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 March 31, | |
| |
2022 | | |
2021 | |
| |
| | |
| |
REVENUES | |
| | |
| |
Real property rental | |
$ | 297,631 | | |
$ | 289,774 | |
Total Revenues | |
| 297,631 | | |
| 289,774 | |
| |
| | | |
| | |
COSTS AND EXPENSES | |
| | | |
| | |
Real property operating expenses | |
| 218,448 | | |
| 216,894 | |
Total Costs and Expenses | |
| 218,448 | | |
| 216,894 | |
| |
| | | |
| | |
GROSS PROFIT | |
| | | |
| | |
Real property operating income | |
| 79,183 | | |
| 72,880 | |
Total Gross Profit | |
| 79,183 | | |
| 72,880 | |
| |
| | | |
| | |
OTHER OPERATING EXPENSES: | |
| | | |
| | |
Advertising and marketing | |
| 526,806 | | |
| 8,823 | |
Professional fees | |
| 821,308 | | |
| 1,381,178 | |
Compensation and related benefits | |
| 523,045 | | |
| 562,006 | |
Research and development expenses | |
| 116,684 | | |
| 213,188 | |
Other general and administrative | |
| 218,282 | | |
| 211,273 | |
| |
| | | |
| | |
Total Other Operating Expenses | |
| 2,206,125 | | |
| 2,376,468 | |
| |
| | | |
| | |
LOSS FROM OPERATIONS | |
| (2,126,942 | ) | |
| (2,303,588 | ) |
| |
| | | |
| | |
OTHER (EXPENSE) INCOME | |
| | | |
| | |
Interest expense - related party | |
| (39,686 | ) | |
| (45,149 | ) |
Loss from equity method investment | |
| (12,916 | ) | |
| (18,514 | ) |
Other income | |
| 109,006 | | |
| 133 | |
| |
| | | |
| | |
Total Other Income (Expense), net | |
| 56,404 | | |
| (63,530 | ) |
| |
| | | |
| | |
LOSS BEFORE INCOME TAXES | |
| (2,070,538 | ) | |
| (2,367,118 | ) |
| |
| | | |
| | |
INCOME TAXES | |
| - | | |
| - | |
| |
| | | |
| | |
NET LOSS | |
$ | (2,070,538 | ) | |
$ | (2,367,118 | ) |
| |
| | | |
| | |
LESS: NET LOSS ATTRIBUTABLE TO NON-CONTROLLING INTEREST | |
| - | | |
| - | |
| |
| | | |
| | |
NET LOSS ATTRIBUTABLE TO AVALON GLOBOCARE CORP. COMMON SHAREHOLDERS | |
$ | (2,070,538 | ) | |
$ | (2,367,118 | ) |
| |
| | | |
| | |
COMPREHENSIVE LOSS: | |
| | | |
| | |
NET LOSS | |
$ | (2,070,538 | ) | |
$ | (2,367,118 | ) |
OTHER COMPREHENSIVE INCOME (LOSS) | |
| | | |
| | |
Unrealized foreign currency translation gain (loss) | |
| 2,021 | | |
| (2,722 | ) |
COMPREHENSIVE LOSS | |
| (2,068,517 | ) | |
| (2,369,840 | ) |
LESS: COMPREHENSIVE LOSS ATTRIBUTABLE TO NON-CONTROLLING INTEREST | |
| - | | |
| - | |
COMPREHENSIVE LOSS ATTRIBUTABLE TO AVALON GLOBOCARE CORP. COMMON SHAREHOLDERS | |
$ | (2,068,517 | ) | |
$ | (2,369,840 | ) |
| |
| | | |
| | |
NET LOSS PER COMMON SHARE ATTRIBUTABLE TO AVALON GLOBOCARE CORP. COMMON SHAREHOLDERS: | |
| | | |
| | |
Basic and diluted | |
$ | (0.02 | ) | |
$ | (0.03 | ) |
| |
| | | |
| | |
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: | |
| | | |
| | |
Basic and diluted | |
| 88,502,439 | | |
| 83,413,154 | |
See
accompanying notes to the condensed consolidated financial statements.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
For the Three Months Ended March 31, 2022
(Unaudited)
| |
Avalon
GloboCare Corp. Stockholders’ Equity | | |
| | |
| |
| |
Preferred
Stock | | |
Common
Stock | | |
| | |
Treasury
Stock | | |
| | |
| | |
Accumulated | | |
| | |
| |
| |
Number | | |
| | |
Number | | |
| | |
Additional | | |
Number | | |
| | |
| | |
| | |
Other | | |
| | |
| |
| |
of | | |
| | |
of | | |
| | |
Paid-in | | |
of | | |
| | |
Accumulated | | |
Statutory | | |
Comprehensive | | |
Non-controlling | | |
Total | |
| |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Capital | | |
Shares | | |
Amount | | |
Deficit | | |
Reserve | | |
Loss | | |
Interest | | |
Equity | |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Balance,
January 1, 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 | |
See accompanying notes to the condensed consolidated financial statements.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
For the Three Months Ended March 31, 2021
(Unaudited)
| |
Avalon
GloboCare Corp. Stockholders’ Equity | | |
| | |
| |
| |
Preferred
Stock | | |
Common
Stock | | |
| | |
Treasury
Stock | | |
| | |
| | |
Accumulated | | |
| | |
| |
| |
Number | | |
| | |
Number | | |
| | |
Additional | | |
Number | | |
| | |
| | |
| | |
Other | | |
| | |
| |
| |
of | | |
| | |
of | | |
| | |
Paid-in | | |
of | | |
| | |
Accumulated | | |
Statutory | | |
