UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For
the quarterly period ended
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Securities registered pursuant to Section 12(b) of the Act:
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As of August 19, 2024,
AVALON GLOBOCARE CORP.
FORM 10-Q
For the Quarterly Period Ended June 30, 2024
Table of Contents
i
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| June 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash | $ | $ | ||||||
| Rent receivable | ||||||||
| Prepaid expense and other current assets | ||||||||
| Total Current Assets | ||||||||
| NON-CURRENT ASSETS: | ||||||||
| Operating lease right-of-use assets, net | ||||||||
| Property and equipment, net | ||||||||
| Investment in real estate, net | ||||||||
| Equity method investments, net | ||||||||
| Other non-current assets | ||||||||
| Total Non-current Assets | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES AND EQUITY | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accrued professional fees | $ | $ | ||||||
| Accrued research and development fees | ||||||||
| Accrued payroll liability and compensation | ||||||||
| Accrued litigation settlement | ||||||||
| Accrued liabilities and other payables | ||||||||
| Accrued liabilities and other payables - related parties | ||||||||
| Operating lease obligation | ||||||||
| Advance from pending sale of noncontrolling interest - related party | ||||||||
| Equity method investment payable | ||||||||
| Derivative liability | ||||||||
| Convertible note payable, net | ||||||||
| Total Current Liabilities | ||||||||
| NON-CURRENT LIABILITIES: | ||||||||
| Operating lease obligation - noncurrent portion | ||||||||
| Note payable, net | ||||||||
| Loan payable - related party | ||||||||
| Total Non-current Liabilities | ||||||||
| Total Liabilities | ||||||||
| Commitments and Contingencies (Note 15) | ||||||||
| EQUITY: | ||||||||
| Preferred stock, $ | ||||||||
| Series A Convertible Preferred Stock, | ||||||||
| Series B Convertible Preferred Stock, | ||||||||
| Common stock, $ | ||||||||
| Additional paid-in capital | ||||||||
| Less: common stock held in treasury, at cost; | ||||||||
| ( | ) | ( | ) | |||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Statutory reserve | ||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Total Avalon GloboCare Corp. stockholders’ equity | ||||||||
| Noncontrolling interest | ||||||||
| Total Equity | ||||||||
| Total Liabilities and Equity | $ | $ | ||||||
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 | For the Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| REAL PROPERTY RENTAL REVENUE | $ | $ | $ | $ | ||||||||||||
| REAL PROPERTY OPERATING EXPENSES | ||||||||||||||||
| REAL PROPERTY OPERATING INCOME | ||||||||||||||||
| (LOSS) INCOME FROM EQUITY METHOD INVESTMENT - LAB SERVICES MSO | ( | ) | ( | ) | ||||||||||||
| OTHER OPERATING EXPENSES: | ||||||||||||||||
| Advertising and marketing expenses | ||||||||||||||||
| Professional fees | ||||||||||||||||
| Compensation and related benefits | ||||||||||||||||
| Other general and administrative expenses | ||||||||||||||||
| Total Other Operating Expenses | ||||||||||||||||
| LOSS FROM OPERATIONS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| OTHER (EXPENSE) INCOME | ||||||||||||||||
| Interest expense - amortization of debt discount and debt issuance costs | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Interest expense - other | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Interest expense - related party | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Change in fair value of derivative liability | ||||||||||||||||
| Impairment of equity method investment - Epicon | ( | ) | ( | ) | ||||||||||||
| Other expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total Other Expense, net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| LOSS BEFORE INCOME TAXES | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| INCOME TAXES | ||||||||||||||||
| NET LOSS | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| LESS: NET LOSS ATTRIBUTABLE TO NONCONTROLLING INTEREST | ||||||||||||||||
| NET LOSS ATTRIBUTABLE TO AVALON GLOBOCARE CORP. COMMON SHAREHOLDERS | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| NET LOSS PER COMMON SHARE ATTRIBUTABLE TO AVALON GLOBOCARE CORP. COMMON SHAREHOLDERS: | ||||||||||||||||
| $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||
| WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: | ||||||||||||||||
| COMPREHENSIVE LOSS: | ||||||||||||||||
| NET LOSS | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| OTHER COMPREHENSIVE INCOME (LOSS) | ||||||||||||||||
| Unrealized foreign currency translation gain (loss) | ( | ) | ( | ) | ( | ) | ||||||||||
| COMPREHENSIVE LOSS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| LESS: COMPREHENSIVE LOSS ATTRIBUTABLE TO NONCONTROLLING INTEREST | ||||||||||||||||
| COMPREHENSIVE LOSS ATTRIBUTABLE TO AVALON GLOBOCARE CORP. COMMON SHAREHOLDERS | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
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, 2024
(Unaudited)
| Avalon GloboCare Corp. Stockholders’ Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Series A Preferred Stock | Series B Preferred Stock | Common Stock | Treasury Stock | Accumulated | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Number of | Number of | Number of | Additional Paid-in | Number of | Accumulated | Statutory | Other Comprehensive | Non- controlling | Total | |||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Shares | Amount | Deficit | Reserve | Loss | Interest | Equity | |||||||||||||||||||||||||||||||||||||||||||
