UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
OR
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(I.R.S. Employer Identification No.) | |
| (Address of principal executive offices) | (Zip Code) |
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(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 | ||
| The |
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.
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
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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 ☐ | |
| Smaller reporting company | ||
| Emerging growth company |
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As of May 11, 2026,
AVALON GLOBOCARE CORP.
FORM 10-Q
For the Quarterly Period Ended March 31, 2026
Table of Contents
-i-
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| March 31, | December 31, | |||||||
| 2026 | 2025 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash | $ | $ | ||||||
| Receivable from sale of equity method investment | ||||||||
| Prepaid expense and other current assets | ||||||||
| Current assets of discontinued operations | ||||||||
| Total Current Assets | ||||||||
| NON-CURRENT ASSETS: | ||||||||
| Operating lease right-of-use assets, net | ||||||||
| Property and equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Goodwill | ||||||||
| Non-current assets of discontinued operations | ||||||||
| 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 party | ||||||||
| Operating lease obligation | ||||||||
| Advance from pending sale of subsidiary - related party | ||||||||
| Derivative liability | ||||||||
| Stock subscription liability | ||||||||
| Bridge loan payable, net | ||||||||
| Convertible note payable, net | ||||||||
| Note payable, net | - | |||||||
| Current liabilities of discontinued operations | ||||||||
| Total Current Liabilities | ||||||||
| NON-CURRENT LIABILITIES: | ||||||||
| Operating lease obligation, noncurrent portion | ||||||||
| Non-current liabilities of discontinued operations | ||||||||
| Total Non-current Liabilities | ||||||||
| Total Liabilities | ||||||||
| Commitments and Contingencies (Note 16) | ||||||||
| EQUITY: | ||||||||
| Preferred stock, $ | ||||||||
| Liquidation preference $ | ||||||||
| Liquidation preference $ | ||||||||
| Series E 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 | ||||||||
| March 31, | ||||||||
| 2026 | 2025 | |||||||
| INCOME FROM EQUITY METHOD INVESTMENT - LAB SERVICES MSO | $ | - | $ | |||||
| OTHER OPERATING EXPENSES: | ||||||||
| Advertising and marketing expenses | ||||||||
| Professional fees | ||||||||
| Compensation and related benefits | ||||||||
| Amortization of intangible assets | ||||||||
| Other general and administrative expenses | ||||||||
| Total Other Operating Expenses | ||||||||
| LOSS FROM OPERATIONS | ( | ) | ( | ) | ||||
| OTHER EXPENSE | ||||||||
| Interest expense - amortization of debt discount and debt issuance costs | ( | ) | ( | ) | ||||
| Interest expense - other | ( | ) | ( | ) | ||||
| Change in fair value of derivative liability | ( | ) | ( | ) | ||||
| Other expense | ( | ) | ( | ) | ||||
| Total Other Expense | ( | ) | ( | ) | ||||
| LOSS BEFORE INCOME TAXES | ( | ) | ( | ) | ||||
| INCOME TAXES | ||||||||
| NET LOSS FROM CONTINUING OPERATIONS | ( | ) | ( | ) | ||||
| NET LOSS FROM DISCONTINUED OPERATIONS | ( | ) | ( | ) | ||||
| NET LOSS | $ | ( | ) | $ | ( | ) | ||
| LESS: NET LOSS ATTRIBUTABLE TO NONCONTROLLING INTEREST | ||||||||
| NET LOSS AFTER NONCONTROLLING INTEREST | ( | ) | ( | ) | ||||
| DEEMED CONTRIBUTION ON EXCHANGE OF EQUITY INSTRUMENTS | - | |||||||
| NET LOSS ATTRIBUTABLE TO AVALON GLOBOCARE CORP. COMMON SHAREHOLDERS | $ | ( | ) | $ | ( | ) | ||
| NET LOSS PER COMMON SHARE ATTRIBUTABLE TO AVALON GLOBOCARE CORP. COMMON SHAREHOLDERS: | ||||||||
| Basic and diluted, continuing operations | $ | ( | ) | $ | ( | ) | ||
| Basic and diluted, discontinued operations | ( | ) | ( | ) | ||||
| Basic and diluted | $ | ( | ) | $ | ( | ) | ||
| WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: | ||||||||
| Basic and diluted | ||||||||
| COMPREHENSIVE LOSS: | ||||||||
| NET LOSS | $ | ( | ) | $ | ( | ) | ||
| OTHER COMPREHENSIVE (LOSS) INCOME FROM CONTINUED OPERATIONS | ||||||||
| Unrealized foreign currency translation (loss) gain | ( | ) | ||||||
| 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 Months Ended March 31, 2026
(Unaudited)
| Avalon GloboCare Corp. Stockholders’ Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Series
C Preferred Stock | Series
D Preferred Stock | Series
E Preferred Stock | Common Stock | Additional | Treasury Stock | Accumulate Other | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Number of | Number of | Number of | Number of | Paid-in | Number of | Accumulated | Statutory | Comprehensive | Noncontrolling | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Shares | Amount | Deficit | Reserve | Loss | Interest | Equity | |||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, January 1, 2026 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock upon cashless exercise of pre-funded stock warrants | - | - | - | ( | ) | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock upon cashless exercise of stock warrants | - | - | - | ( | ) | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Conversion of Series C Preferred Stock into common stock | ( | ) | ( | ) | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Conversion of convertible note payable and accrued interest into common stock | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Reclassification of derivative liability to equity | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for services | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Sales of securities from the February 2026 private placement, net | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Sale of subsidiary (Note 3) | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss for the three months ended March 31, 2026 | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2026 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||
See accompanying notes to the condensed consolidated financial statements.
-3-
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (DEFICIT)
For the Three Months Ended March 31, 2025
(Unaudited)
| Avalon GloboCare Corp. Stockholders’ (Deficit) Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Series
A Preferred Stock | Series
B Preferred Stock | Series
C Preferred Stock | Series
D Preferred Stock | Common Stock | Additional | Treasury Stock | Accumulate Other | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Number of | Number of | Number of | Number of | Number of | Paid-in | Number of | Accumulated | Statutory | Comprehensive | Noncontrolling | Equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Shares | Amount | Deficit | Reserve | Loss | Interest | (Deficit) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, January 1, 2025 | $ | $ | $ | - | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | - | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock upon cashless exercise of stock warrants | - | - | - | - | ( | ) | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for services | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Reclassification of derivative liability to equity | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Series D Convertible Preferred Stock issued in exchange of Series A Convertible Preferred Stock | ( | ) | ( | ) | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Series B Convertible Preferred Stock extinguished related to sale of equity method investment | - | ( | ) | ( | ) | - | - | - | - | - | - | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss for the three months ended March 31, 2025 | - | - | - | - | - | - | ( | ) | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2025 | - | $ | - | - | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | - | $ | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||
See accompanying notes to the condensed consolidated financial statements.
-4-
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| For the Three Months Ended | ||||||||
| March 31, | ||||||||
| 2026 | 2025 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss from continuing operations | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to | ||||||||
| net cash used in operating activities: | ||||||||
| Depreciation and amortization of intangible assets | ||||||||
| Amortization of operating lease right-of-use asset | ||||||||
| Stock-based compensation and service expense | ||||||||
| Income from 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: | ||||||||
| Security deposit | ||||||||
| Prepaid expense and other assets | ( | ) | ( | ) | ||||
| Accrued liabilities and other payables | ( | ) | ||||||
| Operating lease obligation | ( | ) | ( | ) | ||||
| NET CASH USED IN OPERATING ACTIVITIES FROM CONTINUING OPERATIONS | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Proceeds from sale of equity method investment | ||||||||
| NET CASH PROVIDED BY INVESTING ACTIVITIES FROM CONTINUING OPERATIONS | ||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Repayments of bridge loan | ( | ) | ||||||
| Repayments of convertible debt | ( | ) | ||||||
| Proceeds from issuance of debt | ||||||||
| Payments of debt issuance costs | ( | ) | ||||||
| Advance from pending sale of subsidiary | ||||||||
| Proceeds received from the February 2026 private offering | ||||||||
| Disbursements for the February 2026 private offering costs | ( | ) | ||||||
| NET CASH PROVIDED BY FINANCING ACTIVITIES FROM CONTINUING OPERATIONS | ||||||||
| DISCONTINUED OPERATIONS | ||||||||
| Net cash used in operating activities from discontinued operations | ( | ) | ( | ) | ||||
| NET CASH FLOWS USED IN DISCONTINUED OPERATIONS | ( | ) | ( | ) | ||||
| EFFECT OF EXCHANGE RATE ON CASH - CONTINUING OPERATIONS | ||||||||
| NET INCREASE (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 | $ | $ | ||||||
| Receivable related to sale of equity method investment | $ | $ | ||||||
| Related party payable extinguished upon sale of equity method investment | $ | $ | ||||||
| Series B Convertible Preferred Stock extinguished related to sale of equity method investment | $ | $ | ||||||
| Series D Convertible Preferred Stock issued in exchange of Series A Convertible Preferred Stock | $ | $ | ||||||
| Stock warrants issued as placement agent fee | $ | $ | ||||||
| Settlement of derivative liability | $ | $ | ||||||
| Issuance of common stock upon cashless exercise of stock warrants | $ | $ | ||||||
| Issuance of common stock upon cashless exercise of pre-funded stock warrants | $ | $ | ||||||
| Initial ROU asset and lease liability | $ | $ | ||||||
| Conversion of convertible note payable and accrued interest into common stock | $ | $ | ||||||
| Series C Convertible Preferred Stock converted into common stock | $ | $ | ||||||
| Related party gain on deconsolidation of Avalon RT 9 | $ | $ | ||||||
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
Through the Company’s AI-driven subsidiary, the Company is advancing next-generation agentic AI systems targeted to consumers and small businesses, starting with an SaaS automated video production platform. The Company is also expanding its intellectual property portfolio in cellular therapy and generative AI publishing and software. In addition, the Company is marketing the KetoAir™ breathalyzer device, which is registered with the U.S. Food and Drug Administration as a Class I medical device, and plans to pursue additional diagnostic applications for the technology. In addition, the Company owned and operated commercial real estate at its headquarters in Freehold, NJ through February 2026.