Comprehensive | | |
Non-controlling | | |
Total | |
| |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Capital | | |
Shares | | |
Amount | | |
Deficit | | |
Reserve | | |
Loss | | |
Interest | | |
Equity | |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Balance,
January 1, 2021 | |
| - | | |
$ | - | | |
| 82,795,297 | | |
$ | 8,279 | | |
$ | 46,856,447 | | |
| (520,000 | ) | |
$ | (522,500 | ) | |
$ | (42,041,375 | ) | |
$ | 6,578 | | |
$ | (190,510 | ) | |
$ | - | | |
$ | 4,116,919 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Sale
of common stock, net | |
| - | | |
| - | | |
| 1,848,267 | | |
| 185 | | |
| 2,337,074 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 2,337,259 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Issuance
of common stock for services | |
| - | | |
| - | | |
| 300,000 | | |
| 30 | | |
| 359,970 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 360,000 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Stock-based
compensation | |
| - | | |
| - | | |
| - | | |
| - | | |
| 202,505 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 202,505 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Foreign
currency translation adjustment | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (2,722 | ) | |
| - | | |
| (2,722 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net
loss for the three months ended March 31, 2021 | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (2,367,118 | ) | |
| - | | |
| - | | |
| - | | |
| (2,367,118 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance,
March 31, 2021 | |
| - | | |
$ | - | | |
| 84,943,564 | | |
$ | 8,494 | | |
$ | 49,755,996 | | |
| (520,000 | ) | |
$ | (522,500 | ) | |
$ | (44,408,493 | ) | |
$ | 6,578 | | |
$ | (193,232 | ) | |
$ | - | | |
$ | 4,646,843 | |
See accompanying notes to the condensed
consolidated financial statements.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
(Unaudited)
| |
For the Three Months Ended
March 31, | |
| |
2022 | | |
2021 | |
| |
| | |
| |
CASH FLOWS FROM OPERATING ACTIVITIES: | |
| | |
| |
Net loss | |
$ | (2,070,538 | ) | |
$ | (2,367,118 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: | |
| | | |
| | |
Depreciation | |
| 84,984 | | |
| 78,875 | |
Change in straight-line rent receivable | |
| 4,463 | | |
| 943 | |
Amortization of right-of-use asset | |
| 34,247 | | |
| 27,531 | |
Stock-based compensation and service expense | |
| 605,626 | | |
| 573,982 | |
Loss on equity method investment | |
| 12,916 | | |
| 18,514 | |
Changes in operating assets and liabilities: | |
| | | |
| | |
Rent receivable | |
| (6,965 | ) | |
| 13,647 | |
Rent receivable - related party | |
| (12,600 | ) | |
| - | |
Security deposit | |
| (441 | ) | |
| 6,003 | |
Deferred leasing costs | |
| 7,856 | | |
| (2,364 | ) |
Prepaid expenses and other assets | |
| 30,219 | | |
| (40,803 | ) |
Accrued liabilities and other payables | |
| 793,585 | | |
| 163,442 | |
Accrued liabilities and other payables - related parties | |
| 39,687 | | |
| 45,149 | |
Operating lease obligation | |
| (34,247 | ) | |
| (33,326 | ) |
| |
| | | |
| | |
NET CASH USED IN OPERATING ACTIVITIES | |
| (511,208 | ) | |
| (1,515,525 | ) |
| |
| | | |
| | |
CASH FLOWS FROM INVESTING ACTIVITIES: | |
| | | |
| | |
Purchase of property and equipment | |
| (1,749 | ) | |
| - | |
Additional investment in equity method investment | |
| - | | |
| (30,844 | ) |
| |
| | | |
| | |
CASH USED IN INVESTING ACTIVITIES | |
| (1,749 | ) | |
| (30,844 | ) |
| |
| | | |
| | |
CASH FLOWS FROM FINANCING ACTIVITIES | |
| | | |
| | |
Proceeds received from loan payable - related party | |
| 100,000 | | |
| 105,249 | |
Proceeds received from equity offering | |
| 135,567 | | |
| 2,481,405 | |
Disbursements for equity offering costs | |
| (4,067 | ) | |
| (74,442 | ) |
| |
| | | |
| | |
NET CASH PROVIDED BY FINANCING ACTIVITIES | |
| 231,500 | | |
| 2,512,212 | |
| |
| | | |
| | |
EFFECT OF EXCHANGE RATE ON CASH | |
| 209 | | |
| 120 | |
| |
| | | |
| | |
NET (DECREASE) INCREASE IN CASH | |
| (281,248 | ) | |
| 965,963 | |
| |
| | | |
| | |
CASH - beginning of period | |
| 807,538 | | |
| 726,577 | |
| |
| | | |
| | |
CASH - end of period | |
$ | 526,290 | | |
$ | 1,692,540 | |
| |
| | | |
