UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2023

 

OR

 

   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission File Number: 000-38728

 

AVALON GLOBOCARE CORP.

(Exact name of registrant as specified in its charter)

 

Delaware   No. 47--1685128
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification No.)
     

4400 Route 9 South, Suite 3100
Freehold, New Jersey

 

 

07728

(Address of principal executive offices) 

  (Zip Code)

 

(732) 780-4400

(Registrant’s telephone number, including area code)

 

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
Common Stock, par value $0.0001 per share   ALBT   The Nasdaq Capital Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer ☐   Accelerated filer ☐
Non-accelerated filer ☒   Smaller reporting company
    Emerging growth company 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No 

 

As of August 14, 2023, 10,816,287 shares of common stock, $0.0001 par value per share, were outstanding.

 

 

 

 

 

 

AVALON GLOBOCARE CORP.

 

FORM 10-Q

 

For the Quarterly Period Ended June 30, 2023

 

Table of Contents

 

      Page
Part I – Financial Information    
Item 1. Unaudited Financial Statements    
  Condensed Consolidated Balance Sheets – At June 30, 2023 (Unaudited) and December 31, 2022   1
  Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited) – For the Three and Six Months Ended June 30, 2023 and 2022   2
  Condensed Consolidated Statements of Changes in Equity (Unaudited) — For the Three and Six Months Ended June 30, 2023 and 2022   3
 

Condensed Consolidated Statements of Cash Flows (Unaudited) – For the Six Months Ended June 30, 2023 and 2022

  5
  Notes to Unaudited Condensed Consolidated Financial Statements   6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations   29
Item 3. Quantitative and Qualitative Disclosures About Market Risk   40
Item 4. Controls and Procedures   40
       
Part II – Other Information    
Item 1. Legal Proceedings   41
Item 1A. Risk Factors   41
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds   43
Item 3. Defaults Upon Senior Securities   43
Item 4. Mine Safety Disclosures   43
Item 5. Other Information   43
Item 6. Exhibits   44
Exhibit Index   44
Signatures   46

 

i

 

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

AVALON GLOBOCARE CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

   June 30,
2023
   December 31,
2022
 
   (Unaudited)     
ASSETS        
         
CURRENT ASSETS:        
Cash  $653,191   $1,990,910 
Rent receivable   136,053    134,626 
Prepaid expense and other current assets   633,510    247,990 
           
Total Current Assets   1,422,754    2,373,526 
           
NON-CURRENT ASSETS:          
Operating lease right-of-use assets, net   187,702    10,885 
Property and equipment, net   117,466    138,294 
Investment in real estate, net   7,275,746    7,360,087 
Equity method investments, net   21,355,134    485,008 
Advances for equity interest purchase   
-
    8,999,722 
Other non-current assets   211,782    384,383 
           
Total Non-current Assets   29,147,830    17,378,379 
           
Total Assets  $30,570,584   $19,751,905 
           
LIABILITIES AND EQUITY          
           
CURRENT LIABILITIES:          
Accrued professional fees  $1,685,448   $1,673,411 
Accrued research and development fees   900,473    838,001 
Accrued payroll liability and compensation   294,921    223,722 
Accrued litigation settlement   450,000    450,000 
Accrued liabilities and other payables   278,209    283,234 
Accrued liabilities and other payables - related parties   117,701    100,000 
Operating lease obligation   121,486    11,437 
Equity method investment payable   1,000,000    
-
 
Derivative liability   97,095    - 
Convertible note payable, net   1,019,899    - 
           
Total Current Liabilities   5,965,232    3,579,805 
           
NON-CURRENT LIABILITIES:          
Operating lease obligation - noncurrent portion   67,434    
-
 
Accrued litigation settlement - noncurrent portion   -    450,000 
Note payable, net   5,536,605    4,563,152 
Loan payable - related party   850,000    
-
 
           
Total Non-current Liabilities   6,454,039    5,013,152 
           
Total Liabilities   12,419,271    8,592,957 
           
Commitments and Contingencies (Note 15)   
 
    
 
 
           
EQUITY:          
Preferred stock, $0.0001 par value; 10,000,000 shares authorized;   
 
    
 
 
Series A Convertible Preferred Stock, 9,000 shares issued and outstanding at June 30, 2023 and December 31, 2022. Liquidation preference $9 million at June 30, 2023 and December 31, 2022   9,000,000    9,000,000 
Series B Convertible Preferred Stock, 11,000 and 0 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively. Liquidation preference $11 million at June 30, 2023   11,000,000    
-
 
Common stock, $0.0001 par value; 490,000,000 shares authorized; 10,499,907 shares issued and 10,447,907 shares outstanding at June 30, 2023; 10,013,576 shares issued and 9,961,576 shares outstanding at December 31, 2022   1,050    1,005 
Additional paid-in capital   67,276,611    65,949,723 
Less: common stock held in treasury, at cost; 52,000 shares at June 30, 2023 and December 31, 2022   (522,500)   (522,500)
Accumulated deficit   (68,389,948)   (63,062,721)
Statutory reserve   6,578    6,578 
Accumulated other comprehensive loss   (220,478)   (213,137)
Total Avalon GloboCare Corp. stockholders’ equity   18,151,313    11,158,948 
Non-controlling interest   
-
    
-
 
           
Total Equity   18,151,313    11,158,948 
           
Total Liabilities and Equity  $30,570,584   $19,751,905 

 

See accompanying notes to the condensed consolidated financial statements.  

 

1

 

 

AVALON GLOBOCARE CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

 

   For the Three Months
Ended June 30,
   For the Six Months
Ended June 30,
 
   2023   2022   2023   2022 
                 
RENTAL REVENUE  $306,905   $290,821   $603,070   $588,452 
                     
OPERATING EXPENSES   245,403    211,703    493,848    430,151 
                     
OPERATING INCOME   61,502    79,118    109,222    158,301 
                     
INCOME FROM EQUITY METHOD INVESTMENT - LAB SERVICES MSO   308,395    
-
    355,134    
-
 
                     
OTHER OPERATING EXPENSES:                    
Advertising and marketing expenses   505,217    130,395    1,196,970    657,201 
Professional fees   998,512    436,447    2,224,751    1,257,755 
Compensation and related benefits   454,123    503,541    905,678    1,026,586 
Research and development expenses   17,810    254,476    110,160    371,160 
Litigation settlement   
-
    1,350,000    
-
    1,350,000 
Other general and administrative expenses   258,859    247,830    508,918    466,112 
                     
Total Other Operating Expenses   2,234,521    2,922,689    4,946,477    5,128,814 
                     
LOSS FROM OPERATIONS   (1,864,624)   (2,843,571)   (4,482,121)   (4,970,513)
                     