| Balance, January 1, 2024 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||||||||||||||||||||
| Issuance of common stock as convertible note payable commitment fee | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss for the three months ended March 31, 2024 | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2024 | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock as convertible note payable commitment fee | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Beneficial conversion feature related to convertible note payable | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss for the three months ended June 30, 2024 | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2024 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||||||||||||||||||||
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, 2023
(Unaudited)
| Avalon GloboCare Corp. Stockholders’ Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Series A Preferred Stock | Series B Preferred Stock | Common Stock | Treasury Stock | Accumulated | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Number of | Number of | Number of | Additional Paid-in | Number of | Accumulated | Statutory | Other Comprehensive | Non- controlling | Total | |||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Shares | Amount | Deficit | Reserve | Loss | Interest | Equity | |||||||||||||||||||||||||||||||||||||||||||
| Balance, January 1, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||||||||||||||||||||
| Issuance of Series B Convertible Preferred Stock for equity method investment | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for services | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss for the three months ended March 31, 2023 | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2023 | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
| To correct shares issued for adjustments for 1:10 reverse split | - | - | ( | ) | - | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for services | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock as convertible note payable commitment fee | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||
| Net loss for the three months ended June 30, 2023 | - | - | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||||||||||||||||||||
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, | ||||||||
| 2024 | 2023 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation | ||||||||
| Change in straight-line rent receivable | ||||||||
| Amortization of operating lease right-of-use asset | ||||||||
| Stock-based compensation and service expense | ||||||||
| Loss from equity method investments | ||||||||
| Distribution of earnings from equity method investment | ||||||||
| Impairment of equity method investment | ||||||||
| Amortization of debt issuance costs and debt discount | ||||||||
| Change in fair market value of derivative liability | ( | ) | ( | ) | ||||
| Changes in operating assets and liabilities: | ||||||||
| Rent receivable | ||||||||
| Security deposit | ||||||||
| Deferred leasing costs | ||||||||
| Prepaid expense and other assets | ( | ) | ( | ) | ||||
| Accrued liabilities and other payables | ( | ) | ( | ) | ||||
| Accrued liabilities and other payables - related parties | ( | ) | ||||||
| Operating lease obligation | ( | ) | ( | ) | ||||
| NET CASH USED IN OPERATING ACTIVITIES | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of property and equipment | ( | ) | ||||||
| Payment for equity interest purchase | ( | ) | ||||||
| NET CASH USED IN INVESTING ACTIVITIES | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from loan payable - related party | ||||||||
| Proceeds from issuance of convertible debts and warrants | ||||||||
| Payments of convertible debts issuance costs | ( | ) | ( | ) | ||||
| Repayments of convertible debts | ( | ) | ||||||
| Proceeds from issuance of balloon promissory note | ||||||||
| Payments of balloon promissory note issuance costs | ( | ) | ||||||
| Advance from pending sale of noncontrolling interest in subsidiary | ||||||||
| NET CASH PROVIDED BY FINANCING ACTIVITIES | ||||||||
| EFFECT OF EXCHANGE RATE ON CASH | ( | ) | ||||||
| NET DECREASE IN CASH | ( | ) | ( | ) | ||||
| CASH - beginning of period | ||||||||
| CASH - end of period | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
| Cash paid for: | ||||||||
| Interest | $ | $ | ||||||
| NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Common stock issued for future services | $ | $ | ||||||
| Common stock issued for accrued liabilities | $ | $ | ||||||
| Reclassification of advances for equity interest purchase to equity method investment | $ | $ | ||||||
| Series B Convertible Preferred Stock issued related to equity method investment | $ | $ | ||||||
| Accrued purchase price related to equity method investment | $ | $ | ||||||
| Warrants issued as convertible notes payable finder’s fee | $ | $ | ||||||
| Warrants issued with convertible notes payable recorded as debt discount | $ | $ | ||||||
| Common stock issued as convertible notes payable commitment fee | $ | $ | ||||||
| Beneficial conversion feature related to convertible note payable | $ | $ | ||||||
| Convertible debts issuance costs in accrued liabilities | $ | $ | ||||||
| Deferred financing costs in accrued liabilities | $ | $ | ||||||
| Equity method investment payable paid by a related party | $ | $ | ||||||
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”) was incorporated under the laws of the State of Delaware on July 28, 2014.