| | |
NON-CASH INVESTING AND FINANCING ACTIVITIES: | |
| | | |
| | |
Common stock issued for accrued liabilities | |
$ | - | | |
$ | 261,032 | |
Deferred financing costs in accrued liabilities | |
$ | 20,000 | | |
$ | - | |
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 “AVCO”) is a Delaware corporation. The Company was incorporated under the laws
of the State of Delaware on July 28, 2014. On October 19, 2016, the Company entered into and closed a Share Exchange Agreement with the
shareholders of Avalon Healthcare System, Inc., a Delaware corporation (“AHS”), 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 COVID-19 related diagnostics and therapeutics. 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 COVID-19 related vaccine and 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 March 31, 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
March 31, 2022, the occupancy rate of the building is 83.5%.
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”),
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., 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
Biosciences Inc.
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 March 31, 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 March 31, 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 AVCO | |
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 AVCO | |
Dormant, is in process of being dissolved |
| |
| |
| |
|
Avalon RT 9 Properties LLC (“Avalon RT 9”) | |
New Jersey February 7, 2017 | |
100% held by AVCO | |
Owns and operates an income-producing real property and holds and manages the corporate headquarters |
| |
| |
| |
|
Avalon (Shanghai) Healthcare Technology Co., Ltd. (“Avalon Shanghai”) | |
PRC April 29, 2016 | |
100% held by AHS | |
Provides medical related consulting services and developing Avalon Cell and Avalon Rehab in China |
| |
| |
| |
|
Genexosome Technologies Inc. (“Genexosome”) | |
Nevada July 31, 2017 | |
60% held by AVCO | |
Dormant |
| |
| |
| |
|
Beijing Jieteng (Genexosome) Biotech Co., Ltd. (“Beijing Genexosome”) | |
PRC August 7, 2015 | |
100% held by Genexosome | |
Dormant |
| |
| |
| |
|
Avactis Biosciences Inc. (“Avactis”) | |
Nevada July 18, 2018 | |
100% held by AVCO | |
Integrate and optimize global scientific and clinical resources to further advance cellular therapies, including regenerative medicine with stem/progenitor cells as well as cellular immunotherapy including CAR-T, CAR-NK, TCR-T and others to treat certain cancers |
| |
| |
| |
|
International Exosome Association LLC (“Exosome”) | |
Delaware June 13, 2019 | |
100% held by AVCO | |
Promotes standardization related to exosome industry |
NOTE
2 – BASIS OF PRESENTATION AND GOING CONCERN CONDITION
Basis
of Presentation
These interim
condensed consolidated financial statements of the Company and its subsidiaries are unaudited. In the opinion of management, all adjustments
(consisting of normal recurring accruals) and disclosures necessary for a fair presentation of these interim condensed consolidated financial
statements have been included. The results reported in the condensed consolidated financial statements for any interim periods are not
necessarily indicative of the results that may be reported for the entire year. The accompanying condensed consolidated financial statements
have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission and do not include all information
and footnotes necessary for a complete presentation of financial statements in conformity with accounting principles generally accepted
in the United States (“U.S. GAAP”). 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 COVID-19 related diagnostics and therapeutics. 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 COVID-19 related vaccine and 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 had a working capital deficit of $4,234,370 as
of March 31, 2022 and has incurred recurring net losses and generated negative cash flow from operating activities of $2,070,538 and
$511,208 for the three months ended March 31, 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 months ended March 31, 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, and valuation of stock-based compensation.