OTHER (EXPENSE) INCOME                    
Interest expense - amortization of debt discount and debt issuance cost   (69,453)   (54,685)   (91,658)   (54,685)
Interest expense - other   (166,558)   (7,204)   (298,558)   (7,204)
Interest expense - related party   (10,267)   (31,854)   (12,288)   (71,540)
Loss from equity method investment - Epicon   (9,110)   (11,882)   (18,564)   (24,798)
Change in fair value of derivative liability   41,721    769,269    41,721    769,269 
Impairment of equity method investment - Epicon   (464,406)   
-
    (464,406)   
-
 
Other (expense) income   (616)   151,453    (1,353)   260,459 
                     
Total Other (Expense) Income, net   (678,689)   815,097    (845,106)   871,501 
                     
LOSS BEFORE INCOME TAXES   (2,543,313)   (2,028,474)   (5,327,227)   (4,099,012)
                     
INCOME TAXES   
-
    
-
    
-
    
-
 
                     
NET LOSS  $(2,543,313)  $(2,028,474)  $(5,327,227)  $(4,099,012)
                     
LESS: NET LOSS ATTRIBUTABLE TO NON-CONTROLLING INTEREST   
-
    
-
    
-
    
-
 
                     
NET LOSS ATTRIBUTABLE TO AVALON GLOBOCARE CORP. COMMON SHAREHOLDERS  $(2,543,313)  $(2,028,474)  $(5,327,227)  $(4,099,012)
                     
COMPREHENSIVE LOSS:                    
NET LOSS  $(2,543,313)  $(2,028,474)  $(5,327,227)  $(4,099,012)
OTHER COMPREHENSIVE LOSS                    
Unrealized foreign currency translation loss   (11,011)   (43,503)   (7,341)   (41,482)
COMPREHENSIVE LOSS   (2,554,324)   (2,071,977)   (5,334,568)   (4,140,494)
LESS: COMPREHENSIVE LOSS ATTRIBUTABLE TO NON-CONTROLLING INTEREST   
-
    
-
    
-
    
-
 
COMPREHENSIVE LOSS ATTRIBUTABLE TO AVALON GLOBOCARE CORP. COMMON SHAREHOLDERS  $(2,554,324)  $(2,071,977)  $(5,334,568)  $(4,140,494)
                     
NET LOSS PER COMMON SHARE ATTRIBUTABLE TO AVALON GLOBOCARE CORP. COMMON SHAREHOLDERS:                    
Basic and diluted
  $(0.25)  $(0.23)  $(0.52)  $(0.46)
                     
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:                    
Basic and diluted
   10,248,193    8,893,281    10,157,419    8,871,881 

 

See accompanying notes to the condensed consolidated financial statements.

 

2

 

 

AVALON GLOBOCARE CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

For the Three and Six Months Ended June 30, 2023

(Unaudited)

 

   Avalon GloboCare Corp. Stockholders’ Equity         
   Series A Preferred
Stock
   Series B Preferred
Stock
   Common Stock    Additional   Treasury Stock           Accumulated
Other
         
   Number of       Number of       Number of       Paid-in   Number of       Accumulated   Statutory   Comprehensive   Non-controlling   Total 
   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Shares   Amount   Deficit   Reserve   Loss   Interest   Equity 
                                                         
Balance, January 1, 2023   9,000   $9,000,000    -   $-    10,013,576   $1,005   $65,949,723    (52,000)  $(522,500)  $(63,062,721)  $6,578   $(213,137)  $              -   $11,158,948 
                                                                       
Issuance of Series B Convertible Preferred Stock for equity method investment   -    -    11,000    11,000,000    -    -    -    -    -    -    -    -    -    11,000,000 
                                                                       
Issuance of common stock for services   -    -    -    -    202,731    21    463,355    -    -    -    -    -    -    463,376 
                                                                       
Stock-based compensation   -    -    -    -    -    -    68,262    -    -    -    -    -    -    68,262 
                                                                       
Foreign currency translation adjustment   -    -    -    -    -    -    -    -    -    -    -    3,670    -    3,670 
                                                                       
Net loss for the three months ended March 31, 2023   -    -    -    -    -    -    -    -    -    (2,783,914)   -    -    -    (2,783,914)
                                                                       
Balance, March 31, 2023   9,000    9,000,000    11,000    11,000,000    10,216,307    1,026    66,481,340    (52,000)   (522,500)   (65,846,635)   6,578    (209,467)   -    19,910,342 
                                                                       
To correct shares issued for adjustments for 1:10 reverse split   -    -    -    -    50,000    1    (1)   -    -    -    -    -    -    - 
                                                                       
Issuance of common stock for services   -    -    -    -    158,600    16    536,264    -    -    -    -    -    -    536,280 
                                                                       
Issuance of common stock as convertible note payable commitment fee   -    -    -    -    75,000    7    146,993    -    -    -    -    -    -    147,000 
                                                                       
Stock-based compensation   -    -    -    -    -    -    112,015    -    -    -    -    -    -    112,015 
                                                                       
Foreign currency translation adjustment   -    -    -    -    -    -    -    -    -    -    -    (11,011)   -    (11,011)
                                                                       
Net loss for the three months ended June 30, 2023   -    -    -    -    -    -    -    -    -    (2,543,313)   -    -    -    (2,543,313)
                                                                       
Balance, June 30, 2023   9,000   $9,000,000    11,000   $11,000,000    10,499,907   $1,050   $67,276,611    (52,000)  $(522,500)  $(68,389,948)  $6,578   $(220,478)  $-   $18,151,313 

 

See accompanying notes to the condensed consolidated financial statements.

 

3

 

 

AVALON GLOBOCARE CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

For the Three and Six Months Ended June 30, 2022

(Unaudited)

 

   Avalon GloboCare Corp. Stockholders’ Equity         
   Preferred Stock   Common Stock   Additional   Treasury Stock           Accumulated
Other
         
   Number of       Number of       Paid-in   Number of       Accumulated   Statutory   Comprehensive   Non-controlling   Total 
   Shares   Amount   Shares   Amount   Capital   Shares   Amount   Deficit   Reserve   Loss   Interest   Equity 
                                                 
Balance, January 1, 2022   -   $-    8,897,517   $890   $54,896,567    (52,000)  $(522,500)  $(51,131,874)  $6,578   $(165,266)  $              -   $3,084,395 
                                                             
Sale of common stock, net   -    -    17,064    2    112,326    -    -    -    -    -    -    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   -    -    8,914,581    892    55,161,216    (52,000)   (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   -    -    40,896    4    340,946    -    -    -    -    -    -    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   -   $-    8,955,477   $896   $56,126,972    (52,000)  $(522,500)  $(55,230,886)  $6,578   $(206,748)  $-   $174,312 

 

See accompanying notes to the condensed consolidated financial statements.

