|
62,595,289
|
|
|
|
50,000,000
|
|
Net loss per common share - basic and diluted
|
|
$
|
(0.009
|
)
|
|
$
|
(0.001
|
)
|
For
the three months ended March 31, 2017, stock options to purchase 111,111 shares of common stock have been excluded from the computation
of diluted loss per share as their effect would be anti-dilutive.
Segment reporting
The Company uses
“the management approach” in determining reportable operating segments. The management approach considers the internal
organization and reporting used by the Company’s chief operating decision maker for making operating decisions and assessing
performance as the source for determining the Company’s reportable segments. All of the Company's operations are considered
by the chief operating decision maker to be aggregated in one reportable operating segment. Currently, all of the Company’s
customers are in the People’s Republic of China and all income is derived from consulting services.
Related parties
Parties
are considered to be related to the Company if the parties, directly or indirectly, through one or more intermediaries, control,
are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company,
its management, members of the immediate families of principal owners of the Company and its management and other parties with
which the Company may deal with if one party controls or can significantly influence the management or operating policies of the
other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. The
Company discloses all significant related party transactions.
Reverse stock
split
The Company effected
an one-for-four reverse stock split of its common stock on October 18, 2016. All share and per share information has been retroactively
adjusted to reflect this reverse stock split.
Fiscal year end
The Company has adopted
a fiscal year end of December 31st.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
MARCH 31, 2017
NOTE 3 –
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Recent accounting
pronouncements
In
August 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This ASU addresses the
classification of certain specific cash flow issues including debt prepayment or extinguishment costs, settlement of certain debt
instruments, contingent consideration payments made after a business combination, proceeds from the settlement of certain insurance
claims and distributions received from equity method investees. This ASU is effective for fiscal years beginning after December
15, 2017, and interim periods within those fiscal years, with early adoption permitted. An entity that elects early adoption must
adopt all of the amendments in the same period. The Company is currently evaluating the impact it may have on its 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.
NOTE 4 –
PREPAID EXPENSES
AND OTHER
At March 31, 2017 and December 31, 2016,
prepaid expenses and other consisted of the following:
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
Prepayment for acquisition of real property (see note 11 Real property
purchase agreement)
|
|
$
|
702,000
|
|
|
$
|
700,000
|
|
Other
|
|
|
47,668
|
|
|
|
49,796
|
|
|
|
$
|
749,668
|
|
|
$
|
749,796
|
|
NOTE 5 –
PROPERTY,
PLANT AND EQUIPMENT
At March 31, 2017
and December 31, 2016, property, plant and equipment consisted of the following:
|
|
Useful life
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
Office equipment
|
|
3 Years
|
|
$
|
322
|
|
|
$
|
320
|
|
Less: accumulated depreciation
|
|
|
|
|
(51
|
)
|
|
|
(25
|
)
|
|
|
|
|
$
|
271
|
|
|
$
|
295
|
|
For
the three months ended March 31, 2017 and 2016, depreciation expense amounted to $26 and $0, respectively, which was included
in operating expenses.
NOTE 6 –
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
At March 31, 2017 and December 31, 2016, accounts payable and accrued
liabilities consisted of the following:
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
Accrued professional fees
|
|
$
|
43,793
|
|
|
$
|
14,080
|
|
Other
|
|
|
7,746
|
|
|
|
8,254
|
|
|
|
$
|
51,539
|
|
|
$
|
22,334
|
|
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
MARCH 31, 2017
NOTE 7 –
VAT
AND OTHER TAXES PAYABLE
At March 31, 2017
and December 31, 2016, VAT and other taxes payable consisted of the following:
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
VAT tax payable
|
|
$
|
3,974
|
|
|
$
|
8,768
|
|
Other taxes payable
|
|
|
2,355
|
|
|
|
2,502
|
|
|
|
$
|
6,329
|
|
|
$
|
11,270
|
|
NOTE 8 –
RELATED PARTY
TRANSACTIONS
Revenue from related
parties and accounts receivable – related party
During the three
months ended March 31, 2017 and 2016, revenue from related parties was as follows:
|
|
Three Months Ended March
31,
|
|
|
|
2017
|
|
|
2016
|
|
Medical related consulting services provided to:
|
|
|
|
|
|
|
|
|
Shanghai Daopei (1)
|
|
$
|
66,286
|
|
|
$
|
-
|
|
|
|
$
|
66,286
|
|
|
$
|
-
|
|
|
(1)
|
Shanghai Daopei is a subsidiary
of an entity whose chairman is Wenzhao Lu, the major shareholder of the Company.