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.
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
March 31, 2022 and December 31, 2021, the Company’s cash balances by geographic area were as follows:
Country: | |
March 31, 2022 | | |
December 31, 2021 | |
United States | |
$ | 398,459 | | |
| 75.7 | % | |
$ | 767,605 | | |
| 95.1 | % |
China | |
| 127,831 | | |
| 24.3 | % | |
| 39,933 | | |
| 4.9 | % |
Total cash | |
$ | 526,290 | | |
| 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 March
31, 2022 and December 31, 2021.
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 $79,000) per bank. Any balance over RMB 500,000 per bank in PRC will not be
covered. At March 31, 2022, cash balances held in the PRC are RMB 810,451 (approximately $128,000), of which, RMB 284,408 (approximately
$45,000) 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 March 31, 2022, there were
no balances in excess of the federally-insured limits.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Credit
Risk and Uncertainties (continued)
Currently,
a portion of the Company’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.
Investment
in Unconsolidated Company – Epicon Biosciences Co., Ltd.
The
Company uses the equity method of accounting for its investment in, and earning or loss of, company that it does not control but over
which it does exert significant influence. The Company considers whether the fair value of its equity method investment has declined
below its carrying value whenever adverse events or changes in circumstances indicate that recorded value may not be recoverable. If
the Company considers any decline to be other than temporary (based on various factors, including historical financial results and the
overall health of the investee), then a write-down would be recorded to estimated fair value. See Note 5 for discussion of equity method
investment.
Revenue
Recognition
The
Company recognizes revenue under Accounting Standards Codification (“ASC”) 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 |
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.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Revenue
Recognition (continued)
The
transaction price is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods
or services to a customer, excluding amounts collected on behalf of third parties (for example, some sales taxes). The consideration
promised in a contract with a customer may include fixed amounts, variable amounts, or both. Variable consideration is included in the
transaction price only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will
not occur when the uncertainty associated with the variable consideration is subsequently resolved.
The
transaction price is allocated to each performance obligation on a relative standalone selling price basis. The transaction price allocated
to each performance obligation is recognized when that performance obligation is satisfied, at a point in time or over time as appropriate.
The
Company’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 months ended
March 31, 2022 and 2021, potentially dilutive common shares consist of the common shares issuable upon the exercise of common stock options
(using the treasury stock method). Common stock equivalents are not included in the calculation of diluted 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.
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
March 31, | |
| |
2022 | | |
2021 | |
Stock options | |
| 8,185,000 | | |
| 7,580,000 | |
Potentially dilutive securities | |
| 8,185,000 | | |
| 7,580,000 | |
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Segment
Reporting
The
Company uses “the 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 months ended March 31, 2022 and 2021, the
Company operates through two business segments: real property operating segment and medical related consulting services segment. These
reportable segments offer different types of services and products, have different types of revenue, and are managed separately as each
requires different operating strategies and management expertise.
Reclassification
Certain
prior period amounts have been reclassified to conform to the current period presentation. These reclassifications have no effect on
the previously reported financial position, results of operations and cash flows.