 

4

 

 

AVALON GLOBOCARE CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

   For the Six Months Ended
June 30,
 
   2023   2022 
         
CASH FLOWS FROM OPERATING ACTIVITIES:        
Net loss  $(5,327,227)  $(4,099,012)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation   123,298    168,564 
Change in straight-line rent receivable   26,434    8,857 
Amortization of operating lease right-of-use asset   62,169    68,206 
Stock-based compensation and service expense   867,312    821,247 
(Income) loss from equity method investments   (336,570)   24,798 
Impairment of equity method investment   464,406    
-
 
Amortization of debt issuance costs and debt discount   91,658    54,685 
Change in fair market value of derivative liability   (41,721)   (769,269)
Changes in operating assets and liabilities:          
Rent receivable   5,512    (9,670)
Security deposit   404    (432)
Deferred leasing costs   16,701    10,596 
Prepaid expense and other assets   (37,533)   (20,731)
Accounts payable   
-
    389,106 
Accrued liabilities and other payables   (230,551)   674,998 
Accrued liabilities and other payables - related parties   17,701    71,541 
Operating lease obligation   (61,752)   (80,206)
           
NET CASH USED IN OPERATING ACTIVITIES   (4,359,759)   (2,686,722)
           
CASH FLOWS FROM INVESTING ACTIVITIES:          
Purchase of property and equipment   (22,201)   (1,749)
Additional investment in equity method investment   
-
    (54,008)
           
NET CASH USED IN INVESTING ACTIVITIES   (22,201)   (55,757)
           
CASH FLOWS FROM FINANCING ACTIVITIES          
Repayments of note payable - related party   
-
    (390,000)
Proceeds from loan payable - related party   850,000    100,000 
Repayments of loan payable - related party   
-
    (410,000)
Proceeds from issuance of convertible debt and warrants   1,425,000    3,718,943 
Payments of convertible debt issuance costs   (164,000)   
-
 
Proceeds from issuance of balloon promissory note   1,000,000    
-
 
Payments of balloon promissory note issuance costs   (64,436)   
-
 
Proceeds from equity offering   
-
    135,567 
Disbursements for equity offering costs   
-
    (24,067)
           
NET CASH PROVIDED BY FINANCING ACTIVITIES   3,046,564    3,130,443 
           
EFFECT OF EXCHANGE RATE ON CASH   (2,323)   (15,294)
           
NET (DECREASE) INCREASE IN CASH   (1,337,719)   372,670 
           
CASH - beginning of period   1,990,910    807,538 
           
CASH - end of period  $653,191   $1,180,208 
           
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:          
Cash paid for:          
Interest  $266,889   $
-
 
           
NON-CASH INVESTING AND FINANCING ACTIVITIES:          
Common stock issued for future services  $177,750   $56,027 
Common stock issued for accrued liabilities  $164,871   $30,000 
Reclassification of advances for equity interest purchase to equity method investment  $9,000,000   $
-
 
Series B Convertible Preferred Stock issued related to equity method investment  $11,000,000   $
-
 
Accrued purchase price related to equity method investment  $1,000,000   $
-
 
Warrants issued as convertible note payable finder’s fee  $11,162   $
-
 
Warrants issued with convertible note payable recorded as debt discount  $127,654   $498,509 
Bifurcated embedded conversion feature recorded as derivative liability and debt discount  $
-
   $2,782,569 
Common stock issued as convertible note payable commitment fee  $147,000   $
-
 
Deferred financing costs in accrued liabilities  $51,363   $
-
 

 

See accompanying notes to the condensed consolidated financial statements.

 

5

 

 

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, had limited assets and was engaged in medical related consulting services for customers. Due to the winding down of the medical related consulting services in 2022, the Company decided to cease all operations of Avalon Shanghai and no longer has any material revenues or expenses in Avalon Shanghai. As a result, Avalon Shanghai is no longer an operating entity.

 

The Company is a commercial stage company dedicated to developing and delivering innovative, transformative, precision diagnostics and clinical laboratory services. The Company is establishing a leading role in the innovation of diagnostic testing, utilizing proprietary technology to deliver precise, genetics-driven results. The Company also provides laboratory services, offering 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.

 

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 June 30, 2023, the occupancy rate of the building is 86.3%.

 

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 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. Avactis owns 100% of the capital stock of Avactis Nanjing Biosciences Ltd., a company incorporated in the People’s Republic of China on May 8, 2020 (“Avactis Nanjing”), which only owns a patent and is not considered an operating entity.

 

On October 14, 2022, the Company formed a wholly owned subsidiary, Avalon Laboratory Services, Inc. (“Avalon Lab”), a Delaware company. On February 9, 2023, Avalon Lab purchased forty percent (40%) of all the issued and outstanding equity interests of Laboratory Services MSO, LLC, a private limited company formed under the laws of the State of Delaware on September 6, 2019 (“Lab Services MSO”) and its subsidiaries. Lab Services MSO, through its two subsidiaries, Laboratory Services, LLC (“Lab Services LLC”) and Laboratory Services DME, LLC (“Lab Services DME”), is engaged in providing laboratory testing services.

 

6

 

 

AVALON GLOBOCARE CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 1 – ORGANIZATION AND NATURE OF OPERATIONS (continued)

 

The accompanying condensed consolidated financial statements reflect the activities of ALBT and each of the following entities:

 

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   Developing Avalon Cell and Avalon Rehab in United States of America (“USA”)
             

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 and is not considered an operating entity
             

Genexosome Technologies Inc.

(“Genexosome”)

 

Nevada

July 31, 2017

  60% held by ALBT    No current activities to report, dormant
             

Avactis Biosciences Inc.

(“Avactis”)

 

Nevada

July 18, 2018

  60% held by ALBT   Patent holding company
             

Avactis Nanjing Biosciences Ltd.

(“Avactis Nanjing”)

 

PRC

May 8, 2020

  100% held by Avactis   Owns a patent and is not considered an operating entity
             

International Exosome Association LLC

(“Exosome”)

 

Delaware

June 13, 2019

  100% held by ALBT   No activity, dormant
             

Avalon Laboratory Services, Inc.

(“Avalon Lab”)

 

Delaware

October 14, 2022

  100% held by ALBT   Laboratory holding company with a 40% membership interest in Lab Services MSO

 

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, 2022 filed with the Securities and Exchange Commission on March 30, 2023.

 

7

 

 

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 commercial stage company dedicated to developing and delivering innovative, transformative, precision diagnostics and clinical laboratory services. The Company is establishing a leading role in the innovation of diagnostic testing, utilizing proprietary technology to deliver precise, genetics-driven results. The Company also provides laboratory services, offering 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.

 

In addition, the Company owns commercial real estate that houses its headquarters in Freehold, New Jersey. The Company also has income from equity method investment through its forty percent (40%) interest in Lab Services MSO. 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 approximately $4,542,000 at June 30, 2023 and had incurred recurring net losses and generated negative cash flow from operating activities of approximately $5,327,000 and $4,360,000 for the six months ended June 30, 2023, respectively.

 

The Company has a limited operating history and its continued growth is dependent upon the continuation of generating rental revenue from its income-producing real estate property in New Jersey and income from equity method investment through its forty percent (40%) interest in Lab Services MSO 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 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

 

Significant Accounting Policies

 

There have been no changes to the Company’s significant accounting policies described in the Company’s 2022 Annual Report on Form 10-K filed with the SEC that have had a material impact on the Company’s financial condition, and operating results.

