Item 1. Financial Statements.
See accompanying notes to the condensed consolidated financial statements.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
| |
For the Three Months Ended September 30, | | |
For the Nine Months Ended September 30, | |
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| |
| | |
| | |
| | |
| |
REVENUES | |
| | |
| | |
| | |
| |
Real property rental | |
$ | 317,390 | | |
$ | 355,459 | | |
$ | 905,842 | | |
$ | 925,465 | |
Medical related consulting services - related party | |
| - | | |
| 131,305 | | |
| - | | |
| 131,305 | |
Total Revenues | |
| 317,390 | | |
| 486,764 | | |
| 905,842 | | |
| 1,056,770 | |
| |
| | | |
| | | |
| | | |
| | |
COSTS AND EXPENSES | |
| | | |
| | | |
| | | |
| | |
Real property operating expenses | |
| 247,152 | | |
| 215,622 | | |
| 677,303 | | |
| 637,663 | |
Medical related consulting services - related party | |
| - | | |
| 102,442 | | |
| - | | |
| 102,442 | |
Total Costs and Expenses | |
| 247,152 | | |
| 318,064 | | |
| 677,303 | | |
| 740,105 | |
| |
| | | |
| | | |
| | | |
| | |
GROSS PROFIT | |
| | | |
| | | |
| | | |
| | |
Real property operating income | |
| 70,238 | | |
| 139,837 | | |
| 228,539 | | |
| 287,802 | |
Gross profit from medical related consulting services | |
| - | | |
| 28,863 | | |
| - | | |
| 28,863 | |
Total Gross Profit | |
| 70,238 | | |
| 168,700 | | |
| 228,539 | | |
| 316,665 | |
| |
| | | |
| | | |
| | | |
| | |
OTHER OPERATING EXPENSES: | |
| | | |
| | | |
| | | |
| | |
Advertising and marketing | |
| 150,620 | | |
| 27,833 | | |
| 807,821 | | |
| 44,156 | |
Professional fees | |
| 628,807 | | |
| 1,221,952 | | |
| 1,886,562 | | |
| 3,960,209 | |
Compensation and related benefits | |
| 488,373 | | |
| 434,602 | | |
| 1,514,959 | | |
| 1,544,437 | |
Research and development expenses | |
| 170,406 | | |
| 224,072 | | |
| 541,566 | | |
| 676,053 | |
Litigation settlement | |
| - | | |
| - | | |
| 1,350,000 | | |
| - | |
Other general and administrative | |
| 221,131 | | |
| 225,212 | | |
| 687,243 | | |
| 662,649 | |
| |
| | | |
| | | |
| | | |
| | |
Total Other Operating Expenses | |
| 1,659,337 | | |
| 2,133,671 | | |
| 6,788,151 | | |
| 6,887,504 | |
| |
| | | |
| | | |
| | | |
| | |
LOSS FROM OPERATIONS | |
| (1,589,099 | ) | |
| (1,964,971 | ) | |
| (6,559,612 | ) | |
| (6,570,839 | ) |
| |
| | | |
| | | |
| | | |
| | |
OTHER (EXPENSE) INCOME | |
| | | |
| | | |
| | | |
| | |
Interest expense - amortization of debt discount and debt issuance cost | |
| (3,248,597 | ) | |
| - | | |
| (3,303,282 | ) | |
| - | |
Interest expense - other | |
| (46,547 | ) | |
| - | | |
| (53,751 | ) | |
| - | |
Interest expense - related party | |
| (8,358 | ) | |
| (50,248 | ) | |
| (79,898 | ) | |
| (141,528 | ) |
Conversion inducement expense | |
| (344,264 | ) | |
| - | | |
| (344,264 | ) | |
| - | |
Loss from equity method investment | |
| (9,011 | ) | |
| (14,203 | ) | |
| (33,809 | ) | |
| (48,135 | ) |
Change in fair value of derivative liability | |
| (168,520 | ) | |
| - | | |
| 600,749 | | |
| - | |
Other income | |
| 242 | | |
| 5,203 | | |
| 260,701 | | |
| 4,255 | |
| |
| | | |
| | | |
| | | |
| | |
Total Other Expense, net | |
| (3,825,055 | ) | |
| (59,248 | ) | |
| (2,953,554 | ) | |
| (185,408 | ) |
| |
| | | |
| | | |
| | | |
| | |
LOSS BEFORE INCOME TAXES | |
| (5,414,154 | ) | |
| (2,024,219 | ) | |
| (9,513,166 | ) | |
| (6,756,247 | ) |
| |
| | | |
| | | |
| | | |
| | |
INCOME TAXES | |
| - | | |
| - | | |
| - | | |
| - | |
| |
| | | |
| | | |
| | | |
| | |
NET LOSS | |
$ | (5,414,154 | ) | |
$ | (2,024,219 | ) | |
$ | (9,513,166 | ) | |
$ | (6,756,247 | ) |
| |
| | | |
| | | |
| | | |
| | |
LESS: NET LOSS ATTRIBUTABLE TO NON-CONTROLLING INTEREST | |
| - | | |
| - | | |
| - | | |
| - | |
| |
| | | |
| | | |
| | | |
| | |
NET LOSS ATTRIBUTABLE TO AVALON GLOBOCARE CORP. COMMON SHAREHOLDERS | |
$ | (5,414,154 | ) | |
$ | (2,024,219 | ) | |
$ | (9,513,166 | ) | |
$ | (6,756,247 | ) |
| |
| | | |
| | | |
| | | |
| | |
COMPREHENSIVE LOSS: | |
| | | |
| | | |
| | | |
| | |
NET LOSS | |
$ | (5,414,154 | ) | |
$ | (2,024,219 | ) | |
$ | (9,513,166 | ) | |
$ | (6,756,247 | ) |
OTHER COMPREHENSIVE (LOSS) INCOME | |
| | | |
| | | |
| | | |
| | |
Unrealized foreign currency translation (loss) gain | |
| (37,033 | ) | |
| 1,285 | | |
| (78,515 | ) | |
| 13,349 | |
COMPREHENSIVE LOSS | |
| (5,451,187 | ) | |
| (2,022,934 | ) | |
| (9,591,681 | ) | |
| (6,742,898 | ) |
LESS: COMPREHENSIVE LOSS ATTRIBUTABLE TO NON-CONTROLLING INTEREST | |
| - | | |
| - | | |
| - | | |
| - | |
COMPREHENSIVE LOSS ATTRIBUTABLE TO AVALON GLOBOCARE CORP. COMMON SHAREHOLDERS | |
$ | (5,451,187 | ) | |
$ | (2,022,934 | ) | |
$ | (9,591,681 | ) | |
$ | (6,742,898 | ) |
| |
| | | |
| | | |
| | | |
| | |
NET LOSS PER COMMON SHARE ATTRIBUTABLE TO AVALON GLOBOCARE CORP. COMMON SHAREHOLDERS: | |
| | | |
| | | |
| | | |
| | |
Basic and diluted | |
$ | (0.06 | ) | |
$ | (0.02 | ) | |
$ | (0.10 | ) | |
$ | (0.08 | ) |
| |
| | | |
| | | |
| | | |
| | |
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: | |
| | | |
| | | |
| | | |
| | |
Basic and diluted | |
| 97,036,029 | | |
| 85,362,416 | | |
| 91,521,683 | | |
| 84,473,569 | |
See accompanying notes to the condensed consolidated
financial statements.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN
EQUITY
For the Three and Nine Months Ended September 30,
2022
(Unaudited)
| |
Avalon
GloboCare Corp. Stockholders’ Equity | | |
| | |
| |
| |
Preferred
Stock | | |
Common
Stock | | |
| | |
| | |
Treasury
Stock | | |
| | |
| | |
Accumulated | | |
| | |
| |
| |
Number
of | | |
| | |
Number
of | | |
| | |
Common
Stock to be | | |
Additional
Paid-in | | |
Number
of | | |
| | |
Accumulated | | |
Statutory | | |
Other
Comprehensive | | |
Non-controlling | | |
Total | |
| |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Issued | | |
Capital | | |
Shares | | |
Amount | | |
Deficit | | |
Reserve | | |
Loss | | |
Interest | | |
Equity | |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Balance,
January 1, 2022 | |
| - | | |
$ | - | | |
| 88,975,169 | | |
$ | 8,898 | | |
$ | - | | |
$ | 54,888,559 | | |
| (520,000 | ) | |
$ | (522,500 | ) | |
$ | (51,131,874 | ) | |
$ | 6,578 | | |
$ | (165,266 | ) | |
$ | - | | |
$ | 3,084,395 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Sale
of common stock, net | |
| - | | |
| - | | |
| 170,640 | | |
| 17 | | |
| - | | |
| 112,311 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 112,328 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Stock-based
compensation | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 152,323 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 152,323 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Foreign
currency translation adjustment | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 2,021 | | |
| - | | |
| 2,021 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net
loss for the three months ended March 31, 2022 | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (2,070,538 | ) | |
| - | | |
| - | | |
| - | | |
| (2,070,538 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance,
March 31, 2022 | |
| - | | |
| - | | |
| 89,145,809 | | |
| 8,915 | | |
| - | | |
| 55,153,193 | | |
| (520,000 | ) | |
| (522,500 | ) | |
| (53,202,412 | ) | |
| 6,578 | | |
| (163,245 | ) | |
| - | | |
| 1,280,529 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Warrants
issued with convertible debt offering | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 498,509 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 498,509 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Issuance
of common stock for services | |
| - | | |
| - | | |
| 408,957 | | |
| 40 | | |
| - | | |
| 340,910 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 340,950 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Stock-based
compensation | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 126,301 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 126,301 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Foreign
currency translation adjustment | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (43,503 | ) | |
| - | | |
| (43,503 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net
loss for the three months ended June 30, 2022 | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (2,028,474 | ) | |
| - | | |
| - | | |
| - | | |
| (2,028,474 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance,
June 30, 2022 | |
| - | | |
| - | | |
| 89,554,766 | | |
| 8,955 | | |
| - | | |
| 56,118,913 | | |
| (520,000 | ) | |
| (522,500 | ) | |
| (55,230,886 | ) | |
| 6,578 | | |
| (206,748 | ) | |
| - | | |
| 174,312 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Conversion
of convertible note payable and accrued interest into common stock | |
| - | | |
| - | | |
| 5,736,452 | | |
| 574 | | |
| - | | |
| 4,072,384 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 4,072,958 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Reclassification
of derivative liability to equity | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 2,181,820 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 2,181,820 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Issuance
of common stock for settlement of loan payable and accrued interest - related party | |
| - | | |
| - | | |
| 4,443,990 | | |
| 444 | | |
| - | | |
| 2,888,149 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 2,888,593 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Sale
of common stock - related party | |
| - | | |
| - | | |
| - | | |
| - | | |
| 350,000 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 350,000 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Sale
of common stock | |
| - | | |
| - | | |
| - | | |
| - | | |
| 250,000 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 250,000 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Stock-based
compensation | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 110,442 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 110,442 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Foreign
currency translation adjustment | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (37,033 | ) | |
| - | | |
| (37,033 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net
loss for the three months ended September 30, 2022 | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (5,414,154 | ) | |
| - | | |
| - | | |
| - | | |
| (5,414,154 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance,
September 30, 2022 | |
| - | | |
$ | - | | |
| 99,735,208 | | |
$ | 9,973 | | |
$ | 600,000 | | |
$ | 65,371,708 | | |
| (520,000 | ) | |
$ | (522,500 | ) | |
$ | (60,645,040 | ) | |
$ | 6,578 | | |
$ | (243,781 | ) | |
$ | - | | |
$ | 4,576,938 | |
See accompanying notes to the condensed consolidated
financial statements.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
CHANGES IN EQUITY
For the Three and Nine Months Ended September
30, 2021
(Unaudited)
| |
Avalon
GloboCare Corp. Stockholders’ Equity | | |
| | |
| |
| |
Preferred
Stock | | |
Common
Stock | | |
| | |
Treasury
Stock | | |
| | |
| | |
Accumulated | | |
| | |
| |
| |
Number
of | | |
| | |
Number
of | | |
| | |
Additional
Paid-in | | |
Number
of | | |
| | |
Accumulated | | |
Statutory | | |
Other
Comprehensive | | |
Non-controlling | | |
Total | |
| |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Capital | | |
Shares | | |
Amount | | |
Deficit | | |
Reserve | | |
Loss | | |
Interest | | |
Equity | |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Balance,
January 1, 2021 | |
| - | | |
$ | - | | |
| 82,795,297 | | |
$ | 8,279 | | |
$ | 46,856,447 | | |
| (520,000 | ) | |
$ | (522,500 | ) | |
$ | (42,041,375 | ) | |
$ | 6,578 | | |
$ | (190,510 | ) | |
$ | - | | |
$ | 4,116,919 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Sale
of common stock, net | |
| - | | |
| - | | |
| 1,848,267 | | |
| 185 | | |
| 2,337,074 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 2,337,259 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Issuance
of common stock for services | |
| - | | |
| - | | |
| 300,000 | | |
| 30 | | |