|
Accounts
receivable – related party, net of allowance for doubtful accounts, at March 31, 2017 and December 31, 2016 amounted to
$70,213 and $70,228, respectively, and were related to consulting services provided to Shanghai Daopei, a Chinese entity whose
chairman is Wenzhao Lu, the major shareholder of the Company. Management believes that the accounts receivable are fully
collectable. Therefore, no allowance for doubtful accounts is deemed to be required on its accounts receivable – related
party at March 31, 2017 and December 31, 2016.
Accounts payable
and accrued liabilities – related parties
At
March 31, 2017 and December 31, 2016, the Company owed David Jin, its shareholder, chief executive officer, president and board
member, of $19,535 and $6,278, respectively, for travel reimbursements which have been included in accounts payable and accrued
liabilities – related parties on the accompanying consolidated balance sheets.
At
March 31, 2017 and December 31, 2016, the Company owed Meng Li, its shareholder, chief operating officer and board member, of
$311 and $309, respectively, for travel and other miscellaneous reimbursements which have been included in accounts payable and
accrued liabilities – related parties on the accompanying consolidated balance sheets.
On
October 17, 2016, the Company entered into a lease for office space in New Jersey with a related party (the “Office Lease”).
Pursuant to the Office Lease, the monthly rent is $1,000. The term of the Office Lease is one year commencing on November 1, 2016
and will expire on October 31, 2017. As of March 31, 2017 and December 31, 2016, the accrued and unpaid rent expense related to
this Office Lease amounted to $5,000 and $2,000, respectively, which was included in accounts payable and accrued liabilities
– related parties on the accompanying consolidated balance sheets.
Due to related
parties
From time to time,
David Jin, shareholder, chief executive officer, president and board member of the Company, provided advances to the Company to
supplement its working capital needs. Those advances are short-term in nature, non-interest bearing, unsecured and payable on
demand. The working capital advance of $500 at March 31, 2017 and December 31, 2016, was reflected as due to related parties on
the accompanying consolidated balance sheets.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
MARCH 31, 2017
NOTE 8 –
RELATED PARTY
TRANSACTIONS (continued)
Due to related
parties (continued)
From time to time,
Meng Li, shareholder, chief operating officer and board member of the Company, provided advances to the Company to supplement
its working capital needs. Those advances are short-term in nature, non-interest bearing, unsecured and payable on demand. The
working capital advance of $87,650 at March 31, 2017 and December 31, 2016, was reflected as due to related parties on the accompanying
consolidated balance sheets.
From time to time,
Wenzhao Lu, major shareholder, chairman of the Board of Directors and board member of the Company, provided advances to the Company
to supplement its working capital needs. Those advances are short-term in nature, non-interest bearing, unsecured and payable
on demand. The working capital advance of $9,000 at March 31, 2017 and December 31, 2016, was reflected as due to related parties
on the accompanying consolidated balance sheets.
Operating lease
On
October 17, 2016, AHS entered into a lease for office space in New Jersey with a related party (the “AHS Office Lease”).
Pursuant to the AHS Office Lease, the monthly rent is $1,000. The term of the AHS Office Lease is one year commencing on November
1, 2016 and will expire on October 31, 2017. For the three months ended March 31, 2017, rent expense related to the AHS Office
Lease amounted to $3,000.
Future
minimum rental payment required under the AHS Office Lease is as follows:
Twelve-month Period Ending March 31:
|
|
Amount
|
|
2018
|
|
$
|
7,000
|
|
NOTE 9 –
STOCKHOLDERS’
EQUITY
Shares authorized
The Company is authorized to issue 10,000,000
shares of preferred stock and 490,000,000 shares of common shares with a par value of $0.0001.
There are no shares of its preferred stock
issued and outstanding as of March 31, 2017 and December 31, 2016.
There are 64,628,622 and 61,628,622 shares
of its common stock issued and outstanding as of March 31, 2017 and December 31, 2016.