 

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. Changes in these estimates and assumptions may have a material impact on the condensed consolidated financial statements and accompanying notes. Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from those estimates.

 

Significant estimates during the three and six months ended June 30, 2023 and 2022 include the valuation of deferred tax assets and the associated valuation allowances, the valuation of stock-based compensation, the assumptions used to determine fair value of warrants and embedded conversion features of convertible note payable, and the fair value of the consideration given in the purchase of 40% of Lab Services MSO.

 

8

 

 

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 six months ended June 30, 2023:

 

   Significant
Unobservable
Inputs
(Level 3)
 
Balance of derivative liability as of January 1, 2023  $
-
 
Initial fair value of derivative liability attributable to warrants issuance with fund raise   138,816 
Gain from change in the fair value of derivative liability   (41,721)
Balance of derivative liability as of June 30, 2023  $97,095 

 

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 June 30, 2023 and December 31, 2022, the Company’s cash balances by geographic area were as follows: 

 

Country:  June 30, 2023   December 31, 2022 
United States  $552,404    84.6%  $1,806,083    90.7%
China   100,787    15.4%   184,827    9.3%
Total cash  $653,191    100.0%  $1,990,910    100.0%

 

For purposes of the condensed consolidated statements of cash flows, the Company considers all highly liquid instruments with a maturity of three months or less when purchased and money market accounts to be cash equivalents. The Company had no cash equivalents at June 30, 2023 and December 31, 2022.

 

9

 

 

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 $69,000) per bank. Any balance over RMB 500,000 per bank in PRC will not be covered. At June 30, 2023, cash balances held in the PRC are RMB 731,059 (approximately $101,000), of which, RMB 97,666 (approximately $13,000) 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 on deposits with bank and financial institution within the U.S. that at times may exceed federally-insured limits of $250,000. The Company manages this credit risk by concentrating its cash balances in high quality financial institutions and by periodically evaluating the credit quality of the primary financial institutions holding such deposits. The Company has not experienced any losses in such bank accounts and believes it is not exposed to any risks on its cash in bank accounts. At June 30, 2023, the Company’s cash balances in United States bank accounts had approximately $54,000 in excess of the federally-insured limits.

 

The Company’s concentrations of credit risk with respect to its rent receivable is limited due to short-term payment terms. The Company also performs ongoing credit evaluations of its tenants to help further reduce credit risk.

 

Investment in Unconsolidated Companies

 

The Company uses the equity method of accounting for its investments in, and earning or loss of, companies that it does not control but over which it does exert significant influence. The Company considers whether the fair values of its equity method investments have declined below their carrying values whenever adverse events or changes in circumstances indicate that recorded values 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. Impairment of equity method investment amounted to $464,406 for the six months ended June 30, 2023. See Note 5 for discussion of equity method investments.

 

Real Property Rental Revenue

 

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 account receivable on the consolidated balance sheets.

 

The Company does not offer promotional payments, customer coupons, rebates or other cash redemption offers to its customers.

 

Commitments and Contingencies

 

In the normal course of business, the Company is subject to contingencies, such as legal proceedings and claims arising out of its business, that cover a wide range of matters. Liabilities for such contingencies are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated.

 

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.

 

10

 

 

AVALON GLOBOCARE CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Per Share Data (continued)

 

Basic net loss per share is computed by dividing net loss available to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share is computed by dividing net loss by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during each period. For the three and six months ended June 30, 2023 and 2022, potentially dilutive common shares consist of the common shares issuable upon the conversion of convertible preferred stock and 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. The following table summarizes the securities that were excluded from the diluted per share calculation because the effect of including these potential shares was antidilutive:

 

   Three Months Ended June 30,   Six Months Ended June 30, 
   2023   2022   2023   2022 
Options to purchase common stock   878,303    838,500    878,303    838,500 
Warrants to purchase common stock   258,964    123,964    258,964    123,964 
Series A convertible preferred stock (*)   900,000    
-
    900,000    
-
 
Series B convertible preferred stock (**)   2,910,053    
-
    2,910,053    
-
 
Convertible note (***)   333,333    495,859    333,333    495,859 
Potentially dilutive securities   5,280,653    1,458,323    5,280,653    1,458,323 

 

(*)Assumed the Series A convertible preferred stock was converted into shares of common stock of the Company at a conversion price of $10.0 per share.
(**)Assumed the Series B convertible preferred stock was converted into shares of common stock of the Company at a conversion price of $3.78 per share.
(***)Assumed the convertible note was converted into shares of common stock of the Company at a conversion price of $4.50 and $0.75 per share for the 2023 and 2022 periods, respectively.

 

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 six months ended June 30, 2022, the Company operated in two reportable business segments - (1) the real property operating segment, and (2) the medical related consulting services segment. These reportable segments offer different services and products, have different types of revenue, and are managed separately as each requires different operating strategies and management expertise. Due to the winding down of the medical related consulting services segment in 2022, the Company decided to cease all operations of this segment and no longer has any material revenues or expenses in this segment. As a result, commencing from the first quarter of 2023, the Company’s chief operating decision maker no longer reviews medical related consulting services operating results.

 

On February 9, 2023, the Company purchased 40% of Lab Services MSO. Commencing from the purchase date, February 9, 2023, the Company is active in the management of Lab Services MSO. During the three and six months ended June 30, 2023, the Company operated in two reportable business segments: (1) the real property operating segment, and (2) laboratory testing services segment (which commenced with the purchase date, February 9, 2023) since Lab Services MSO’s operating results are regularly reviewed by the Company’s chief operating decision maker to determine the resources to be allocated to the segment and assess its performance. The Company regularly reviews the operating results and performance of Lab Services MSO, for which the Company accounts for under the equity method.

 

11

 

 

AVALON GLOBOCARE CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

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.

 

Reverse Stock Split

 

The Company effected a one-for-ten reverse stock split of its outstanding shares of common stock on January 5, 2023. The reverse split did not change the number of authorized shares of common stock or par value. All references in these condensed consolidated financial statements to shares, share prices, exercise prices, and other per share information in all periods have been adjusted, on a retroactive basis, to reflect the reverse stock split.

 

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 adoption of this new guidance did not have any material impact on the Company’s condensed consolidated financial statements.

 

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which amends the accounting related to contract assets and liabilities acquired in business combinations. ASU 2021-08 requires that entities recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC Topic 606, Revenue from Contracts with Customers. ASU 2021-08 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, and should be applied prospectively to businesses combinations occurring on or after the effective date of the amendment. Early adoption is permitted, including adoption in an interim period. The adoption of this new guidance did not have any 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 EXPENSE AND OTHER CURRENT ASSETS

 

At June 30, 2023 and December 31, 2022, prepaid expense and other current assets consisted of the following:

 

   June 30,
2023
   December 31,
2022
 
Prepaid professional fees  $268,822   $93,817 
Prepaid directors and officers liability insurance premium   9,491    29,301 
Prepaid NASDAQ listing fee   46,313    
-
 
Deferred financing costs   225,470    34,821 
Deferred leasing costs   33,402    33,402 
Security deposit   
-
    19,084 
Others   50,012    37,565 
Total  $633,510   $247,990 

 

12

 

 

AVALON GLOBOCARE CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 5 – EQUITY METHOD INVESTMENTS

 

Investment in Epicon Biotech Co., Ltd.