| 359,970 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 360,000 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Stock-based
compensation | |
| - | | |
| - | | |
| - | | |
| - | | |
| 202,505 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 202,505 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Foreign
currency translation adjustment | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (2,722 | ) | |
| - | | |
| (2,722 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net
loss for the three months ended March 31, 2021 | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (2,367,118 | ) | |
| - | | |
| - | | |
| - | | |
| (2,367,118 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance,
March 31, 2021 | |
| - | | |
| - | | |
| 84,943,564 | | |
| 8,494 | | |
| 49,755,996 | | |
| (520,000 | ) | |
| (522,500 | ) | |
| (44,408,493 | ) | |
| 6,578 | | |
| (193,232 | ) | |
| - | | |
| 4,646,843 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Issuance
of common stock for settlement of accrued professional fees | |
| - | | |
| - | | |
| 167,355 | | |
| 17 | | |
| 202,483 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 202,500 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Issuance
of common stock for services | |
| - | | |
| - | | |
| 490,000 | | |
| 49 | | |
| 534,251 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 534,300 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Stock-based
compensation | |
| - | | |
| - | | |
| - | | |
| - | | |
| 195,209 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 195,209 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Foreign
currency translation adjustment | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 14,786 | | |
| - | | |
| 14,786 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net
loss for the three months ended June 30, 2021 | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (2,364,910 | ) | |
| - | | |
| - | | |
| - | | |
| (2,364,910 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance,
June 30, 2021 | |
| - | | |
| - | | |
| 85,600,919 | | |
| 8,560 | | |
| 50,687,939 | | |
| (520,000 | ) | |
| (522,500 | ) | |
| (46,773,403 | ) | |
| 6,578 | | |
| (178,446 | ) | |
| - | | |
| 3,228,728 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Sale
of common stock, net | |
| - | | |
| - | | |
| 35,769 | | |
| 4 | | |
| 33,789 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 33,793 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Issuance
of common stock for services | |
| - | | |
| - | | |
| 415,679 | | |
| 41 | | |
| 425,146 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 425,187 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Stock-based
compensation | |
| - | | |
| - | | |
| - | | |
| - | | |
| 188,859 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 188,859 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Foreign
currency translation adjustment | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 1,285 | | |
| - | | |
| 1,285 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net
loss for the three months ended September 30, 2021 | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (2,024,219 | ) | |
| - | | |
| - | | |
| - | | |
| (2,024,219 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance,
September 30, 2021 | |
| - | | |
$ | - | | |
| 86,052,367 | | |
$ | 8,605 | | |
$ | 51,335,733 | | |
| (520,000 | ) | |
$ | (522,500 | ) | |
$ | (48,797,622 | ) | |
$ | 6,578 | | |
$ | (177,161 | ) | |
$ | - | | |
$ | 1,853,633 | |
See accompanying notes to the condensed consolidated financial
statements.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
(Unaudited)
| |
For the Nine Months Ended September 30, | |
| |
2022 | | |
2021 | |
| |
| | |
| |
CASH FLOWS FROM OPERATING ACTIVITIES: | |
| | |
| |
Net loss | |
$ | (9,513,166 | ) | |
$ | (6,756,247 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: | |
| | | |
| | |
Bad debt provision | |
| 2,295 | | |
| 6,252 | |
Depreciation | |
| 250,553 | | |
| 226,735 | |
Change in straight-line rent receivable | |
| (19,581 | ) | |
| (59,117 | ) |
Amortization of right-of-use asset | |
| 101,980 | | |
| 93,342 | |
Stock-based compensation and service expense | |
| 983,036 | | |
| 1,621,452 | |
Loss on equity method investment | |
| 33,809 | | |
| 48,135 | |
Amortization of debt discount | |
| 3,281,078 | | |
| - | |
Amortization of debt issuance costs | |
| 22,204 | | |
| - | |
Conversion inducement expense | |
| 344,264 | | |
| - | |
Change in fair market value of derivative liability | |
| (600,749 | ) | |
| - | |
Changes in operating assets and liabilities: | |
| | | |
| | |
Rent receivable | |
| 4,751 | | |
| 1,802 | |
Rent receivable - related party | |
| (37,800 | ) | |
| (21,000 | ) |
Security deposit | |
| (424 | ) | |
| 6,826 | |
Deferred leasing costs | |
| 18,947 | | |
| 13,348 | |
Other assets | |
| (65,963 | ) | |
| 21,218 | |
Accounts payable | |
| 86,826 | | |
| - | |
Accrued liabilities and other payables | |
| 63,089 | | |
| 1,435,548 | |
Accrued liabilities and other payables - related parties | |
| 79,898 | | |
| 141,528 | |
Operating lease obligation | |
| (107,979 | ) | |
| (87,342 | ) |
| |
| | | |
| | |
NET CASH USED IN OPERATING ACTIVITIES | |
| (5,072,932 | ) | |
| (3,307,520 | ) |
| |
| | | |
| | |
CASH FLOWS FROM INVESTING ACTIVITIES: | |
| | | |
| | |
Purchase of property and equipment | |
| (1,749 | ) | |
| (17,449 | ) |
Improvement of commercial real estate | |
| - | | |
| (10,332 | ) |
Additional investment in equity method investment | |
| (52,994 | ) | |
| (40,179 | ) |
| |
| | | |
| | |
NET CASH USED IN INVESTING ACTIVITIES | |
| (54,743 | ) | |
| (67,960 | ) |
| |
| | | |
| | |
CASH FLOWS FROM FINANCING ACTIVITIES | |
| | | |
| | |
Repayments of note payable - related party | |
| (390,000 | ) | |
| - | |
Proceeds from loan payable - related party | |
| 100,000 | | |
| 763,189 | |
Repayments of loan payable - related party | |
| (410,000 | ) | |
| - | |
Proceeds from issuance of convertible debt and warrants | |
| 3,718,943 | | |
| - | |
Proceeds from issuance of balloon promissory note | |
| 4,800,000 | | |
| - | |
Payments of debt issuance costs | |
| (266,454 | ) | |
| - | |
Proceeds from equity offering | |
| 735,567 | | |
| 2,518,708 | |
Disbursements for equity offering costs | |
| (24,067 | ) | |
| (103,561 | ) |
| |
| | | |
| | |
NET CASH PROVIDED BY FINANCING ACTIVITIES | |
| 8,263,989 | | |
| 3,178,336 | |
| |
| | | |
| | |
EFFECT OF EXCHANGE RATE ON CASH | |
| (5,893 | ) | |
| 2,818 | |
| |
| | | |
| | |
NET INCREASE (DECREASE) IN CASH | |
| 3,130,421 | | |
| (194,326 | ) |
| |
| | | |
| | |
CASH - beginning of period | |
| 807,538 | | |
| 726,577 | |
| |
| | | |
| | |
CASH - end of period | |
$ | 3,937,959 | | |
$ | 532,251 | |
| |
| | | |
| | |
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | |
| | | |
| | |
Cash paid for: | |
| | | |
| | |
Interest | |
$ | 44,000 | | |
$ | - | |
| |
| | | |
| | |
NON-CASH INVESTING AND FINANCING ACTIVITIES: | |
| | | |
| | |
Common stock issued for future services | |
$ | 19,680 | | |
$ | 258,655 | |
Common stock issued for accrued liabilities | |
$ | 30,000 | | |
$ | 276,032 | |
Deferred financing costs in accrued liabilities | |
$ | - | | |
$ | 165,024 | |
Accrued professional fees relieved for shares issued | |
$ | - | | |
$ | 202,500 | |
Warrants issued with convertible note payable recorded as debt discount | |
$ | 498,509 | | |
$ | - | |
Bifurcated embedded conversion feature recorded as derivative liability and debt discount | |
$ | 2,782,569 | | |
$ | - | |
Conversion of convertible note payable and accrued interest into common stock | |
$ | 4,072,958 | | |
$ | - | |
Reclassification of derivative liability to equity | |
$ | 2,181,820 | | |
$ | - | |
Related party loan and accrued interest settled in shares | |
$ | 2,888,593 | | |
$ | - | |
See accompanying notes to the condensed consolidated financial
statements.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 – ORGANIZATION
AND NATURE OF OPERATIONS
Avalon GloboCare
Corp. (the “Company” or “ALBT”) is a Delaware corporation. The Company was incorporated under the laws of the
State of Delaware on July 28, 2014. On October 19, 2016, the Company entered into and closed a Share Exchange Agreement with the shareholders
of Avalon Healthcare System, Inc., a Delaware corporation (“AHS”), each of which were accredited investors (“AHS Shareholders”)
pursuant to which we acquired 100% of the outstanding securities of AHS in exchange for 50,000,000 shares of the Company’s
common stock (the “AHS Acquisition”). AHS was incorporated on May 18, 2015 under the laws of the State of Delaware.
For accounting
purposes, AHS was the surviving entity. The transaction was accounted for as a recapitalization of AHS pursuant to which AHS was treated
as the accounting acquirer, surviving and continuing entity although the Company is the legal acquirer. The Company did not recognize
goodwill or any intangible assets in connection with this transaction. Accordingly, the Company’s historical financial statements
are those of AHS and its wholly-owned subsidiary, Avalon (Shanghai) Healthcare Technology Co., Ltd. (“Avalon Shanghai”) immediately
following the consummation of this reverse merger transaction. AHS owns 100% of the capital stock of Avalon Shanghai, which is a
wholly foreign-owned enterprise organized under the laws of the People’s Republic of China (“PRC”). Avalon Shanghai
was incorporated on April 29, 2016 and is engaged in medical related consulting services for customers.
The Company
is a clinical-stage, vertically integrated, leading CellTech bio-developer dedicated to advancing and empowering innovative, transformative
immune effector cell therapy, exosome technology, as well as cell therapy related companion diagnostics. The Company also provides strategic
advisory and outsourcing services to facilitate and enhance its clients’ growth and development, as well as competitiveness in healthcare
and CellTech industry markets. Through its subsidiary structure with unique integration of verticals from innovative R&D to automated
bioproduction and accelerated clinical development, the Company is establishing a leading role in the fields of cellular immunotherapy
(including CAR-T/NK), exosome technology (ACTEX™), and regenerative therapeutics.
On January
23, 2017, the Company incorporated Avalon (BVI) Ltd., a British Virgin Island company. There was no activity for the subsidiary since
its incorporation through September 30, 2022. Avalon (BVI) Ltd. is dormant and is in process of being dissolved.
On February
7, 2017, the Company formed Avalon RT 9 Properties, LLC (“Avalon RT 9”), a New Jersey limited liability company. On May 5,
2017, Avalon RT 9 purchased a real property located in Township of Freehold, County of Monmouth, State of New Jersey, having a street
address of 4400 Route 9 South, Freehold, NJ 07728. This property was purchased to serve as the Company’s world-wide headquarters
for all corporate administration and operations. In addition, the property generates rental income. Avalon RT 9 owns this office building.
Avalon RT 9’s business consists of the ownership and operation of the income-producing real estate property in New Jersey. As of
September 30, 2022, the occupancy rate of the building is 87.0%.
On July
31, 2017, the Company formed Genexosome Technologies Inc. (“Genexosome”) in Nevada. Genexosome was engaged in developing proprietary
diagnostic and therapeutic products using exosomes. Genexosome owns 100% of the capital stock of Beijing Jieteng (Genexosome) Biotech
Co., Ltd., a corporation incorporated in the People’s Republic of China on August 7, 2015 (“Beijing Genexosome”) which
was dissolved in June 2022, and the Company holds 60% of Genexosome and Dr. Yu Zhou holds 40% of Genexosome. The Company had
not been able to realize the financial projections provided by Dr. Zhou at the time of the acquisition and has decided to impair the intangible
asset associated with this acquisition to zero. Dr. Zhou was terminated as Co-CEO of Genexosome on August 14, 2019. Since the fourth quarter
of 2019, the non-controlling interest has remained inactive.