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. On February 18, 2026, the Company sold
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. Q&A Distribution is engaged in distribution of KetoAir device.
On February 21, 2025, the Company formed a wholly owned subsidiary, Nexus MergerSub Limited (“Nexus”), a British Virgin Islands (“BIV”) company. There was no activity for the subsidiary since its incorporation through March 31, 2026.
On December 5, 2025, the Company formed a wholly owned subsidiary, Avalon Quantum AI, LLC (“Avalon Quantum AI”), a Nevada company.
On December 12, 2025, the Company acquired RPM Interactive, Inc., a Nevada corporation (“RPM”), in accordance with the terms of the Agreement and Plan of Merger, dated December 12, 2025, as amended by Amendment No. 1 dated December 14, 2025 (as amended, the “Merger Agreement”), by and among the Company, Avalon Quantum AI, LLC, a Nevada limited liability company and a wholly owned subsidiary of the Company (the “Merger Sub”), and RPM. Pursuant to the Merger Agreement, RPM merged with and into the Merger Sub, pursuant to which the Merger Sub was the surviving entity and became a wholly owned subsidiary of the Company (the “Merger”).
As a result of the above Merger transaction, effective December 12, 2025, Avalon Quantum AI is advancing next-generation AI systems, including automated video generation, and small business marketing automation solutions.
-6-
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 – ORGANIZATION AND NATURE OF OPERATIONS (continued)
Details of the Company’s subsidiaries which are included in these condensed consolidated financial statements as of March 31, 2026 are as follows:
| Name of Subsidiary | Place and Date of Incorporation | Percentage of Ownership | Principal Activities | |||
| Avalon Healthcare System, Inc. (“AHS”) | May 18, 2015 |
ALBT |
||||
| Avalon (Shanghai) Healthcare Technology Co., Ltd. (“Avalon Shanghai”) | April 29, 2016 |
AHS |
||||
| Genexosome Technologies Inc. (“Genexosome”) | July 31, 2017 |
ALBT |
||||
| Avalon Laboratory Services, Inc. (“Avalon Lab”) | October 14, 2022 |
ALBT |
||||
| Q&A Distribution LLC (“Q&A Distribution”) | May 1, 2024 |
ALBT |
||||
| Nexus MergerSub Limited (“Nexus”) | February 21, 2025 |
ALBT |
||||
| Avalon Quantum AI, LLC (“Avalon Quantum AI”) | December 5, 2025 |
ALBT |
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, 2025 filed with the SEC on March 30, 2026.
As of March 31, 2026, the Company determined that certain assets that had been disposed of met the criteria for discontinued operations presentation. For all periods presented, the operating results associated with the assets disposed of have been reclassified into net loss from discontinued operations in the Condensed Consolidated Statements of Operations and Comprehensive Loss. The associated assets and liabilities have been reflected as current and long-term assets and liabilities of discontinued operations in the Condensed Consolidated Balance Sheets, and the cash flows from the Company’s discontinued operations are presented in the Condensed Consolidated Statements of Cash Flows for all periods presented.
-7-
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2 – BASIS OF PRESENTATION AND GOING CONCERN CONDITION (continued)
Basis of Presentation (continued)
Certain prior period balances related to the Company’s reportable segments and discontinued operations have been reclassified to conform to the current presentation in the financial statements and accompanying notes. The notes to the Condensed Consolidated Financial Statements are presented on a continuing operations basis unless otherwise noted. Refer to Note 5 Discontinued Operations and Disposals for additional information on the Company’s discontinued operations.
Going Concern
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 $
The Company has a limited operating history and its continued growth is dependent upon the continuation of generating revenue for selling of Keto Air, generating revenue from advanced Agentic AI systems, including automated video generation and small business marketingautomation, 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 revenue. There are no assurances that the Company will be successful in its efforts to generate significant revenue, 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
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 months ended March 31, 2026 and 2025 include the useful life of intangible assets, the assumptions used in assessing impairment of long-term assets, the allowance for credit loss, the valuation of deferred tax assets and the associated valuation allowances, the valuation of stock-based compensation, the valuation of Series D convertible preferred stock (“Series D Preferred Stock”), and the determination of the fair value of the warrants.
-8-
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Cash and Cash Equivalents
At March 31, 2026 and December 31, 2025, the Company’s cash balances by geographic area were as follows:
| Country: | March 31, 2026 | December 31, 2025 | ||||||||||||||
| 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 March 31, 2026 and December 31, 2025.
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.
| Significant Unobservable Inputs (Level 3) | ||||
| Balance of derivative liability as of January 1, 2026 | $ | |||
| Loss from change in the fair value of derivative liability | ||||
| Reclassification of additional paid-in capital upon conversion | ( | ) | ||
| Balance of derivative liability as of March 31, 2026 | $ | |||
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.
-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 $
Sale of Subsidiary
In February 2026, the Company sold its wholly-owned
subsidiary of Avalon RT 9 to Wenzhao Lu, the Company’s chairman of the Board of Directors. Avalon RT 9 owned and managed the corporate
office building located at 4400 Route 9 South, Freehold, NJ, which served as the Company’s headquarters and leased other space to
tenants until the sale. Wenzhao Lu paid fair value of $
Capitalized Internal-use Software Costs
The Company capitalizes costs to develop or purchase internal-use software in accordance with ASC section 350-40, Intangibles — Goodwill and Other — Internal-Use Software. Costs incurred to develop internal-use software are expensed as incurred during the preliminary project stage. Internal-use software development costs are capitalized upon purchase and during the application development stage, which is after: (i) the preliminary project stage is completed; and (ii) management authorizes and commits to funding the project and it is probable the project will be completed and used to perform the functions intended. Capitalization ceases at the point the software project is substantially complete and ready for its intended use, and after all substantial testing is completed. Upgrades and enhancements are capitalized if it is probable that those expenditures will result in additional functionality. Amortization is provided for on a straight-line basis over the expected useful life of the internal-use software development costs and related upgrades and enhancements. When existing software is replaced with new software, the unamortized costs of the old software are expensed when the new software is ready for its intended use.
Stock Subscription Liability
On June 4, 2025, the Company entered into a subscription
agreement with an investor, whereby
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. The Company had $
-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)
The calculation
of basic and diluted net loss per common share attributable to the Company common shareholders includes
The following table summarizes the securities that were excluded from the diluted per share calculation because the effect of including these potential shares was antidilutive:
| Three Months Ended March 31, | ||||||||
| 2026 | 2025 | |||||||
| Options to purchase common stock | ||||||||
| Warrants to purchase common stock | ||||||||
| Series C convertible preferred stock (*) | ||||||||
| Series D convertible preferred stock (**) | ||||||||
| Series E convertible preferred stock (***) | ||||||||
| Convertible notes and related accrued interest (****) | ||||||||
| Potentially dilutive securities | ||||||||
| (*) |
| (**) |
| (***) |
| (****) |
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.
Segment Reporting
The segment reporting structure uses the Company’s management reporting structure as its foundation to reflect how the Company manages the businesses internally and was mainly organized by services. During the three months ended March 31, 2026, the Company was organized into one strategic business units: AI generated publishing services. During the three months ended March 31, 2025, the Company was organized into one strategic business units: laboratory testing services (which ended on the redemption date, February 26, 2025) — which were led by our strategic business unit managers. Operating segments are defined as components of an enterprise for which separate financial information is available and evaluated regularly by the chief operating decision maker (“CODM”) in deciding how to make operating decisions, allocate resources and assess performance.
On February
9, 2023, the Company purchased
-11-
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Segment Reporting (continued)
The Company’s Chief Executive Officer is its CODM. The Company reports operational data to its CODM at the segment level, which he uses to evaluate performance and allocate resources based on income from equity method investment – Lab Services MSO and AI generated publishing operating income.
On
February 18, 2026, the Company and Wenzhao Lu, the Company’s chairman of the Board of Directors, entered into an Amended and Restated
Membership Interest Purchase Agreement, pursuant to which the Company sold to Mr. Lu
Recent Accounting Standards
In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Updates (“ASU”) 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This guidance was intended to enhance the transparency and decision-usefulness of income tax disclosures. The amendments in ASU 2023-09 addressed 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 was effective for fiscal years beginning after December 15, 2024 on a prospective basis, with the option to apply the standard retrospectively. Early adoption was permitted. The adoption of ASU 2023-09 did not have a material effect on the Company’s condensed consolidated financial statements and related disclosures.
In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. In January 2025, the FASB issued ASU No. 2025-01, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40), Clarifying the Effective Date. ASU 2024-03 requires public companies to disclose, in interim and reporting periods, additional information about certain expenses in the financial statements. ASU 2024-03, as clarified by ASU 2025-01, is effective for public entities for annual periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption is permitted and is effective on either a prospective basis or retrospective basis. The Company is currently evaluating the impact that the updated standard will have on the Company’s disclosures within the condensed consolidated financial statements.
In September 2025, the FASB issued Accounting Standards Update No. 2025-06, “Intangibles — Goodwill and Other — Internal-Use Software (Subtopic 350-40),” (“ASU 2025-06”). The amendments in ASU 2025-06 remove all references to prescriptive and sequential software development stages, and require entities to start capitalizing software costs when management has authorized and committed to funding the software project and it is probable that the project will be completed and the software will be used to perform the function intended. ASU 2025-06 is effective for fiscal years beginning after December 15, 2027, and interim periods within those fiscal years, and may be adopted on a prospective, modified, or retrospective transition approach. Early adoption is permitted. The Company is currently evaluating the impact of this update on its condensed consolidated financial statements.
In December 2025, the FASB issued ASU 2025–11, Interim Reporting (Topic 270: Narrow – Scope Improvements. ASU 2025-11 clarifies the applicability of interim reporting guidance and reorganizes and clarifies interim disclosure requirements under ASC topic 270, including the addition of a disclosure principal requiring disclosure of material events occurring since the most recent annual reporting period. ASU 2025-11 is effective for interim reporting periods within annual periods beginning after December 15, 2027, with early adoption permitted. The Company is currently evaluating the impact of this standard on its condensed consolidated financial statements.
In December 2025, the FASB issued ASU 2025-12, Classification Improvements. ASU 2025–12 makes targeted amendments to various topics within the Accounting Standards Codification intended to clarify existing guidance and correct minor inconsistencies. ASU 2025–12 is effective for interim and annual reporting periods beginning after December 15, 2026, with early adoption permitted. Certain amendments require retrospective application. The Company is currently evaluating the impact of this standard on its condensed consolidated financial statements.
-12-
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Recent Accounting Standards (continued)
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 condensed 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 condensed consolidated financial condition, results of operations, cash flows or disclosures.
NOTE 4 – PREPAID EXPENSE AND OTHER CURRENT ASSETS
At March 31, 2026 and December 31, 2025, prepaid expense and other current assets consisted of the following:
| March 31, 2026 | December 31, 2025 | |||||||
| Prepaid professional fees | $ | $ | ||||||
| Prepaid directors’ and officers’ liability insurance premium | ||||||||
| Prepaid NASDAQ listing fee | ||||||||
| Deferred offering costs | ||||||||
| Finished goods | ||||||||
| Recoverable value-added tax | ||||||||
| Others | ||||||||
| Total | $ | $ | ||||||
NOTE 5 – DISCONTINUED OPERATIONS AND DISPOSALS
On February 18, 2026,
the Company and Wenzhao Lu, the Company’s chairman of the Board of Directors, entered into an Amended and Restated Membership Interest
Purchase Agreement (the “Amended MIPA”), pursuant to which the Company sold to Mr. Lu
The
subsidiary comprises our real property operations segment. As a result of the planned disposition of the subsidiary, the real property
operations segment met the criteria under ASC 205-20 to be classified as discontinued operations. Accordingly, the historical results
of operations of the real property operations segment have been reflected as discontinued operations in our condensed consolidated financial
statement for all periods prior to the Amended MIPA on February 18, 2026.
| 2026 | 2025 | |||||||
| REAL PROPERTY RENTAL REVENUE | $ | $ | ||||||
| REAL PROPERTY OPERATING EXPENSES | ( | ) | ( | ) | ||||
| REAL PROPERTY OPERATING INCOME | ||||||||
| OTHER OPERATING EXPENSES: | ||||||||
| Professional fees | ||||||||
| Compensation and related benefits | ||||||||
| Total Other Operating Expenses | ||||||||
| INCOME (LOSS) FROM OPERATIONS | ( | ) | ||||||
| OTHER (EXPENSE) INCOME | ||||||||
| Interest expense - amortization of debt discount and debt issuance costs | ( | ) | ||||||
| Interest expense - other | ( | ) | ( | ) | ||||
| Other income | ||||||||
| Total Other Expense, net | ( | ) | ( | ) | ||||
| LOSS BEFORE INCOME TAXES | ( | ) | ( | ) | ||||
| INCOME TAXES | ||||||||
| NET LOSS | $ | ( | ) | $ | ( | ) | ||
-13-
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 5 – DISCONTINUED OPERATIONS AND DISPOSALS (continued)
The following table summarizes the assets and liabilities of the discontinued operations:
| March 31, 2026 | December 31, 2025 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash | $ | $ | ||||||
| Rent receivable | ||||||||
| Prepaid expense and other current assets | ||||||||
| Total Current Assets | ||||||||
| NON-CURRENT ASSETS: | ||||||||
| Property and equipment, net | ||||||||
| Investment in real estate, net | ||||||||
| Deferred leasing costs and other non-current assets | ||||||||
| Total Non-current Assets | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accrued liabilities and other payables | $ | $ | ||||||
| Note payable, net | ||||||||
| Total Current Liabilities | ||||||||
| NON-CURRENT LIABILITIES: | ||||||||
| Deferred rental income | ||||||||
| Total Non-current Liabilities | ||||||||
| Total Liabilities | $ | $ | ||||||
The above tables exclude intercompany payables that are eliminated within our condensed consolidated balance sheets.
NOTE 6 – INTANGIBLE ASSETS
Intangible assets mainly consist of the valuation of identifiable intangible assets acquired in connection with the acquisition of RPM, representing developed technology and trade name. The Company uses its best estimates and assumptions as part of the purchase price allocation process to accurately value the identifiable intangible assets at the acquisition date. The straight-line method of amortization represents the Company’s best estimate of the distribution of the economic value of the identifiable intangible assets.
In addition, in connection with the acquisition
of RPM, the purchase price exceeded the fair value of net assets acquired by $
During
the three months ending March 31, 2026, the Company capitalized certain software development costs incurred amounting to $
-14-
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 6 – INTANGIBLE ASSETS (continued)
At March 31, 2026 and December 31, 2025, intangible assets consisted of the following:
| Useful Life | March 31, 2026 | December 31, 2025 | ||||||||
| Developed technology | $ | $ | ||||||||
| Trade name | ||||||||||
| Internal-use software | ||||||||||
| Goodwill | ||||||||||
| Less: accumulated amortization | ( | ) | ( | ) | ||||||
| $ | $ | |||||||||
For the three months ended March 31, 2026 and
2025, amortization expense amounted to $
Amortization of intangible assets, excluding internal-use software, which has not yet been placed in service as of March 31, 2026, attributable to future periods is as follows:
| For the Twelve-month Period Ending March 31: | Amortization Amount | |||
| 2027 | $ | |||
| 2028 and thereafter | ||||
| $ | ||||
NOTE 7 – CONVERTIBLE NOTE PAYABLE
June 2024 Convertible Note
On
June 5, 2024, the Company entered into securities purchase agreements with Mast Hill for the issuance of
Mast
Hill acquired the June 2024 Convertible Note with principal amount of $
On
December 15, 2024, the Company and Mast Hill entered into that certain consent, acknowledgement, and waiver agreement, pursuant to which
Mast Hill waived all amortization payments required to be made under the June 2024 Convertible Note, the Company paid a waiver fee of
$
On
May 29, 2025, the Company and Mast Hill entered into that certain waiver (the “Waiver”), pursuant to which Mast Hill
will retain all related dilutive issuance rights under Section 1.6(e) of the June 2024 Convertible Note, provided that any adjustment
under Section 1.6(e) of the June 2024 Convertible Note shall be subject to a per share floor price equal to $
-15-
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 7 – CONVERTIBLE NOTE PAYABLE (continued)
June 2024 Convertible Note (continued)
In December 2024, the Company repaid June 2024
Convertible Note principal amount of $
During
the period from June 1, 2025 through December 31, 2025, Mast Hill converted its June 2024 Convertible Note in the principal amount of
$
In January 2026, Mast
Hill converted its June 2024 Convertible Note in the principal amount of $
July 2025 Convertible Note
On
July 3, 2025, the Company issued two convertible promissory notes (“July 2025 Convertible Note”) to two accredited investors
on identical terms. The July 2025 Convertible Note has a principal amount of $
Pursuant to the terms of the July 2025 Convertible
Note, beginning six months after the issue date, the two investors may convert the outstanding principal and accrued interest into shares
of the Company’s common stock at a fixed conversion price of $
As
consideration for the two investors’ purchase of the July 2025 Convertible Note, the Company issued
In March 2026, the Company repaid in full the July 2025 Convertible Note.
The convertible notes payable as of March 31, 2026 and December 31, 2025 was as follows:
| March 31, 2026 | December 31, 2025 | |||||||
| Principal amount | $ | $ | ||||||
| Less: unamortized debt discount | ( | ) | ||||||
| Convertible note payable, net | $ | $ | ||||||
For the three months
ended March 31, 2026 and 2025, amortization of debt discount related to convertible note payable amounted to $
For the three months
ended March 31, 2026 and 2025, interest expense related to convertible note payable amounted to $
-16-
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 8 – BRIDGE LOAN PAYABLE, NET
On
December 11, 2025, the Company entered into a securities purchase agreement with Allen O Cage Jr., an individual, pursuant to which the
Company issued an unsecured bridge note with a maturity date of
On February 15, 2026, the Company entered into Amendment (the “Note Amendment”) to unsecured bridge note. The Note Amendment extended the time periods under the bridge note for the first payment deadline, the second payment deadline and third payment deadline as follows: (i) the first payment deadline under this Note Amendment is extended to March 16, 2026 from February 15, 2026; the second payment deadline under the Note Amendment is extended to April 15, 2026 from March 15, 2026 and (iii) the third payment deadline under the Note Amendment is extended to May 15, 2026 from April 15, 2026.
In connection with the issuance of the bridge
note, the Company incurred debt issuance costs of $
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 bridge note. However, management determined the probability of occurrence of an event of default under the bridge note 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 $
The bridge loan payable as of March 31, 2026 and December 31, 2025 was as follows:
| March 31, 2026 | December 31, 2025 | |||||||
| Principal amount | $ | $ | ||||||
| Less: unamortized debt issuance costs | ( | ) | ( | ) | ||||
| Less: unamortized debt discount | ( | ) | ( | ) | ||||
| Convertible note payable, net | $ | $ | ||||||
For
the three months ended March 31, 2026, amortization of debt discount and debt issuance costs related to the bridge note amounted to $
-17-
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 9 – NOTE PAYABLE, NET
In
February 2026, the Company entered into two securities purchase agreements with Vanquish Funding Group, Inc., pursuant to which the Company
issued to the investor two promissory notes in the principal amount of $
On
March 25, 2026, the Company entered into a Business Loan and Security Agreement (the “Business Loan Agreement”) with Agile
Lending, LLC, pursuant to which the Company obtained a loan from the investor in the principal amount of $
The note payable as of March 31, 2026 is as follows:
| March 31, 2026 | ||||
| Principal amount | $ | |||
| Less: unamortized debt issuance costs | ( | ) | ||
| Less: unamortized debt discount | ( | ) | ||
| Note payable, net | $ | |||
For the three months ended March 31, 2026, amortization
of debt discount and debt issuance costs related to note payable amounted to $
For the three months ended March 31, 2026, interest
expense related to note payable amounted to $
NOTE 10 – DERIVATIVE LIABILITY
On May 23, 2023, the Company issued
On
July 6, 2023, the Company issued
On October 9, 2023, the Company issued
-18-
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 10 – DERIVATIVE LIABILITY (continued)
On March 7, 2024, the Company issued
On June 5, 2024, the Company issued
On
June 5, 2024, the Company issued
On
February 24, 2026, the exercise price was adjusted to $
Change in fair value of the derivative liability
are included as a component of total other expenses in the accompanying condensed consolidated statements of operations and comprehensive
loss. The changes to the derivative liability resulted in an increase of $
NOTE 11 – RELATED PARTY TRANSACTIONS
Services Provided by Related Party
From time to time, Wilbert Tauzin, a former
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 $
Accrued Liabilities and Other Payables – Related Parties
In 2017, the Company acquired Genexosome’s
subsidiary, which was dissolved in 2022, for a cash payment of $
-19-
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 11 – RELATED PARTY TRANSACTIONS (continued)
Membership Interest Purchase Agreement
On November 17, 2023, the Company entered into
a Membership Interest Purchase Agreement with Mr. Lu, the Company’s chairman of the Board of Directors, pursuant to which (i) Mr.
Lu will acquire from the Company
On
February 18, 2026, the Company and Mr. Lu entered into an Amended and Restated Membership Interest Purchase Agreement (the “Amended
MIPA”), pursuant to which the Company sold to Mr. Lu
The
Company received $
Exchange Agreement
On February 18, 2926, the Company entered into an Exchange Agreement with its Chairman, Wenzhao Lu, under which it agreed
to issue Mr. Lu
NOTE 12 – EQUITY
The
Company is authorized to issue an aggregate of
Series C Convertible Preferred Stock
On
December 13, 2024, the Company filed a certificate of designations of preferences, rights, and limitations of Series C Preferred Stock
(the “Series C Certificate of Designations”) with the Department of State, Division of Corporations, of the State of Delaware,
which provides for the designation of
The Series C Preferred Stock shall rank (i) senior to the Company’s common stock and any other class or series of capital stock of the Company created hereafter, the terms of which specifically provide that such class or series shall rank junior to the Series C Preferred Stock, (ii) pari passu with any class or series of capital stock of the Company created hereafter specifically ranking, by its terms, on par with the Series C Preferred Stock, (iii) pari passu with Series B Preferred Stock of the Company with respect to its rights, preferences and restrictions, and (iv) subordinate to the Series A Preferred Stock of the Company.
Holders of the Series C Preferred Stock shall be entitled to receive, and the Company shall pay, dividends on shares of Series C Preferred Stock equal (on an as-if-converted-to-common-stock basis, disregarding for such purpose any conversion limitations hereunder) to and in the same form as dividends actually paid on shares of the common stock when, as and if such dividends are paid on shares of the common stock.
Holders of the Series C Preferred Stock have no voting power except as otherwise required by the Delaware General Corporation Law.
Upon any liquidation, dissolution or winding-up
of the Company, whether voluntary or involuntary (a “Liquidation”), the holders of the Series C Preferred Stock shall be entitled
to receive out of the assets available for distribution to stockholders, (i) after and subject to the payment in full of all amounts required
to be distributed to the holders of another class or series of stock of the Company ranking on liquidation prior and in preference to
the Series C Preferred Stock, including the Series A Preferred Stock, (ii) ratably with any class or series of stock ranking on liquidation
on parity with the Series C Preferred Stock and (iii) in preference and priority to the holders of the shares of common stock, an amount
equal to
-20-
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 12 – EQUITY (continued)
Series C Convertible Preferred Stock (continued)
Each
share of Series C Preferred Stock shall be convertible into common stock (the “Series C Conversion Shares”) at a conversion
per share equal to $
In March 2026,
As of March 31, 2026 and December 31, 2025,
Series D Convertible Preferred Stock
On January 6, 2025, the Company filed a certificate of
designations of preferences, rights, and limitations of Series D Preferred Stock (the “Series D Certificate of Designations”)
with the Department of State, Division of Corporations, of the State of Delaware, which provides for the designation of
The Series D Preferred Stock shall rank (i) senior to the Company’s common stock and any other class or series of capital stock of the Company created hereafter, the terms of which specifically provide that such class or series shall rank junior to the Series D Preferred Stock, (ii) pari passu with any class or series of capital stock of the Company created hereafter specifically ranking, by its terms, on par with the Series D Preferred Stock, (iii) pari passu with the Series B Preferred Stock of the Company with respect to its rights, preferences and restrictions, and (iv) pari passu with the Series C Preferred Stock of the Company.
Holders of the Series D Preferred Stock have no voting power except as otherwise required by the Delaware General Corporation Law.
Upon any liquidation, dissolution or winding-up
of the Company, whether voluntary or involuntary (a “Liquidation”), the holders of the Series D Preferred Stock shall be entitled
to receive out of the assets available for distribution to stockholders, (i) after and subject to the payment in full of all amounts required
to be distributed to the holders of another class or series of stock of the Company ranking on liquidation prior and in preference to
the Series D Preferred Stock, including the Series A Preferred Stock, (ii) ratably with any class or series of stock ranking on liquidation
on parity with the Series D Preferred Stock and (iii) in preference and priority to the holders of the shares of common stock, an amount
equal to
Each
share of Series D Preferred Stock shall be convertible into common stock (the “Series D Conversion Shares”) at a conversion
per share equal to $
As of both March 31, 2026 and December 31, 2025,
On May 6, 2026, the Company issued
Series E Convertible Preferred Stock
On December
12, 2025, the Company filed a certificate of designations of preferences, rights, and limitations of Series E Non-Voting Convertible Preferred
Stock (the “Series E Certificate of Designations”) with the Department of State, Division of Corporations, of the State of
Delaware, which provides for the designation of
-21-
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 12 – EQUITY (continued)
Series E Convertible Preferred Stock (continued)
The Series E Preferred Stock shall rank (i) senior to the Company’s Common Stock and any other class or series of capital stock of the Company created hereafter, the terms of which specifically provide that such class or series shall rank junior to the Series E Preferred Stock, (ii) pari passu with any class or series of capital stock of the Company created hereafter specifically ranking, by its terms, on par with the Series E Preferred Stock, (iii) pari passu with Series C Convertible Preferred Stock of the Company with respect to its rights, preferences and restrictions, and (iv) pari passu the Series D Convertible Preferred Stock of the Company.
Holders of the Series E Preferred Stock shall be entitled to receive, and the Company shall pay, dividends on shares of Series E Preferred Stock equal (on an as-if-converted-to-Common-Stock basis, disregarding for such purpose any conversion limitations hereunder) to and in the same form as dividends actually paid on shares of the Common Stock when, as and if such dividends are paid on shares of the Common Stock.
Holders of the Series E Preferred Stock have no voting power except as otherwise required by the Delaware General Corporation Law. Notwithstanding the foregoing, in addition, as long as any shares of Series E Preferred Stock are outstanding, the Corporation shall not, without the affirmative vote of the Holders of a majority of the then outstanding shares of the Series E Preferred Stock, voting as a separate class, (a) alter or change adversely the powers, preferences or rights given to the Series E Preferred Stock in this Certificate of Designation, (b) increase the number of authorized shares of Series E Preferred Stock, (c) authorize or issue an additional class or series of capital stock that ranks senior to the Series E Preferred Stock with respect to the distribution of assets on liquidation, or (d) enter into any agreement with respect to any of the foregoing.
Upon any liquidation, dissolution or winding-up
of the Company, whether voluntary or involuntary (a “Liquidation”), the holders of the Series E Preferred Stock shall be entitled
to receive out of the assets available for distribution to stockholders, (i) after and subject to the payment in full of all amounts required
to be distributed to the holders of another class or series of stock of the Company ranking on liquidation prior and in preference to
the Series E Preferred Stock, including the Series A Preferred Stock, (ii) ratably with any class or series of stock ranking on liquidation
on parity with the Series E Preferred Stock and (iii) in preference and priority to the holders of the shares of Common Stock, an amount
equal to the greater of (i)
Each share of Series E Preferred Stock shall be
convertible into Common Stock (the “Conversion Shares”), at any time from and after May 12, 2026, or such earlier time as
consented to by the Company in writing at the option of the Holder thereof, into that number of shares of Common Stock (subject to certain
limitations, determined by dividing the Stated Value of such share of Series E Preferred Stock by the Conversion Price of $
In addition, the Company shall not issue any shares of Common Stock upon conversion of the Series E Preferred Stock or otherwise pursuant to the terms of the Series E Certificate of Designation if the issuance of such shares of Common Stock would exceed the aggregate number of shares of Common Stock which the Company may issue upon exercise or conversion (as the case may be) of the Series E Preferred Stock without breaching the Company’s obligations under the rules and regulations the listing rules of the Company’s Principal Market (the maximum number of shares of Common Stock which may be issued without violating such rules and regulations, the “Exchange Cap”), except that such limitation shall not apply in the event that the Company (A) obtains the approval of its stockholders as required by the applicable rules and regulations of the Principal Market for issuances of shares of Common Stock in excess of such amount (the “Stockholder Approval Date”) or (B) obtains a written opinion from outside counsel to the Company that such approval is not required, which opinion shall be reasonably satisfactory to the Required Holders (as defined in the Series E Certificate of Designation).
As of both March 31, 2026 and December 31, 2025,
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AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 12 – EQUITY (continued)
Common Shares and Warrants Sold for Cash from the February 2026 Private Offering
In
February 2026, the Company entered into securities purchase agreements (the “Purchase Agreements”) with certain institutional
investors (the “Purchasers”) for the issuance and sale in a private placement (the “Private Placement”) of (i)
Each
Warrant has an exercise price of $
The Prefunded Warrants
are immediately exercisable and may be exercised at a nominal exercise price of $
As compensation to H.C.
Wainwright & Co., LLC as the exclusive placement agent in connection with the Private Placement (the “Placement Agent”),
the Company paid the Placement Agent a cash fee of
In connection with the Private Placement, the Company entered into a registration rights agreement (the “Registration Rights Agreement”), dated as of February 26, 2026, with the Purchaser, pursuant to which the Company agreed to prepare and file a registration statement with the Securities and Exchange Commission (the “SEC”) registering the resale of Shares and the shares of Common Stock underlying the Pre-Funded Warrants and the Common Warrants no later than 45 days after the date of the Registration Rights Agreement, and to use best efforts to have the registration statement declared effective as promptly as practical thereafter, and in any event no later than 75 days following the date of the Registration Rights Agreement (or 90 days following the date of the Registration Rights Agreement in the event of a “full review” by the Securities and Exchange Commission).
The fair value of the Series A-1 Warrants was
$
The fair value of the Series A-2 Warrants was
$
The fair value of the Placement Agent Warrants
was $
-23-
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 12 – EQUITY (continued)
Common Shares and Warrants Sold for Cash from the February 2026 Private Offering (continued)
$
The direct costs related to the issuance of the
common shares and these warrants were $
Common Shares Issued for Services
During the three months ended March 31, 2026,
the Company issued a total of
Common Shares Issued for Pre-funded Warrant Exercise
In January 2026, the Company issued an aggregate
of
Common Shares Issued for Warrant Exercise
In February 2026, pursuant to the terms of related
warrant agreements, the Company issued an aggregate of
Common Shares Issued for Debt Conversion
In January 2026, the June 2024 Convertible Note
holder converted its June 2024 Convertible Note in the principal amount of $
Options
The following table summarizes the shares of the Company’s common stock issuable upon exercise of options outstanding at March 31, 2026:
| Options Outstanding | Options Exercisable | |||||||||||||||||||||
| Range of Exercise Price | Number Outstanding at March 31, 2026 | Weighted Average Remaining Contractual Life (Years) | Weighted Average Exercise Price | Number Exercisable at March 31, 2026 | Weighted Average Exercise Price | |||||||||||||||||
| $ | $ | $ | ||||||||||||||||||||
| $ | $ | $ | ||||||||||||||||||||
| $ | $ | $ | ||||||||||||||||||||
| $ | $ | $ | ||||||||||||||||||||
There was no stock option activity during the three months ended March 31, 2026.
The aggregate intrinsic value of both stock options
outstanding and stock options exercisable at March 31, 2026 was $
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AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 12 – EQUITY (continued)
Warrants (Except Pre-Funded Warrants)
The following table summarizes the shares of the Company’s common stock issuable upon exercise of warrants outstanding at March 31, 2026:
| Warrants Outstanding | Warrants Exercisable | |||||||||||||||||||||
| Range of Exercise Price | Number Outstanding at March 31, 2026 | Weighted Average Remaining Contractual Life (Years) | Weighted Average Exercise Price | Number Exercisable at | Weighted Average Exercise Price | |||||||||||||||||
| $ | $ | $ | ||||||||||||||||||||
| $ | $ | $ | ||||||||||||||||||||
| $ | $ | $ | ||||||||||||||||||||
| $ | $ | $ | ||||||||||||||||||||
| $ | $ | $ | ||||||||||||||||||||
Stock warrant activity for the three months ended March 31, 2026 was as follows:
| Number of Warrants | Weighted Average | |||||||
| Outstanding at January 1, 2026 | $ | |||||||
| Repricing adjustment | $ | |||||||
| Granted | $ | |||||||
| Exercised | ( | ) | $ | ( | ) | |||
| Outstanding at March 31, 2026 | $ | |||||||
| Exercisable at March 31, 2026 | $ | |||||||
The
aggregate intrinsic value of stock warrants outstanding and stock warrants exercisable at March 31, 2026 was approximately $
Warrants Issued in February 2026
In
February 2026, the Company entered into securities purchase agreements (the “Purchase Agreements”) with certain institutional
investors (the “Purchasers”) for the issuance and sale in a private placement (the “Private Placement”) of (i)
Each Warrant has an exercise
price of $
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AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 12 – EQUITY (continued)
Warrants (Except Pre-Funded Warrants) (continued)
The Prefunded Warrants
are immediately exercisable and may be exercised at a nominal exercise price of $
As compensation to H.C.
Wainwright & Co., LLC as the exclusive placement agent in connection with the Private Placement (the “Placement Agent”),
the Company paid the Placement Agent a cash fee of
In connection with the Private Placement, the Company entered into a registration rights agreement (the “Registration Rights Agreement”), dated as of February 26, 2026, with the Purchaser, pursuant to which the Company agreed to prepare and file a registration statement with the Securities and Exchange Commission (the “SEC”) registering the resale of Shares and the shares of Common Stock underlying the Pre-Funded Warrants and the Common Warrants no later than 45 days after the date of the Registration Rights Agreement, and to use best efforts to have the registration statement declared effective as promptly as practical thereafter, and in any event no later than 75 days following the date of the Registration Rights Agreement (or 90 days following the date of the Registration Rights Agreement in the event of a “full review” by the Securities and Exchange Commission).
These warrants were classified in shareholders’ equity as the number of shares were fixed and determinable, and no other provisions precluded equity treatment.
Warrants Exercised in February 2026
In
February 2026, pursuant to the terms of related warrant agreements,
Pre-Funded Warrants
The number of pre-funded warrants outstanding as of March 31, 2026 is as follows:
| Description | Number Outstanding | Weighted Average Exercise Price | ||||||
| Pre-funded warrants issued in December 2024 | $ | |||||||
| Pre-funded warrants issued in February 2026 | $ | |||||||
| Outstanding at March 31, 2026 | $ | |||||||
A summary of pre-funded warrant activity during the three months ended March 31, 2026 is as follows:
| Number of Pre-Funded Warrants | Weighted Average Exercise Price | |||||||
| Outstanding at January 1, 2026 | $ | |||||||
| Pre-funded warrants granted | $ | |||||||
| Pre-funded warrants exercised | ( | ) | $ | ( | ) | |||
| Outstanding at March 31, 2026 | $ | |||||||
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AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 12 – EQUITY (continued)
Pre-Funded Warrants (continued)
Pre-funded Warrants Issued in February 2026
In
February 2026, the Company entered into securities purchase agreements (the “Purchase Agreements”) with certain institutional
investors (the “Purchasers”) for the issuance and sale in a private placement (the “Private Placement”) of (i)
The Prefunded Warrants
are immediately exercisable and may be exercised at a nominal exercise price of $
NOTE 13 – 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
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 March 31, 2026
and December 31, 2025, total restricted net assets amounted to $
NOTE 14 – 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 15 – CONCENTRATIONS
Suppliers
No supplier accounted for 10% or more of the Company’s purchase during the three months ended March 31, 2026 and 2025.
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AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 16 – COMMITMENTS AND CONTINGENCIES
Litigation
From time to time, the Company is subject to ordinary routine litigation incidental to its normal business operations. The Company is not currently a party to, and its property is not subject to, any material legal proceedings, except as set forth below.
On
October 28, 2019, Research Institute at Nationwide Children’s Hospital (“Research Institute”) filed a Complaint
in the United States District Court for the Southern District of Ohio Eastern Division against Dr. Zhou, Li Chen, the Company and Genexosome
with various claims against the Company and Genexosome including misappropriation of trade secrets in violation of the Defend Trade Secrets
Act of 2016 and violation of Ohio Uniform Trade Secrets Act. The Company, Genexosome and the Research Institute entered into a Settlement
Agreement dated June 7, 2022 (the “Settlement Date”) whereby the Company agreed to pay the Research Institute $
Operating Leases Commitment
The
Company is a party to leases for office space. These lease agreements expire through February 2029. Rent expense under all operating leases
amounted to approximately $
Supplemental cash flow information related to leases for the three months ended March 31, 2026 and 2025 is as follows:
| Three Months Ended March 31, | ||||||||
| 2026 | 2025 | |||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||
| Operating cash flows paid for operating lease | $ | $ | ||||||
| Right-of-use assets obtained in exchange for lease obligation: | ||||||||
| Operating lease | $ | $ | ||||||
The following table summarizes the lease term and discount rate for the Company’s operating leases as of March 31, 2026:
| Operating Lease | ||||
| Weighted average remaining lease term (in years) | ||||
| Weighted average discount rate | % | |||
The following table summarizes the maturity of lease liabilities under operating leases as of March 31, 2026:
| For the Twelve-month Period Ending March 31: | Operating Lease | |||
| 2027 | $ | |||
| 2028 | ||||
| 2029 | ||||
| 2030 and thereafter | ||||
| Total lease payments | ||||
| Amount of lease payments representing interest | ( | ) | ||
| Total present value of operating lease liabilities | $ | |||
| Current portion | $ | |||
| Long-term portion | ||||
| Total | $ | |||
NOTE 17 – SUBSEQUENT EVENTS
The Company evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that the financial statements were issued. Based upon this review, other than as described below, the Company did not identify any subsequent events that would have required adjustment or disclosure in the financial statements.