Recent
Accounting Standards
In
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 – PREPAID EXPENSES AND OTHER CURRENT ASSETS
At
March 31, 2022 and December 31, 2021, prepaid expenses and other current assets consisted of the following:
| |
March 31,
2022 | | |
December 31,
2021 | |
Prepaid directors and officers liability insurance premium | |
$ | 12,643 | | |
$ | 49,656 | |
Prepaid professional fees | |
| 26,394 | | |
| 186,609 | |
Recoverable VAT | |
| 20,445 | | |
| 23,655 | |
Deferred leasing costs | |
| 31,422 | | |
| 31,422 | |
Security deposit | |
| 20,764 | | |
| - | |
Advance to supplier | |
| 14,804 | | |
| - | |
Other | |
| 31,319 | | |
| 18,313 | |
Total | |
$ | 157,791 | | |
$ | 309,655 | |
NOTE
5 – EQUITY METHOD INVESTMENT
As
of March 31, 2022 and December 31, 2021, the equity method investment amounted to $503,994 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.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
5 – EQUITY METHOD INVESTMENT (continued)
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 March 31, 2022 and 2021, the Company’s share of Epicon’s net loss was $12,916 and $18,514, respectively,
which was included in loss from equity method investment in the accompanying condensed consolidated statements of operations and comprehensive
loss. In the three months ended March 31, 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 | |
Epicon’s net loss attributable to the Company | |
| (12,916 | ) |
Foreign currency fluctuation | |
| 1,278 | |
Equity investment carrying amount at March 31, 2022 | |
$ | 503,994 | |
The
tables below present the summarized financial information, as provided to the Company by the investee, for the unconsolidated company:
| |
March 31,
2022 | | |
December 31,
2021 | |
Current assets | |
$ | 5,082 | | |
$ | 5,479 | |
Noncurrent assets | |
| 202,271 | | |
| 216,864 | |
Current liabilities | |
| 73,552 | | |
| 56,626 | |
Noncurrent liabilities | |
| - | | |
| - | |
Equity | |
| 133,801 | | |
| 165,717 | |
| |
For the Three Months
Ended March 31, | |
| |
2022 | | |
2021 | |
Net revenue | |
$ | - | | |
$ | - | |
Gross profit | |
| - | | |
| - | |
Loss from operation | |
| 32,323 | | |
| 46,286 | |
Net loss | |
| 32,291 | | |
| 46,286 | |
NOTE
6 – ACCRUED LIABILITIES AND OTHER PAYABLES
At
March 31, 2022 and December 31, 2021, accrued liabilities and other payables consisted of the following:
| |
March 31, 2022 | | |
December 31,
2021 | |
Accrued tenants’ improvement reimbursement | |
$ | 43,500 | | |
$ | 43,500 | |
Tenants’ security deposit | |
| 73,733 | | |
| 73,733 | |
Accrued business expense reimbursement | |
| 39,698 | | |
| 68,172 | |
Accounts payable | |
| 64,606 | | |
| - | |
Accrued utilities | |
| 59,320 | | |
| 14,372 | |
Advance from customer | |
| 19,245 | | |
| - | |
Deferred rental income | |
| 49,430 | | |
| 8,638 | |
Refundable deposit | |
| 149,871 | | |
| - | |
Accrued equity offering costs | |
| 60,000 | | |
| 40,000 | |
Others | |
| 97,427 | | |
| 26,905 | |
Total | |
$ | 656,830 | | |
$ | 275,320 | |
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
7 – RELATED PARTY TRANSACTIONS
Rental
Revenue from Related Party and Rent Receivable – Related Party
The
Company leases space of its commercial real property located in New Jersey to a company, which is controlled by Wenzhao Lu, the Company’s
largest shareholder and chairman of the Board of Directors. The term of the related party lease agreement is five years commencing on
May 1, 2021 and will expire on April 30, 2026. For the three months ended March 31, 2022, 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. The related party rent receivable totaled $46,200 and $33,600, respectively, and no allowance for doubtful accounts was deemed
to be required on rent receivable – related party at March 31, 2022 and December 31, 2021.
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 $51,138 and $57,405 for the three months ended
March 31, 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 March 31, 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 March 31, 2022 and December 31, 2021, the accrued and unpaid interest related to borrowings from Wenzhao Lu, the Company’s largest
shareholder and chairman of the Board of Directors, amounted to $408,120 and $368,433, respectively, and have been included in accrued
liabilities and other payables – related parties on the accompanying condensed consolidated balance sheets.
Borrowings
from Related Party
Promissory
Note
On
March 18, 2019, the Company issued Wenzhao Lu, the Company’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 and $200,000 in the third quarter of 2019 and second quarter of 2020, respectively. As
of both March 31, 2022 and December 31, 2021, the outstanding principal balance was $390,000.
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. For the three months ended March 31, 2022 and 2021, the interest
expense related to above borrowings amounted to $39,686 and $45,149, respectively, and has been included in interest expense –
related party on the accompanying condensed consolidated statements of operations and comprehensive loss.
As
of March 31, 2022 and December 31, 2021, the related accrued and unpaid interest for above borrowings was $408,120 and $368,433, respectively,
and has been included in accrued liabilities and other payables – related parties on the accompanying condensed consolidated balance
sheets.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
8 – 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 three months ended March 31, 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.