The Company is a commercial stage company dedicated to developing and delivering innovative, transformative, precision diagnostics and clinical laboratory services. The Company is working to establish 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
May 18, 2015, Avalon Healthcare System, Inc. (“AHS”) was incorporated under the laws of the State of Delaware. AHS
owns
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, 2024, the occupancy rate of the building is
On
July 18, 2018, the Company formed a wholly owned subsidiary, Avactis Biosciences Inc. (“Avactis”), a Nevada corporation, which
is a patent holding company. Commencing on April 6, 2022, the Company owns
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
On May 1, 2024, the Company formed a wholly owned subsidiary, Q&A Distribution LLC (“Q&A Distribution”), a Texas company.
6
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 – ORGANIZATION AND NATURE OF OPERATIONS (continued)
| Name of Subsidiary | Place and Date of Incorporation | Percentage of Ownership | Principal Activities | |||
| Avalon Healthcare System, Inc. (“AHS”) | Delaware | |||||
| Avalon RT 9 Properties LLC (“Avalon RT 9”) | New Jersey | |||||
| Avalon (Shanghai) Healthcare Technology Co., Ltd. (“Avalon Shanghai”) | PRC | |||||
| Genexosome Technologies Inc. (“Genexosome”) | Nevada | | ||||
| Avactis Biosciences Inc. (“Avactis”) | Nevada | Dormant, is in process of being dissolved | ||||
| Avactis Nanjing Biosciences Ltd. (“Avactis Nanjing”) | PRC | Dormant, is in process of being dissolved | ||||
| Avalon Laboratory Services, Inc. (“Avalon Lab”) | Delaware | |||||
| Q&A Distribution LLC (“Q&A Distribution”) | Texas |
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 (the “SEC”) 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, 2023 filed with the SEC on April 15, 2024.
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 through its
As
reflected in the accompanying unaudited condensed consolidated financial statements, the Company had a working capital deficit of approximately
880,000 at June 30, 2024 and had incurred recurring net losses and generated negative cash flow from operating activities
of approximately $
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
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 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, 2024 and 2023 include the useful life of investment in real estate and intangible
assets, the assumptions used in assessing impairment of long-term assets, 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, beneficial conversion
feature and embedded conversion features of convertible note payable, and the fair value of the consideration given and assets acquired
in the purchase of
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 the Financial Accounting Standards Board’s (“FASB”) 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.
| Significant Unobservable Inputs (Level 3) | ||||
| Balance of derivative liability as of January 1, 2024 | $ | |||
| Initial fair value of derivative liability attributable to warrants issuance with March and June 2024 fund raises | ||||
| Gain from change in the fair value of derivative liability | ( | ) | ||
| Balance of derivative liability as of June 30, 2024 | $ | |||
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
| Country: | June 30, 2024 | December 31, 2023 | ||||||||||||||
| United States | $ | % | $ | % | ||||||||||||
| China | % | % | ||||||||||||||
| Total cash | $ | % | $ | % | ||||||||||||
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, 2024 and December 31, 2023.
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
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 $
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 Company
The Company uses the equity method of accounting for its investment in, and earning or loss of, investees that it does not control but over which it does exert significant influence. The Company applies the equity method by initially recording these investments at cost, as equity method investments, subsequently adjusted for equity in earnings and cash distributions.
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 investments.
The Company classifies distributions received from equity method investments using the cumulative earnings approach. Distributions received are considered returns on the investment and classified as cash inflows from operating activities. If, however, the investor’s cumulative distributions received, less distributions received in prior periods determined to be returns of investment, exceeds cumulative equity in earnings recognized, the excess is considered a return of investment and is classified as cash inflows from investing activities.
Beneficial Conversion Feature and Warrants
The Company evaluates the conversion feature of convertible debt instruments to determine whether the conversion feature is beneficial as described in ASC 470-20, Debt with Conversion and Other Options. The Company records a beneficial conversion feature (“BCF”) related to the issuance of convertible debt that has conversion features at fixed or adjustable rates that are in-the-money when issued and records the relative fair value of any warrants issued with those instruments. The BCF for the convertible instruments is recognized and measured by allocating a portion of the proceeds to the warrants and as a reduction to the carrying amount of the convertible instrument equal to the intrinsic value of the conversion features, both of which are credited to additional paid-in capital. The Company calculates the fair value of warrants with the convertible instruments using the Black-Scholes valuation model.