On July
18, 2018, the Company formed a wholly owned subsidiary, Avactis Biosciences Inc. (“Avactis”), a Nevada corporation, which
will focus on accelerating commercial activities related to cellular therapies, including regenerative medicine with stem/progenitor cells
as well as cellular immunotherapy including CAR-T, CAR-NK, TCR-T and others. The subsidiary is designed to integrate and optimize our
global scientific and clinical resources to further advance the use of cellular therapies to treat certain cancers. Commencing on April
6, 2022, the Company owns 60% of Avactis and Arbele Biotherapeutics Limited (“Arbele Biotherapeutics”) owns 40%
of Avactis.
On June
13, 2019, the Company formed a wholly owned subsidiary, International Exosome Association LLC, a Delaware company. There was no activity
for the subsidiary since its incorporation through September 30, 2022.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 – ORGANIZATION
AND NATURE OF OPERATIONS (continued)
Details of the Company’s subsidiaries which
are included in these condensed consolidated financial statements as of September 30, 2022 are as follows:
Name of Subsidiary |
|
Place and date of Incorporation |
|
Percentage of Ownership |
|
Principal Activities |
Avalon Healthcare System, Inc.
(“AHS”) |
|
Delaware May 18, 2015 |
|
100% held by ALBT |
|
Provides medical related consulting services and developing Avalon Cell and Avalon Rehab in United States of America (“USA”) |
|
|
|
|
|
|
|
Avalon (BVI) Ltd.
(“Avalon BVI”) |
|
British Virgin Island January 23, 2017 |
|
100% held by ALBT |
|
Dormant, is in process of being dissolved |
|
|
|
|
|
|
|
Avalon RT 9 Properties LLC
(“Avalon RT 9”) |
|
New Jersey February 7, 2017 |
|
100% held by ALBT |
|
Owns and operates an income-producing real property and holds and manages the corporate headquarters |
|
|
|
|
|
|
|
Avalon (Shanghai) Healthcare Technology Co.,
Ltd.
(“Avalon Shanghai”) |
|
PRC April 29, 2016 |
|
100% held by AHS |
|
Ceased operations |
|
|
|
|
|
|
|
Genexosome Technologies Inc.
(“Genexosome”) |
|
Nevada July 31, 2017 |
|
60% held by ALBT |
|
Dormant |
|
|
|
|
|
|
|
Avactis Biosciences Inc.
(“Avactis”) |
|
Nevada July 18, 2018 |
|
60% held by ALBT |
|
Integrate and optimize global scientific and clinical resources to further advance cellular therapies, including regenerative medicine with stem/progenitor cells as well as cellular immunotherapy including CAR-T, CAR-NK, TCR-T and others to treat certain cancers |
|
|
|
|
|
|
|
Avactis Nanjing Biosciences Ltd.
(“Avactis Nanjing”) |
|
PRC May 8, 2020 |
|
100% held by Avactis |
|
Owns a patent |
|
|
|
|
|
|
|
International Exosome Association LLC
(“Exosome”) |
|
Delaware June 13, 2019 |
|
100% held by ALBT |
|
Promotes standardization related to exosome industry |
NOTE
2 – BASIS OF PRESENTATION AND GOING CONCERN CONDITION
Basis of Presentation
These interim
condensed consolidated financial statements of the Company and its subsidiaries are unaudited. In the opinion of management, all adjustments
(consisting of normal recurring accruals) and disclosures necessary for a fair presentation of these interim condensed consolidated financial
statements have been included. The results reported in the condensed consolidated financial statements for any interim periods are not
necessarily indicative of the results that may be reported for the entire year. The accompanying condensed consolidated financial statements
have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission and do not include all information
and footnotes necessary for a complete presentation of financial statements in conformity with accounting principles generally accepted
in the United States (“U.S. GAAP”). The Company’s condensed consolidated financial statements include the accounts of
the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.
Certain information
and footnote disclosures normally included in the annual consolidated financial statements prepared in accordance with U.S. GAAP have
been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the Company’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,
2021 filed with the Securities and Exchange Commission on March 30, 2022.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
2 – BASIS OF PRESENTATION AND GOING CONCERN CONDITION (continued)
Going Concern
The Company
is a clinical-stage, vertically integrated, leading CellTech bio-developer dedicated to advancing and empowering innovative, transformative
immune effector cell therapy, exosome technology, as well as cell therapy related companion diagnostics. The Company also provides strategic
advisory and outsourcing services to facilitate and enhance its clients’ growth and development, as well as competitiveness in healthcare
and CellTech industry markets. Through its subsidiary structure with unique integration of verticals from innovative R&D to automated
bioproduction and accelerated clinical development, the Company is establishing a leading role in the fields of cellular immunotherapy
(including CAR-T/NK), exosome technology (ACTEX™), and regenerative therapeutics.
In addition,
the Company owns commercial real estate that houses its headquarters in Freehold, New Jersey and provides outsourced, customized
international healthcare services to the rapidly changing health care industry primarily focused in the People’s Republic of China. These
condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates,
among other things, the realization of assets and the satisfaction of liabilities in the normal course of business.
As reflected
in the accompanying condensed consolidated financial statements, the Company has incurred recurring net losses and generated negative
cash flow from operating activities of $9,513,166 and $5,072,932 for the nine months ended September 30, 2022, respectively.
The Company has a limited operating history and its continued growth is dependent upon the continuation of providing medical related consulting
services to its only few clients who are related parties and generating rental revenue from its income-producing real estate property
in New Jersey; hence generating revenues, and obtaining additional financing to fund future obligations and pay liabilities arising from
normal business operations. In addition, the current cash balance cannot be projected to cover the operating expenses for the next twelve
months from the release date of this report. These matters raise substantial doubt about the Company’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 to implement its business plan. However, there is no assurance
these plans will be realized and that any additional financings will be available to the Company on satisfactory terms and conditions,
if any.
The occurrence
of an uncontrollable event such as the COVID-19 pandemic had negatively impact on the Company’s operations. Our general development
operations have continued during the COVID-19 pandemic and we have not had significant disruption. However, we are uncertain if the COVID-19
pandemic will impact future operations at our laboratory, or our ability to collaborate with other laboratories and universities. In addition,
we are unsure if the COVID-19 pandemic will impact future clinical trials. Given the dynamic nature of these circumstances, the duration
of business disruption and reduced traffic, the related financial effect cannot be reasonably estimated at this time but is expected to
adversely impact the Company’s business for the rest of 2022.
The accompanying
condensed consolidated financial statements do not include any adjustments related to the recoverability or classification of asset-carrying
amounts or the amounts and classification of liabilities that may result should the Company be unable to continue as a going concern.
NOTE 3 – SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of the condensed consolidated
financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Significant estimates
during the three and nine months ended September 30, 2022 and 2021 include the useful life of property and equipment and investment in
real estate, assumptions used in assessing impairment of long-term assets, valuation of deferred tax assets and the associated valuation
allowances, valuation of stock-based compensation, and assumptions used to determine fair value of warrants and embedded conversion features
of convertible note payable.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 3 – SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (continued)
Fair Value of Financial Instruments and
Fair Value Measurements
The Company adopted the
guidance of Accounting Standards Codification (“ASC”) 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 fair value of the
Company’s assets and liabilities, which qualify as financial instruments under ASC Topic 820, “Fair Value Measurement,”
approximates the carrying amounts represented in the accompanying condensed consolidated financial statements, primarily due to their
short-term nature.
Assets
and liabilities measured at fair value on a recurring basis. Certain assets and liabilities are measured at fair value
on a recurring basis. These assets and liabilities are measured at fair value on an ongoing basis. These assets and liabilities include
derivative liability.
Derivative
liability. Derivative liability is carried at fair value and measured on an ongoing basis. The table below reflects the activity
of derivative liability measured at fair value for the nine months ended September 30, 2022:
| |
Significant
Unobservable
Inputs
(Level 3) | |
Balance of derivative liability as of January 1, 2022 | |
$ | - | |
Initial fair value of derivative liability attributable to embedded conversion feature of convertible note payable | |
| 2,782,569 | |
Gain from change in the fair value of derivative liability | |
| (600,749 | ) |
Reclassification of derivative liability to equity | |
| 2,181,820 | |
Balance of derivative liability as of September 30, 2022 | |
$ | - | |
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 and Cash Equivalents
At September 30, 2022
and December 31, 2021, the Company’s cash balances by geographic area were as follows:
Country: | |
September 30, 2022 | | |
December 31, 2021 | |
United States | |
$ | 3,578,273 | | |
| 90.9 | % | |
$ | 767,605 | | |
| 95.1 | % |
China | |
| 359,686 | | |
| 9.1 | % | |
| 39,933 | | |
| 4.9 | % |
Total cash | |
$ | 3,937,959 | | |
| 100.0 | % | |
$ | 807,538 | | |
| 100.0 | % |
For purposes
of the condensed consolidated statements of cash flows, the Company considers all highly liquid instruments with a maturity of three months
or less when purchased and money market accounts to be cash equivalents. The Company had no cash equivalents at September 30, 2022 and
December 31, 2021.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Credit Risk and Uncertainties
A portion
of the Company’s cash is maintained with state-owned banks within the PRC. Balances at state-owned banks within the PRC are
covered by insurance up to RMB 500,000 (approximately $70,000) per bank. Any balance over RMB 500,000 per bank in PRC will not be covered. At
September 30, 2022, cash balances held in the PRC are RMB 2,559,525 (approximately $360,000), of which, RMB 2,034,731 (approximately
$286,000) was not covered by such limited insurance. The Company has not experienced any losses in such accounts and believes it is not
exposed to any risks on its cash in bank accounts.
The Company
maintains a portion of its cash in bank and financial institution deposits within U.S. that at times may exceed federally-insured limits
of $250,000. The Company manages this credit risk by concentrating its cash balances in high quality financial institutions and by periodically
evaluating the credit quality of the primary financial institutions holding such deposits. The Company has not experienced any losses
in such bank accounts and believes it is not exposed to any risks on its cash in bank accounts. At September 30, 2022, the Company’s
cash balances in United States bank accounts had approximately $2,951,000 in excess of the federally-insured limits.
Currently,
a portion of the Company’s operations are carried out in 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 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 trade accounts receivable. A
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 receivable is limited due to short-term
payment terms. The Company also performs ongoing credit evaluations of its customers to help further reduce credit risk.
Revenue Recognition
The Company recognizes
revenue under Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”).
The core principle of the revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services
to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services.
The following five steps are applied to achieve that core principle:
| ● | Step 1: Identify the contract with the customer |
| ● | Step 2: Identify the performance obligations in the contract |
| ● | Step 3: Determine the transaction price |
| ● | Step 4: Allocate the transaction price to the performance
obligations in the contract |
| ● | Step 5: Recognize revenue when the company satisfies a performance
obligation |
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 3 – SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (continued)
Revenue Recognition (continued)
In
order to identify the performance obligations in a contract with a customer, a company must assess the promised goods or services in the
contract and identify each promised goods or service that is distinct. A performance obligation meets ASC 606’s definition of a
“distinct” goods or service (or bundle of goods or services) if both of the following criteria are met:
| ● | The customer can benefit from the goods or service either
on its own or together with other resources that are readily available to the customer (i.e., the goods or service is capable of being
distinct). |
| ● | The entity’s promise to transfer the goods or service
to the customer is separately identifiable from other promises in the contract (i.e., the promise to transfer the goods or service is
distinct within the context of the contract). |
If a goods or service is not distinct, the goods
or service is combined with other promised goods or services until a bundle of goods or services is identified that is distinct.
The transaction price is the amount of consideration
to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer, excluding amounts collected
on behalf of third parties (for example, some sales taxes). The consideration promised in a contract with a customer may include fixed
amounts, variable amounts, or both. Variable consideration is included in the transaction price only to the extent that it is probable
that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable
consideration is subsequently resolved.
The transaction price is allocated to each performance
obligation on a relative standalone selling price basis. The transaction price allocated to each performance obligation is recognized
when that performance obligation is satisfied, at a point in time or over time as appropriate.