 

As of June 30, 2023 and December 31, 2022, the equity method investment in Epicon Biotech Co., Ltd. (“Epicon”) amounted to $0 and $485,008, respectively. The investment represents the Company’s subsidiary, Avalon Shanghai’s interest in 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 is not involved in the management of Epicon. Therefore, it is a passive investment.

 

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 June 30, 2023 and 2022, the Company’s share of Epicon’s net loss was $9,110 and $11,882, respectively, which was included in other (expense) income – loss from equity method investment – Epicon in the accompanying condensed consolidated statements of operations and comprehensive loss. For the six months ended June 30, 2023 and 2022, the Company’s share of Epicon’s net loss was $18,564 and $24,798, respectively, which was included in other (expense) income – loss from equity method investment – Epicon in the accompanying condensed consolidated statements of operations and comprehensive loss.

 

In the six months ended June 30, 2023, activity recorded for the Company’s equity method investment in Epicon is summarized in the following table:

 

Equity investment carrying amount at January 1, 2023  $485,008 
Epicon’s net loss attributable to the Company   (18,564)
Impairment of investment in Epicon   (464,406)
Foreign currency fluctuation   (2,038)
Equity investment carrying amount at June 30, 2023  $
-
 

 

The tables below present the summarized financial information, as provided to the Company by the investee, for the unconsolidated company:

 

   June 30,
2023
   December 31,
2022
 
Current assets  $1,111   $1,051 
Noncurrent assets   109,825    143,984 
Current liabilities   58,912    43,723 
Equity   52,024    101,312 

 

   For the Three Months Ended
June 30,
   For the Six Months Ended
June 30,
 
   2023   2022   2023   2022 
Net revenue  $
-
   $
-
   $
-
   $
-
 
Gross profit   
-
    
-
    
-
    
-
 
Loss from operation   22,775    29,703    46,411    62,026 
Net loss   22,775    29,703    46,410    61,994 

 

In June 2023, the Company assessed its equity method investment in Epicon for any impairment and concluded that there were indicators of impairment as of June 30, 2023. The impairment is due to the Company’s conclusion that it will be unable to recover the carrying amount of the investment due to the investee’s series of operating losses and the joint venture partner unable to obtain fund to commence operations. The Company calculated that the estimated undiscounted cash flows were less than the carrying amount related to the equity method investment. The Company has recognized an impairment loss of $464,406 related to the equity method investment for the three and six months ended June 30, 2023, which reduced the investment value to zero.

 

13

 

 

AVALON GLOBOCARE CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 5 – EQUITY METHOD INVESTMENTS (continued)

 

Investment in Epicon Biotech Co., Ltd. (continued)

 

Under the equity method, if there is a commitment for the Company to fund the losses of its equity method investees, the Company would continue to record its share of losses resulting in a negative equity method investment, which would be presented as a liability on the condensed consolidated balance sheets. Commitments may be explicit and may include formal guarantees, legal obligations, or arrangements by contract. Implicit commitments may arise from reputational expectations, intercompany relationships, statements by the Company of its intention to provide support, a history of providing financial support or other facts and circumstances. When the Company has no commitment to fund the losses of its equity method investees, the carrying value of its equity method investments will not be reduced below zero. The Company had no commitment to fund additional losses of its equity method investments during the three months ended June 30, 2023.

 

Investment in Laboratory Services MSO, LLC

 

On February 9, 2023 (the “Closing Date”), the Company entered into and closed an Amended and Restated Membership Interest Purchase Agreement (the “Amended MIPA”), by and among Avalon Laboratory Services, Inc., a wholly-owned subsidiary of the Company (the “Buyer”), SCBC Holdings LLC (the “Seller”), the Zoe Family Trust, Bryan Cox and Sarah Cox as individuals (each an “Owner” and collectively, the “Owners”), and Laboratory Services MSO, LLC.

 

Pursuant to the terms and conditions set forth in the Amended MIPA, Buyer acquired from the Seller, forty percent (40%) of all the issued and outstanding equity interests of Lab Services MSO (the “Purchased Interests”). The consideration paid by Buyer to Seller for the Purchased Interests consisted of $21,000,000, which comprised of (i) $9,000,000 in cash, (ii) $11,000,000 pursuant to the issuance of 11,000 shares of the Company’s Series B Convertible Preferred Stock (the “Series B Preferred Stock”), stated value $1,000 (the “Series B Stated Value”), and (iii) a $1,000,000 cash payment on February 9, 2024. The Series B Preferred Stock will be convertible into shares of Avalon’s common stock at a conversion price per share equal to $3.78 or an aggregate of 2,910,053 shares of the Company’s common stock and are subject to the Lock Up Period and the restrictions on sale (See Note 10 – Series B Convertible Preferred Stock Issued for Equity Method Investment). The Seller is also eligible, under the terms set forth in the Amended MIPA, to receive certain earnout payments upon achievement of certain operating results, which may be comprised of up to $10,000,000 of which (x) up to $5,000,000 will be paid in cash and (y) up to $5,000,000 will be paid pursuant to the issuance of the number of shares of the Company’s common stock valued at $5,000,000, calculated using the closing price of the Company’s common stock on December 31, 2023, rounded down to the nearest whole share (collectively, the “Earnout Payments”). At both February 9, 2023 and June 30, 2023, the estimated earnout liability amounted to $0 since the minimum thresholds as defined in the agreement are currently unlikely to be met. The estimated earnout is a level 3 valuation which will be measured at the end of reporting period.

 

Lab Services MSO, through its two subsidiaries, Lab Services LLC and Lab Services DME, is engaged in providing laboratory testing services. Avalon Lab and the other unrelated company, accounted for 40% and 60% of the total ownership, respectively. As of June 30, 2023, the equity method investment in Lab Services MSO amounted to $21,355,134.

 

In accordance with ASC 810, the Company determined that Lab Services MSO does not qualify as a Variable Interest Entity, nor does it have a controlling financial interest over the legal entity. However, it determined it does have significant influence as a result of its board representation. Therefore, 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 purchased-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 purchase 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 June 30, 2023 and the period from February 9, 2023 (date on investment) through June 30, 2023, the Company’s share of Lab Services MSO’s net income was $308,395 and $355,134, respectively, which was included in income from equity method investment – Lab Services MSO in the accompanying condensed consolidated statements of operations and comprehensive loss.