Common shares
issued for Share Subscription Agreement
On
March 3, 2017, the Company entered into and closed a Subscription Agreement with an accredited investor (the "March 2017
Accredited Investor") pursuant to which the March 2017 Accredited Investor purchased 3,000,000 shares of the Company’s
common stock (“March 2017 Shares”) for a purchase price of $3,000,000 (the “Purchase Price”).
The
offer, sale and issuance of the above securities was made to an accredited investor and the Company relied upon the exemptions
contained in Section 4(2) of the Securities Act and/or Rule 506 of Regulation D promulgated there under with regard to the sale.
No advertising or general solicitation was employed in offering the securities. The offer and sale was made to an accredited investor
and transfer of the common stock issued was restricted by the Company in accordance with the requirements of the Securities Act
of 1933, as amended.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
MARCH 31, 2017
NOTE 9 –
STOCKHOLDERS’
EQUITY (continued)
Common shares
issued for Share Subscription Agreement (continued)
The
Company,
Avalon (Shanghai) Healthcare Technology Co., Ltd. (“Avalon Shanghai”), Beijing DOING Biomedical
Technology Co., Ltd. (“DOING”), who is an unaffiliated third party, and the March 2017 Accredited Investor entered
into a Share Subscription Agreement whereby the parties acknowledged, among other things, that DOING agreed to transfer the Purchase
Price to Avalon Shanghai on behalf of the March 2017 Accredited Investor and the March 2017 Accredited Investor agreed to transfer
the March 2017 Shares to DOING upon DOING completing the registration of the acquisition of the March 2017 Shares with the Beijing
Commerce Commission (“BCC”) and obtaining an Enterprise Overseas Investment Certificate (the “Investment Certificate”)
from BCC. If DOING fails to complete the registration and acquire the Investment Certificate within one year of the closing then
Avalon Shanghai shall transfer $3,000,000 with an annual interest of 20% to DOING upon the request of DOING (the “BCC Repayment
Obligation”).
As of the date hereof, the Company is obligated to DOING
in the principal amount of $3,000,000. The BCC Repayment Obligation is a debt obligation arising other than in the ordinary
course of business, which constitutes a direct financial obligation of the Company. Further,
Wenzhao Lu, a director
and shareholder of the Company, and DOING entered into a Warranty Agreement. Pursuant to the Warranty Agreement, Mr. Lu agreed
to (i) cause the Company to be liable to DOING in the event the March 2017 Accredited Investor defaults in its obligations to
DOING, (ii) cause the March 2017 Accredited Investor to transfer the March 2017 Shares to DOING upon DOING’s receipt of
the Investment Certificate from BCC, (iii) within three years from the date of the Warranty Agreement, DOING may require Mr. Lu
to acquire the March 2017 Shares at $1.20 per share upon three-month notice, and (iv) in the event Mr. Lu does not acquire the
March 2017 Shares within the three-month period, interest of 15% per annum will be added to the purchase price.
The Company received
cash payment of $3,000,000 as an earnest money from DOING in connection with the 3,000,000 common stock issued to the March 2017
Accredited Investor who is an entrusted party that holds the shares on behalf of DOING and recorded the $3,000,000 as refundable
deposit on the accompanying condensed consolidated balance sheets. Upon DOING completing the registration of the acquisition of
the March 2017 Shares with the BCC and obtaining an Enterprise Overseas Investment Certificate from BCC, the Company will cancel
the stock certificate issued under the March 2017 Accredited Investor’s name as an entrusted holder of the shares and the
Company will issue a new stock certificate under DOING’s name. The $3,000,000 refundable deposit, which paid by DOING as
an earnest money will be applied as the proceeds for issuance of the 3,000,000 shares of the Company’s common stock under
DOING’s name at the closing date.
T
he
Company is subject to the contingency of paying interest liability upon the request of DOING if DOING fails to complete the registration
and obtain the Enterprise Overseas Investment Certificate within one year. The Company records accrual for such contingency based
upon the assessment of the probability of occurrence and, where determinable, an estimate of the liability. Management may consider
many factors in making these assessments including past history and the specifics of this matter. The Company did not accrue any
interest for the
BCC Repayment Obligation since
management has evaluated the claim
and concluded the likelihood of the claim is remote.