The Company’s revenues are derived from
providing medial related consulting services for its’ related parties. Revenues related to its service offerings are recognized
at a point in time when service is rendered. Any payments received in advance of the performance of services are recorded as deferred
revenue until such time as the services are performed.
The Company has determined that the ASC 606 does
not apply to rental contracts, which are within the scope of other revenue recognition accounting standards.
Rental income from operating leases is recognized
on a straight-line basis under the guidance of ASC 842. Lease payments under tenant leases are recognized on a straight-line basis over
the term of the related leases. The cumulative difference between lease revenue recognized under the straight-line method and contractual
lease payments are included in rent receivable on the consolidated balance sheets.
The Company does not offer promotional payments,
customer coupons, rebates or other cash redemption offers to its customers.
Per Share Data
ASC Topic
260 “Earnings 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.
Basic net
loss per share is computed by dividing net loss available to common stockholders by the weighted average number of shares of common stock
outstanding during the period. Diluted net loss per share is computed by dividing net loss by the weighted average number of shares of
common stock, common stock equivalents and potentially dilutive securities outstanding during each period. For the three and nine months
ended September 30, 2022 and 2021, potentially dilutive common shares consist of the common shares issuable upon the conversion of convertible
note (using the if-converted method) and exercise of common stock options and warrants (using the treasury stock method). Common stock
equivalents are not included in the calculation of diluted net loss per share if their effect would be anti-dilutive. In a period in which
the Company has a net loss, all potentially dilutive securities are excluded from the computation of diluted shares outstanding as they
would have had an anti-dilutive impact.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 3 – SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (continued)
Per Share Data (continued)
The following table summarizes the securities
that were excluded from the diluted per share calculation because the effect of including these potential shares was antidilutive:
| |
Three Months Ended
September 30, | | |
Nine Months Ended
September 30, | |
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
Stock options | |
| 8,145,000 | | |
| 7,720,000 | | |
| 8,385,000 | | |
| 7,720,000 | |
Warrants | |
| 1,239,647 | | |
| - | | |
| 1,239,647 | | |
| - | |
Convertible note (*) | |
| 5,721,450 | | |
| - | | |
| 5,721,450 | | |
| - | |
Potentially dilutive securities | |
| 15,106,097 | | |
| 7,720,000 | | |
| 15,346,097 | | |
| 7,720,000 | |
(*) | Assumed the convertible
note was converted into shares of common stock of the Company at a conversion price of $0.65 per share. |
Deferred
Financing Costs
Deferred
financing costs consist of legal, accounting and other costs that are directly related to the Company’s open market sale equity
financing and will be charged to stockholders’ equity upon the completion of the equity offering. As of September 30, 2022 and December
31, 2021, deferred financing costs amounted to $214,107 and $213,279, of which $74,937 and $74,648 were included in other noncurrent
assets, respectively.
Debt Issuance Costs
Debt issuance costs are
those costs that have been incurred in connection with the issuance of balloon promissory note payable and are offset against note payable
in the condensed consolidated balance sheets. Such costs are being amortized to interest expense over the term of the underlying debt
using the straight-line method, as the difference between that and the effective interest method are immaterial. As
of September 30, 2022, debt issuance costs amounted to $244,250.
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. The Company’s chief operating decision maker is the Chief Executive Officer (“CEO”) and president
of the Company, who reviews operating results to make decisions about allocating resources and assessing performance for the entire Company. During
the three and nine months ended September 30, 2022 and 2021, the Company operates through two business segments: real property operating
segment and medical related consulting services segment. These reportable segments offer different types of services and products,
have different types of revenue, and are managed separately as each requires different operating strategies and management expertise.
Reclassification
Certain prior period amounts have been reclassified
to conform to the current period presentation. These reclassifications have no effect on the previously reported financial position, results
of operations and cash flows.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 3 – SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (continued)
Recent Accounting Standards
In August 2020, the Financial Accounting Standards
Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-06, Debt - Debt with Conversion and
Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting
for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplifies the accounting
for certain financial instruments with characteristics of liabilities and equity. This ASU (1) simplifies the accounting for convertible
debt instruments and convertible preferred stock by removing the existing guidance in ASC 470-20, Debt: Debt with Conversion and
Other Options, that requires entities to account for beneficial conversion features and cash conversion features in equity, separately
from the host convertible debt or preferred stock; (2) revises the scope exception from derivative accounting in ASC 815-40 for freestanding
financial instruments and embedded features that are both indexed to the issuer’s own stock and classified in stockholders’
equity, by removing certain criteria required for equity classification; and (3) revises the guidance in ASC 260, Earnings Per
Share, to require entities to calculate diluted earnings per share (EPS) for convertible instruments by using the if-converted method.
In addition, entities must presume share settlement for purposes of calculating diluted EPS when an instrument may be settled in cash
or shares. ASU 2020-06 is effective for public business entities for fiscal years beginning after December 15, 2021 (or December 15, 2023
for companies who meet the SEC definition of Smaller Reporting Companies), and interim periods within those fiscal years. The guidance
is to be adopted through either a fully retrospective or modified retrospective method of transition. However, early adoption is permitted
as early as fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The Company adopted the new
standard on January 1, 2022, which adoption required the Company to bifurcate the embedded conversion feature from the convertible note
it issued during the second quarter of 2022.
In June
2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (“Topic 326”). The ASU introduces
a new accounting model, the Current Expected Credit Losses model (“CECL”), which requires earlier recognition of credit losses
and additional disclosures related to credit risk. The CECL model utilizes a lifetime expected credit loss measurement objective for the
recognition of credit losses at the time the financial asset is originated or acquired. ASU 2016-13 is effective for annual period beginning
after December 15, 2022, including interim reporting periods within those annual reporting periods. The Company expects that the adoption
will not have a material impact on the Company’s condensed 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 – OTHER CURRENT AND
NON-CURRENT ASSETS
At September 30, 2022 and December 31, 2021,
other current and non-current assets consisted of the following:
| |
September 30,
2022 | | |
December 31,
2021 | |
Prepaid directors and officers liability insurance premium | |
$ | 20,764 | | |
$ | 49,656 | |
Prepaid professional fees | |
| 52,562 | | |
| 186,609 | |
Recoverable VAT | |
| 31,557 | | |
| 23,655 | |
Deferred leasing costs | |
| 122,267 | | |
| 141,214 | |
Security deposit | |
| 18,499 | | |
| 20,271 | |
Prepaid NASDAQ listing fee | |
| 24,563 | | |
| - | |
Prepaid property tax | |
| 36,537 | | |
| - | |
Long-term straight-line rent receivable | |
| 158,534 | | |
| 163,211 | |
Long-term deferred financing costs | |
| 74,937 | | |
| 74,648 | |
Others | |
| 32,178 | | |
| 18,313 | |
Total | |
$ | 572,398 | | |
$ | 677,577 | |
Current portion | |
$ | 250,042 | | |
$ | 309,655 | |
Non-current portion | |
| 322,356 | | |
| 367,922 | |
Total | |
$ | 572,398 | | |
$ | 677,577 | |
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 5 – EQUITY METHOD INVESTMENT
As of September
30, 2022 and December 31, 2021, the equity method investment amounted to $478,362 and $515,632, respectively. The investment represents
the Company’s subsidiary, Avalon Shanghai’s interest in Epicon Biotech Co., Ltd. (“Epicon”). Epicon was incorporated
on August 14, 2018 in PRC. Avalon Shanghai and the other unrelated company, Jiangsu Unicorn Biological Technology Co., Ltd. (“Unicorn”),
accounted for 40% and 60% of the total ownership, respectively. Epicon is focused on cell preparation, third party testing,
biological sample repository for commercial and scientific research purposes and the clinical transformation of scientific achievements.
The Company
treats the equity investment in the condensed consolidated financial statements under the equity method. Under the equity method, the
investment is initially recorded at cost, adjusted for any excess of the Company’s share of the incorporated-date fair values of
the investee’s identifiable net assets over the cost of the investment (if any). Thereafter, the investment is adjusted for the
post incorporation change in the Company’s share of the investee’s net assets and any impairment loss relating to the investment.
For the
three months ended September 30, 2022 and 2021, the Company’s share of Epicon’s net loss was $9,011 and $14,203, respectively,
which was included in loss from equity method investment in the accompanying condensed consolidated statements of operations and comprehensive
loss. For the nine months ended September 30, 2022 and 2021, the Company’s share of Epicon’s net loss was $33,809 and
$48,135, respectively, which was included in loss from equity method investment in the accompanying condensed consolidated statements
of operations and comprehensive loss.
In the nine
months ended September 30, 2022, activity recorded for the Company’s equity method investment in Epicon is summarized
in the following table:
Equity investment carrying amount at January 1, 2022 | |
$ | 515,632 | |
Payment made for equity method investment | |
| 52,994 | |
Epicon’s net loss attributable to the Company | |
| (33,809 | ) |
Foreign currency fluctuation | |
| (56,455 | ) |
Equity investment carrying amount at September 30, 2022 | |
$ | 478,362 | |
The
tables below present the summarized financial information, as provided to the Company by the investee, for the unconsolidated company:
| |
September 30,
2022 | | |
December 31,
2021 | |
Current assets | |
$ | 2,487 | | |
$ | 5,479 | |
Noncurrent assets | |
| 153,057 | | |
| 216,864 | |
Current liabilities | |
| 36,790 | | |
| 56,626 | |
Noncurrent liabilities | |
| - | | |
| - | |
Equity | |
| 118,754 | | |
| 165,717 | |
| |
For the Three Months
Ended September 30, | | |
For the Nine Months
Ended September 30, | |
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
Net revenue | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | |
Gross profit | |
| - | | |
| - | | |
| - | | |
| - | |
Loss from operation | |
| 22,526 | | |
| 35,509 | | |
| 84,552 | | |
| 120,338 | |
Net loss | |
| 22,527 | | |
| 35,509 | | |
| 84,521 | | |
| 120,338 | |
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 6 – ACCRUED
LIABILITIES AND OTHER PAYABLES
At September 30, 2022
and December 31, 2021, accrued liabilities and other payables consisted of the following:
| |
September 30,
2022 | | |
December 31,
2021 | |
Accrued tenants’ improvement reimbursement | |
$ | 43,500 | | |
$ | 43,500 | |
Tenants’ security deposit | |
| 73,733 | | |
| 73,733 | |
Accrued business expense reimbursement | |
| 43,986 | | |
| 68,172 | |
Accrued utilities | |
| 30,220 | | |
| 14,372 | |
Deferred rental income | |
| 23,397 | | |
| 8,638 | |
Accrued equity offering costs | |
| 40,000 | | |
| 40,000 | |
Taxes payable | |
| 14,547 | | |
| 14,459 | |
Others | |
| 60,733 | | |
| 12,446 | |
Total | |
$ | 330,116 | | |
$ | 275,320 | |
NOTE 7 – CONVERTIBLE NOTE PAYABLE
On March 28, 2022, the
Company entered into Securities Purchase Agreement with an accredited investor, which was amended on June 8, 2022, providing for the sale
by the Company to the investor of a Convertible Note in the amount of $3,718,943 (“2022 Convertible Note”). In addition
to the 2022 Convertible Note, the investor also received a Stock Purchase Warrant (“2022 Warrant”) to acquire an aggregate
of 1,239,647 shares of common stock. The 2022 Warrant is exercisable for five years at an exercise price of $1.25.
The financing closed with respect to:
| ● | $2,669,522 of the financing on April 15, 2022, |
| ● | $659,581 of the financing on April 29, 2022, |
| ● | $199,840 of the financing on May 18, 2022, and |
| ● | $190,000 of the financing on May 25, 2022. |
As
a result of each of the closings, the Company issued the investor a 2022 Convertible Note in the principal amount of $2,669,522 and
a 2022 Warrant to acquire 889,840 shares of common stock dated April 15, 2022, a 2022 Convertible Note in the principal amount
of $659,581 and a 2022 Warrant to acquire 219,860 shares of common stock dated April 29, 2022, a 2022 Convertible Note
in the principal amount of $199,840 and a 2022 Warrant to acquire 66,614 shares of common stock dated May 18, 2022, and
a 2022 Convertible Note in the principal amount of $190,000 and a 2022 Warrant to acquire 63,333 shares of common stock
dated May 25, 2022.