Options
The
following table summarizes the shares of the Company’s common stock issuable upon exercise of options outstanding at March 31,
2022:
Options Outstanding | | |
Options Exercisable | |
Range of
Exercise
Price | | |
Number
Outstanding at
March 31, 2022 | | |
Weighted Average
Remaining
Contractual Life
(Years) | | |
Weighted
Average
Exercise
Price | | |
Number
Exercisable at
March 31, 2022 | | |
Weighted
Average
Exercise Price | |
$ | 0.50 – 0.82 | | |
| 2,460,000 | | |
| 4.84 | | |
$ | 0.56 | | |
| 2,116,667 | | |
$ | 0.52 | |
| 1.00 – 1.93 | | |
| 2,955,000 | | |
| 4.55 | | |
| 1.39 | | |
| 2,845,000 | | |
| 1.40 | |
| 2.00 – 2.80 | | |
| 2,740,000 | | |
| 1.52 | | |
| 2.17 | | |
| 2,740,000 | | |
| 2.17 | |
| 4.76 | | |
| 30,000 | | |
| 2.01 | | |
| 4.76 | | |
| 30,000 | | |
| 4.76 | |
$ | 0.50 – 4.76 | | |
| 8,185,000 | | |
| 3.62 | | |
$ | 1.41 | | |
| 7,731,667 | | |
$ | 1.44 | |
Stock
option activities for the three months ended March 31, 2022 were as follows:
| |
Number of Options | | |
Weighted
Average
Exercise
Price | |
Outstanding at January 1, 2022 | |
| 7,725,000 | | |
$ | 1.45 | |
Granted | |
| 460,000 | | |
| 0.82 | |
Expired/forfeited/exercised | |
| - | | |
| - | |
Outstanding at March 31, 2022 | |
| 8,185,000 | | |
$ | 1.41 | |
Options exercisable at March 31, 2022 | |
| 7,731,667 | | |
$ | 1.44 | |
Options expected to vest | |
| 453,333 | | |
$ | 0.87 | |
The
aggregate intrinsic value of both stock options outstanding and stock options exercisable at March 31, 2022 was $401,400.
The
fair values of options granted during the three months ended March 31, 2022 were estimated at the date of grant using the Black-Scholes
option-pricing model with the following assumptions: volatility of 117.46%, risk-free rate of 1.37% - 1.53%, annual dividend
yield of 0%, and expected life of 5.00 years. The aggregate fair value of the options granted during the three months
ended March 31, 2022 was $315,145.
The
fair values of options granted during the three months ended March 31, 2021 were estimated at the date of grant using the Black-Scholes
option-pricing model with the following assumptions: volatility of 128.42%, risk-free rate of 0.36%, annual dividend yield of 0% and
expected life of 5.00 years. The aggregate fair value of the options granted during the three months ended March 31, 2021 was $419,020.
For
the three months ended March 31, 2022 and 2021, stock-based compensation expense associated with stock options granted amounted
to $152,323 and $202,505, of which, $104,913 and $139,507 was recorded as compensation and related benefits, $36,138 and
$43,443 was recorded as professional fees, and $11,272 and $19,555 was recorded as research and development expenses,
respectively.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
8 – EQUITY (continued)
Options
(continued)
A summary of the status of the Company’s
nonvested stock options granted as of March 31, 2022 and changes during the three months ended March 31, 2022 is presented below:
| |
Number of
Options | | |
Weighted
Average
Exercise
Price | |
Nonvested at January 1, 2022 | |
| 205,834 | | |
$ | 1.04 | |
Granted | |
| 460,000 | | |
| 0.82 | |
Vested | |
| (212,501 | ) | |
| (0.91 | ) |
Nonvested at March 31, 2022 | |
| 453,333 | | |
$ | 0.87 | |
NOTE
9 – STATUTORY RESERVE AND RESTRICTED NET ASSETS
The
Company’s PRC subsidiaries, Avalon Shanghai and Beijing Genexosome, are restricted in their ability to transfer a portion
of their net assets 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 and Beijing Genexosome during the
three months ended March 31, 2022 as they incurred net losses in the period. As of both March 31, 2022 and December 31, 2021, the
restricted amounts as determined pursuant to PRC statutory laws totaled $6,578.
Relevant
PRC laws and regulations restrict the Company’s PRC subsidiaries, Avalon Shanghai and Beijing Genexosome, from transferring
a portion of their 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 entities’ accumulated profits may be distributed as dividends to the Company’s
shareholders without the consent of a third party. As of both March 31, 2022 and December 31, 2021, total restricted net assets amounted
to $783,984.
NOTE
10 – 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 subsidiaries 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
11 – 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 months ended March 31, 2022 and 2021.
| |
Three Months Ended
March 31, | |
Customer | |
2022 | | |
2021 | |
A | |
| 28 | % | |
| 30 | % |
B | |
| 18 | % | |
| 20 | % |
C | |
| 12 | % | |
| 13 | % |
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 March 31, 2022, accounted for 74.1% of the Company’s
total outstanding rent receivable and rent receivable – related party at March 31, 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 months ended March 31, 2022 and 2021.