Under these guidelines, the Company first allocates the value of the proceeds received from a convertible debt transaction between the convertible debt instrument and any other detachable instruments included in the transaction (such as warrants) on a relative fair value basis. A BCF is then measured as the intrinsic value of the conversion option at the commitment date, representing the difference between the effective conversion price and the Company’s stock price on the commitment date multiplied by the number of shares into which the debt instrument is convertible. The allocated value of the BCF and warrants are recorded as a debt discount and accreted over the expected term of the convertible debt as interest expense. If the intrinsic value of the BCF is greater than the proceeds allocated to the convertible debt instrument, the amount of the discount assigned to the BCF is limited to the amount of the proceeds allocated to the convertible debt instrument.
Real Property Rental Revenue
The Company has determined that ASC 606 does not apply to rental contracts, which are within the scope of other revenue recognition accounting standards.
Rental income from operating leases is recognized on a straight-line basis under the guidance of ASC 842. Lease payments under tenant leases are recognized on a straight-line basis over the term of the related leases. The cumulative difference between lease revenue recognized under the straight-line method and contractual lease payments are included in rent receivable on the condensed consolidated balance sheets.
10
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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.
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, 2024 and 2023, potentially dilutive common shares consist of the common shares issuable upon the conversion of convertible preferred stock and convertible notes (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.
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Options to purchase common stock | ||||||||||||||||
| Warrants to purchase common stock | ||||||||||||||||
| Series A convertible preferred stock (*) | ||||||||||||||||
| Series B convertible preferred stock (**) | ||||||||||||||||
| Convertible notes (***) | ||||||||||||||||
| Potentially dilutive securities | ||||||||||||||||
| (*) |
| (**) |
| (***) |
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.
11
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.
On February
9, 2023, the Company purchased
Recent Accounting Standards
In August 2020, the FASB issued Accounting Standards Update (“ASU”) 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40), to simplify accounting for certain financial instruments. ASU 2020-06 eliminates the current models that require separation of beneficial conversion and cash conversion features from convertible instruments and simplifies the derivative scope exception guidance pertaining to equity classification of contracts in an entity’s own equity. The new standard also introduces additional disclosures for convertible debt and freestanding instruments that are indexed to and settled in an entity’s own equity. ASU 2020-06 amends the diluted earnings per share guidance, including the requirement to use the if-converted method for all convertible instruments. ASU 2020-06 is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years, with early adoption permitted. The adoption of ASU 2020-06 did not have a material effect on the Company’s consolidated financial statements and related disclosures.
In December 2023, the FASB ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This guidance is intended to enhance the transparency and decision-usefulness of income tax disclosures. The amendments in ASU 2023-09 address investor requests for enhanced income tax information primarily through changes to disclosure regarding rate reconciliation and income taxes paid both in the U.S. and in foreign jurisdictions. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024 on a prospective basis, with the option to apply the standard retrospectively. Early adoption is permitted. The Company is currently evaluating this guidance to determine the impact it may have on its condensed consolidated financial statements disclosures.
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
| June 30, 2024 | December 31, 2023 | |||||||
| Advance to supplier | $ | $ | ||||||
| Prepaid professional fees | ||||||||
| Prepaid directors and officers’ liability insurance premium | ||||||||
| Prepaid NASDAQ listing fee | ||||||||
| Deferred offering costs | ||||||||
| Deferred leasing costs | ||||||||
| Security deposit | ||||||||
| Due from broker | ||||||||
| Others | ||||||||
| Total | $ | $ | ||||||
12
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 5 – EQUITY METHOD INVESTMENTS
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 Lab, SCBC Holdings LLC (the “Seller”), the Zoe Family Trust, Bryan Cox and Sarah Cox as individuals (each an “Owner” and collectively, the “Owners”), and Lab Services MSO.
Pursuant to the terms and conditions set forth
in the Amended MIPA, Avalon Lab acquired from the Seller,
Lab Services MSO, through
its subsidiaries, is engaged in providing laboratory testing services. Avalon Lab and an unrelated company, have an ownership interest
in Lab Services MSO of
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, the Company determined that it does have significant influence as a result of its board representation.
Therefore, the Company treats the equity investment in the 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). At February 9, 2023 (date of investment),
the excess of the Company’s share of the fair values of the investee’s identifiable net assets over the cost of the investment
was approximately $
Intangible
assets consist of the valuation of identifiable intangible assets acquired, representing trade names and customers relationships, which
are being amortized on a straight-line method over the estimated useful life of
Goodwill represents the excess of the purchase price paid over the fair value of net assets acquired in the business acquisition of Lab Services MSO incurred on February 9, 2023. Goodwill is not amortized but is tested for impairment at least once annually, or more frequently if events or changes in circumstances indicate that the asset might be impaired.