The 2022
Convertible Note bears interest at 1% per annum payable at maturity and matures ten years from issuance. The investor may
elect to convert all or part of the 2022 Convertible Note, plus accrued interest, at any time into shares of common stock of the Company
at a conversion price equal to 95% of the average of the highest three trading prices for the common stock during the 20-trading
day period ending one trading day prior to the conversion date but in no event will the conversion price be lower than $0.75 per
share.
The investor
agreed to restrict its ability to convert the 2022 Convertible Note and exercise the 2022 Warrant and receive shares of common stock such
that the number of shares of common stock held by the investor after such conversion or exercise does not exceed 4.99% of the then
issued and outstanding shares of common stock. Further, the investor agreed to not sell or transfer any or all of the shares of common
stock underlying the 2022 Convertible Note or the 2022 Warrant for a period of 90 days beginning on the closing date (the “Lock-Up
Period”). Following the expiration of the Lock-Up Period, the investor has agreed to limit its sale or transfer of such shares of
common stock to a maximum monthly amount equal to 20% of the shares of common stock issuable upon conversion of the 2022 Convertible
Note. The Company agreed to use its reasonable best efforts to file a registration statement on Form S-3 (or other appropriate form) providing
for the resale by the investor of the shares of common stock underlying the 2022 Convertible Note and the 2022 Warrant.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 7 – CONVERTIBLE NOTE PAYABLE
(continued)
Based upon
the Company’s analysis of the criteria contained in ASC Topic 815-40, “Derivatives and Hedging - Contracts in an Entity’s
Own Equity”, the Company determined that all the warrants issued to the investor with this private placement are classified as equity
in additional paid in-capital.
In accordance
with ASC 470-20-25-2, proceeds from the sale of a debt instrument with stock purchase warrants are allocated to the two elements based
on the relative fair values of the debt instrument without the warrants and of the warrants themselves at time of issuance.
The portion of the proceeds so allocated to the warrants are accounted for as additional paid-in capital. The remainder of the proceeds
are allocated to the debt instrument portion of the transaction.
The fair
values of the warrants issued to the investor with this private placement were computed using the Black-Scholes option-pricing model with
the following assumptions: volatility of 111.94%, risk-free rate of 2.71% - 2.92%, annual dividend yield of 0% and
expected life of 5 years.
In accordance
with ASC 480-10-25-14, the Company determined that the conversion provisions contain an embedded derivative feature and the Company valued
the derivative feature separately, recording debt discount and derivative liabilities in accordance with the provisions of the convertible
debt (see Note 8). The Company calculates the fair value of conversion option at the commitment dates using the Black-Scholes valuation
model with the following assumptions: volatility of 95.97%, risk-free rate of 2.75% - 2.89%, annual dividend yield of 0%
and expected life of 10 years.
The warrants
issued to the investor to purchase 1,239,647 shares of the Company’s common stock were treated as a discount on the convertible
note payable and were valued at $498,509 and had been amortized over the term of the 2022 Convertible Note. Additionally, the fair
value of embedded conversion option at commitment dates, which was valued at $2,782,569, was recorded as a discount on the convertible
note payable and had been amortized over the term of the 2022 Convertible Note. Hence, in connection with the issuance of the 2022 Convertible
Note and 2022 Warrant, the Company recorded a total debt discount of $3,281,078, which had been amortized over the term of the convertible
note payable.
On July 25, 2022, the Company and the investor
entered into a Conversion Agreement (“Conversion Agreement”) pursuant to which the investor converted all of its Convertible
Notes in the principal amount of $3,718,943 and unpaid interest of $9,751 into 5,736,452 shares of common stock
of the Company at a per share price of $0.65 (see Note 11 - Common Shares Issued for Debt Conversion). The Company recorded a conversion
inducement charge of $344,264 as a result of the Conversion Agreement, representing the value of common stock issued upon conversion in
excess of the common stock issuable under the original terms of the 2022 Convertible Note.
For the
three months ended September 30, 2022, amortization of debt discount and interest expense related to the 2022 Convertible Note amounted
to $3,226,393 and $2,547, respectively, both of which have been reflected as interest expense on the accompanying condensed consolidated
statements of operation and comprehensive loss. For the nine months ended September 30, 2022, amortization of debt discount and interest
expense related to the 2022 Convertible Note amounted to $3,281,078 and $9,751, respectively, both of which have been reflected as
interest expense on the accompanying condensed consolidated statements of operation and comprehensive loss.
NOTE 8 – DERIVATIVE LIABILITY
As stated
in Note 7, 2022 Convertible Note, the Company determined that the convertible note payable contained an embedded derivative feature in
the form of a conversion provision which was adjustable based on future prices of the Company’s common stock. In accordance with
ASC 815-10-25, each derivative feature was initially recorded at its fair value using the Black-Scholes option valuation method and then
re-valued at each reporting date, with changes in the fair value reported in the statements of operations. The estimated fair value of
the derivative feature of convertible debt was $2,782,569 at commitment dates, which was calculated using the following assumptions: volatility
of 95.97%, risk-free rate of 2.75% - 2.89%, annual dividend yield of 0% and expected life of 10 years.
On July 25, 2022, the Company and the 2022 Convertible
Note holder entered into a Conversion Agreement pursuant to which the investor converted all of its Convertible Notes into shares
of common stock of the Company.
The estimated
fair value of the derivative feature of convertible debt was $2,181,820 on July 25, 2022, which was computed using the following assumptions:
volatility of 95.53%, risk-free rate of 2.81%, annual dividend yield of 0% and expected life of 9.7 – 9.8 years.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 8 – DERIVATIVE LIABILITY
(continued)
Increases
or decreases in fair value of the derivative liability is included as a component of total other (expenses) income in the accompanying
condensed consolidated statements of operations and comprehensive loss for the respective period. The change to the derivative liability
for the embedded conversion option from July 1, 2022 through July 25, 2022 resulted in an increase of $168,520 in the derivative liability
and the corresponding increase in other expense as a loss for the three months ended September 30, 2022. The change to the derivative
liability for the embedded conversion option from commitment dates through July 25, 2022 resulted in a decrease of $600,749 in the
derivative liability and the corresponding increase in other income as a gain for the nine months ended September 30, 2022. There
was no derivative liability in the three and nine months ended September 30, 2021.
NOTE 9 – NOTE PAYABLE, NET
On September 1, 2022,
the Company issued a balloon promissory note to a third party company in the principal amount of $4,800,000 which carries interest of
11.0% per annum (the “2022 Note Payable”). Interest is due in monthly payments of $44,000 beginning November 1, 2022 and payable
monthly thereafter until September 1, 2025 when the principal outstanding and all remaining interest is due. The 2022 Note Payable can
be extended for an additional 36 months provided that the Company has not defaulted. The Company may not prepay the 2022 Note Payable
for a period of 12 months. The 2022 Note Payable is secured by a first mortgage on the Company’s real property located in Township
of Freehold, County of Monmouth, State of New Jersey, having a street address of 4400 Route 9 South, Freehold, NJ 07728.
As of September 30, 2022,
the carrying balance of the 2022 Note Payable was $4,555,750 and the remaining unamortized debt issuance costs balance was $244,250. For
the three and nine months ended September 30, 2022, the interest expense related to the 2022 Note Payable (including amortization of debt
issuance costs of $22,204) totaled $66,204.
NOTE 10 – RELATED PARTY TRANSACTIONS
Rental
Revenue from Related Party and Rent Receivable – Related Party
The Company leases space of its commercial real
property located in New Jersey to a company, D.P. Capital Investments LLC, which is controlled by Wenzhao Lu, the Company’s largest
shareholder and chairman of the Board of Directors. The term of the related party lease agreement is five years commencing on May 1, 2021
and will expire on April 30, 2026.
For both the three months ended September 30,
2022 and 2021, the related party rental revenue amounted to $12,600 and has been included in real property rental on the accompanying
condensed consolidated statements of operations and comprehensive loss. For the nine months ended September 30, 2022 and 2021, the related
party rental revenue amounted to $37,800 and $21,000, respectively, and has been included in real property rental on the accompanying
condensed consolidated statements of operations and comprehensive loss.
The related party rent receivable totaled $71,400 and
$33,600, respectively, and no allowance for doubtful accounts was deemed to be required on rent receivable – related party
at September 30, 2022 and December 31, 2021.
Medical Related Consulting
Services Revenue from Related Party
During the three and nine months ended September
30, 2022 and 2021, medical related consulting services revenue from related party was as follows:
| |
Three Months Ended | | |
Nine Months Ended | |
| |
September 30, | | |
September 30, | |
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
Medical related consulting services provided to: | |
| | |
| | |
| | |
| |
Hebei Daopei * | |
$ | - | | |
$ | 131,305 | | |
$ | - | | |
$ | 131,305 | |
* | Hebei Daopei is subsidiary of an entity whose chairman is Wenzhao
Lu, the largest shareholder of the Company. |
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 10 – RELATED PARTY TRANSACTIONS
(continued)
Services
Provided by Related Party
From time to time, Wilbert Tauzin, a director
of the Company, and his son provide consulting services to the Company. As compensation for professional services provided, the Company
recognized consulting expenses of $29,121 and $52,596 for the three months ended September 30, 2022 and 2021, respectively,
which have been included in professional fees on the accompanying condensed consolidated statements of operations and comprehensive loss.
As compensation for professional services provided, the Company recognized consulting expenses of $116,719 and $164,546 for
the nine months ended September 30, 2022 and 2021, respectively, which have been included in professional fees on the accompanying condensed
consolidated statements of operations and comprehensive loss.
Accrued Liabilities and Other Payables –
Related Parties
In 2017,
the Company acquired Beijing Genexosome for a cash payment of $450,000. As of September 30, 2022 and December 31, 2021, the unpaid acquisition
consideration of $100,000, was payable to Dr. Yu Zhou, former director and former co-chief executive officer and 40% owner of Genexosome,
and has been included in accrued liabilities and other payables – related parties on the accompanying condensed consolidated balance
sheets.
As of September
30, 2022 and December 31, 2021, $0 and $368,433 of accrued and unpaid interest related to borrowings from Wenzhao Lu, the Company’s
largest shareholder and chairman of the Board of Directors, respectively, have been included in accrued liabilities and other payables
– related parties on the accompanying condensed consolidated balance sheets.
Borrowings from Related Party
Promissory Note
On March 18, 2019, the Company issued Wenzhao
Lu, the Company’s largest shareholder and Chairman of the Board of Directors, a Promissory Note in the principal amount of $1,000,000 (“Promissory
Note”) in consideration of cash in the amount of $1,000,000. The Promissory Note accrues interest at the rate of 5% per annum
and matures March 19, 2022. In March 2022, the Company and Wenzhao Lu entered into a Loan Extension and Modification Agreement (the “Extension”)
to extend the maturity date to March 19, 2024.The Company repaid principal of $410,000, $200,000 and $390,000 in the third
quarter of 2019, second quarter of 2020 and second quarter of 2022, respectively. As of September 30, 2022 and December 31, 2021, the
outstanding principal balance was $0 and $390,000, respectively.
Line of Credit
On August
29, 2019, the Company entered into a Line of Credit Agreement (the “Line of Credit Agreement”) providing the Company with
a $20 million line of credit (the “Line of Credit”) from Wenzhao Lu (the “Lender”), the largest shareholder
and Chairman of the Board of Directors of the Company. The Line of Credit allows the Company to request loans thereunder and to use the
proceeds of such loans for working capital and operating expense purposes until the facility matures on December 31, 2024. The loans
are unsecured and are not convertible into equity of the Company. Loans drawn under the Line of Credit bears interest at an annual rate
of 5% and each individual loan will be payable three years from the date of issuance. The Company has a right to draw down on the
line of credit and not at the discretion of the related party Lender. The Company may, at its option, prepay any borrowings under the
Line of Credit, in whole or in part at any time prior to maturity, without premium or penalty. The Line of Credit Agreement includes customary
events of default. If any such event of default occurs, the Lender may declare all outstanding loans under the Line of Credit to be due
and payable immediately.