 

In the six months ended June 30, 2023, activity recorded for the Company’s equity method investment in Lab Services MSO is summarized in the following table:

 

14

 

 

AVALON GLOBOCARE CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 5 – EQUITY METHOD INVESTMENTS (continued)

 

Investment in Laboratory Services MSO, LLC (continued)

 

Equity investment carrying amount at January 1, 2023  $
-
 
Payment for equity method investment   21,000,000 
Lab Services MSO’s net income attributable to the Company   355,134 
Equity investment carrying amount at June 30, 2023  $21,355,134 

 

The tables below present the summarized financial information, as provided to the Company by the investee, for the unconsolidated company:

 

   June 30,
2023
 
Current assets  $4,230,378 
Noncurrent assets   2,584,701 
Current liabilities   918,694 
Noncurrent liabilities   2,286,558 
Equity   3,609,827 

 

   For the
Three Months Ended
June 30,
2023
   For the
Period from
February 9,
2023
(Date of
Investment)
through
June 30,
2023
 
Net revenue  $3,487,693   $5,662,217 
Gross profit   1,250,628    2,027,406 
Income from operation   579,036    695,882 
Net income   770,989    887,835 

 

On February 9, 2023, the Company entered into an Amended and Restated Membership Interest Purchase Agreement (the “Amended MIPA”), by and among Avalon Laboratory Services, Inc., a wholly-owned subsidiary of the Company, SCBC Holdings LLC, the Zoe Family Trust, Bryan Cox and Sarah Cox as individuals, and Laboratory Services MSO. According to the Amended MIPA, at any time during the period beginning on February 9, 2023 and ending on the date nine (9) months after February 9, 2023, Avalon Laboratory Services, Inc., or its designated affiliates under the Amended MIPA, may purchase from SCBC Holdings LLC twenty percent (20%) of the total issued and outstanding equity interests of Laboratory Services MSO for the purchase price of (i) $6,000,000 in cash and (ii) the issuance of an additional 4,000 shares of Series B Preferred Stock valued at $4,000,000, in accordance with the terms and conditions set forth in the Amended MIPA.

 

NOTE 6 – CONVERTIBLE NOTE PAYABLE

 

On May 23, 2023, the Company entered into securities purchase agreements (the “Securities Purchase Agreements”) with Mast Hill Fund, L.P. (“Mast Hill”) for the issuance of 13.0% senior secured promissory notes in the aggregate principal amount of $1,500,000 (collectively the “May 2023 Convertible Note”) convertible into shares of common stock, par value $0.0001 per share, of the Company, as well as the issuance of 75,000 shares of common stock as a commitment fee and warrants for the purchase of 230,500 shares of common stock of the Company. The Company and its subsidiaries have entered into that certain security agreement (the “Security Agreement”), creating a security interest in certain property of the Company and its subsidiaries to secure the prompt payment, performance and discharge in full of all of the Company’s obligations under the May 2023 Convertible Note. The transaction closed on May 23, 2023 (the “Closing Date”). Principal amount and interest under the May 2023 Convertible Note are convertible into shares of common stock of the company at a conversion price of $4.50 per share unless the Company fails to make an amortization payment (the “amortization payment”) when due, in which case the conversion price shall be the lower of $4.50 or the trading price of the shares, subject to a floor of $1.50.

 

15

 

 

AVALON GLOBOCARE CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 6 – CONVERTIBLE NOTE PAYABLE (continued)

 

Mast Hill acquired the May 2023 Convertible Note with principal amount of $1,500,000 and paid the purchase price of $1,425,000 after an original issue discount of $75,000. On the same Closing Date, the Company issued (i) a warrant to purchase 125,000 shares of common stock with an exercise price of $4.50 exercisable until the five-year anniversary of the Closing Date, (ii) a warrant to purchase 105,500 shares of common stock with an exercise price of $3.20 exercisable until the five-year anniversary of the Closing Date, which warrant shall be cancelled and extinguished against payment of the May 2023 Convertible Note, and (iii) 75,000 shares of common stock as a commitment fee for the purchase of the May 2023 Convertible Note, which were earned in full as of the Closing Date. On the Closing Date, the Company delivered such duly executed May 2023 Convertible Note, warrants and common stock to Mast Hill against delivery of such purchase price.

 

The Company shall make the following amortization payments in cash to Mast Hill towards the repayment of the May 2023 Convertible Note, as provided in the following table:

 

Payment Date:   Payment Amount:
November 23, 2023   $150,000 plus accrued interest through November 23, 2023
December 23, 2023   $150,000 plus accrued interest through December 23, 2023
January 23, 2024   $200,000 plus accrued interest through January 23, 2024
February 23, 2024   $250,000 plus accrued interest through February 23, 2024
March 23, 2024   $250,000 plus accrued interest through March 23, 2024
April 23, 2024   $300,000 plus accrued interest through April 23, 2024
May 23, 2024   The entire remaining outstanding balance of the May 2023 Convertible Note

 

In connection with the issuance of May 2023 Convertible Note, the Company incurred debt issuance costs of $175,162 (including the issuance of 10,000 warrants as a finder’s fee) which is capitalized and will be amortized into interest expense over the term of the May 2023 Convertible Note.

 

Based upon the Company’s analysis of the criteria contained in ASC 815, the Company determined that all the warrants issued to Mast Hill and a third party as a finder’s fee meet the definition of derivative liability, as the Company cannot avoid a net cash settlement under certain circumstances. Management determined the probability of fail to make an amortization payment when due to be remote and as such the fair value of the 105,500 warrants with an exercise price of $3.20 exercisable until the five-year anniversary of the Closing Date, which warrant shall be cancelled and extinguished against payment of the May 2023 Convertible Note, has been estimated to be zero. Accordingly, the fair value of the 135,000 warrants with an exercise price of $4.50 exercisable until the five-year anniversary of the Closing Date was classified as derivative liability on the Closing Date, May 23, 2023. The fair values of the 135,000 warrants with an exercise price of $4.50 exercisable until the five-year anniversary of the Closing Date issued on May 23, 2023 were computed using the Black-Scholes option-pricing model with the following assumptions: stock price of $1.96, volatility of 88.80%, risk-free rate of 3.76%, annual dividend yield of 0% and expected life of 5 years.

 

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 allocated to the warrants are accounted for as derivative liability. The remainder of the proceeds are allocated to the debt instrument portion of the transaction.

 

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 liability in accordance with the provisions of the convertible debt (see Note 7). However, management determined the probability of fail to make an amortization payment when due to be remote and as such the fair value of the embedded conversion feature has been estimated to be zero.

 

The Company recorded a total debt discount of $349,654 related to the original issue discount, common shares issued and warrants issued to Mast Hill, which will be amortized over the term of the May 2023 Convertible Note.

  

For both the three and six months ended June 30, 2023, amortization of debt discount and debt issuance costs and interest expense related to the May 2023 Convertible Note amounted to $44,715 and $20,836, respectively, which have been included in interest expense – amortization of debt discount and debt issuance cost and interest expense – other on the accompanying condensed consolidated statements of operations and comprehensive loss.