For the three months
ended June 30, 2024 and 2023, the Company’s share of Lab Services MSO’s net loss was $
For the six months ended
June 30, 2024 and for the period from February 9, 2023 (date of investment) through June 30, 2023, the Company’s share of Lab Services
MSO’s net income was $
13
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 5 – EQUITY METHOD INVESTMENTS (continued)
| Equity investment carrying amount at January 1, 2024 | $ | |||
| Lab Services MSO’s net income attributable to the Company | ||||
| Intangible assets amortization amount | ( | ) | ||
| Distribution of earnings from equity investment | ( | ) | ||
| Equity investment carrying amount at June 30, 2024 | $ |
As of June 30, 2024, the Company’s carrying
value of the identified intangible assets and goodwill which are included in the equity investment carrying amount was $
| June 30, 2024 | December 31, 2023 | |||||||
| Current assets | $ | $ | ||||||
| Noncurrent assets | ||||||||
| Current liabilities | ||||||||
| Noncurrent liabilities | ||||||||
| Equity | ||||||||
| For the Three Months Ended June 30, 2024 | For the Three Months Ended June 30, 2023 | For the Six Months Ended June 30, 2024 | For the Period from February 9, 2023 (Date of Investment) through June 30, 2023 | |||||||||||||
| Net revenue | $ | $ | $ | $ | | |||||||||||
| Gross profit | ||||||||||||||||
| (Loss) income from operation | ( | ) | ( | ) | ||||||||||||
| Net (loss) income | ( | ) | ||||||||||||||
NOTE 6 – CONVERTIBLE NOTE PAYABLE
May 2023 Convertible Note
On May 23, 2023, the
Company entered into securities purchase agreements with Mast Hill Fund, L.P. (“Mast Hill”) for the issuance of
Mast Hill acquired the
May 2023 Convertible Note with principal amount of $
14
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 6 – CONVERTIBLE NOTE PAYABLE (continued)
May 2023 Convertible Note (continued)
The Company was obligated to make amortization payments in cash to Mast Hill toward the repayment of the May 2023 Convertible Note, as described in the May 2023 Convertible Note. As of June 30, 2024, the May 2023 Convertible Note was repaid in full.
In connection with the issuance of the May 2023
Convertible Note, the Company incurred debt issuance costs of $
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 a derivative liability, as the Company cannot avoid a net cash settlement
under certain circumstances. Through life of the May 2023 Convertible Note, management determined the probability of failing to make an
amortization payment when due was remote and as such the estimated fair value of the
In accordance with ASC 470-20-25-2, proceeds from the sale of a debt instrument with stock purchase warrants were 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 were accounted for as derivative liability. The remainder of the proceeds were 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, through life of the May 2023 Convertible Note, management determined the probability of failing to make an amortization payment when due was remote and as such the estimated fair value of the embedded conversion feature was zero.
The
Company recorded a total debt discount of $
For the three months ended June 30, 2024 and 2023,
amortization of debt discount and debt issuance costs related to the May 2023 Convertible Note amounted to $
For the six months ended June 30, 2024 and 2023,
amortization of debt discount and debt issuance costs related to the May 2023 Convertible Note amounted to $
For the three months ended June 30, 2024 and 2023,
interest expense related to the May 2023 Convertible Note amounted to $
For the six months ended June 30, 2024 and 2023,
interest expense related to the May 2023 Convertible Note amounted to $
15
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 6 – CONVERTIBLE NOTE PAYABLE (continued)
July 2023 Convertible Note
On July 6, 2023, the Company entered into securities
purchase agreements with Firstfire Global Opportunities Fund, LLC (“Firstfire”) for the issuance of
Firstfire acquired the July 2023 Convertible Note
with principal amount of $
The Company was obligated to make amortization payments in cash to Firstfire toward the repayment of the July 2023 Convertible Note, as described in the July 2023 Convertible Note. As of June 30, 2024, the July 2023 Convertible Note was repaid in full.
In connection with the issuance of the July 2023
Convertible Note, the Company incurred debt issuance costs of $
Based upon the Company’s analysis of the
criteria contained in ASC 815, the Company determined that all the warrants issued to Firstfire and a third party as a finder’s
fee meet the definition of a derivative liability, as the Company cannot avoid a net cash settlement under certain circumstances. Through
life of the July 2023 Convertible Note, management determined the probability of failing to make an amortization payment when due was
remote and as such the estimated fair value of the
In accordance with ASC 470-20-25-2, proceeds from the sale of a debt instrument with stock purchase warrants were 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 were accounted for as derivative liability. The remainder of the proceeds were 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, through life of the July 2023 Convertible Note, management determined the probability of failing to make an amortization payment when due was remote and as such the estimated fair value of the embedded conversion feature was zero.