Exercise of Pre-funded Warrants
In
April 2026, the Company issued
Issuance of Common Stock upon Exchange of Series D Preferred Stock
On May 6, 2026, the Company issued
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995: This Quarterly Report on Form 10-Q contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 under Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, anticipations, assumptions, estimates, intentions and future performance, and involve known and unknown risks, uncertainties and other factors, which may be beyond our control, and which may cause our actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. All statements other than statements of historical fact are statements that could be forward-looking statements. You can identify these forward-looking statements through our use of words such as “may,” “will,” “can,” “anticipate,” “assume,” “should,” “indicate,” “would,” “believe,” “contemplate,” “expect,” “seek,” “estimate,” “continue,” “plan,” “point to,” “project,” “predict,” “could,” “intend,” “target,” “potential” and other similar words and expressions of the future. Accordingly, factors that may affect our results include, but are not limited to:
| ● | our ability to commercialize our product candidates and the growth of the markets for those product candidates; |
| ● | our ability to develop and commercialize products before competitors that are superior to the alternatives developed by such competitors; and |
| ● | a decline in economic conditions, including the impact of an inflationary environment and tariffs. |
All forward-looking statements are expressly qualified in their entirety by this cautionary notice. You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the filing date of this Quarterly Report on Form 10-Q or the date of the document incorporated by reference into this Quarterly Report on Form 10-Q. We have no obligation, and expressly disclaim any obligation, to update, revise or correct any of the forward-looking statements, whether as a result of new information, future events or otherwise. We have expressed our expectations, beliefs and projections in good faith, and we believe they have a reasonable basis. However, we cannot assure you that our expectations, beliefs or projections will result or be achieved or accomplished.
The following discussion and analysis of our financial condition and results of operations for the three months ended March 31, 2026 and 2025 should be read in conjunction with our condensed consolidated financial statements and related notes to those condensed consolidated financial statements that are included elsewhere in this Quarterly Report on Form 10-Q.
Overview
Through our AI-driven subsidiary, we are advancing next-generation agentic AI systems targeted to consumers and small businesses, starting with an SaaS automated video production platform. We are also expanding our intellectual property portfolio in cellular therapy and generative AI publishing and software. In addition, we are marketing the KetoAir™ breathalyzer device, which is registered with the U.S. Food and Drug Administration as a Class I medical device, and plan to pursue additional diagnostic applications for the technology. In addition, we owned and operated commercial real estate at our headquarters in Freehold, NJ through February 2026.
We had the following areas of focus in the three months ended March 31, 2026 and 2025:
Research and Development
We are focused on bringing forward the existing patent applications previously filed with the Massachusetts Institute of Technology (“MIT”). We completed a sponsored research and co-development project with MIT led by Professor Shuguang Zhang as Principal Investigator. Using the unique QTY code protein design platform, six water-soluble variant cytokine receptors have been successfully designed and tested in a laboratory to show binding affinity to the respective cytokines. We currently are focused on bringing forward the existing patent applications previously filed as part of this program. We also continue to bring forward the existing patent application previously filed with Arbele related to CAR-T cellular therapy technologies.
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Product Commercialization
We have begun the commercialization and development of a versatile breathalyzer system.
We were granted distributorship rights for the KetoAir from Qi Diagnostics for the following territories: North America, South America, the EU and the UK. For our commercialization strategy, we intend to target the diabetes and obesity markets. We sell the product through the KetoAir website and social media. We believe the KetoAir device has some competitive advantages to other methods for measuring ketosis.
The KetoAir is a handheld device that allows the user to detect acetone levels in exhaled breath. The acetone level is in concentration units (ppm, part-per-million) such that the user will know his/her real-time ketosis status: inadequate ketosis (0-3.99 ppm), mild ketosis (4-9.99 ppm), optimal ketosis (10-40 ppm), or alarming level (> 40 ppm). The KetoAir is registered with the United States Food and Drug Administration as a Class I medical device. The device is also paired with an “AI Nutritionist” software program (via Bluetooth connection) which is downloadable from Google Play (for Android mobile phones, approved) and iPhone (the app is currently being reviewed by Apple iOS AppStore). It helps users monitor and manage their ketogenic diet and related programs. We believe the KetoAir can be an essential tool to help diabetic patients adhere to their therapeutic programs and optimize their ketogenic dietary management.
Cessation of Laboratory Services
During the first quarter of 2025, to preserve cash, the Company entered into discussions with Lab Services MSO for the potential redemption of our investment and on February 26, 2025, we and Lab Services MSO entered into a Redemption and Abandonment Agreement, whereby Lab Services MSO redeemed the 40% equity interest in Lab Services MSO held by us. Accordingly, beginning in February 2025, we no longer offer laboratory services.
Artificial Intelligence Content Technology
Through our wholly-owned subsidiary, Avalon Quantum AI LLC, we are advancing next-generation Agentic AI systems, including automated video generation and small business marketing automation solutions.
Other Areas
In order to preserve cash and focus on product commercialization, we have suspended all research and development efforts related to cellular therapy. We are redirecting our funding efforts to our core business strategies outlined above.
Going Concern
Our condensed consolidated financial statements have been prepared assuming that we 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, we had working capital deficit of approximately $2,774,000 at March 31, 2026 and had incurred recurring net losses from continuing operations and generated negative cash flow from operating activities of continuing operations of approximately $4,377,000 and $2,860,000 for the three months ended March 31, 2026, respectively.
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We have a limited operating history and our continued growth is dependent upon the continuation of generating revenue for selling of Keto Air, generating revenue from advanced Agentic AI systems, including automated video generation and small business marketing automation, and obtaining additional financing to fund future obligations and pay liabilities arising from ordinary course business operations. In addition, the current cash balance cannot be projected to cover our operating expenses for the next twelve months from the release date of this Quarterly Report on Form 10-Q. These matters raise substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern is dependent on our ability to raise additional capital, implement our business plan, and generate sufficient revenues. There are no assurances that we will be successful in our efforts to generate sufficient revenues, maintain sufficient cash balance or report profitable operations or to continue as a going concern. We plan on raising capital through the sale of equity to implement our business plan. However, there is no assurance these plans will be realized and that any additional financings will be available to us on satisfactory terms and conditions, or at all.
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 we be unable to continue as a going concern.
Critical Accounting Policies
Use of Estimates
The preparation of the condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“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 months ended March 31, 2026 and 2025 include the useful life of intangible assets, the assumptions used in assessing impairment of long-term assets, the allowance for credit loss, the valuation of deferred tax assets and the associated valuation allowances, the valuation of stock-based compensation, the valuation of Series D convertible preferred stock (“Series D Preferred Stock”), and the determination of the fair value of the warrants.
Income Taxes
We are governed by the income tax laws of China and the United States. Income taxes are accounted for pursuant to ASC 740 “Accounting for Income Taxes,” which is an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in our financial statements or tax returns. The charge for taxes is based on the results for the period as adjusted for items, which are non-assessable or disallowed. It is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.
Deferred tax is accounted for using the balance sheet liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax basis used in the computation of assessable tax profit. In principle, deferred tax liabilities are recognized for all taxable temporary differences, and deferred tax assets are recognized to the extent that it is probable that taxable profit will be available against which deductible temporary differences can be utilized.
Deferred tax is calculated using tax rates that are expected to apply to the period when the asset is realized or the liability is settled. Deferred tax is charged or credited in the income statement, except when it is related to items credited or charged directly to equity, in which case the deferred tax is changed to equity. Deferred tax assets and liabilities are offset when they related to income taxes levied by the same taxation authority and we intend to settle its current tax assets and liabilities on a net basis.
Recent Accounting Standards
For details of applicable new accounting standards, please, refer to Recent Accounting Standards in Note 3 of our condensed consolidated
financial statements accompanying this Quarterly Report on Form 10-Q.
RESULTS OF OPERATIONS
Comparison of Results of Operations for the Three Months Ended March 31, 2026 and 2025
Income from Equity Method Investment – Lab Services MSO
As a result of the sale of our ownership of 40% of Lab Services MSO on February 26, 2025, for the three months ended March 31, 2026, we had no income from our investment in Lab Services MSO.
-31-
For the three months ended March 31, 2025, we had income from our investment in Lab Services MSO of $392,677, which consists of our share of Lab Services MSO’s net income of $503,833 and amortization of identifiable intangible assets acquired from Lab Services MSO acquisition of $111,156.