 

16

 

 

AVALON GLOBOCARE CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 7 – DERIVATIVE LIABILITY

 

As stated in Note 6, May 2023 Convertible Note, the Company determined that the convertible note payable contains an embedded derivative feature in the form of a conversion provision which is adjustable based on future prices of the Company’s common stock. In accordance with ASC 815-10-25, each derivative feature is initially recorded at its fair value using the Black-Scholes option valuation method and then re-value at each reporting date, with changes in the fair value reported in the statements of operations. However, on May 23, 2023 and June 30, 2023, management determined the probability of fail to make an amortization payment when due to be remote and as such the fair value of the embedded conversion feature has been estimated to be zero.

 

On May 23, 2023, the Company issued 240,500 warrants to Mast Hill and a third party as a finder’s fee (see Note 6). Upon evaluation, the warrants meet the definition of derivative liability under FASB ASC 815, as the Company cannot avoid a net cash settlement under certain circumstances. Management determined the probability of fail to make an amortization payment when due to be remote and as such the fair value of the 105,500 warrants with an exercise price of $3.20 exercisable until the five-year anniversary of the Closing Date, which warrant shall be cancelled and extinguished against payment of the May 2023 Convertible Note, has been estimated to be zero. Accordingly, the fair value of the 135,000 warrants with an exercise price of $4.50 exercisable until the five-year anniversary of the Closing Date was classified as derivative liability on the Closing Date, May 23, 2023.

 

On May 23, 2023, the estimated fair values of the 135,000 warrants with an exercise price of $4.50 exercisable until the five-year anniversary of the Closing Date issued were computed using the Black-Scholes option-pricing model with the following assumptions: stock price of $1.96, volatility of 88.80%, risk-free rate of 3.76%, annual dividend yield of 0% and expected life of 5 years.

 

On June 30, 2023, the estimated fair value of the 135,000 warrants with an exercise price of $4.50 exercisable until the five-year anniversary of the Closing Date as derivative liability was $108,969The estimated fair value of the warrants was computed as of June 30, 2023 using Black-Scholes option-pricing model, with the following assumptions: stock price of $1.54, volatility of 89.16%, risk-free rate of 4.13%, annual dividend yield of 0% and expected life of 4.9 years.

 

Increases or decreases in fair value of the derivative liability is included as a component of total other (expenses) income in the accompanying condensed consolidated statements of operations and comprehensive loss for the respective period. The changes to the derivative liability resulted in a decrease of $41,721 in the derivative liability and the corresponding increase in other income as a gain for the three and six months ended June 30, 2023.

 

NOTE 8 – NOTE PAYABLE, NET

 

On September 1, 2022, the Company issued a balloon promissory note in the form of a mortgage on its headquarters to a third party company in the principal amount of $4,800,000 which carries interest of 11.0% per annum. 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 principal of $4,800,000 can be extended for an additional 36 months provided that the Company has not defaulted. The Company may not prepay the principal of $4,800,00 for a period of 12 months. The principal of $4,800,000 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.

 

In May 2023, the Company borrowed $1,000,000 from the same lender. The principal of $1,000,000 shall accrue interest at the annual rate of 13.0% and be paid in monthly installments of interest-only in the amount of $10,833 commencing in June 2023 and continuing through October 2025 (at which point any unpaid balance of principal, interest and other charges shall be due and payable), and be secured by a second-lien mortgage on certain real property and improvements located at 4400 Route 9, Freehold, Monmouth County. The note payable as of June 30, 2023 and December 31, 2022 is as follows:

 

   June 30,
2023
   December 31,
2022
 
Principal amount  $5,800,000   $4,800,000 
Less: unamortized debt issuance costs   (263,395)   (236,848)
Note payable, net  $5,536,605   $4,563,152 

 

For the three months ended June 30, 2023, amortization of debt issuance costs and interest expense related to note payable amounted to $24,738 and $145,722, respectively, which have been included in interest expense on the accompanying condensed consolidated statements of operations and comprehensive loss. For the six months ended June 30, 2023, amortization of debt issuance costs and interest expense related to note payable amounted to $46,943 and $277,722, respectively, which have been included in interest expense on the accompanying condensed consolidated statements of operations and comprehensive loss.

 

17

 

 

AVALON GLOBOCARE CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 9 – RELATED PARTY TRANSACTIONS

 

Rental Revenue from Related Party and Rent Receivable – Related Party

 

The Company leases space of its commercial real property located in New Jersey to a company, 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 June 30, 2023 and 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. For both the six months ended June 30, 2023 and 2022, the related party rental revenue amounted to $25,200 and has been included in real property rental on the accompanying condensed consolidated statements of operations and comprehensive loss.

 

At June 30, 2023 and December 31, 2022, the related party rent receivable totaled $49,300 and $74,100, respectively, which has been included in rent receivable on the accompanying condensed consolidated balance sheets, and no allowance for doubtful accounts was deemed to be required on the receivable.

 

Services Provided by Related Parties

 

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 $22,185 and $36,460 for the three months ended June 30, 2023 and 2022, 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 $48,642 and $87,598 for the six months ended June 30, 2023 and 2022, 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 June 30, 2023 and December 31, 2022, 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.

 

In June 2023, Lab Services MSO paid shared expense on behalf of the Company. As of June 30, 2023, the balance due to Lab Services MSO amounted to $5,413, which has been included in accrued liabilities and other payables – related parties on the accompanying condensed consolidated balance sheets.

 

As of June 30, 2023 and December 31, 2022, $12,288 and $0 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

 

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.

 

18

 

 

AVALON GLOBOCARE CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 9 – RELATED PARTY TRANSACTIONS (continued)

 

Line of Credit (continued)

 

In the six months ended June 30, 2023, activity recorded for the Line of Credit is summarized in the following table:

 

Outstanding principal under the Line of Credit at January 1, 2023  $
-
 
Draw down from Line of Credit   850,000 
Outstanding principal under the Line of Credit at June 30, 2023  $850,000 

 

For the three months ended June 30, 2023 and 2022, the interest expense related to related party borrowings amounted to $10,267 and $31,854, respectively, and has been reflected as interest expense – related party on the accompanying condensed consolidated statements of operations and comprehensive loss. For the six months ended June 30, 2023 and 2022, the interest expense related to related party borrowings amounted to $12,288 and $71,540, respectively, and has been reflected as interest expense – related party on the accompanying condensed consolidated statements of operations and comprehensive loss.

 

As of June 30, 2023 and December 31, 2022, the related accrued and unpaid interest for Line of Credit was $12,288 and $0, respectively, and has been included in accrued liabilities and other payables – related parties on the accompanying condensed consolidated balance sheets.

 

As of June 30, 2023, the Company used approximately $6.8 million of the credit facility and has approximately $13.2 million remaining available under the Line of Credit.

 

NOTE 10 – EQUITY

 

Series A Convertible Preferred Stock

 

The Company designated up to 15,000 shares of its previously undesignated preferred stock as Series A Preferred Stock. Each share of Series A Preferred Stock has a par value of $0.0001 per share and a stated value equal to $1,000.