The Company recorded a total debt discount of
$
For the three and six months ended June 30, 2024,
amortization of debt discount and debt issuance costs related to the July 2023 Convertible Note amounted to $
16
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 6 – CONVERTIBLE NOTE PAYABLE (continued)
July 2023 Convertible Note (continued)
For the three and six months ended June 30, 2024,
interest expense related to the July 2023 Convertible Note amounted to $
October 2023 Convertible Note
On October 9, 2023, the Company entered into securities
purchase agreements with Mast Hill and Firstfire for the issuance of
Mast Hill acquired the October 2023 Convertible
Note with principal amount of $
The Company was obligated to make amortization payments in cash to Mast Hill toward the repayment of the October 2023 Convertible Note, as described in the October 2023 Convertible Note. As of June 30, 2024, the October 2023 Convertible Note was repaid in full.
Firstfire acquired the October 2023 Convertible
Note with principal amount of $
The Company was obligated to make amortization payments in cash to Firstfire toward the repayment of the October 2023 Convertible Note, as described in the October 2023 Convertible Note. As of June 30, 2024, the October 2023 Convertible Note was repaid in full.
In connection with the issuance of the October
2023 Convertible Note, the Company incurred debt issuance costs of $
17
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 6 – CONVERTIBLE NOTE PAYABLE (continued)
October 2023 Convertible Note (continued)
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 Firstfire and a third party as a finder’s fee meet the definition of a derivative liability, as the Company cannot avoid a net
cash settlement under certain circumstances. Through life of the October 2023 Convertible Note, management determined the probability
of failing to make an amortization payment when due was remote and as such the estimated fair value of the
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 were accounted for as derivative liability. The remainder of the proceeds were 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, through life of the October 2023 Convertible Note, management determined the probability of failing to make an amortization payment when due was remote and as such the estimated fair value of the embedded conversion feature was zero.
The Company recorded a total debt discount of
$
For the three and six months ended June 30, 2024,
amortization of debt discount and debt issuance costs related to the October 2023 Convertible Note amounted to $
For the three and six months ended June 30, 2024,
interest expense related to the October 2023 Convertible Note amounted to $
March 2024 Convertible Note
On March 7, 2024, the
Company entered into securities purchase agreements with Mast Hill for the issuance of
Mast Hill acquired the
March 2024 Convertible Note with principal amount of $
18
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 6 – CONVERTIBLE NOTE PAYABLE (continued)
March 2024 Convertible Note (continued)
The Company was obligated to make amortization payments in cash to Mast Hill toward the repayment of the March 2024 Convertible Note, as described in the March 2024 Convertible Note. As of June 30, 2024, the March 2024 Convertible Note was repaid in full.
In connection with the issuance of the March 2024
Convertible Note, the Company incurred debt issuance costs of $
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 a derivative liability, as the Company cannot avoid a net cash settlement under certain circumstances. Through
life of the March 2024 Convertible Note, management determined the probability of failing to make an amortization payment when due was
remote and as such the estimated fair value of the
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 were accounted for as derivative liability. The remainder of the proceeds were 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, through life of the March 2024 Convertible Note, management determined the probability of failing to make an amortization payment when due was remote and as such the estimated fair value of the embedded conversion feature was zero.
The Company recorded a total debt discount of
$
For the three and six months ended June 30, 2024,
amortization of debt discount and debt issuance costs related to the March 2024 Convertible Note amounted to $
For the three and six months ended June 30, 2024,
interest expense related to the March 2024 Convertible Note amounted to $
June 2024 Convertible Note
On June 5, 2024, the
Company entered into securities purchase agreements with Mast Hill for the issuance of
19
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 6 – CONVERTIBLE NOTE PAYABLE (continued)
June 2024 Convertible Note (continued)
Mast Hill acquired the
June 2024 Convertible Note with principal amount of $
The Company received
net cash amount of $
| Payment Date: | Payment Amount: | |
| December 5, 2024 | ||
| January 5, 2025 | ||
| February 5, 2025 | ||
| March 5, 2025 | ||
| April 5, 2025 | ||
| May 5, 2025 | ||
| June 5, 2025 |
In connection
with the issuance of the June 2024 Convertible Note, the Company incurred debt issuance costs of $
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 a derivative liability, as the Company cannot avoid a net cash settlement
under certain circumstances. Management determined the probability of failing to make an amortization payment when due to be remote and
as such the fair value of the
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 failing 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.
In accordance with ASC 470-20, the Company determined that the conversion feature is beneficial and the Company valued the beneficial conversion feature (“BCF”) separately, recording debt discount and additional paid-in capital.