One supplier,
whose outstanding payable accounted for 10% or more of the Company’s total outstanding accounts payable at March 31, 2022,
accounted for 100.0% of the Company’s total outstanding accounts payable at March 31, 2022.
NOTE
12 – SEGMENT INFORMATION
For
the three months ended March 31, 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
12 – 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
months ended March 31, 2022 and 2021 was as follows:
| |
Three Months Ended
March 31, | |
| |
2022 | | |
2021 | |
Revenues | |
| | |
| |
Real property operations | |
$ | 297,631 | | |
$ | 289,774 | |
Total | |
| 297,631 | | |
| 289,774 | |
Costs and expenses | |
| | | |
| | |
Real property operations | |
| 218,448 | | |
| 216,894 | |
Total | |
| 218,448 | | |
| 216,894 | |
Gross profit | |
| | | |
| | |
Real property operations | |
| 79,183 | | |
| 72,880 | |
Total | |
| 79,183 | | |
| 72,880 | |
Other operating expenses | |
| | | |
| | |
Real property operations | |
| 107,053 | | |
| 101,423 | |
Medical related consulting services | |
| 87,115 | | |
| 161,553 | |
Corporate/Other | |
| 2,011,957 | | |
| 2,113,492 | |
Total | |
| 2,206,125 | | |
| 2,376,468 | |
Other (expense) income | |
| | | |
| | |
Interest expense | |
| | | |
| | |
Corporate/Other | |
| (39,686 | ) | |
| (45,149 | ) |
Total | |
| (39,686 | ) | |
| (45,149 | ) |
Other income (expense) | |
| | | |
| | |
Real property operations | |
| 4 | | |
| 104 | |
Medical related consulting services | |
| 96,086 | | |
| (18,486 | ) |
Corporate/Other | |
| - | | |
| 1 | |
Total | |
| 96,090 | | |
| (18,381 | ) |
Total other income (expense), net | |
| 56,404 | | |
| (63,530 | ) |
Net (loss) income | |
| | | |
| | |
Real property operations | |
| (27,866 | ) | |
| (28,439 | ) |
Medical related consulting services | |
| 8,971 | | |
| (180,039 | ) |
Corporate/Other | |
| (2,051,643 | ) | |
| (2,158,640 | ) |
Total | |
$ | (2,070,538 | ) | |
$ | (2,367,118 | ) |
Identifiable long-lived tangible assets at March 31, 2022 and December 31, 2021 | |
March 31,
2022 | | |
December 31,
2021 | |
Real property operations | |
$ | 7,495,992 | | |
$ | 7,537,281 | |
Medical related consulting services | |
| 644 | | |
| 742 | |
Corporate/Other | |
| 311,169 | | |
| 352,294 | |
Total | |
$ | 7,807,805 | | |
$ | 7,890,317 | |
Identifiable long-lived tangible assets at March 31, 2022 and December 31, 2021 | |
March 31, 2022 | | |
December 31,
2021 | |
United States | |
$ | 7,537,372 | | |
$ | 7,583,880 | |
China | |
| 270,433 | | |
| 306,437 | |
Total | |
$ | 7,807,805 | | |
$ | 7,890,317 | |
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
13 – 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 including misappropriation of trade secrets in violation of the Defend Trade Secrets
Act of 2016 and violation of Ohio Uniform Trade Secrets Act. Research Institute is seeking monetary damages, injunctive relief, exemplary
damages, injunctive relief and other equitable relief. The Company intends to vigorously defend against this action and pursue all available
legal remedies. The criminal proceedings against Dr. Zhou and Li Chen have been concluded and the civil litigation continue. The Company
and Nationwide Children’s Hospital have reached a verbal settlement agreement. Both parties are in the process of drafting the
related written agreements. There can be no assurances that these settlement agreements will be signed.