Other Operating Expenses
For the three months ended March 31, 2026 and 2025, other operating expenses consisted of the following:
| Three Months Ended March 31, | ||||||||
| 2026 | 2025 | |||||||
| Advertising and marketing expenses | $ | 209,846 | $ | 71,150 | ||||
| Professional fees | 1,581,951 | 1,632,215 | ||||||
| Compensation and related benefits | 223,416 | 309,022 | ||||||
| Miscellaneous taxes | 40,910 | 40,245 | ||||||
| Directors’ and officers’ liability insurance premium | 34,104 | 35,517 | ||||||
| Travel and entertainment | 33,095 | 44,661 | ||||||
| Amortization | 563,000 | - | ||||||
| Other general and administrative | 34,804 | 45,290 | ||||||
| $ | 2,721,126 | $ | 2,178,100 | |||||
| ● | For the three months ended March 31, 2026, advertising and marketing expenses increased by $138,696, or 194.9%, as compared to the three months ended March 31, 2025. The increase was primarily due to increased advertising activities in the three months ended March 31, 2026. We expect that our advertising and marketing expenses will likely remain at its current level with minimal increase in the near future. |
| ● | Professional fees primarily consisted of accounting fees, audit fees, legal service fees, consulting fees, investor relations service charges, advisory service fees, fairness opinion charge, valuation service fees and other fees. For the three months ended March 31, 2026, professional fees decreased by $50,264, or 3.1%, as compared to the three months ended March 31, 2025, which was primarily attributable to a decrease in legal service fees of approximately $108,000, mainly due to the decreased legal services related to our potential merger with YOOV, offset by an increase in other miscellaneous items of approximately $58,000. We expect that our professional fees will decrease in the near future. |
| ● | For the three months ended March 31, 2026, compensation and related benefits decreased by $85,606, or 27.7%, as compared to the three months ended March 31, 2025. The decrease was primarily attributable to the decreased compensation for our interim chief executive officer, Meng Li, and decreased compensation for our directors due to the resignations of some directors in the three months ended March 31, 2026. We expect that our compensation and related benefits will likely remain at its current level with minimal decrease in the near future. |
| ● | For the three months ended March 31, 2026, miscellaneous taxes increased by $665, or 1.7%, as compared to the three months ended March 31, 2025. We expect that our miscellaneous taxes will remain relatively steady, with minimal increase, in the near future. |
| ● | For the three months ended March 31, 2026, directors’ and officers’ liability insurance premium decreased by $1,413, or 4.0%, as compared to the three months ended March 31, 2025. The decrease was mainly due to our switching to a different insurance provider, resulting in a lower premium. |
| ● | For the three months ended March 31, 2026, travel and entertainment expense decreased by $11,566, or 25.9%, as compared to the three months ended March 31, 2025, which was primarily attributable to decreased business travel activities in the three months ended March 31, 2026 as compared to the three months ended March 31, 2025. |
| ● | For the three months ended March 31, 2026, amortization expense increased by $563,000, or 100.0%, as compared to the three months ended March 31, 2025, which was attributable to increased amortization of identifiable intangible assets acquired, representing developed technology and trade name. There was no comparable amortization prior to the date of acquisition, December 12, 2025. |
| ● | Other general and administrative expenses mainly consisted of NASDAQ listing fee, office supplies, and other miscellaneous items. For the three months ended March 31, 2026, other general and administrative expenses decreased by $10,486, or 23.2%, as compared to the three months ended March 31, 2025, due to our efforts at stricter controls on corporate expenditure. |
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Loss from Operations
As a result of the foregoing, for the three months ended March 31, 2026, loss from operations amounted to $2,721,126, as compared to $1,785,423 for the three months ended March 31, 2025, representing an increase of $935,703, or 52.4%.
Other Expense
Other expense mainly includes interest expense, change in fair value of derivative liability, and other miscellaneous expense.
Other expense totaled $1,655,554 for the three months ended March 31, 2026, as compared to $481,257 for the three months ended March 31, 2025, representing an increase of $1,174,297, or 244.0%, which was primarily attributable to an increase in loss from change in fair value of derivative liability of approximately $1,163,000, and an increase in other expense of approximately $106,000 mainly due to the loss from litigation settlement, offset by a decrease in interest expense of approximately $94,000, mainly driven by the decrease in amortization of debt discount and debt issuance costs of approximately $94,000.
Income Taxes
We did not have any income taxes expense for the three months ended March 31, 2026 and 2025 since we incurred losses in these periods.
Net Loss from Continuing Operations
As a result of the factors described above, our net loss from continuing operations was $4,376,680 for the three months ended March 31, 2026, as compared to $2,266,680 for the three months ended March 31, 2025, representing an increase of $2,110,000, or 93.1%.
Net Loss from Discontinued Operations
Our net loss from discontinued operations was $103,015 for the three months ended March 31, 2026, as compared to $215,431 for the three months ended March 31, 2025, representing a decrease of $112,416, or 52.2%.
Net Loss
As a result of the factors described above, our net loss was $4,479,695 for the three months ended March 31, 2026, as compared to $2,482,111 for the three months ended March 31, 2025, representing an increase of $1,997,584, or 80.5%.
Net Loss Attributable to Avalon GloboCare Corp. Common Shareholders
The net loss attributable to our common shareholders was $4,479,695, or $0.50 per share (basic and diluted), for the three months ended March 31, 2026, as compared to $2,319,638 (after taking into effect $162,473 in deemed contribution), or $1.43 per share (basic and diluted), for the three months ended March 31, 2025, representing an increase of $2,160,057, or 93.1%.
Foreign Currency Translation Adjustment
Our reporting currency is the U.S. dollar. The functional currency of our U.S. entities is the U.S. dollar and the functional currency of Avalon Shanghai is the Chinese Renminbi (“RMB”). The financial statements of our subsidiary whose functional currency is the RMB are translated to U.S. dollars using period end rate of exchange for assets and liabilities, average rate of exchange for revenues, costs, and expenses and cash flows, and at historical exchange rate for equity. Net gains and losses resulting from foreign exchange transactions are included in the results of operations. As a result of foreign currency translations, which are a non-cash adjustment, we reported a foreign currency translation loss of $(311) and a foreign currency translation gain of $279 for the three months ended March 31, 2026 and 2025, respectively. This non-cash loss/gain had the effect of increasing/decreasing our reported comprehensive loss in each respective period.
Comprehensive Loss
As a result of our foreign currency translation adjustment, we had comprehensive loss of $4,480,006 and $2,481,832 for the three months ended March 31, 2026 and 2025, respectively.
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Liquidity and Capital Resources
We have a limited operating history and our continued growth is dependent upon the continuation of generating revenue for selling of Keto Air, generating revenue from advanced Agentic AI systems, including automated video generation and small business marketing automation, as well as obtaining additional financing to fund future obligations and pay liabilities arising from ordinary course business operations. In addition, the current cash balance cannot be projected to cover our operating expenses for the next twelve months from the release date of this report. These matters raise substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern is dependent on our ability to raise additional capital, implement our business plan, and generate sufficient revenues. There are no assurances that we will be successful in our efforts to generate sufficient revenues, maintain sufficient cash balance or report profitable operations or to continue as a going concern. We plan to raise capital in the future through the sale of equity or debt to implement our business plan. However, there is no assurance these plans will be realized and that any additional financings will be available to us on satisfactory terms and conditions, if at all.
Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations as they come due and otherwise operate on an ongoing basis. At March 31, 2026 and December 31, 2025, we had a cash balance of approximately $776,000 and $109,000, respectively. These funds are kept in financial institutions located as follows:
| Country: | March 31, 2026 | December 31, 2025 | ||||||||||||||
| United States | $ | 775,917 | 99.99 | % | $ | 108,599 | 99.5 | % | ||||||||
| China | 78 | 0.01 | % | 492 | 0.5 | % | ||||||||||
| Total cash | $ | 775,995 | 100.0 | % | $ | 109,091 | 100.0 | % | ||||||||
The following table sets forth a summary of changes in our working capital deficit from December 31, 2025 to March 31, 2026:
| March 31, | December 31, | Changes in | ||||||||||||||
| 2026 | 2025 | Amount | Percentage | |||||||||||||
| Working capital deficit: | ||||||||||||||||
| Total current assets | $ | 1,670,142 | $ | 1,495,877 | $ | 174,265 | 11.6 | % | ||||||||
| Total current liabilities | 4,444,573 | 14,147,114 | (9,702,541 | ) | (68.6 | )% | ||||||||||
| Working capital deficit | $ | (2,774,431 | ) | $ | (12,651,237 | ) | $ | 9,876,806 | (78.1 | )% | ||||||
Our working capital deficit decreased by $9,876,806 to $2,774,431 at March 31, 2026 from $12,651,237 at December 31, 2025. The decrease in working capital deficit was primarily attributable to an increase in cash of approximately $667,000, an increase on prepaid expense and other current assets of approximately $144,000 which was mainly attributable to the increase in prepaid professional fees of approximately $194,000 due to prepayments made to our professional service providers in the first quarter of 2026, a decrease in accrued professional fees of approximately $526,000 driven by the payments made to our professional service providers in the first quarter of 2026, a decrease in accrued payroll liability and compensation of approximately $354,000 driven by the payments made to our employees and directors in the first quarter of 2026, a decrease in advance from pending sale of subsidiary – related party of approximately $3,158,000 resulting from the sale of our subsidiary of Avalon RT 9 to Mr. Lu in the first quarter of 2026 as described in elsewhere in this report, a decrease in convertible note payable, net, of approximately $737,000 mainly due to the conversion of our June 2024 Convertible Note in the principal amount of approximately $546,000 into our common stock in the first quarter of 2026 and the repayments of principal of $200,000 made to two individual investors in the first quarter of 2026, and the decrease in current liabilities of discontinued operations of approximately $6,061,000 driven by the sale of our subsidiary of Avalon RT 9 to Mr. Lu in the first quarter of 2026 as described in elsewhere in this report, offset by a decrease in receivable from sale of equity method investment of approximately $281,000 due to the payments received in the first quarter of 2026, a decrease in current assets of discontinued operations of approximately $357,000 driven by the sale of our subsidiary of Avalon RT 9 to Mr. Lu in the first quarter of 2026 as described in elsewhere in this report, and an increase in note payable, net, of approximately $1,142,000 resulting from our loan financing in the first quarter of 2026.
Because the exchange rate conversion is different for the condensed consolidated balance sheets and the condensed consolidated statements of cash flows, the changes in assets and liabilities reflected on the condensed consolidated statements of cash flows are not necessarily identical with the comparable changes reflected on the condensed consolidated balance sheets.