On July 25, 2022, the Company and Mr. Lu entered
into and closed a Debt Settlement Agreement and Release pursuant to which the Company settled $2,440,262 debt owed under the Line
of Credit and unpaid interest of $448,331 by issuance of 4,443,990 shares of common stock of the Company (see Note 11 -
Common Shares Issued Pursuant to Related Party Debt Settlement Agreement and Release). The total amount of the debt settled of $2,888,593 exceeded the fair
market value of the shares issued by $888,353 which was treated as a capital transaction due to Mr. Lu's relationship with the Company.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 10 – RELATED PARTY TRANSACTIONS
(continued)
In the nine
months ended September 30, 2022, activity recorded for the Line of Credit is summarized in the following table:
Borrowings from Related Party (continued)
Outstanding principal under the Line of Credit at January 1, 2022 | |
$ | 2,750,262 | |
Draw down from Line of Credit | |
| 100,000 | |
Repayment of Line of Credit | |
| (410,000 | ) |
Settlement of Line of Credit in shares | |
| (2,440,262 | ) |
Outstanding principal under the Line of Credit at September 30, 2022 | |
$ | - | |
For the
three months ended September 30, 2022 and 2021, the interest expense related to above borrowings amounted to $8,358 and $50,248,
respectively, and has been included in interest expense – related party on the accompanying condensed consolidated statements of
operations and comprehensive loss. For the nine months ended September 30, 2022 and 2021, the interest expense related to above borrowings
amounted to $79,898 and $141,528, respectively, and has been included in interest expense – related party on the accompanying
condensed consolidated statements of operations and comprehensive loss.
As of September
30, 2022 and December 31, 2021, the related accrued and unpaid interest for above borrowings was $0 and $368,433, respectively, has
been included in accrued liabilities and other payables – related parties on the accompanying condensed consolidated balance sheets.
Common Shares Sold
to Related Party for Cash
On August 5, 2022, the Company sold 448,718 shares
of common stock at a purchase price of $0.78 per share to Wenzhao Lu pursuant to a subscription agreement. The Company received proceeds
of $350,000 (see Note 11 - Common Shares Sold for Cash). As of September 30, 2022, the shares have not been issued and have been
included in common stock to be issued at a value of $350,000 on the accompanying condensed consolidated balance sheets.
NOTE 11 – EQUITY
Common Shares Sold
for Cash
On December 13, 2019, the Company entered into
an Open Market Sale AgreementSM (the “Sales Agreement”) with Jefferies LLC, as sales agent (“Jefferies”),
pursuant to which the Company may offer and sell, from time to time, through Jefferies, shares of its common stock. During the nine months
ended September 30, 2022, Jefferies sold an aggregate of 170,640 shares of common stock at an average price of $0.79 per
share to investors and the Company recorded net proceeds of $112,328, net of commission and other offering costs of $23,239.
On August 5, 2022, the Company sold 448,718 shares
of common stock at a purchase price of $0.78 per share to Wenzhao Lu pursuant to a subscription agreement. The Company received proceeds
of $350,000 (see Note 10 - Common Shares Sold to Related Party for Cash). As of September 30, 2022, the shares have not been issued
and have been included in common stock to be issued at a value of $350,000 on the accompanying condensed consolidated balance sheets.
On August 5, 2022, the Company sold 320,513 shares
of common stock at a purchase price of $0.78 per share to an investor pursuant to a subscription agreement. The Company received proceeds
of $250,000. As of September 30, 2022, the shares have not been issued and have been included in common stock to be issued at a value
of $250,000 on the accompanying condensed consolidated balance sheets.
Common
Shares Issued for Services
During the nine months ended September 30, 2022,
the Company issued a total of 408,957 shares of its common stock for services rendered and to be rendered. These shares were
valued at $340,950, the fair market values on the grant dates using the reported closing share prices on the dates of grant, and the Company
recorded stock-based compensation expense of $291,270 for the nine months ended September 30, 2022 and reduced accrued liabilities
of $30,000 and recorded prepaid expense of $19,680 as of September 30, 2022 which will be amortized over the rest of corresponding
service periods.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 11 – EQUITY
(continued)
Common
Shares Issued for Debt Conversion
On July
25, 2022, the Company and 2022 Convertible Note holder entered into a Conversion Agreement pursuant to which the investor converted its
Convertible Notes in the principal amount of $3,718,943 and unpaid interest of $9,751 into 5,736,452 shares of
common stock of the Company at a per share price of $0.65 (see Note 7). The Company recorded a conversion inducement charge of $344,264
as a result of the Conversion Agreement, representing the value of common stock issued upon conversion in excess of the common stock issuable
under the original terms of the 2022 Convertible Note.
Common
Shares Issued Pursuant to Related Party Debt Settlement Agreement and Release
On July
25, 2022, the Company and Mr. Lu entered into and closed a Debt Settlement Agreement and Release pursuant to which the Company settled
$2,440,262 debt owed under the Line of Credit and unpaid interest of $448,331 by issuance of 4,443,990 shares of common
stock of the Company (see Note 10 - Line of Credit). The total amount of the debt
settled of $2,888,593 exceeded the fair market value of the shares issued by $888,353 which was treated as a capital transaction due to
Mr. Lu's relationship with the Company.
Options
The following table summarizes the shares of the
Company’s common stock issuable upon exercise of options outstanding at September 30, 2022:
Options Outstanding | | |
Options Exercisable | |
Range of
Exercise Price | | |
Number
Outstanding at
September 30,
2022 | | |
Weighted Average
Remaining
Contractual Life
(Years) | | |
Weighted
Average
Exercise
Price | | |
Number
Exercisable at
September 30,
2022 | | |
Weighted
Average
Exercise
Price | |
$ | 0.50 – 0.82 | | |
| 2,660,000 | | |
| 4.23 | | |
$ | 0.56 | | |
| 2,440,000 | | |
$ | 0.55 | |
| 1.00 – 1.93 | | |
| 2,895,000 | | |
| 4.15 | | |
| 1.38 | | |
| 2,895,000 | | |
| 1.38 | |
| 2.00 – 2.80 | | |
| 2,560,000 | | |
| 1.12 | | |
| 2.15 | | |
| 2,560,000 | | |
| 2.15 | |
| 4.76 | | |
| 30,000 | | |
| 1.51 | | |
| 4.76 | | |
| 30,000 | | |
| 4.76 | |
$ | 0.50 – 4.76 | | |
| 8,145,000 | | |
| 3.21 | | |
$ | 1.37 | | |
| 7,925,000 | | |
$ | 1.38 | |
Stock option activities
for the nine months ended September 30, 2022 were as follows:
| |
Number of
Options | | |
Weighted
Average
Exercise
Price | |
Outstanding at January 1, 2022 | |
| 7,725,000 | | |
$ | 1.45 | |
Granted | |
| 660,000 | | |
| 0.73 | |
Expired/forfeited/exercised | |
| (240,000 | ) | |
| (2.26 | ) |
Outstanding at September 30, 2022 | |
| 8,145,000 | | |
$ | 1.37 | |
Options exercisable at September 30, 2022 | |
| 7,925,000 | | |
$ | 1.38 | |
Options expected to vest | |
| 220,000 | | |
$ | 0.68 | |
The aggregate intrinsic value of stock options
outstanding and stock options exercisable at September 30, 2022 was $303,800 and $292,597, respectively.
The fair values of options granted during the
nine months ended September 30, 2022 were estimated at the date of grant using the Black-Scholes option-pricing model with the following
assumptions: volatility of 74.8% - 117.46%, risk-free rate of 1.37% - 3.56%, annual dividend yield of 0%, and
expected life of 3.00 - 5.00 years. The aggregate fair value of the options granted during the nine months ended
September 30, 2022 was $373,982.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 11 – EQUITY
(continued)
Options (continued)
The fair values of options granted during the
nine months ended September 30, 2021 were estimated at the date of grant using the Black-Scholes option-pricing model with the following
assumptions: volatility of 121.52% - 128.42%, risk-free rate of 0.33% - 0.80%, annual dividend yield of 0% and
expected life of 3.00 - 5.00 years. The aggregate fair value of the options granted during the nine months ended
September 30, 2021 was $594,401.
For the three months ended September 30, 2022
and 2021, stock-based compensation expense associated with stock options granted amounted to $110,442 and $188,859, of which,
$87,300 and $134,833 was recorded as compensation and related benefits, $14,121 and $37,596 was recorded as professional
fees, and $9,021 and $16,430 was recorded as research and development expenses, respectively. For the nine months ended September
30, 2022 and 2021, stock-based compensation expense associated with stock options granted amounted to $389,066 and $586,573,
of which, $285,384 and $410,732 was recorded as compensation and related benefits, $71,719 and $120,584 was recorded as
professional fees, and $31,963 and $55,257 was recorded as research and development expenses, respectively.
A summary of the status of the Company’s
nonvested stock options granted as of September 30, 2022 and changes during the nine months ended September 30, 2022 is presented below:
| |
Number of
Options | | |
Weighted
Average
Exercise
Price | |
Nonvested at January 1, 2022 | |
| 205,834 | | |
$ | 1.04 | |
Granted | |
| 660,000 | | |
| 0.73 | |
Vested | |
| (645,834 | ) | |
| (0.85 | ) |
Nonvested at September 30, 2022 | |
| 220,000 | | |
$ | 0.68 | |
Warrants
On March 28, 2022, the Company entered into Securities
Purchase Agreement with an accredited investor, which was amended on June 8, 2022, providing for the sale by the Company to the investor
of a Convertible Note in the amount of $3,718,943 (“2022 Convertible Note”). In addition to the 2022 Convertible Note,
the investor also received a Stock Purchase Warrant (“2022 Warrant”) to acquire an aggregate of 1,239,647 shares
of common stock. The 2022 Warrant is exercisable for five years at an exercise price of $1.25.
The fair
values of the warrants issued to the investor with this private placement were computed using the Black-Scholes option-pricing model with
the following assumptions: volatility of 111.94%, risk-free rate of 2.71% - 2.92%, annual dividend yield of 0% and
expected life of 5 years. The warrants issued to the investor to purchase 1,239,647 shares of the Company’s
common stock were treated as a discount on the convertible note payable and were valued at $498,509 and had been amortized over the
term of the 2022 Convertible Note.
Stock warrant
activities for the nine months ended September 30, 2022 were as follows:
| |
Number of
Warrants | | |
Exercise
Price | |
Outstanding at January 1, 2022 | |
| - | | |
$ | - | |
Issued | |
| 1,239,647 | | |
| 1.25 | |
Expired/exercised | |
| - | | |
| - | |
Outstanding and exercisable at September 30, 2022 | |
| 1,239,647 | | |
$ | 1.25 | |
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 11 – EQUITY
(continued)
The following table summarizes the shares of the
Company’s common stock issuable upon exercise of warrants outstanding at September 30, 2022:
Warrants (continued)
Warrants Outstanding | | |
Warrants Exercisable | |
Exercise Price | | |
Number
Outstanding at
September 30,
2022 | | |
Weighted Average
Remaining
Contractual Life
(Years) | | |
Number
Exercisable at
September 30,
2022 | | |
Exercise Price | |
$ | 1.25 | | |
| 1,239,647 | | |
| 4.56 | | |
| 1,239,647 | | |
$ | 1.25 | |
The aggregate intrinsic value of both stock warrants
outstanding and stock warrants exercisable at September 30, 2022 was $0.
NOTE 12 – STATUTORY
RESERVE AND RESTRICTED NET ASSETS
The Company’s
PRC subsidiary, Avalon Shanghai, is restricted in its ability to transfer a portion of its net asset to the Company. The payment
of dividends by entities organized in China is subject to limitations, procedures and formalities. Regulations in the PRC currently permit
payment of dividends only out of accumulated profits as determined in accordance with accounting standards and regulations in China.
The Company
is required to make appropriations to certain reserve funds, comprising the statutory surplus reserve and the discretionary surplus reserve,
based on after-tax net income determined in accordance with generally accepted accounting principles of the PRC (“PRC GAAP”).
Appropriations to the statutory surplus reserve are required to be at least 10% of the after-tax net income determined in accordance
with PRC GAAP until the reserve is equal to 50% of the entity’s registered capital. Appropriations to the discretionary surplus
reserve are made at the discretion of the Board of Directors. The statutory reserve may be applied against prior year losses, if any,
and may be used for general business expansion and production or increase in registered capital, but are not distributable as cash dividends.
The Company did not make any appropriation to statutory reserve for Avalon Shanghai during the three and nine months ended September 30,
2022 as it incurred net loss in the periods. As of both September 30, 2022 and December 31, 2021, the restricted amount as determined
pursuant to PRC statutory laws totaled $6,578.
Relevant
PRC laws and regulations restrict the Company’s PRC subsidiary, Avalon Shanghai, from transferring a portion of its net assets,
equivalent to their statutory reserves and their share capital, to the Company’s shareholders in the form of loans, advances or
cash dividends. Only PRC entity’s accumulated profit may be distributed as dividend to the Company’s shareholders without
the consent of a third party. As of September 30, 2022 and December 31, 2021, total restricted net assets amounted to $1,006,578 and $706,578,
respectively.
NOTE 13 – CONDENSED
FINANCIAL INFORMATION OF THE PARENT COMPANY
Pursuant
to the requirements of Rule 12-04(a), 5-04(c) and 4-08(e)(3) of Regulation S-X, the condensed financial information of the parent company
shall be filed when the restricted net assets of consolidated subsidiary exceed 25 percent of consolidated net assets as of
the end of the most recently completed fiscal year. For purposes of this test, restricted net assets of consolidated subsidiary shall
mean that amount of the Company’s proportionate share of net assets of consolidated subsidiary (after intercompany eliminations)
which as of the end of the most recent fiscal year may not be transferred to the parent company by subsidiary in the form of loans, advances
or cash dividends without the consent of a third party.
The Company
performed a test on the restricted net assets of consolidated subsidiary in accordance with such requirement and concluded that it was
not applicable to the Company as the restricted net assets of the Company’s PRC subsidiary did not exceed 25% of the consolidated
net assets of the Company, therefore, the condensed financial statements for the parent company have not been required.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 14 – CONCENTRATIONS
Customers
The following table sets forth information as
to each customer that accounted for 10% or more of the Company’s revenues for the three and nine months ended September 30,
2022 and 2021.
| |
Three Months Ended
September 30, | | |
Nine Months Ended
September 30, | |
Customer | |
2022 | | |
2021 | | |
2022 | | |
2021 | |
A (Hebei Daopei, a related party) | |
| * | | |
| 27 | % | |
| * | | |
| 12 | % |
B | |
| 32 | % | |
| 28 | % | |
| 31 | % | |
| 29 | % |
C | |
| 19 | % | |
| 12 | % | |
| 19 | % | |
| 16 | % |
D | |
| 12 | % | |
| * | | |
| 12 | % | |
| 11 | % |
Two customers,
of which, one is a related party and the other is a third party, whose outstanding receivable accounted for 10% or more of the Company’s
total outstanding rent receivable and rent receivable – related party at September 30, 2022, accounted for 82.3% of the Company’s
total outstanding rent receivable and rent receivable – related party at September 30, 2022.
Two customers,
of which, one is a related party and the other is a third party, whose outstanding receivable accounted for 10% or more of the Company’s
total outstanding rent receivable and rent receivable – related party at December 31, 2021, accounted for 80.6% of the Company’s
total outstanding rent receivable and rent receivable – related party at December 31, 2021.
Suppliers
No supplier
accounted for 10% or more of the Company’s purchase during the three and nine months ended September 30, 2022 and 2021.
One supplier,
whose outstanding payable accounted for 10% or more of the Company’s total outstanding accounts payable at September 30, 2022,
accounted for 100.0% of the Company’s total outstanding accounts payable at September 30, 2022.
NOTE 15 – SEGMENT
INFORMATION
For the three and nine months ended September
30, 2022 and 2021, the Company operated in two reportable business segments - (1) the real property operating segment, and (2)
the medical related consulting services segment.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 15 – SEGMENT INFORMATION
(continued)
The Company’s reportable segments are strategic
business units that offer different services and products. They are managed separately based on the fundamental differences in their operations.
Information with respect to these reportable business segments for the three and nine months ended September 30, 2022 and 2021 was as
follows:
| |
Three Months Ended
September 30, | | |
Nine Months Ended
September 30, | |
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
Revenues | |
| | |
| | |
| | |
| |
Real property operations | |
$ | 317,390 | | |
$ | 355,459 | | |
$ | 905,842 | | |
$ | 925,465 | |
Medical related consulting services | |
| - | | |
| 131,305 | | |
| - | | |
| 131,305 | |
Total | |
| 317,390 | | |
| 486,764 | | |
| 905,842 | | |
| 1,056,770 | |
Costs and expenses | |
| | | |
| | | |
| | | |
| | |
Real property operations | |
| 247,152 | | |
| 215,622 | | |
| 677,303 | | |
| 637,663 | |
Medical related consulting services | |
| - | | |
| 102,442 | | |
| - | | |
| 102,442 | |
Total | |
| 247,152 | | |
| 318,064 | | |
| 677,303 | | |
| 740,105 | |
Gross profit | |
| | | |
| | | |
| | | |
| | |
Real property operations | |
| 70,238 | | |
| 139,837 | | |
| 228,539 | | |
| 287,802 | |
Medical related consulting services | |
| - | | |
| 28,863 | | |
| - | | |
| 28,863 | |
Total | |
| 70,238 | | |
| 168,700 | | |
| 228,539 | | |
| 316,665 | |
Other operating expenses | |
| | | |
| | | |
| | | |
| | |
Real property operations | |
| 76,299 | | |
| 76,422 | | |
| 265,251 | | |
| 256,675 | |
Medical related consulting services | |
| 96,321 | | |
| 32,239 | | |
| 289,671 | | |
| 361,067 | |
Corporate/Other | |
| 1,486,717 | | |
| 2,025,010 | | |
| 6,233,229 | | |
| 6,269,762 | |
Total | |
| 1,659,337 | | |
| 2,133,671 | | |
| 6,788,151 | | |
| 6,887,504 | |
Other (expense) income | |
| | | |
| | | |
| | | |
| | |
Interest expense | |
| | | |
| | | |
| | | |
| | |
Corporate/Other | |
| (3,303,502 | ) | |
| (50,248 | ) | |
| (3,436,931 | ) | |
| (141,528 | ) |
Total | |
| (3,303,502 | ) | |
| (50,248 | ) | |
| (3,436,931 | ) | |
| (141,528 | ) |
Other income (expense) | |
| | | |
| | | |
| | | |
| | |
Real property operations | |
| 4 | | |
| 3 | | |
| 11 | | |
| 111 | |
Medical related consulting services | |
| (8,848 | ) | |
| (14,173 | ) | |
| 223,735 | | |
| (49,162 | ) |
Corporate/Other | |
| (512,709 | ) | |
| 5,170 | | |
| 259,631 | | |
| 5,171 | |
Total | |
| (521,553 | ) | |
| (9,000 | ) | |
| 483,377 | | |
| (43,880 | ) |
Total other expense, net | |
| (3,825,055 | ) | |
| (59,248 | ) | |
| (2,953,554 | ) | |
| (185,408 | ) |
Net (loss) income | |
| | | |
| | | |
| | | |
| | |
Real property operations | |
| (6,057 | ) | |
| 63,418 | | |
| (36,701 | ) | |
| 31,238 | |
Medical related consulting services | |
| (105,169 | ) | |
| (17,549 | ) | |
| (65,936 | ) | |
| (381,366 | ) |
Corporate/Other | |
| (5,302,928 | ) | |
| (2,070,088 | ) | |
| (9,410,529 | ) | |
| (6,406,119 | ) |
Total | |
$ | (5,414,154 | ) | |
$ | (2,024,219 | ) | |
$ | (9,513,166 | ) | |
$ | (6,756,247 | ) |
Identifiable long-lived tangible assets at September 30, 2022 and December 31, 2021 | |
September 30, 2022 | | |
December 31, 2021 | |
Real property operations | |
$ | 7,410,004 | | |
$ | 7,537,281 | |
Medical related consulting services | |
| 396 | | |
| 742 | |
Corporate/Other | |
| 205,993 | | |
| 352,294 | |
Total | |
$ | 7,616,393 | | |
$ | 7,890,317 | |
Identifiable long-lived tangible assets at September 30, 2022 and December 31, 2021 | |
September 30,
2022 | | |
December 31,
2021 | |
United States | |
$ | 7,440,978 | | |
$ | 7,583,880 | |
China | |
| 175,415 | | |
| 306,437 | |
Total | |
$ | 7,616,393 | | |
$ | 7,890,317 | |
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 16 – COMMITMENTS
AND CONTINGENCIES
Litigation
From time
to time, the Company is subject to ordinary routine litigation incidental to its normal business operations. The Company is not currently
a party to, and its property is not subject to, any material legal proceedings, except as set forth below.
On October
25, 2017, Genexosome entered into and closed a Stock Purchase Agreement with Beijing Genexosome and Yu Zhou, MD, PhD, the sole shareholder
of Beijing Genexosome, pursuant to which Genexosome acquired all of the issued and outstanding securities of Beijing Genexosome in consideration
of a cash payment in the amount of $450,000, of which $100,000 is still owed. Further, on October 25, 2017, Genexosome entered into and
closed an Asset Purchase Agreement with Dr. Zhou, pursuant to which the Company acquired all assets, including all intellectual property
and exosome separation systems, held by Dr. Zhou pertaining to the business of researching, developing and commercializing exosome technologies.
In consideration of the assets, Genexosome paid Dr. Zhou $876,087 in cash, transferred 500,000 shares of common stock of the Company to
Dr. Zhou and issued Dr. Zhou 400 shares of common stock of Genexosome. Further, the Company had not been able to realize the financial
projections provided by Dr. Zhou at the time of the acquisition and has decided to impair the intangible asset associated with this acquisition
to zero. Dr. Zhou was terminated as Co-CEO of Genexosome on August 14, 2019. Further, on October 28, 2019, Research Institute at Nationwide
Children’s Hospital (“Research Institute”) filed a Complaint in the United States District Court for the Southern District
of Ohio Eastern Division against Dr. Zhou, Li Chen, the Company and Genexosome with various claims against the Company and Genexosome.
The criminal proceedings against Dr. Zhou and Li Chen have been concluded. The Company, Genexosome and the Research Institute entered
into a Settlement Agreement dated June 7, 2022 (the “Settlement Date”) whereby the Company agreed to pay the Research Institute
$450,000 on each of the sixty-day, one year and two-year anniversaries of the Settlement Date. In addition, the Company agreed
to pay the Research Institute 30% of the Company’s initial pre-tax profit of $3,333,333, 20% of the Company’s second pre-tax
profit of $3,333,333 and 10% of the Company’s third pre-tax profit of $3,333,333. The parties provided a mutual release as well.
Operating Leases Commitment
The Company is a party to leases for office space.
These lease agreements will expire through February 2023. Rent expense under all operating leases amounted to approximately $107,000 and
$108,000 for the nine months ended September 30, 2022 and 2021, respectively. Supplemental cash flow information related to leases
for the nine months ended September 30, 2022 and 2021 is as follows:
| |
Nine Months Ended
September 30, | |
| |
2022 | | |
2021 | |
Cash paid for amounts included in the measurement of lease liabilities: | |
| | |
| |
Operating cash flows paid for operating lease | |
$ | 116,897 | | |
$ | 94,456 | |
Right-of-use assets obtained in exchange for lease obligation: | |
| | | |
| | |
Operating lease | |
$ | - | | |
$ | 133,473 | |
The following table summarizes the lease term
and discount rate for the Company’s operating lease as of September 30, 2022:
| |
Operating
Lease | |
Weighted average remaining lease term (in years) | |
| 0.33 | |
Weighted average discount rate | |
| 4.88 | % |
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 16 – COMMITMENTS
AND CONTINCENGIES (continued)
Operating Leases Commitment (continued)
The following table summarizes the maturity of lease liabilities under
operating lease as of September 30, 2022:
For the Twelve-month Period Ending September 30: | |
Operating
Lease | |
2023 | |
$ | 45,122 | |
2024 and thereafter | |
| - | |
Total lease payments | |
| 45,122 | |
Amount of lease payments representing interest | |
| (242 | ) |
Total present value of operating lease liabilities | |
$ | 44,880 | |
| |
| | |
Current portion | |
$ | 44,880 | |
Equity Investment Commitment
On May 29, 2018, Avalon
Shanghai entered into a Joint Venture Agreement with Jiangsu Unicorn Biological Technology Co., Ltd. (“Unicorn”), pursuant
to which a company named Epicon Biotech Co., Ltd. (“Epicon”) was formed on August 14, 2018. Epicon is owned 60% by Unicorn
and 40% by Avalon Shanghai. Within five years of execution of the Joint Venture Agreement, Unicorn shall invest cash into Epicon in an
amount not less than RMB 8,000,000 (approximately $1.1 million) and the premises of the laboratories of Nanjing Hospital of Chinese Medicine
for exclusive use by Epicon, and Avalon Shanghai shall invest cash into Epicon in an amount not less than RMB 10,000,000 (approximately
$1.4 million). Epicon is focused on cell preparation, third party testing, biological sample repository for commercial and scientific
research purposes and the clinical transformation of scientific achievements. As of September 30, 2022, Avalon Shanghai has contributed
RMB 5,110,000 (approximately $0.7 million) that was included in equity method investment on the accompanying condensed consolidated balance
sheets. The Company intends to use its present working capital together with borrowings from related party and equity raises to fund
the project cost.