20
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 6 – CONVERTIBLE NOTE PAYABLE (continued)
June 2024 Convertible Note (continued)
The Company
recorded a total debt discount of $
For the
three and six months ended June 30, 2024, amortization of debt discount and debt issuance costs related to the June 2024 Convertible Note
amounted to $
For the
three and six months ended June 30, 2024, interest expense related to the June 2024 Convertible Note amounted to $
NOTE 7 – DERIVATIVE LIABILITY
As stated in Note 6, May 2023 Convertible Note, July 2023 Convertible Note, October 2023 Convertible Note, and March 2024 Convertible Note, the Company determined that these convertible notes payable contained an embedded derivative feature in the form of a conversion provision which was adjustable based on future prices of the Company’s common stock. In accordance with ASC 815-10-25, each derivative feature was initially recorded at its fair value using the Black-Scholes option valuation method and then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. However, on May 23, 2023, July 6, 2023, October 9, 2023, March 7, 2024, and March 31, 2024, management determined the probability of failing to make an amortization payment when due was remote and as such the estimated fair value of the embedded conversion feature was zero. As of June 5, 2024, these convertible notes were repaid in full.
As stated in Note 6, June 2024 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 June 5, 2024 and June 30, 2024, management determined the probability of failing 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
On June
30, 2024, the estimated fair value of the
On July
6, 2023, the Company issued
On June
30, 2024, the estimated fair value of the
21
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 7 – DERIVATIVE LIABILITY (continued)
On October 9, 2023, the
Company issued
On June
30, 2024, the estimated fair value of the
On March 7, 2024, the
Company issued
On June
30, 2024, the estimated fair value of the
On June 5, 2024, the Company issued
On June 30, 2024, the estimated fair value of
the
Increases
or decreases in fair value of the derivative liability are included as a component of total other (expenses) income in the accompanying
condensed consolidated statements of operations and comprehensive loss. The changes to the derivative liability resulted in a decrease
of $
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 $
22
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 8 – NOTE PAYABLE, NET (continued)
In May 2023, the Company
borrowed $
| June 30, 2024 | December 31, 2023 | |||||||
| Principal amount | $ | $ | ||||||
| Less: unamortized debt issuance costs | ( | ) | ( | ) | ||||
| Note payable, net | $ | $ | ||||||
For the three months ended June 30, 2024 and 2023,
amortization of debt issuance costs related to note payable amounted to $
For the three months ended June 30, 2024 and 2023,
interest expense related to note payable amounted to $
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 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, 2024
and 2023, the related party rental revenue amounted to $
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 $
23
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 9 – RELATED PARTY TRANSACTIONS (continued)
Accrued Liabilities and Other Payables – Related Parties
In 2017, the Company acquired Beijing Genexosome
for a cash payment of $
From time to time, Lab Services MSO paid shared
expense on behalf of the Company. In addition, Lab Services MSO made a payment of $
As of June 30, 2024 and December 31, 2023, $
Borrowing from Related Party
On August 29, 2019, the Company entered into a
Line of Credit Agreement (the “Line of Credit Agreement”) providing the Company with a $
There
was no Line of Credit activity during the six months ended June 30, 2024. As of both June 30, 2024 and December 31, 2023,
the outstanding principal balance was $
For the three months ended June 30, 2024 and 2023,
the interest expense related to related party borrowing amounted to $
For the six months ended June 30, 2024 and 2023,
the interest expense related to related party borrowing amounted to $
As of June 30, 2024 and December 31, 2023, the
related accrued and unpaid interest for Line of Credit was $
As
of June 30, 2024, the Company has used approximately $
24
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 9 – RELATED PARTY TRANSACTIONS (continued)
Membership Interest Purchase Agreement
On November
17, 2023, the Company entered into a Membership Interest Purchase Agreement (the “Purchase Agreement”) with Mr. Lu, the Company’s
largest shareholder and Chairman of the Board of Directors of the Company, pursuant to which (i) Mr. Lu will acquire from the Company
NOTE 10 – EQUITY
Common Shares Issued as Convertible Note Payable Commitment Fee
During the six months ended June 30, 2024, the
Company issued a total of
Options
| Options Outstanding | Options Exercisable | |||||||||||||||||||||
| Range of Exercise Price | Number Outstanding at June 30, 2024 | Weighted Average Remaining Contractual Life (Years) | Weighted Average Exercise Price | Number Exercisable at June 30, 2024 | Weighted Average Exercise Price | |||||||||||||||||
| $ | $ | $ | ||||||||||||||||||||
| $ | $ | $ | ||||||||||||||||||||