 

As of June 30, 2023, 9,000 shares of Series A Preferred Stock were issued and outstanding. 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) ten dollars ($10.00), 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 Series A Preferred stock-holder, subject to adjustment for stock splits and similar matters. Conversion of the Series A Preferred Stock is subject to restriction pursuant to the Nasdaq Stock Market Listing Rules.

 

Series B Convertible Preferred Stock Issued for Equity Method Investment

 

The Company designated up to 15,000 shares of its previously undesignated preferred stock as Series B Preferred Stock. Each share of Series B Preferred Stock has a par value of $0.0001 per share and a stated value equal to $1,000.

 

On February 9, 2023, the Company issued 11,000 shares of its Series B Convertible Preferred Stock as a part of consideration for the purchase of 40% of equity interest of Lab Services MSO. The Series B Preferred Stock will be convertible into shares of the Company’s common stock at a conversion price per share equal to $3.78 or an aggregate of 2,910,053 shares of the Company’s common stock and are subject to the Lock Up Period and the restrictions (See Note – 5 - Investment in Laboratory Services MSO, LLC).

 

Common Shares Issued for Services

 

During the six months ended June 30, 2023, the Company issued a total of 361,331 shares of its common stock for services rendered and to be rendered. These shares were valued at $999,656, 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 $657,035 for the six months ended June 30, 2023 and reduced accrued liabilities of $164,871 and recorded prepaid expense of $177,750 as of June 30, 2023 which will be amortized over the rest of corresponding service periods.

 

19

 

 

AVALON GLOBOCARE CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 10 – EQUITY (continued)

 

Common Shares Issued as Convertible Note Payable Commitment Fee

 

On May 23, 2023, the Company issued 75,000 shares of its common stock to Mast Hill as a commitment fee for the purchase of the May 2023 Convertible Note. These shares were valued at $147,000, the fair market value on the grant date using the reported closing share price on the date of grant, and the Company recorded it as debt discount.

 

Options

 

The following table summarizes the shares of the Company’s common stock issuable upon exercise of options outstanding at June 30, 2023:

 

  Options Outstanding  Options Exercisable 
  Range of
Exercise Price
   Number
Outstanding at
June 30, 2023
   Weighted
Average
Remaining
Contractual Life
(Years)
   Weighted
Average
Exercise
Price
   Number
Exercisable at
June 30, 2023
   Weighted
Average
Exercise
Price
 
$ 1.862.08     131,000    4.68   $1.87    50,667   $1.86 
  3.258.20     307,803    3.54    5.26    287,803    5.29 
  10.2020.00     414,500    2.45    16.42    414,500    16.42 
  23.0028.00     25,000    0.40    27.22    25,000    27.22 
$ 1.8628.00     878,303    3.11   $10.64    777,970   $11.70 

 

Stock option activities for the six months ended June 30, 2023 were as follows:

 

   Number of
Options
   Weighted
Average
Exercise
Price
 
Outstanding at January 1, 2023   800,500   $13.03 
Granted   168,803    2.54 
Expired   (91,000)   (16.61)
Outstanding at June 30, 2023   878,303   $10.64 
Options exercisable at June 30, 2023   777,970   $11.70 
Options expected to vest   100,333   $2.46 

 

The aggregate intrinsic value of both stock options outstanding and stock options exercisable at June 30, 2023 was $0.

 

The fair values of options granted during the six months ended June 30, 2023 were estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions: volatility of 79.76% - 96.37%, risk-free rate of 3.58% - 3.96%, annual dividend yield of 0%, and expected life of 3.00 - 5.00 years. The aggregate fair value of the options granted during the six months ended June 30, 2023 was $313,144.

 

The fair values of options granted during the six months ended June 30, 2022 were estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions: volatility of 74.8% - 117.46%, risk-free rate of 1.37% - 3.56%, annual dividend yield of 0%, and expected life of 3.00 - 5.00 years. The aggregate fair value of the options granted during the six months ended June 30, 2022 was $373,982.

 

For the three months ended June 30, 2023 and 2022, stock-based compensation expense associated with stock options granted amounted to $112,015 and $126,301, of which, $38,191 and $93,171 was recorded as compensation and related benefits, $73,824 and $21,460 was recorded as professional fees, and $0 and $11,670 was recorded as research and development expenses, respectively.

 

For the six months ended June 30, 2023 and 2022, stock-based compensation expense associated with stock options granted amounted to $180,277 and $278,624, of which, $89,527 and $198,084 was recorded as compensation and related benefits, $85,281 and $57,598 was recorded as professional fees, and $5,469 and $22,942 was recorded as research and development expenses, respectively.

 

20

 

 

AVALON GLOBOCARE CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 10 – EQUITY (continued)

 

Options (continued)

 

A summary of the status of the Company’s nonvested stock options granted as of June 30, 2023 and changes during the six months ended June 30, 2023 is presented below:

 

   Number of Options   Weighted Average Exercise Price 
Nonvested at January 1, 2023   20,000   $4.29 
Granted   168,803    2.54 
Vested   (88,470)   (3.02)
Nonvested at June 30, 2023   100,333   $2.46 

 

Warrants

 

The following table summarizes the shares of the Company’s common stock issuable upon exercise of warrants outstanding at June 30, 2023:

 

  Warrants Outstanding   Warrants Exercisable 
  Exercise Price  Number
Outstanding at
June 30, 2023
   Weighted
Average
Remaining
Contractual Life
(Years)
   Weighted
Average
Exercise
Price
   Number
Exercisable
at June 30,
2023
   Weighted
Average
Exercise

Price

 
$ 3.20   105,500    4.90   $3.20    
-
   $
-
 
  4.50   135,000    4.90    4.50    135,000    4.50 
  12.50   123,964    3.81    12.50    123,964    12.50 
$ 3.2012.50   364,464    4.53   $6.84    258,964   $8.33 

 

Stock warrant activities for the six months ended June 30, 2023 were as follows:

 

   Number of
Warrants
   Weighted
Average
Exercise
Price
 
Outstanding at January 1, 2023   123,964   $12.50 
Issued   240,500    3.93 
Outstanding at June 30, 2023   364,464   $6.84 
Warrants exercisable at June 30, 2023   258,964   $8.33 
Warrants expected to vest   105,500   $3.20 

 

The aggregate intrinsic value of both stock warrants outstanding and stock warrants exercisable at June 30, 2023 was $0.

 

In connection with the issuance of May 2023 Convertible Note (See Note 6), the Company issued (i) a warrant to purchase 125,000 shares of common stock with an exercise price of $4.50 exercisable until the five-year anniversary of the Closing Date, and (ii) a warrant to purchase 105,500 shares of common stock with an exercise price of $3.20 exercisable until the five-year anniversary of the Closing Date, which warrant shall be cancelled and extinguished against payment of the May 2023 Convertible Note, to Mast Hill; and issued a warrant to purchase 10,000 shares of common stock with an exercise price of $4.50 exercisable until the five-year anniversary of the Closing Date to a third party as a finder’s fee.

 

21

 

 

AVALON GLOBOCARE CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS