Change Agents Corporation 10-Q for FY2025 Q1
Change Agents Corporation. (CHGA)
About this 10-Q
Change Agents Corporation filed this 10-Q on May 13, 2025, covering the quarter ended March 31, 2025 (FY2025 Q1).
Headline figures
Quarter ended March 31, 2025, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $349.8K
- up 11.2% from $314.59K a year earlier
- Net loss
- $2.48M
- compared with a net loss of $1.37M a year earlier
- Diluted EPS
- -$1.43
- compared with -$1.86 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
OR
Commission File Number:
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| (Address of principal executive offices) | (Zip Code) |
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| 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
required to submit such files).
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 |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As
of May 12, 2025,
AVALON GLOBOCARE CORP.
FORM 10-Q
For the Quarterly Period Ended March 31, 2025
Table of Contents
i
PART I - FINANCIAL INFORMATION
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
Item 1. Financial Statements.
| March 31, | December 31, | |||||||
| 2025 | 2024 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash | $ | $ | ||||||
| Rent receivable | ||||||||
| Receivable from sale of equity method investment, current portion | ||||||||
| Prepaid expense and other current assets | ||||||||
| Total Current Assets | ||||||||
| NON-CURRENT ASSETS: | ||||||||
| Operating lease right-of-use assets, net | ||||||||
| Receivable from sale of equity method investment, noncurrent portion | ||||||||
| Property and equipment, net | ||||||||
| Investment in real estate, net | ||||||||
| Equity method investments, net | ||||||||
| Other non-current assets | ||||||||
| Total Non-current Assets | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES AND (DEFICIT) EQUITY | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accrued professional fees | $ | $ | ||||||
| Accrued research and development fees | ||||||||
| Accrued payroll liability and compensation | ||||||||
| Accrued litigation settlement | ||||||||
| Accrued liabilities and other payables | ||||||||
| Accrued liabilities and other payables - related parties | ||||||||
| Operating lease obligation, current portion | ||||||||
| Advance from pending sale of noncontrolling interest - related party | ||||||||
| Derivative liability | ||||||||
| Note payable, net | ||||||||
| Convertible note payable, net | ||||||||
| Total Current Liabilities | ||||||||
| NON-CURRENT LIABILITIES: | ||||||||
| Operating lease obligation, noncurrent portion | ||||||||
| Total Non-current Liabilities | ||||||||
| Total Liabilities | ||||||||
| Commitments and Contingencies (Note 15) | ||||||||
| (DEFICIT) EQUITY: | ||||||||
| Preferred stock, $ | ||||||||
| Series A convertible preferred stock, | ||||||||
| Series B convertible preferred stock, | ||||||||
| Series C convertible preferred stock, | ||||||||
| Series D 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’ (deficit) equity | ( | ) | ||||||
| Noncontrolling interest | ||||||||
| Total (Deficit) Equity | ( | ) | ||||||
| Total Liabilities and (Deficit) 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, | ||||||||
| 2025 | 2024 | |||||||
| REAL PROPERTY RENTAL REVENUE | $ | $ | ||||||
| REAL PROPERTY OPERATING EXPENSES | ||||||||
| REAL PROPERTY OPERATING INCOME | ||||||||
| INCOME FROM EQUITY METHOD INVESTMENT - LAB SERVICES MSO | ||||||||
| OTHER OPERATING EXPENSES: | ||||||||
| Advertising and marketing expenses | ||||||||
| Professional fees | ||||||||
| Compensation and related benefits | ||||||||
| Other general and administrative expenses | ||||||||
| Total Other Operating Expenses | ||||||||
| LOSS FROM OPERATIONS | ( | ) | ( | ) | ||||
| OTHER (EXPENSE) INCOME | ||||||||
| Interest expense - amortization of debt discount and debt issuance costs | ( | ) | ( | ) | ||||
| Interest expense - other | ( | ) | ( | ) | ||||
| Interest expense - related party | ( | ) | ||||||
| Change in fair value of derivative liability | ( | ) | ||||||
| Other expense | ( | ) | ( | ) | ||||
| Total Other Expense, net | ( | ) | ( | ) | ||||
| LOSS BEFORE INCOME TAXES | ( | ) | ( | ) | ||||
| INCOME TAXES | ||||||||
| 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 | $ | ( | ) | $ | ( | ) | ||
| WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: | ||||||||
| Basic and diluted | ||||||||
| COMPREHENSIVE LOSS: | ||||||||
| NET LOSS | $ | ( | ) | $ | ( | ) | ||
| OTHER COMPREHENSIVE INCOME (LOSS) | ||||||||
| Unrealized foreign currency translation gain (loss) | ( | ) | ||||||
| COMPREHENSIVE LOSS | ( | ) | ( | ) | ||||
| LESS: COMPREHENSIVE LOSS ATTRIBUTABLE TO NONCONTROLLING INTEREST | ||||||||
| COMPREHENSIVE LOSS ATTRIBUTABLE TO AVALON GLOBOCARE CORP. COMMON SHAREHOLDERS | $ | ( | ) | $ | ( | ) | ||
See accompanying notes to the condensed consolidated financial statements.
2
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN (DEFICIT) EQUITY
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 | Treasury Stock | Accumulated | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Number | Number | Number | Number | Number | Additional | Number | Other | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| of | of | of | of | of | Paid-in | 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.
3
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
For the Three Months Ended March 31, 2024
(Unaudited)
| Avalon GloboCare Corp. Stockholders’ Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Series A Preferred Stock | Series B Preferred Stock | Common Stock | Treasury Stock | Accumulated | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Number | Number | Number | Additional | Number | Other | |||||||||||||||||||||||||||||||||||||||||||||||||||
| of | of | of | Paid-in | of | Accumulated | Statutory | Comprehensive | Noncontrolling | Total | |||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Shares | Amount | Deficit | Reserve | Loss | Interest | Equity | |||||||||||||||||||||||||||||||||||||||||||
| Balance, January 1, 2024 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||||||||||||||||||||
| Issuance of common stock as convertible note payable commitment fee | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||
| Net loss for the three months ended March 31, 2024 | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2024 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||||||||||||||||||||
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, | ||||||||
| 2025 | 2024 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation | ||||||||
| Change in straight-line rent receivable | ||||||||
| Amortization of operating lease right-of-use asset | ||||||||
| Stock-based compensation and service expense | ||||||||
| income from equity method investment | ( | ) | ( | ) | ||||
| Distribution of earnings 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: | ||||||||
| Rent receivable | ||||||||
| Security deposit | ||||||||
| Deferred leasing costs | ||||||||
| Prepaid expense and other assets | ( | ) | ( | ) | ||||
| Accrued liabilities and other payables | ( | ) | ||||||
| Accrued liabilities and other payables - related parties | ( | ) | ||||||
| Operating lease obligation | ( | ) | ( | ) | ||||
| NET CASH USED IN OPERATING ACTIVITIES | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Proceeds from sale of equity method investment | ||||||||
| NET CASH PROVIDED BY INVESTING ACTIVITIES | ||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from issuance of convertible debt and warrants | ||||||||
| Payments of convertible debt issuance costs | ( | ) | ||||||
| Repayments of convertible debt | ( | ) | ||||||
| Advance from pending sale of noncontrolling interest in subsidiary | ||||||||
| NET CASH PROVIDED BY FINANCING ACTIVITIES | ||||||||
| EFFECT OF EXCHANGE RATE ON CASH | ( | ) | ||||||
| NET (DECREASE) INCREASE 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 | $ | $ | ||||||
| Warrants issued as convertible note payable finder’s fee | $ | $ | ||||||
| Warrants issued with convertible note payable recorded as debt discount | $ | $ | ||||||
| Common stock issued as convertible note payable commitment fee | $ | $ | ||||||
| Equity method investment payable paid by a related party | $ | $ | ||||||
| Settlement of derivative liability | $ | $ | ||||||
| Issuance of common stock upon cashless exercise of stock warrants | $ | $ | ||||||
| Initial ROU asset and lease liability | $ | $ | ||||||
See accompanying notes to the condensed consolidated financial statements.
5
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 – ORGANIZATION AND NATURE OF OPERATIONS
Avalon GloboCare Corp. (the “Company” or “ALBT”) was incorporated under the laws of the State of Delaware on July 28, 2014.
The Company is a commercial-stage company dedicated to developing and delivering precision diagnostic consumer products and the advancement of intellectual property in cellular therapy. The Company is currently marketing the KetoAir™ breathalyzer device and plans to develop additional diagnostic uses of the breathalyzer technology. The KetoAirTM is registered with the U.S. Food and Drug Administration as a Class I medical device.
On May 18, 2015, Avalon Healthcare System, Inc.
(“AHS”) was incorporated under the laws of the State of Delaware. AHS owns
On
February 7, 2017, the Company formed Avalon RT 9 Properties, LLC (“Avalon RT 9”), a New Jersey limited liability company.
On May 5, 2017, Avalon RT 9 purchased a real property located in Township of Freehold, County of Monmouth, State of New Jersey, having
a street address of 4400 Route 9 South, Freehold, NJ 07728. This property was purchased to serve as the Company’s world-wide headquarters
for all corporate administration and operations. In addition, the property generates rental income. Avalon RT 9 owns this office building.
Avalon RT 9’s business consists of the ownership and operation of the income-producing real estate property in New Jersey. As of
March 31, 2025, the occupancy rate of the building is
On July 18, 2018, the Company formed a wholly
owned subsidiary, Avactis Biosciences Inc. (“Avactis”), a Nevada corporation, which is a patent holding company. Commencing
on April 6, 2022, the Company owns
On October 14, 2022, the Company formed a wholly
owned subsidiary, Avalon Laboratory Services, Inc. (“Avalon Lab”), a Delaware company. On February 9, 2023, Avalon Lab purchased
On May 1, 2024, the Company formed a wholly owned subsidiary, Q&A Distribution LLC (“Q&A Distribution”), a Texas company. Q&A Distribution is engaged in distribution of KetoAir device.
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, 2025 are as follows:
| Name of Subsidiary | Place and Date of Incorporation | Percentage of Ownership | Principal Activities | |||
| Avalon Healthcare System, Inc. (“AHS”) | ||||||
| Avalon RT 9 Properties LLC (“Avalon RT 9”) | ||||||
| Avalon (Shanghai) Healthcare Technology Co., Ltd. (“Avalon Shanghai”) | ||||||
| Genexosome Technologies Inc. (“Genexosome”) | | |||||
| Avactis Biosciences Inc. (“Avactis”) | ||||||
| Avactis Nanjing Biosciences Ltd. (“Avactis Nanjing”) | ||||||
| Avalon Laboratory Services, Inc. (“Avalon Lab”) | ||||||
| Q&A Distribution LLC (“Q&A Distribution”) |
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, 2024 filed with the SEC on March 31, 2025.
7
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2 – BASIS OF PRESENTATION AND GOING CONCERN CONDITION (continued)
Going Concern
The Company is a commercial-stage company dedicated to developing and delivering precision diagnostic consumer products. The Company is currently marketing the Keto Air breathalyzer device and plans to develop additional diagnostic uses of the breathalyzer technology. In addition, the Company owns commercial real estate that houses its headquarters in Freehold, New Jersey. 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 rental revenue from its income-producing real estate property in New Jersey, generating revenue for selling of Keto Air, 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, 2025 and 2024 include the useful life of investment in real estate and intangible assets, the assumptions used in assessing impairment of long-term assets, the valuation of deferred tax assets and the associated valuation allowances, the valuation of stock-based compensation, the valuation of Series D convertible preferred stock (“Series D Preferred Stock”), and the assumptions used to determine fair value of warrants and embedded conversion features of convertible note payable.
8
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Fair Value of Financial Instruments and Fair Value Measurements
The Company adopted the guidance of the Financial Accounting Standards Board’s (the “FASB”) Accounting Standards Codification (“ASC”) 820 for fair value measurements which clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:
| ● | Level 1-Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date. | |
| ● | Level 2-Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data. | |
| ● | Level 3-Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information. |
The fair value of the Company’s assets and liabilities, which qualify as financial instruments under ASC Topic 820, “Fair Value Measurement,” approximates the carrying amounts represented in the accompanying condensed consolidated financial statements, primarily due to their short-term nature.
Assets and liabilities measured at fair value on a recurring basis. Certain assets and liabilities are measured at fair value on a recurring basis. These assets and liabilities are measured at fair value on an ongoing basis. These assets and liabilities include derivative liability.
Derivative
liability. Derivative liability is carried at fair value and measured on an ongoing
basis.
| Significant Unobservable Inputs (Level 3) | ||||
| Balance of derivative liability as of January 1, 2025 | $ | |||
| Reclassification of additional paid-in capital upon conversion | ( | ) | ||
| Loss from change in the fair value of derivative liability | ||||
| Balance of derivative liability as of March 31, 2025 | $ | |||
ASC 825-10 “Financial Instruments”, allows entities to voluntarily choose to measure certain financial assets and liabilities at fair value (fair value option). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable, unless a new election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that instrument should be reported in earnings at each subsequent reporting date. The Company did not elect to apply the fair value option to any outstanding instruments.
Cash and Cash Equivalents
At March 31, 2025 and December 31, 2024, the Company’s cash balances by geographic area were as follows:
| Country: | March 31, 2025 | December 31, 2024 | ||||||||||||||
| 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, 2025 and December 31, 2024.
9
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Credit Risk and Uncertainties
The
Company maintains a portion of its cash on deposits with bank and financial institution within the U.S. that at times may exceed federally-insured
limits of $
The Company’s concentrations of credit risk with respect to its rent receivable is limited due to short-term payment terms. The Company also performs ongoing credit evaluations of its tenants to help further reduce credit risk.
Investment in Unconsolidated Company
The Company uses the equity method of accounting for its investment in, and earning or loss of, investees that it does not control but over which it does exert significant influence. The Company applies the equity method by initially recording these investments at cost, as equity method investments, subsequently adjusted for equity in earnings and cash distributions.
The Company considers whether the fair value of its equity method investment has declined below its carrying value whenever adverse events or changes in circumstances indicate that recorded value may not be recoverable. If the Company considers any decline to be other than temporary (based on various factors, including historical financial results and the overall health of the investee), then a write-down would be recorded to estimated fair value. See Note 5 for discussion of equity method investment.
The Company classifies distributions received from equity method investments using the cumulative earnings approach. Distributions received are considered returns on the investment and classified as cash inflows from operating activities. If, however, the investor’s cumulative distributions received, less distributions received in prior periods determined to be returns of investment, exceeds cumulative equity in earnings recognized, the excess is considered a return of investment and is classified as cash inflows from investing activities.
Receivable from Sale of Equity Method Investment
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, the Company and Lab Services MSO entered into a Redemption and Abandonment Agreement (the “Redemption
Agreement”), whereby Lab Services MSO redeemed the
Per Share Data
ASC Topic 260 “Earnings per Share,” requires presentation of both basic and diluted earnings per share (“EPS”) with a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. Basic EPS excludes dilution. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity.
10
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Per Share Data (continued)
Basic net
loss per share is computed by dividing net loss available to common stockholders by the weighted average number of shares of common stock
outstanding during the period. Diluted net loss per share is computed by dividing net loss by the weighted average number of shares of
common stock, common stock equivalents and potentially dilutive securities outstanding during each period. The Company had $
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, | ||||||||
| 2025 | 2024 | |||||||
| Options to purchase common stock | ||||||||
| Warrants to purchase common stock | ||||||||
| Series A convertible preferred stock (*) | ||||||||
| Series B convertible preferred stock (**) | ||||||||
| Series C convertible preferred stock (***) | ||||||||
| Series D convertible preferred stock (****) | ||||||||
| Convertible notes and related accrued interest (*****) | ||||||||
| Potentially dilutive securities | ||||||||
| (*) |
| (**) |
| (***) |
| (****) |
| (*****) |
Real Property Rental Revenue
The Company has determined that ASC 606 does not apply to rental contracts, which are within the scope of other revenue recognition accounting standards.
Rental income from operating leases is recognized on a straight-line basis under the guidance of ASC 842. Lease payments under tenant leases are recognized on a straight-line basis over the term of the related leases. The cumulative difference between lease revenue recognized under the straight-line method and contractual lease payments are included in rent receivable on the condensed consolidated balance sheets.
11
AVALON GLOBOCARE
CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Commitments and Contingencies
In the normal course of business, the Company is subject to contingencies, such as legal proceedings and claims arising out of its business, that cover a wide range of matters. Liabilities for such contingencies are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated.
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, 2025 and 2024, the Company is organized into two services-oriented strategic business units: real property rental services and laboratory testing services (which ended on the redemption date, February 26, 2025) — which are 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
The Company’s President and 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 real property operating income and income from equity method investment – Lab Services MSO.
Reverse Stock Split
The Company effectuated a
Recent Accounting Standards
In August 2020, the FASB issued Accounting Standards Update (“ASU”) 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40), to simplify accounting for certain financial instruments. ASU 2020-06 eliminated the then-current models that required separation of beneficial conversion and cash conversion features from convertible instruments and simplified the derivative scope exception guidance pertaining to equity classification of contracts in an entity’s own equity. ASU 2020-06 also introduced additional disclosures for convertible debt and freestanding instruments that are indexed to and settled in an entity’s own equity. ASU 2020-06 amended the diluted earnings per share guidance, including the requirement to use the if-converted method for all convertible instruments. ASU 2020-06 was effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years, with early adoption permitted. The adoption of ASU 2020-06 did not have a material effect on the Company’s condensed consolidated financial statements and related disclosures.
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280). The amendments in this update improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. ASU 2023-07 became effective for the Company’s annual period beginning on January 1, 2024 and interim periods beginning after January 1, 2025. The Company adopted this guidance in the fourth quarter of 2024. The Company’s results of operations, cash flows, and financial condition were not impacted by the adoption of this ASU.
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)
In December 2023, the FASB issued 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.
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, 2025 and December 31, 2024, prepaid expense and other current assets consisted of the following:
| March 31, 2025 | December 31, 2024 | |||||||
| Prepaid professional fees | $ | $ | ||||||
| Prepaid directors’ and officers’ liability insurance premium | ||||||||
| Prepaid NASDAQ listing fee | ||||||||
| Deferred leasing costs | ||||||||
| Security deposit | ||||||||
| Due from broker | ||||||||
| Finished goods | ||||||||
| Recoverable value-added tax | ||||||||
| Others | ||||||||
| Total | $ | $ | ||||||
NOTE 5 – EQUITY METHOD INVESTMENT
On February 9, 2023, the Company entered into and closed an Amended and Restated Membership Interest Purchase Agreement (the “Amended MIPA”), by and among Avalon Lab, SCBC Holdings LLC (the “Seller”), the Zoe Family Trust, Bryan Cox and Sarah Cox as individuals (each an “Owner” and collectively, the “Owners”), and Lab Services MSO.
Pursuant to the terms and conditions set forth
in the Amended MIPA, Avalon Lab acquired from the Seller,
During the first quarter
of 2025, to preserve cash, the Company entered into discussions with Lab Services MSO for the potential redemption of the Company’s
investment and on February 26, 2025, the Company and Lab Services MSO entered into a Redemption and Abandonment Agreement, whereby Lab
Services MSO redeemed the
13
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 5 – EQUITY METHOD INVESTMENT (continued)
Lab Services MSO, through
its subsidiaries, was engaged in providing laboratory testing services. During the period from February 9, 2023 (date of investment) through
February 26, 2025 (date of sale), Avalon Lab and an unrelated company, had an ownership interest in Lab Services MSO of
In accordance with ASC
810, the Company determined that Lab Services MSO did not qualify as a variable interest entity, nor did it have a controlling financial
interest over the legal entity. However, the Company determined that it does have significant influence as a result of its board representation.
Therefore, the Company treats the equity investment in the condensed consolidated financial statements under the equity method. Under
the equity method, the investment is initially recorded at cost, adjusted for any excess of the Company’s share of the purchased-date
fair values of the investee’s identifiable net assets over the cost of the investment (if any). At February 9, 2023 (date of investment),
the excess of the Company’s share of the fair values of the investee’s identifiable net assets over the cost of the investment
was approximately $
Intangible
assets consisted of the valuation of identifiable intangible assets acquired, representing trade names and customers relationships,
which were being amortized on a straight-line method over the estimated useful life of
Goodwill represents the excess of the purchase price paid over the fair value of net assets acquired in the business acquisition of Lab Services MSO incurred on February 9, 2023. Goodwill is not amortized but is tested for impairment at least once annually, or more frequently if events or changes in circumstances indicate that the asset might be impaired.
For
the period from January 1, 2025 through February 26, 2025 (date of sale) and for the three months ended March 31, 2024, the Company’s
share of Lab Services MSO’s net income was $
The Company classifies
distributions received from its investment on Lab Services MSO using the cumulative earnings approach. Distributions received are considered
returns on the investment and classified as cash inflows from operating activities. For the period from January 1, 2025 through February
26, 2025 (date of sale) and for the three months ended March 31, 2024, distribution of earnings from the Company’s investment on
Lab Services MSO amounted to $
In the three months ended March 31, 2025, activity recorded for the Company’s equity method investment in Lab Services MSO is summarized in the following table:
| Equity investment carrying amount at January 1, 2025 | $ | |||
| Lab Services MSO’s net income attributable to the Company | ||||
| Intangible assets amortization amount | ( | ) | ||
| Sale of equity investment | ( | ) | ||
| Equity investment carrying amount at March 31, 2025 | $ |
As of December 31, 2024, the Company’s carrying
value of the identified intangible assets and goodwill which are included in the equity investment carrying amount was $
14
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 5 – EQUITY METHOD INVESTMENT (continued)
The tables below present the summarized financial information, as provided to the Company by the investee, for the unconsolidated company:
| For the Period from January 1, 2025 through February 26, 2025 (Date of Sale) | For the Three Months Ended March 31, 2024 | |||||||
| Net revenue | $ | $ | ||||||
| Gross profit | ||||||||
| Income from operation | ||||||||
| Net income | ||||||||
NOTE 6 – CONVERTIBLE NOTE PAYABLE
June 2024 Convertible Note
On June 5, 2024, the
Company entered into securities purchase agreements with Mast Hill Fund L.P. (“Mast Hill”) for the issuance of
Mast Hill acquired the
June 2024 Convertible Note with principal amount of $
The Company received
net cash amount of $
The Company is obligated to make amortization payments in cash to Mast Hill toward the repayment of the June 2024 Convertible Note, as provided in the following table:
| Payment Date | Payment Amount | |
| December 5, 2024 | ||
| January 5, 2025 | ||
| February 5, 2025 | ||
| March 5, 2025 | ||
| April 5, 2025 | ||
| May 5, 2025 | ||
| June 5, 2025 |
In connection
with the issuance of the June 2024 Convertible Note, the Company incurred debt issuance costs of $
15
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 6 – CONVERTIBLE NOTE PAYABLE (continued)
June 2024 Convertible Note (continued)
Based upon
the Company’s analysis of the criteria contained in ASC 815, the Company determined that all the warrants issued to Mast Hill and
a third party as a finder’s fee meet the definition of a derivative liability, as the Company cannot avoid a net cash settlement
under certain circumstances. Management determined the probability of failing to make an amortization payment when due to be remote and
as such the fair value of the
In accordance with ASC 470-20-25-2, proceeds from the sale of a debt instrument with stock purchase warrants are allocated to the two elements based on the relative fair values of the debt instrument without the warrants and of the warrants themselves at time of issuance. The portion of the proceeds allocated to the warrants are accounted for as derivative liability. The remainder of the proceeds are allocated to the debt instrument portion of the transaction.
In accordance with ASC 480-10-25-14, the Company determined that the conversion provisions contain an embedded derivative feature and the Company valued the derivative feature separately, recording debt discount and derivative liability in accordance with the provisions of the convertible debt (see Note 7). However, management determined the probability of failing to make an amortization payment when due to be remote and as such the fair value of the embedded conversion feature has been estimated to be zero.
The Company
recorded a total debt discount 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 $
The convertible note payable as of March 31, 2025 and December 31, 2024 was as follows:
| March 31, 2025 | December 31, 2024 | |||||||
| Principal amount | $ | $ | ||||||
| Less: unamortized debt issuance costs | ( | ) | ( | ) | ||||
| Less: unamortized debt discount | ( | ) | ( | ) | ||||
| Convertible note payable, net | $ | $ | ||||||
For the
three months ended March 31, 2025 and 2024, amortization of debt discount and debt issuance costs related to convertible note payable
amounted to $
For the
three months ended March 31, 2025 and 2024, interest expense related to convertible note payable amounted to $
16
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 7 – DERIVATIVE LIABILITY
As stated in Note 6, June 2024 Convertible Note, the Company determined that the convertible note payable contains an embedded derivative feature in the form of a conversion provision which is adjustable based on future prices of the Company’s common stock. In accordance with ASC 815-10-25, each derivative feature is initially recorded at its fair value using the Black-Scholes option valuation method and then re-value at each reporting date, with changes in the fair value reported in the statements of operations. However, on June 5, 2024 and March 31, 2025, management determined the probability of failing to make an amortization payment and repayment, respectively, when due to be remote and as such the fair value of the embedded conversion feature has been estimated to be zero.
On
May 23, 2023, the Company issued ,000 warrants with an exercise price of $
On July
6, 2023, the Company issued
On October 9, 2023, the
Company issued
On
March 7, 2024, the Company issued
On
June 5, 2024, the Company issued
Increases
or decreases in fair value of the derivative liability are included as a component of total other (expenses) income in the accompanying
condensed consolidated statements of operations and comprehensive loss. The changes to the derivative liability resulted in an increase
of $
17
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 8 – NOTE PAYABLE, NET
On September 1, 2022,
the Company issued a balloon promissory note in the form of a mortgage on its headquarters to a third party company in the principal amount
of $
In May 2023, the Company
borrowed $
The note payable as of March 31, 2025 and December 31, 2024 was as follows:
| March 31, 2025 | December 31, 2024 | |||||||
| Principal amount | $ | $ | ||||||
| Less: unamortized debt issuance costs | ( | ) | ( | ) | ||||
| Note payable, net | $ | $ | ||||||
For the three months ended March 31, 2025 and
2024, amortization of debt issuance costs related to note payable amounted to $
For the three months ended March 31, 2025 and
2024, interest expense related to note payable amounted to $
NOTE 9 – RELATED PARTY TRANSACTIONS
Rental Revenue from Related Party and Rent Receivable – Related Party
The Company leases space of its commercial real property located in New Jersey to D.P. Capital Investments LLC, which is controlled by Wenzhao Lu, the Company’s chairman of the Board of Directors. The term of the related party lease agreement is five years commencing on May 1, 2021 and will expire on April 30, 2026.
For both the three months ended March 31, 2025
and 2024, the related party rental revenue amounted to $
Services Provided by Related Party
From
time to time, Wilbert Tauzin, a director of the Company, and his son provide consulting services to the Company. As compensation for professional
services provided, the Company recognized consulting expenses of $
18
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 9 – RELATED PARTY TRANSACTIONS (continued)
Accrued Liabilities and Other Payables – Related Parties
In 2017, the Company acquired Beijing Jieteng
(Genexosome) Biotech Co., Ltd. (“Beijing GenExosome”) for a cash payment of $
From
time to time, Lab Services MSO paid shared expense on behalf of the Company. In addition, Lab Services MSO made a payment of $
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
Series D Convertible Preferred Stock Issued in Exchange of Series A Convertible Preferred Stock
On
January 9, 2025, the Company entered into an exchange agreement with Wenzhao Lu, the Company’s
chairman of the Board of Directors, pursuant to which Mr. Lu exchanged
19
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 10 – EQUITY
The
Company is authorized to issue an aggregate of ,000,000 shares of common stock and
Series A Convertible Preferred Stock
The Company designated
up to
The shares of Series A Preferred Stock have identical terms and include the terms as set forth below.
Dividends. Holders of Series A Preferred Stock (each, a “Series A Holder” and collectively, the “Series A Holders”) are entitled to receive, and the Company shall pay, dividends on shares of Series A Preferred Stock equal (on an as-if-converted-to-common-stock basis, disregarding for such purpose any conversion limitations set forth in the Series A Certificate of Designations) to and in the same form as dividends actually paid on shares of the Company’s common stock when, as and if such dividends are paid on shares of the common stock. No other dividends shall be paid on shares of Series A Preferred Stock. The Company will not pay any dividends on its common stock unless the Company simultaneously complies with the terms set forth in the Series A Certificate of Designations.
Liquidation. Upon
any dissolution, liquidation or winding-up of the Company, whether voluntary or involuntary (a “Liquidation”), the Series
A Holders will be entitled to receive out of the assets available for distribution to the 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 A Preferred Stock, (ii) ratably with any class or series of stock ranking on liquidation on parity
with the Series A Preferred Stock and (iii) in preference and priority to the holders of the shares of the Company’s common stock,
an amount equal to
Conversion. Each
share of Series A Preferred Stock shall be convertible, at any time and from time to time from and after the later of (i) the date of
the stockholder approval as described above, in accordance with the Nasdaq Stock Market Listing Rules, and (ii) the nine (9)
month anniversary of the Closing (the “Initial Conversion Date”), at the option of the Series A Holder, into that number of
shares of common stock (subject to the limitations set forth in Series A Certificate of Designations, determined by dividing the Stated
Value of such share of Series A Preferred Stock by the conversion price (as defined below)). The Series A Holders may effect conversions
by providing the Company with the form of conversion notice attached as Annex A to the Series A Certificate of Designations. The Series
A Holders may convert such shares into shares of the Company’s common stock at a conversion price per share equal to the greater
of (i) one hundred fifty dollars ($
Conversion Price Adjustment:
Stock Dividends and Stock Splits. If the Company, at any time while the Series A Preferred Stock is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions payable in shares of common stock on shares of common stock or any other common stock equivalents (which, for avoidance of doubt, shall not include any shares of common stock issued by the Company upon conversion of, or payment of a dividend on, the Series A Preferred Stock), (ii) subdivides outstanding shares of common stock into a larger number of shares, (iii) combines (including by way of a reverse stock split) outstanding shares of common stock into a smaller number of shares, or (iv) issues, in the event of a reclassification of shares of the common stock, any shares of capital stock of the Company, then the conversion price of the Series A Preferred Stock shall be multiplied by a fraction of which the numerator shall be the number of shares of common stock (excluding any treasury shares of the Company) outstanding immediately before such event, and of which the denominator shall be the number of shares of common stock outstanding immediately after such event. Any of the foregoing adjustments shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.
20
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 10 – EQUITY (continued)
Series A Convertible Preferred Stock (continued)
Fundamental
Transaction. If, at any time while the Series A Preferred Stock is outstanding, (i) the Company, directly or indirectly,
in one or more related transactions effects any merger or consolidation of the Company with or into another individual or corporation,
partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government
(or an agency or subdivision thereof) or other entity of any kind (a “Person”), (ii) the Company (and all of its subsidiaries,
taken as a whole), directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of
all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender
offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of the Company’s common
stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders
of fifty percent (
Voting Rights. The Series A Holders will have no voting rights, except as otherwise required by the Delaware General Corporation Law. Notwithstanding the foregoing, as long as any shares of Series A Preferred Stock are outstanding, the Company shall not, without the affirmative vote of the holders of a majority of the then outstanding shares of Series A Preferred Stock, voting as a separate class, (a) alter or change adversely the powers, preferences or rights given to the Series A Preferred Stock in the Series A Certificate of Designations, (b) increase the number of authorized shares of Series A Preferred Stock, (c) authorize or issue an additional class or series of capital stock that ranks senior to the Series A Preferred Stock with respect to the distribution of assets on liquidation or (d) enter into any agreement with respect to any of the foregoing.
Fractional Shares. No fractional shares or scrip representing fractional shares shall be issued upon the conversion of the Series A Preferred Stock. As to any fraction of a share of Company common stock which a Series A Holder would otherwise be entitled to upon such conversion, the Company will, at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the conversion price or round up to the next whole share. Notwithstanding the foregoing, nothing shall prevent any Series A Holder from converting fractional shares of Series A Preferred Stock.
As of December 31, 2024,
Series B Convertible Preferred Stock
The Company designated
up to
21
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 10 – EQUITY (continued)
Series B Convertible Preferred Stock (continued)
The shares of Series B Preferred Stock have identical terms and include the terms as set forth below.
Dividends. The holders of Series B Preferred Stock (each, a “Series B Holder” and collectively, the “Series B Holders”) shall be entitled to receive, and the Company shall pay, dividends on shares of Series B Preferred Stock equal (on an as-if-converted-to-common-stock basis, disregarding for such purpose any conversion limitations set forth in the Series B Certificate of Designations) to and in the same form as dividends actually paid on shares of the Company’s common stock when, as and if such dividends are paid on shares of the common stock. No other dividends shall be paid on shares of Series B Preferred Stock. The Company will not pay any dividends on its common stock unless the Company simultaneously complies with the terms set forth in the Series B Certificate of Designations.
Rank. The Series B Preferred Stock will rank subordinate to the shares of the Company’s Series A Preferred Stock.
Liquidation. Upon
any Liquidation, the Series B Holders will 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 B 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 B Preferred Stock and (iii) in preference and priority
to the holders of the shares of common stock, an amount equal to one hundred percent (
Conversion. Each
share of Series B Preferred Stock shall be convertible, at any time and from time to time from and after the later of (i) the date of
the stockholder approval and (ii) February 9, 2024 (the “Lock Up Period”), at the option of the Series B Holder thereof, into
that number of shares of common stock (subject to the limitations set forth in Series B Certificate of Designations determined by dividing
the Series B Stated Value of such share of Series B Preferred Stock by the conversion price of the Series B Preferred Stock). Series B
Holders may effectuate conversions by providing the Company with the form of conversion notice attached as Annex A to the Series B Certificate
of Designations. The Series B Preferred Stock will be convertible into shares of the Company’s common stock at a conversion price
per share equal to $
Conversion Price Adjustment:
Stock Dividends and Stock Splits. If the Company, at any time while the Series B Preferred Stock is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions payable in shares of common stock on shares of common stock or any other common stock equivalents (which, for avoidance of doubt, shall not include any shares of common stock issued by the Company upon conversion of, or payment of a dividend on, the Series B Preferred Stock), (ii) subdivides outstanding shares of common stock into a larger number of shares, (iii) combines (including by way of a reverse stock split) outstanding shares of common stock into a smaller number of shares, or (iv) issues, in the event of a reclassification of shares of the common stock, any shares of capital stock of the Company, then the conversion price of the Series B Preferred Stock shall be multiplied by a fraction of which the numerator shall be the number of shares of common stock (excluding any treasury shares of the Company) outstanding immediately before such event, and of which the denominator shall be the number of shares of common stock outstanding immediately after such event. Any of the foregoing adjustments shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.
22
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 10 – EQUITY (continued)
Series B Convertible Preferred Stock (continued)
Fundamental
Transaction. If, at any time while the Series B Preferred Stock is outstanding, (i) the Company, directly or indirectly,
in one or more related transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company (and
all of its subsidiaries, taken as a whole), directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance
or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect,
purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of the
Company’s common stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been
accepted by the holders of fifty percent (
Voting Rights. The Series B Holders will have no voting rights, except as otherwise required by the Delaware General Corporation Law. Notwithstanding the foregoing, in addition, as long as any shares of Series B Preferred Stock are outstanding, the Company shall not, without the affirmative vote of the holders of a majority of the then outstanding shares of the Series B Preferred Stock, voting as a separate class, (a) alter or change adversely the powers, preferences or rights given to the Series B Preferred Stock in the Series B Certificate of Designations, (b) increase the number of authorized shares of Series B Preferred Stock, (c) except with respect to the Series A Preferred Stock, authorize or issue an additional class or series of capital stock that ranks senior to the Series B Preferred Stock with respect to the distribution of assets on liquidation or (d) enter into any agreement with respect to any of the foregoing.
Fractional Shares. No fractional shares or scrip representing fractional shares shall be issued upon the conversion of the Series B Preferred Stock. As to any fraction of a share which a Series B Holder would otherwise be entitled to upon such conversion, the Company shall at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the conversion price or round up to the next whole share. Notwithstanding the foregoing, nothing shall prevent any Series B Holder from converting fractional shares of Series B Preferred Stock.
As
of December 31, 2024,
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
23
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 10 – EQUITY (continued)
Series C Convertible Preferred Stock (continued)
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
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 $
As
of both March 31, 2025 and December 31, 2024,
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.
24
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 10 – EQUITY (continued)
Series D Convertible Preferred Stock (continued)
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 March 31, 2025,
Series D Convertible Preferred Stock Issued in Exchange of Series A Convertible Preferred Stock
On
January 9, 2025, the Company entered into an exchange agreement with Wenzhao Lu, the Company’s
chairman of the Board of Directors, pursuant to which Mr. Lu exchanged
Each
share of Series D Preferred Stock is convertible into common stock of the Company (the “Series D Conversion Shares”) at a
conversion per share equal to $
The Company evaluated the features of the Series D Preferred Stock under ASC 480, and classified them as permanent equity because the Series D Preferred Stock is not mandatorily or contingently redeemable at the stockholder’s option and the liquidation preference that exists does not fall within the guidance of SEC Accounting Series Release No. 268 – Presentation in Financial Statements of “Redeemable Preferred Stocks” (“ASR 268”).
Series B Convertible Preferred Stock Extinguished Related to Sale of Equity Method Investment
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, the Company and Lab Services MSO entered into a Redemption and Abandonment Agreement, whereby
Lab Services MSO redeemed the
25
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 10 – EQUITY (continued)
Common Shares Issued for Services
During
the three months ended March 31, 2025, the Company issued a total of
Common Shares Issued for Warrant Exercise
In March 2025, pursuant to the terms of related
warrant agreements, the Company issued
Options
The following table summarizes the shares of the Company’s common stock issuable upon exercise of options outstanding at March 31, 2025:
| Options Outstanding | Options Exercisable | ||||||||||||||||||||
| Range of Exercise Price | Number Outstanding at March 31, 2025 | Weighted Average Remaining Contractual Life (Years) | Weighted Average Exercise Price | Number Exercisable at March 31, 2025 | Weighted Average Exercise Price | ||||||||||||||||
| $ | $ | $ | |||||||||||||||||||
| $ | | $ | $ | ||||||||||||||||||
Stock option activity for the three months ended March 31, 2025 was as follows:
| Number of Options | Weighted Average Exercise Price | |||||||
| Outstanding at January 1, 2025 | $ | |||||||
| Granted | ||||||||
| Expired / cancelled | ( | ) | ( | ) | ||||
| Outstanding at March 31, 2025 | $ | |||||||
| Options exercisable at March 31, 2025 | $ | |||||||
| Options expected to vest | $ | |||||||
The aggregate intrinsic value of stock options
outstanding and stock options exercisable at March 31, 2025 was approximately $
The fair values of options granted during the
three months ended March 31, 2025 were estimated at the date of grant using the Black-Scholes option-pricing model with the following
assumptions: volatility of
The fair values of options granted during the
three months ended March 31, 2024 were estimated at the date of grant using the Black-Scholes option-pricing model with the following
assumptions: volatility of
26
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 10 – EQUITY (continued)
Options (continued)
For the three months ended March 31, 2025 and
2024, stock-based compensation expense associated with stock options granted amounted to $
A summary of the status of the Company’s nonvested stock options granted as of March 31, 2025 and changes during the three months ended March 31, 2025 is presented below:
| Number of Options | Weighted Average Exercise Price | |||||||
| Nonvested at January 1, 2025 | $ | |||||||
| Granted | ||||||||
| Cancelled | ( | ) | ( | ) | ||||
| Vested | ( | ) | ( | ) | ||||
| Nonvested at March 31, 2025 | $ | |||||||
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, 2025:
| Warrants Outstanding | Warrants Exercisable | ||||||||||||||||||||
| Range of Exercise Price | Number Outstanding at March 31, 2025 | Weighted Average Remaining Contractual Life (Years) | Weighted Average Exercise Price | Number Exercisable at March 31, 2025 | Weighted Average Exercise Price | ||||||||||||||||
| $ | $ | $ | |||||||||||||||||||
| $ | $ | $ | |||||||||||||||||||
Stock warrant activity for the three months ended March 31, 2025 was as follows:
| Number of Warrants | Weighted Average Exercise Price | |||||||
| Outstanding at January 1, 2025 | $ | |||||||
| Exercised | ( | ) | ( | ) | ||||
| Outstanding at March 31, 2025 | $ | |||||||
| Warrants exercisable at March 31, 2025 | $ | |||||||
| Warrants expected to vest | $ | |||||||
The
aggregate intrinsic value of both stock warrants outstanding and stock warrants exercisable at March 31, 2025 was $
Warrants Exercised in March 2025
In
March 2025, pursuant to the terms of related warrant agreements, the Company issued
27
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 10 – EQUITY (continued)
Warrants (Except Pre-Funded Warrants) (continued)
A summary of the status of the Company’s nonvested stock warrants issued as of March 31, 2025 and changes during the three months ended March 31, 2025 is presented below:
| Number of Warrants | Weighted Average Exercise Price | |||||||
| Nonvested at January 1, 2025 | $ | |||||||
| Vested | ||||||||
| Nonvested at March 31, 2025 | $ | |||||||
Pre-Funded Warrants
As of March 31, 2025,
there were
NOTE 11 - STATUTORY RESERVE AND RESTRICTED NET ASSETS
The Company’s PRC subsidiary, Avalon Shanghai, is restricted in its ability to transfer a portion of its net asset to the Company. The payment of dividends by entities organized in China is subject to limitations, procedures and formalities. Regulations in the PRC currently permit payment of dividends only out of accumulated profits as determined in accordance with accounting standards and regulations in China.
The Company is required to make appropriations
to certain reserve funds, comprising the statutory surplus reserve and the discretionary surplus reserve, based on after-tax net income
determined in accordance with generally accepted accounting principles of the PRC (“PRC GAAP”). Appropriations to the statutory
surplus reserve are required to be at least
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, 2025
and December 31, 2024, total restricted net assets amounted to $
NOTE 12 – CONDENSED FINANCIAL INFORMATION OF THE PARENT COMPANY
Pursuant to the requirements of Rule 12-04(a),
5-04(c) and 4-08(e)(3) of Regulation S-X, the condensed financial information of the parent company shall be filed when the restricted
net assets of consolidated subsidiary exceed
The Company performed a test on the restricted
net assets of consolidated subsidiary in accordance with such requirement and concluded that it was not applicable to the Company as the
restricted net assets of the Company’s PRC subsidiary did not exceed
28
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 13 - CONCENTRATIONS
Customers
The following
table sets forth information as to each customer that accounted for
| Three Months Ended March 31, | ||||||||
| Customer | 2025 | 2024 | ||||||
| A | % | % | ||||||
| B | % | % | ||||||
| C | % | % | ||||||
One
customer, which is a third party, whose outstanding receivable accounted for
One
customer, which is a third party, whose outstanding receivable accounted for
Suppliers
No
supplier accounted for
NOTE 14 – SEGMENT INFORMATION
The segment reporting
structure uses the Company’s management reporting structure as its foundation to reflect how the Company manages the businesses
internally. During the three months ended March 31, 2025 and 2024, the management reporting structure was composed of two strategic business
units, mainly organized by services, led by the Company’s President and Chief Executive Officer, who is its Chief Operating Decision
Maker. Using the accounting guidance on segment reporting, the Company determined that its
On
February 9, 2023, the Company purchased
The accounting policies
for the segments are the same as those described in Note 3. Our reportable segments are aligned principally around the differences in
services. Real property operating income is calculated by subtracting real property operating expenses from real property rental revenue;
income from equity method investment – Lab Services MSO is calculated by subtracting amortization of intangible assets acquired
from acquisition and distribution of earnings from equity investment from the Company’s share of Lab Services MSO’s net income.
The assets and certain expenses related to corporate activities are not allocated to the segments.
29
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 14 – SEGMENT INFORMATION (continued)
| Three Months Ended March 31, 2025 | ||||||||||||||||
| Real Property Operations | Lab Services MSO | Corporate / Other | Total | |||||||||||||
| Real property rental revenue | $ | $ | $ | $ | ||||||||||||
| Real property operating expenses | ( | ) | ( | ) | ||||||||||||
| Real property operating income | ||||||||||||||||
| Income from equity method investment - Lab Services MSO | ||||||||||||||||
| Other operating expenses | ( | ) | ( | ) | ( | ) | ||||||||||
| Other (expense) income: | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ||||||||||
| Other income (expense) | ( | ) | ( | ) | ||||||||||||
| Net (loss) income | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||
| Three Months Ended March 31, 2024 | ||||||||||||||||
| Real Property Operations | Lab Services MSO | Corporate / Other | Total | |||||||||||||
| Real property rental revenue | $ | $ | $ | $ | ||||||||||||
| Real property operating expenses | ( | ) | ( | ) | ||||||||||||
| Real property operating income | ||||||||||||||||
| Income from equity method investment - Lab Services MSO | ||||||||||||||||
| Other operating expenses | ( | ) | ( | ) | ( | ) | ||||||||||
| Other (expense) income: | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ||||||||||
| Other income (expense) | ( | ) | ( | ) | ||||||||||||
| Net (loss) income | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||
| Identifiable long-lived tangible assets at March 31, 2025 and December 31, 2024 | March 31, 2025 | December 31, 2024 | ||||||
| Real property operations | $ | $ | ||||||
| Corporate/Other | ||||||||
| Total | $ | $ | ||||||
| Identifiable long-lived tangible assets at March 31, 2025 and December 31, 2024 | March 31, 2025 | December 31, 2024 | ||||||
| United States | $ | $ | ||||||
| China | ||||||||
| Total | $ | $ | ||||||
30
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 15 – COMMITMENTS AND CONTINGENCIES
Litigation
From time to time, the Company is subject to ordinary routine litigation incidental to its normal business operations. The Company is not currently a party to, and its property is not subject to, any material legal proceedings, except as set forth below.
On
October 25, 2017, Genexosome entered into and closed a Stock Purchase Agreement with Beijing Genexosome and Yu Zhou, MD, PhD, the sole
shareholder of Beijing Genexosome, pursuant to which Genexosome acquired all of the issued and outstanding securities of Beijing Genexosome
in consideration of a cash payment in the amount of $
Operating Leases Commitment
The
Company is a party to leases for office space. These lease agreements expire through December 2025. Rent expense under all operating leases
amounted to approximately $
Supplemental cash flow information related to leases for the three months ended March 31, 2025 and 2024 is as follows:
| Three Months Ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| 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 lease as of March 31, 2025:
| Operating Lease | ||||
| Weighted average remaining lease term (in years) | ||||
| Weighted average discount rate | % | |||
31
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 15 – COMMITMENTS AND CONTINGENCIES (continued)
Operating Leases Commitment (continued)
The following table summarizes the maturity of lease liabilities under operating lease as of March 31, 2025:
| For the Twelve-month Period Ending March 31: | Operating Lease | |||
| 2026 | $ | |||
| 2027 | ||||
| 2028 and thereafter | ||||
| Total lease payments | ||||
| Amount of lease payments representing interest | ( | ) | ||
| Total present value of operating lease liabilities | $ | |||
| Current portion | ||||
| Long-term portion | ||||
| Total | ||||
Joint Venture – Avactis Biosciences Inc.
On July
18, 2018, the Company formed a wholly owned subsidiary, Avactis Biosciences Inc. (“Avactis”), a Nevada corporation, which
focuses on accelerating commercial activities related to cellular therapies as well as cellular immunotherapy including CAR-T, CAR-NK,
TCR-T and others. When formed, Avactis was designed to integrate and optimize the Company’s global scientific and clinical resources
to further advance the use of cellular therapies to treat certain cancers; however the Company is no longer pursuing any commercial activities
with respect to cellular immunotherapy and CAR-T, in particular. Commencing on April 6, 2022, the Company owns
The Company
is required to contribute $
In
addition, the Company is responsible for contributing registered capital of RMB
NOTE 16 – 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.
Common Shares Issued for Warrant Exercise
In April 2025, the Company issued
32
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, 2025 and 2024 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
We are a commercial-stage company dedicated to developing and delivering precision diagnostic consumer products and the advancement of intellectual property in cellular therapy. We are currently marketing the KetoAir™ breathalyzer device and plan to develop additional diagnostic uses of the breathalyzer technology. The KetoAirTM is registered with the U.S. Food and Drug Administration as a Class I medical device. In addition, we own and operate commercial real estate at our headquarters in Freehold, NJ.