| Number of Options | Weighted Average Exercise Price | |||||||
| Outstanding at January 1, 2024 | $ | |||||||
| Granted | ||||||||
| Expired | ( | ) | ( | ) | ||||
| Outstanding at June 30, 2024 | $ | |||||||
| Options exercisable at June 30, 2024 | $ | |||||||
| Options expected to vest | $ | |||||||
The aggregate intrinsic value of stock options
outstanding and stock options exercisable at June 30, 2024 was $
The fair values of options granted during the
six months ended June 30, 2024 were estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions:
volatility of
25
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 10 – EQUITY (continued)
Options (continued)
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
For the three months ended June 30, 2024 and 2023,
stock-based compensation expense associated with stock options granted amounted to $
For the six months ended June 30, 2024 and 2023,
stock-based compensation expense associated with stock options granted amounted to $
| Number of Options | Weighted Average Exercise Price | |||||||
| Nonvested at January 1, 2024 | $ | |||||||
| Granted | ||||||||
| Vested | ( | ) | ( | ) | ||||
| Nonvested at June 30, 2024 | $ | |||||||
Warrants
| Warrants Outstanding | Warrants Exercisable | |||||||||||||||||||||
| Range of Exercise Price | Number Outstanding at June 30, 2024 | Weighted Average Remaining Contractual Life (Years) | Weighted Average Exercise Price | Number Exercisable at June 30, 2024 | Weighted | |||||||||||||||||
| $ | $ | $ | ||||||||||||||||||||
| $ | $ | $ | ||||||||||||||||||||
26
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 10 – EQUITY (continued)
Warrants (continued)
| Number of Warrants | Weighted Average Exercise Price | |||||||
| Outstanding at January 1, 2024 | $ | |||||||
| Issued | ||||||||
| Cancelled (*) | ( | ) | ( | ) | ||||
| Outstanding at June 30, 2024 | $ | |||||||
| Warrants exercisable at June 30, 2024 | $ | |||||||
| Warrants expected to vest | $ | |||||||
| * | Second Warrant, which was issued on May 23, 2023, July 6, 2023, October 9, 2023, and March 7, 2024, was cancelled in June 2024. First Warrant, which was issued on May 23, 2023, July 6, 2023, October 9, 2023, and March 7, 2024, is still outstanding as of June 30, 2024. First Warrant and Second Warrant, which are issued on June 5, 2024, are still outstanding as of June 30, 2024. |
The aggregate intrinsic
value of both stock warrants outstanding and stock warrants exercisable at June 30, 2024 was $
Warrants Issued in March 2024
In connection with the
issuance of March 2024 Convertible Note (See Note 6), the Company issued
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 a derivative liability, as the Company cannot avoid a net cash settlement under certain circumstances.
The
The warrants with an
exercise price of $
The warrants with an
exercise price of $
Warrants Issued in June 2024
In connection with the
issuance of June 2024 Convertible Note (See Note 6), the Company issued
27
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 10 – EQUITY (continued)
Warrants (continued)
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 a derivative liability, as the Company cannot avoid a net cash settlement
under certain circumstances. Management determined the probability of failing to make an amortization payment when due to be remote and
as such the fair value of the
The warrants with an
exercise price of $
The warrants with an
exercise price of $
Warrants Cancelled in June 2024
As of June 5, 2024, the
Company paid in full of its outstanding May 2023 Convertible Note, July 2023 Convertible Note, October 2023 Convertible Note, and March
2024 Convertible Note and cancelled
| Number of Warrants | Weighted Average Exercise Price | |||||||
| Nonvested at January 1, 2024 | $ | |||||||
| Issued | ||||||||
| Cancelled | ( | ) | ( | ) | ||||
| Vested | ( | ) | ( | ) | ||||
| Nonvested at June 30, 2024 | $ | |||||||
NOTE 11 - STATUTORY RESERVE AND RESTRICTED NET ASSETS
The Company’s PRC subsidiary, Avalon Shanghai, is restricted in its ability to transfer a portion of its net asset to the Company. The payment of dividends by entities organized in China is subject to limitations, procedures and 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
28
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 11 - STATUTORY RESERVE AND RESTRICTED NET ASSETS (continued)
Relevant PRC laws and regulations restrict the
Company’s PRC subsidiary, Avalon Shanghai, from transferring a portion of its net assets, equivalent to its statutory reserve and
its share capital, to the Company’s shareholders in the form of loans, advances or cash dividends. Only PRC entity’s accumulated
profit may be distributed as dividend to the Company’s shareholders without the consent of a third party. As of both June 30, 2024
and December 31, 2023, total restricted net assets amounted to $
NOTE 12 – 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
The Company performed a test on the restricted
net assets of consolidated subsidiary in accordance with such requirement and concluded that it was not applicable to the Company as the
restricted net assets of the Company’s PRC subsidiary did not exceed
NOTE 13 - CONCENTRATIONS
Customers
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| Customer | 2024 | 2023 | 2024 | 2023 | ||||||||||||
| A | % | |||||||||||||||