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Cash Flows for the Three Months Ended March 31, 2026 Compared to the Three Months Ended March 31, 2025
The following table summarizes the key components of our cash flows for the three months ended March 31, 2026 and 2025:
| Three Months Ended March 31, | ||||||||
| 2026 | 2025 | |||||||
| Net cash used in operating activities from continuing operations | $ | (2,860,379 | ) | $ | (1,691,135 | ) | ||
| Net cash provided by investing activities from continuing operations | 280,500 | 95,000 | ||||||
| Net cash provided by financing activities from continuing operations | 3,436,812 | 219,972 | ||||||
| Net cash flows used in discontinued operations | (231,956 | ) | (209,688 | ) | ||||
| Effect of exchange rate on cash – continuing operations | 41,927 | 231 | ||||||
| Net increase (decrease) in cash | $ | 666,904 | $ | (1,585,620 | ) | |||
Net cash flow used in operating activities from continuing operations for the three months ended March 31, 2026 was $2,860,379, which primarily reflected our consolidated net loss from continuing operations of approximately $4,377,000, and the changes in operating assets and liabilities, primarily consisting of a decrease in accrued liabilities and other payables of approximately $796,000 which was mainly driven by payments made to our vendors in the first quarter of 2026, offset by the non-cash item adjustments, primarily consisting of depreciation and amortization of intangible assets of approximately $563,000 mainly due to the amortization of identifiable intangible assets acquired, representing developed technology and trade name, in the first quarter of 2026 as described in elsewhere in this report, stock-based compensation and service expense of approximately $320,000, amortization of debt issuance costs and debt discount of approximately $189,000, and change in fair market value of derivative liability of approximately $1,277,000.
Net cash flow used in operating activities from continuing operations for the three months ended March 31, 2025 was $1,691,135, which primarily reflected our consolidated net loss from continuing operations of approximately $2,267,000, and the non-cash item adjustments, primarily consisting of income from equity method investment of approximately $393,000, offset by amortization of debt issuance costs and debt discount of approximately $284,000, and change in fair market value of derivative liability of approximately $114,000, and the changes in operating assets and liabilities, primarily consisting of an increase in accrued liabilities and other payables of approximately $575,000, mainly due to the increase in services related to our potential merger with YOOV in the three months ended March 31, 2025.
We expect our cash used in operating activities to increase in the next 12 months due to the following:
| ● | the development and commercialization of new products; and |
| ● | an increase in public relations and/or sales promotions for existing and/or new brands as we expand within existing markets or enter new markets. |
Net cash flow provided by investing activities from continuing operations was $280,500 for the three months ended March 31, 2026, as compared to $95,000 for the three months ended March 31, 2025. During the three months ended March 31, 2026 and 2025, we received proceeds from sale of equity method investment of approximately $281,000 and $95,000, respectively.
Net cash flow provided by financing activities from continuing operations was $3,436,812 for the three months ended March 31, 2026, as compared to $219,972 for the three months ended March 31, 2025. During the three months ended March 31, 2026, we received net proceeds from issuance of debt of $1,130,000 (net of original issue discount of approximately $91,000 and cash paid for debt issuance costs of $34,000), net proceeds from the February 2026 private offering of approximately $2,757,000 (net of cash paid for the February 2026 private offering costs of approximately $493,000), offset by repayments made for bridge loan of $250,000, and repayments made for convertible debt of $200,000. During the three months ended March 31, 2025, we received advance from pending sale of subsidiary of approximately $220,000.
The following trends are reasonably likely to result in a material decrease in our liquidity over the near to long term:
| ● | an increase in working capital requirements to finance our current business; |
| ● | the use of capital for acquisitions and the development of business opportunities; and |
| ● | the cost of being a public company. |
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In addition, the impact that the imposition of tariffs and changes to global trade policies could have on our results of operations is uncertain.
We estimate that, based on current plans and assumptions, our available cash will be insufficient to satisfy our cash requirements under our present operating expectations through cash flow provided by operations and sales of equity. Other than funds received as described above and cash resources generated from our operations, we presently have no other significant alternative source of working capital. We have used these funds to fund our operating expenses, pay our obligations and grow our company. We will need to raise significant additional capital to fund our operations and to provide working capital for our ongoing operations and obligations. Therefore, our future operation is dependent on our ability to secure additional financing. Financing transactions may include the issuance of equity or debt securities, obtaining credit facilities, or other financing mechanisms. However, there can be no assurance that financing will be available in amounts or on terms acceptable to the Company. Additionally, the trading price of our common stock and a downturn in the U.S. equity and debt markets could make it more difficult to obtain financing through the issuance of equity or debt securities. Even if we are able to raise the funds required, it is possible that we could incur unexpected costs and expenses or experience unexpected cash requirements that would force us to seek alternative financing. Furthermore, if we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our common stock. The inability to obtain additional capital may restrict our ability to grow and may reduce our ability to continue to conduct business operations. If we are unable to obtain additional financing, we will be required to cease our operations. To date, we have not considered this alternative, nor do we view it as a likely occurrence.
Foreign Currency Exchange Rate Risk
We ceased all operations in China in 2022, with the exception of a small administrative office. We did not during the three months ended March 31, 2026, and do not expect in the foreseeable future, to generate any additional revenue from PRC operations. Thus, exchange rate fluctuations between the RMB and the U.S. dollar do not, and are not expected to, have a material effect on us. For the three months ended March 31, 2026 and 2025, we had an unrealized foreign currency translation loss of approximately $(300) and an unrealized foreign currency translation gain of approximately $300, respectively, because of changes in the exchange rate.
Inflation
The effect of inflation on our revenues and operating results was not significant for the three months ended March 31, 2026 and 2025.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
As a “smaller reporting company”, as defined in Rule 12b-2 of the Exchange Act, we are not required to provide the information required by this Item.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s (the “SEC”) rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed under the Exchange Act is accumulated and communicated to management, including the principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosure. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.
In connection with the preparation of this Quarterly Report on Form 10-Q for the quarter ended March 31, 2026, our management, including our principal executive officer and principal financial officer, carried out an evaluation, as of March 31, 2026, of the effectiveness of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act.
Based on this evaluation, management concluded that our disclosure controls and procedures were not effective as of March 31, 2026 due to the material weaknesses related to the lack of segregation of duties resulting from our small size and inability to perform an effective test of the operating effectiveness of the controls, including the oversight of our financial statement close process that was previously reported in our Annual Report on Form 10-K for the year ended December 31, 2025, filed with the SEC on March 30, 2026, that have not yet been remediated.
Management’s plan to remediate these material weaknesses is described in detail in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we may become involved in legal proceedings arising in the ordinary course of our business. We are not presently a party to any legal proceedings that, if determined adversely to us, we believe would individually or in the aggregate have a material adverse effect on our business, results of operations, financial condition or cash flows.
ITEM 1A. RISK FACTORS
In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2025, filed with the SEC on March 30, 2026, as the same may be updated from time to time, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K may not be the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.
As a smaller reporting company, the Company is not required to disclose material changes to the risk factors that were contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025, as the same may be updated from time to time.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Common Shares Issued for Services
On January 1, 2026, the Company issued 85,000 shares of its common stock for services to be rendered. These shares were valued at $108,800, the fair market value on the grant date using the reported closing share price on the date of grant, and the Company recorded stock-based compensation expense of $108,800 for the three months ended March 31, 2026.
On February 10, 2026, the Company issued 120,000 shares of its common stock for services rendered and to be rendered. These shares were valued at $165,600, the fair market value on the grant date using the reported closing share price on the date of grant, and the Company recorded stock-based compensation expense of $69,000 for the three months ended March 31, 2026 and reduced accrued liabilities of $96,600.
Common Shares Issued for Pre-funded Warrant Exercise
In January 2026, the Company issued an aggregate of 354,257 shares of its common stock upon cashless exercise of pre-funded warrants.
Common Shares Issued for Debt Conversion
In January 2026, the June 2024 Convertible Note holder converted its June 2024 Convertible Note in the principal amount of $545,950 and unpaid interest of $5,524 into 551,474 shares of common stock of the Company at a per share price of $1.00.
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Issuance of Common Stock upon Exchange of Series D Preferred Stock
On May 6, 2026, the Company issued 2,074,689 shares of its common stock (the “Exchange Shares”) to its chairman, Wenzhao Lu following shareholder approval in exchange for 5,000 shares of the Company’s Series D Preferred Stock held by him, which shares of Series D Preferred Stock were cancelled. The Exchange Shares issued was equal to the amount of shares of common stock Mr. Lu would have been entitled to receive upon conversion of his Series D Preferred Stock.
The offers, sales, and issuances of the securities described above were deemed to be exempt from registration under the Securities Act in reliance on Section 4(a)(2) and/or Section 3(a)(9) of the Securities Act, or Regulation D promulgated thereunder, as transactions by an issuer not involving a public offering. The recipients of securities in each of these transactions acquired the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the securities issued in these transactions. Each of the recipients of securities in these transactions was an accredited or sophisticated person and had adequate access, through employment, business or other relationships, to information about us.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
Material changes to the procedures by which security holders may recommend nominees to the board of directors.
Director and Officer Trading Arrangements
During the quarter ended March 31, 2026, none of our directors or executive officers adopted or terminated a Rule 10b5-1 trading plan or a non-Rule 10b5-1 trading arrangement (as defined in Item 408(c) of Regulation S-K).
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ITEM 6. EXHIBITS
The exhibits filed as part of this Quarterly Report on Form 10-Q are listed in the exhibit index included herewith and are incorporated by reference herein.
EXHIBIT INDEX
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| * | Filed herewith. |
| ** | Furnished herewith. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| AVALON GLOBOCARE CORP. | ||
| By: | /s/ Meng Li | |
| Dated: May 11, 2026 | Name: | Meng Li |
| Title: | Interim Chief Executive Officer | |
| (Principal Executive Officer) | ||
| By: | /s/ Luisa Ingargiola | |
| Dated: May 11, 2026 | Name: | Luisa Ingargiola |
| Title: | Chief Financial Officer | |
| (Principal Financial and Accounting Officer) | ||
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