Operating
Leases Commitment
The
Company is a party to leases for office space. Rent expense under all operating leases amounted to approximately $36,000 and $39,000 for
the three months ended March 31, 2022 and 2021, respectively. Supplemental cash flow information related to leases for the three
months ended March 31, 2022 and 2021 is as follows:
| |
Three Months Ended
March 31, | |
| |
2022 | | |
2021 | |
Cash paid for amounts included in the measurement of lease liabilities: | |
| | |
| |
Operating cash flows paid for operating lease | |
$ | 35,759 | | |
$ | 29,590 | |
Right-of-use assets obtained in exchange for lease obligation: | |
| | | |
| | |
Operating lease | |
$ | - | | |
$ | 133,201 | |
The
following table summarizes the lease term and discount rate for the Company’s operating lease as of March 31, 2022:
| |
Operating
Lease | |
Weighted average remaining lease term (in years) | |
| 0.83 | |
Weighted average discount rate | |
| 4.88 | % |
The
following table summarizes the maturity of lease liabilities under operating lease as of March 31, 2022:
For the Twelve-month Period Ending March 31: | |
Operating
Lease | |
2023 | |
$ | 125,271 | |
2024 and thereafter | |
| - | |
Total lease payments | |
| 125,271 | |
Amount of lease payments representing interest | |
| (2,048 | ) |
Total present value of operating lease liabilities | |
$ | 123,223 | |
| |
| | |
Current portion | |
$ | 123,223 | |
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
13 – COMMITMENTS AND CONTINCENGIES (continued)
Equity
Investment Commitment
On
May 29, 2018, Avalon Shanghai entered into a Joint Venture Agreement with Jiangsu Unicorn Biological Technology Co., Ltd. (“Unicorn”),
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 $1.3 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 $1.6 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 March 31, 2022, Avalon Shanghai has
contributed RMB 4,760,000 (approximately $0.8 million) that was included in equity method investment on the accompanying condensed consolidated
balance sheets. The Company intends to use its present working capital together with borrowings from related party and equity raises
to fund the project cost.
Joint
Venture – 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. In addition, the Company is responsible for:
| ● | Contributing registered capital of RMB 5,000,000 (approximately $0.8 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. |
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
13 – COMMITMENTS AND CONTINCENGIES (continued)
Joint
Venture – Avactis Biosciences Inc. (continued)
Under
AVAR Agreement, as amended, Arbele Biotherapeutics shall be responsible for the following:
|
● |
Entering into a License Agreement with Avactis; and |
|
|
|
|
● |
Providing Avactis with research and development expertise pertaining to clinical laboratory medicine when hired by Avactis. |
As
of both March 31, 2022 and December 31, 2021, the Company paid the $900,000 to Arbele Biotherapeutics as research and development
fee. As of March 31, 2022, License Agreement has not been finalized.
Line
of Credit Agreement
On
August 29, 2019, the Company entered into a Line of Credit Agreement (the “Line 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 March 31, 2022, $2,850,262 was outstanding under the Line of Credit.
NOTE
14 – 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.
2022
Convertible Note
On
March 28, 2022, the Company entered into Securities Purchase Agreement with an accredited investor providing for the sale by the Company
to the investor of a Convertible Note in the amount of $4,000,000 (the “2022 Convertible Note”). In addition to the 2022
Convertible Note, the investor will also receive a Stock Purchase Warrant (the “2022 Warrant”) to acquire an aggregate of
1,333,333 shares of common stock. The 2022 Warrants will be exercisable for five years at an exercise price of $1.25. The financing closed
with respect to $2,669,521.60 of the financing on April 15, 2022 and with respect to $659,580.64 of the financing on April 29, 2022.
The Company and the investor expect to close on the balance of the $4,000,000 in funding no later than May 15, 2022. As a result of the
first closing, the Company issued the investor a 2022 Convertible Note in the principal amount of $2,669,521.60 and a 2022 Warrant to
acquire 889,840 shares of common stock and as a result of the second closing, the Company issued the investor a 2022 Convertible Note
in the principal amount of $659,580.64 and a 2022 Warrant to acquire 219,860 shares of common stock.
The
2022 Convertible Note bears interest at 1% per annum payable at maturity and matures ten years from issuance. The investor may elect
to convert all or part of the 2022 Convertible Note, plus accrued interest, at any time into shares of common stock of the Company at
a conversion price equal to 95% of the average of the highest three trading prices for the common stock during the 20-trading day period
ending one trading day prior to the conversion date but in no event will the conversion price be lower than $0.75 per share.
The
investor agreed to restrict its ability to convert the 2022 Convertible Note and exercise the 2022 Warrants 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.
Common
Shares Issued for Services
In
April 2022, the Company issued a total of 329,592 shares of its common stock for services rendered and to be rendered. These
shares were valued at $290,950, the fair market values on the grant dates using the reported closing share prices on the dates of grant,
and the Company reduced accrued liabilities of $251,590 and recorded prepaid expense of $39,360 which will be amortized over the
rest of corresponding service periods.