Options
In
February and March 2017, the Company granted a total of 111,111 options to the Company’s Chief Financial Officer (“CFO”)
at a fixed exercise price of $0.50 per share. The 111,111 options granted to the Company’s CFO are exercisable for ten years.
The fair value of the options of $138,334 was determined using the Black-Scholes option-pricing model and using the following
assumptions: Dividend rate - 0; Terms (in years) - 10.0; Volatility – 455.73% to 534.84%; Risk-free interest rate –
2.36% to 2.40%. In connection with the option grant, for the three months ended March 31, 2017, the Company recognized stock-based
compensation of $138,334 on the accompanying condensed consolidated statements of operations because the options were deemed fully
earned and non-cancellable on the grant date. Stock
Option activities for the three months ended March 31, 2017 were as
follows:
The total intrinsic value of the stock options outstanding and
exercisable at March 31, 2017 was $110,000.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
The Company has employment
agreements with certain employees that provided severance payments upon termination of employment under certain circumstances,
as defined in the applicable agreements. The Company has estimated its possible severance payments of approximately $302,000 as
of March 31, 2017 and December 31, 2016, which have not been reflected in its condensed consolidated financial statements since
the Company concluded that the likelihood is remote at this moment.
On October 19, 2016,
the Company entered into a one-year consulting service agreement with a third party who has agreed to provide certain consulting
service in the areas of capital markets advisory to the Company. The agreement expires on October 15, 2017. In accordance with
this agreement, the Company pays a flat cash fee of $12,000 per month.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
In connection with
the purchase, the Company signed a loan agreement with a third party and borrowed $2.1 million in April 2017. Amount borrowed
under the loan agreement is due on April 17, 2018 and borrowing bears interest at an annual interest rate of 10%. The loan is
guaranteed by the Company's Chairman, Mr. Wenzhao Lu. The Company made a deposit payment for the real property purchase of $700,000
in December 2016 and paid off the remaining balance of the purchase price at the closing.
This property was
purchased to serve as the Company’s world-wide headquarters for all corporate administration and the operation of any joint
ventures or partnerships. In addition, as the Company’s asset, this property will generate rental income through the Company’s
wholly owned subsidiary, Avalon RT9 Properties, LLC.
One customer, who
was a related party, accounted for 100% of the Company’s total outstanding accounts receivable at March 31, 2017 and December
31, 2016.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
No supplier accounted
for 10% or more of the Company’s purchase during the three months ended March 31, 2017 and 2016.
The Company maintains
its cash in United States bank and financial institution deposits that at times may exceed federally insured limits. As of March
31, 2017 and December 31, 2016, the Company’s cash balances in United States bank accounts had approximately $4,834,097
and $80,000 in excess of the federally-insured limits, respectively. The Company has not experienced any losses in its United
States bank accounts through and as of the date of this report.
A portion of the
Company’s operations are conducted through its PRC subsidiary, which can only pay dividends out of its retained earnings
determined in accordance with the accounting standards and regulations in the PRC and after it has met the PRC requirements for
appropriation to statutory reserve. In addition, the Company’s businesses and assets are primarily 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 subsidiary to transfer its net assets to the Parent Company through loans, advances or cash dividends.
The Company’s
PRC subsidiary’s net assets as of March 31, 2017 and December 31, 2016 did not exceed 25% of the Company’s consolidated
net assets. Accordingly, Parent Company’s condensed financial statements have not been required in accordance with Rule
5-04 and Rule 12-04 of SEC Regulation S-X.
On April 28, 2017, Steven P. Sukel and Yancen
Lu were appointed to the Board of Directors of the Company to serve as directors of the Company. Mr. Sukel and Mr. Lu both entered
into agreements pursuant to which they will serve as directors. The director agreements provide that they will receive options
to receive 40,000 shares of common stock per year at an exercise price equal to the closing price on December 31st of the prior
year. The options shall vest in equal amounts quarterly and shall be exercisable for a period of five years. The options for 2017
have been pro-rated. As a result, each director shall receive a stock option to acquire 30,000 shares of common stock during 2017
for a term of five years vesting 10,000 shares at the beginning of each quarter commencing April 1, 2017. The exercise price for
the initial grant in April 2017 was set at $1.49 per share.