Joint Venture – Avactis Biosciences Inc.
On July
18, 2018, the Company formed Avactis Biosciences Inc. (“Avactis”), a Nevada corporation, as a wholly owned subsidiary. On
October 23, 2018, Avactis and Arbele Limited (“Arbele”) agreed to the establishment of AVAR BioTherapeutics (China) Co.
Ltd. (“AVAR”), a Sino-foreign equity joint venture, pursuant to an Equity Joint Venture Agreement (the “AVAR Agreement”),
which was to be owned 60% by Avactis and 40% by Arbele. On April 6, 2022, the Company, Acactis, Arbele and Arbele Biotherapeutics Limited
(“Arbele Biotherapeutics”), a wholly owned subsidiary of Arbele, entered into an Amendment No. 1 to the Equity Joint Venture
Agreement pursuant to which Arbele Biotherapeutics acquired 40% of Avactis for the purpose of the Company and Arbele establishing a joint
venture in the United States and the parties agreed that they would no longer pursue AVAR as a joint venture. Further, all rights and
obligations under the AVAR Agreement were assigned by Avactis to Avalon and by Arbele to Arbele Biotherapeutics. Avactis established Avactis
Nanjing Biosciences Ltd., a wholly owned foreign entity in the PRC. Further, the parties agreed that the Exclusive Patent License Agreement
dated January 3, 2019 entered between Arbele, as licensor, and AVAR, as licensee (the “Arbele License Agreement”), was assigned
to Avactis and Avalon and Arbele agreed to enter into a new Arbele License Agreement with Avactis on the same/similar terms as the Arbele
License Agreement. Further, Dr. Anthony Chan was appointed to the Board of Directors of Avactis and as the Chief Scientific Officer of
Avactis. Avactis purpose and business scope is to research, research, develop, produce, sell, distribute and generally commercialize CAR-T/CAR-NK/TCR-T/universal
cellular immunotherapy globally including in the PRC. The Company is required to contribute $10 million (or equivalent in RMB)
in cash and/or services, which shall be contributed in tranches based on milestones to be determined jointly by Avactis and the Company
in writing subject to the Company’s cash reserves. Within 30 days, Arbele Biotherapeutics shall make contribution of $6.66 million
in the form of entering into a License Agreement with Avactis granting Avactis with an exclusive right and license in China to its technology
and intellectual property pertaining to CAR-T/CAR-NK/TCR-T/universal cellular immunotherapy technology and any additional technology developed
in the future with terms and conditions to be mutually agreed upon the Company and Avactis and services. As of the date hereof, the
License Agreement has not been finalized.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 16 – COMMITMENTS AND CONTINCENGIES (continued)
Joint Venture – Avactis Biosciences Inc.
(continued)
In addition,
the Company is responsible for:
| ● | Contributing
registered capital of RMB 5,000,000 (approximately $0.7 million) for working capital purposes as required by local regulation, which
is not required to be contributed immediately and will be contributed subject to the Company’s discretion; |
| ● | assist
Avactis in setting up its business operations and obtaining all required permits and licenses from the Chinese government; |
| ● | assisting
Avactis in recruiting, hiring and retaining personnel; |
| ● | providing
Avactis with access to various hospital networks in China to assist in the testing and commercialization of the CAR-T/CAR-NK/TCR-T/universal
cellular immunotherapy technology in China; |
| ● | assisting
Avactis in managing the Good Manufacturing Practices (GMP) facility and clinic to be developed by Avactis; |
| ● | providing
Avactis with advice pertaining to conducting clinicals in China; and |
| ● | Within
6 days of signing the AVAR Agreement, the Company is required to pay to Arbele Biotherapeutics $300,000 as a research and development
fee with an additional two payments of $300,000 (for a total of $900,000) to be paid upon mutually agreed upon milestones. |
Under AVAR Agreement, as amended, Arbele Biotherapeutics
shall be responsible for the following:
|
● |
Entering into a License Agreement with Avactis; and
|
|
|
|
|
● |
Providing Avactis with research and development expertise pertaining to clinical laboratory medicine when hired by Avactis. |
As of both September 30, 2022 and December 31,
2021, the Company paid the $900,000 to Arbele Biotherapeutics as research and development fee.
Line of Credit Agreement
On August
29, 2019, the Company entered into a Line of Credit Agreement (the “Line of Credit Agreement”) providing the Company with
a $20 million line of credit (the “Line of Credit”) from Wenzhao Lu (the “Lender”), a significant shareholder
and director of the Company. The Line of Credit allows the Company to request loans thereunder and to use the proceeds of such loans for
working capital and operating expense purposes until the facility matures on December 31, 2024. The loans are unsecured and are not convertible
into equity of the Company. Loans drawn under the Line of Credit bears interest at an annual rate of 5% and each individual loan
will be payable three years from the date of issuance. The Company has a right to draw down on the line of credit and not at the discretion
of the related party Lender. The Company may, at its option, prepay any borrowings under the Line of Credit, in whole or in part at any
time prior to maturity, without premium or penalty. The Line of Credit Agreement includes customary events of default. If any such event
of default occurs, the Lender may declare all outstanding loans under the Line of Credit to be due and payable immediately. As of September
30, 2022, $0 was outstanding under the Line of Credit.
NOTE 17 – SUBSEQUENT
EVENTS
The Company evaluated subsequent events and transactions
that occurred after the balance sheet date up to the date that the financial statements were issued. Based upon this review, other than
as described below, the Company did not identify any subsequent events that would have required adjustment or disclosure in the financial
statements.
New Subsidiary
In October 2022, the Company formed a wholly owned
subsidiary, Avalon Laboratory Services, Inc., a Delaware company.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 17 – SUBSEQUENT
EVENTS (continued)
Cease all operations in the People’s
Republic of China
In November of 2022,
the Company decided to cease all operations in the People’s Republic of China with the exception of a small administrative office,
Avalon Shanghai. The Company, through its Nevada Subsidiary Avactis Biosciences Inc., will continue to own Avactis Nanjing Biosciences
Ltd. However, Avactis Nanjing Biosciences Ltd. only owns a patent and is not considered an operating entity. The Company does not expect
nor does it plan that there will be further revenue generated from PRC operations in the foreseeable future. The impact of ceasing operations
will not have a material effect on the Company’s operations.
Membership Interest Purchase Agreement
On November
7, 2022, Avalon Laboratory Services, Inc. (the “Buyer”), a wholly-owned subsidiary of Avalon GloboCare Corp. (the “Company”),
entered into a Membership Interest Purchase Agreement (the “MIPA”), by and among SCBC Holdings LLC (the “Seller”),
the Zoe Family Trust, and Bryan Cox and Sarah Cox as individuals (each an “Owner” and collectively, the “Owners”),
and Laboratory Services MSO, LLC (“Laboratory Services MSO”), pursuant to which, subject to the terms and conditions
set forth in the MIPA, the Buyer will acquire from the Seller, sixty percent (60%) of all the issued and outstanding equity interests
of the Laboratory Services MSO (the “Purchased Interests”), free and clear of all liens (the “Transaction”).
The consideration to be paid for the Purchased Interests consists of up to thirty-one million dollars ($31,000,000), of which (i) five
million dollars ($5,000,000) was paid as a refundable prepayment at signing, (ii) ten million dollars ($10,000,000) will be paid in cash
at the closing, (iii) fifteen million dollars ($15,000,000) will be paid pursuant to the issuance of 15,000 shares of the Company’s
newly designated Series B Convertible Preferred Stock (the “Series B Preferred Stock”), stated value $1,000 (the “Series
B Stated Value”), which Series B Preferred Stock will be convertible into shares of the Company’s common stock at a conversion
price per share equal to $0.575 or an aggregate of 26,086,957 shares of the Company’s common stock, which are subject to the Lock
Up Period and the restrictions on sale set forth under Item 5.03 Amendments to Articles of Incorporation or Bylaws: Change in Fiscal Year
- Series B Preferred Stock - Conversion, and (iv) one million dollars ($1,000,000) will be paid on the first anniversary of the closing
date (the “Anniversary Payment”). The Seller is also eligible to receive certain earnout payments upon achievement
of certain operating results, which may be comprised of up to ten million dollars ($10,000,000) of which (x) five million dollars ($5,000,000)
will be paid in cash and (y) five million dollars ($5,000,000) will be paid pursuant to the issuance of the number of shares of Company
common stock valued at five million dollars ($5,000,000), calculated using the closing price of the Company’s common stock on December
31, 2023 (collectively, the “Earnout Payments”).
Headquartered
in Costa Mesa California, Laboratory Services MSO provides a broad portfolio of diagnostic tests including drug testing, toxicology, and
a broad array of test services, from general bloodwork to anatomic pathology, and urine toxicology. Specific capabilities include STAT
blood testing, qualitative drug screening, genetic testing, urinary testing, sexually transmitted disease testing and more. Laboratory
Services MSO has developed a premier reputation for customer service and fast turnaround times in the industry. Laboratory Services MSO
is the parent company of Laboratory Services, LLC, a Wyoming limited liability company and Laboratory Services DME, LLC, a Delaware limited
liability company.
The board
of directors of the Company and the managing member of the Buyer have approved the MIPA and certain ancillary documents related to the
Purchased Interests of Laboratory Services MSO, as discussed above. The MIPA contains customary representations and warranties and covenants.
The Anniversary Payment and the Earnout Payments will be available to compensate the Buyer for certain losses it may incur as a result
of any breach of the representations, warranties or covenants of the Seller and Laboratory Services MSO and for post-closing working capital
adjustments.
In connection
with the closing of the Transaction, Sarah Cox will become the Chief Operating Officer of the Company, replacing Meng Li, who will continue
to serve as a Chief Operating Officer of Avalon (Shanghai) Healthcare Technology Co., Ltd, a subsidiary of the Company. In addition, Ms.
Cox will be appointed as a director of the Company and Ms. Li will resign as a director of the Company. Ms. Cox, age 46, has continuously
served as the Chief Executive Officer of Laboratory Services MSO for the past five years. Ms. Cox co-founded Laboratory Services MSO in
2017. Ms. Cox earned her undergraduate degree from the University of Deakin, in Australia where she studied business and received a degree
in financial planning. At the closing of the Transaction, Ms. Cox and the Company will enter into an employment agreement providing for
an annual salary of three hundred and fifty thousand dollars ($350,000) and other customary compensation.
The closing
of the Transaction is subject to customary conditions to closing, including completion of financing for the remainder of the cash purchase
price. The transaction is expected to close in 30 days, subject to a 90 day right of extension by the Company.
Private Placement
In conjunction
with the Transaction, on November 7, 2022, the Company conducted a private placement offering (the “Private Placement”)
of 5,000 shares of its newly designated Series A Convertible Preferred Stock (the “Series A Preferred Stock”), stated
value $1,000, and entered into a securities purchase agreement (the “Securities Purchase Agreement”), with an accredited
investor named therein (the “Investor”), pursuant to which the Company sold to the Investor 5,000 shares of its Series
A Preferred Stock for gross proceeds of $5,000,000. The Series A Preferred Stock is convertible into shares of the Company’s common
stock at a conversion price per share equal to the greater of (i) one dollar ($1.00), and (ii) ninety percent (90%) of the closing price
of the Company’s common stock on the Nasdaq Stock Market (“Nasdaq”) on the day prior to receipt of the conversion
notice from the Investor, subject to adjustment for stock splits and similar matters. The Company intends to complete the financing for
the Transaction through the sale and issuance of an additional 10,000 shares of the Series A Preferred Stock.