We had the following areas of focus in the three months ended March 31, 2025 and 2024:
Research and Development
We are focused on bringing forward intellectual property through joint patent filings 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 to show binding affinity to the respective cytokines. We currently are focused on bringing forward the intellectual property associated with this program through joint patent submissions.
Product Commercialization
We have begun the commercialization and development of a versatile breathalyzer system.
We were granted exclusive 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.
33
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.
Laboratory Acquisitions
We had embarked on a laboratory rollup strategy focused on forming joint ventures and acquiring laboratories that were accretive to our commercial strategy. As a first step, in February 2023, we acquired a 40% membership interest in Lab Services MSO. Among other things, Lab Services MSO provides toxicology and wellness testing services, a broad portfolio of diagnostic tests, and a broad array of test 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.
Other Areas
In order to preserve cash and focus on and product commercialization, we have currently suspended all research and development efforts related to cellular therapy in order to redirect our funding efforts to our core business strategies outlined above.
Going Concern
We are a commercial-stage company dedicated to developing and delivering precision diagnostic consumer products. We are currently marketing the Keto Air breathalyzer device and plan to develop additional diagnostic uses of the breathalyzer technology.
In addition, we own commercial real estate that houses our headquarters in Freehold, New Jersey. These 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 $11,655,000 at March 31, 2025 and had incurred recurring net losses and generated negative cash flow from operating activities of approximately $2,482,000 and $1,802,000 for the three months ended March 31, 2025, respectively.
We have a limited operating history and our continued growth is dependent upon the continuation of generating rental revenue from our income-producing real estate property in New Jersey, generating revenue for selling of Keto Air, 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.
34
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, 2025 and 2024 include the useful life of investment in real estate and intangible assets, the assumptions used in assessing impairment of long-term assets, the valuation of deferred tax assets and the associated valuation allowances, the valuation of stock-based compensation, and the assumptions used to determine fair value of warrants and embedded conversion features of convertible note payable.
Real Property Rental
We have determined that the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) 606 does not apply to rental contracts, which are within the scope of other revenue recognition accounting standards.
Rental income from operating leases is recognized on a straight-line basis under the guidance of ASC 842. Lease payments under tenant leases are recognized on a straight-line basis over the term of the related leases. The cumulative difference between lease revenue recognized under the straight-line method and contractual lease payments are included in rent receivable on the condensed consolidated balance sheets.
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, 2025 and 2024
Real Property Rental Revenue
For the three months ended March 31, 2025, we had real property rental revenue of $349,800, as compared to $314,588 for the three months ended March 31, 2024, an increase of $35,212, or 11.2%. The increase was primarily attributable to the increase in the number of tenants occupying the building in the three months ended March 31, 2025 as compared to the three months ended March 31, 2024. We expect that our revenue from real property rent will remain at its current level with minimal increase in the near future.
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Real Property Operating Expenses
Real property operating expenses consist of property management fees, property insurance, real estate taxes, depreciation, repairs and maintenance fees, utilities and other expenses related to our rental properties.
For the three months ended March 31, 2025, our real property operating expenses amounted to $280,390, as compared to $263,126 for the three months ended March 31, 2024, an increase of $17,264, or 6.6%. The increase was primarily attributable to an increase in utilities of approximately $23,000, offset by a decrease in other miscellaneous items of approximately $6,000.
Real Property Operating Income
Our real property operating income for the three months ended March 31, 2025 was $69,410, representing an increase of $17,948, or 34.9%, as compared to $51,462 for the three months ended March 31, 2024. The increase was primarily attributable to the increase in real property rental revenue as described above. We expect our real property operating income will remain at its current level with minimal increase in the near future.
Income from Equity Method Investment – Lab Services MSO
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. We sold our ownership of 40% of Lab Services MSO on February 26, 2025.
For the three months ended March 31, 2024, we had income from our investment in Lab Services MSO of $107,469, which consists of our share of Lab Services MSO’s net income of $274,202 and amortization of identifiable intangible assets acquired from Lab Services MSO acquisition of $166,733.
Other Operating Expenses
For the three months ended March 31, 2025 and 2024, other operating expenses consisted of the following:
| Three Months Ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| Advertising and marketing expenses | $ | 71,150 | $ | 45,000 | ||||
| Professional fees | 1,691,579 | 442,335 | ||||||
| Compensation and related benefits | 340,420 | 353,571 | ||||||
| Miscellaneous taxes | 40,245 | 29,341 | ||||||
| Directors’ and officers’ liability insurance premium | 35,517 | 69,307 | ||||||
| Travel and entertainment | 44,661 | 22,323 | ||||||
| Rent and related utilities | 15,327 | 15,592 | ||||||
| Other general and administrative | 29,963 | 24,524 | ||||||
| $ | 2,268,862 | $ | 1,001,993 | |||||
| ● | For the three months ended March 31, 2025, advertising and marketing expenses increased by $26,150, or 58.1%, as compared to the three months ended March 31, 2024. The increase was primarily due to increased advertising activities in the three months ended March 31, 2025. We expect that our advertising and marketing expenses will likely remain at their 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, fairness opinion charge, valuation service fees and other fees. For the three months ended March 31, 2025, professional fees increased by $1,249,244 or 282.4%, as compared to the three months ended March 31, 2024, which was primarily attributable to an increase in consulting fees of approximately $717,000, mainly due to the increase in use of consulting service providers related to our potential merger with YOOV Group Holding Limited, a business company incorporated in the British Virgin Islands (“YOOV”), an increase in legal service fees of approximately $498,000, mainly due to the increased legal services related to our potential merger with YOOV, an increase in fairness opinion charge of approximately $129,000 resulting from the increased fairness opinion services related to our potential merger with YOOV, offset by a decrease in other miscellaneous items of approximately $95,000. We expect that our professional fees will decrease in the near future. |
| ● | For the three months ended March 31, 2025, compensation and related benefits decreased by $13,151, or 3.7%, as compared to the three months ended March 31, 2024. The decrease was primarily attributable to the decreased compensation for our executive officer, David Jin. We expect that our compensation and related benefits will increase in the near future. |
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| ● | For the three months ended March 31, 2025, miscellaneous taxes increased by $10,904, or 37.2%, as compared to the three months ended March 31, 2024. The increase was primarily attributable to increased Delaware state franchise tax. We expect that our miscellaneous taxes will remain relatively steady, with minimal increase, in the near future. |
| ● | For the three months ended March 31, 2025, directors’ and officers’ liability insurance premium decreased by $33,790, or 48.8%, as compared to the three months ended March 31, 2024. 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, 2025, travel and entertainment expense increased by $22,338, or 100.1%, as compared to the three months ended March 31, 2024. The increase was mainly due to increased business travel activities in the three months ended March 31, 2025 as compared to the three months ended March 31, 2024. |
| ● | For the three months ended March 31, 2025, rent and related utilities expenses decreased by $265, or 1.7%, as compared to the three months ended March 31, 2024. |
| ● | Other general and administrative expenses mainly consisted of NASDAQ listing fee, office supplies, and other miscellaneous items. For the three months ended March 31, 2025, other general and administrative expenses increased by $5,439, or 22.2%, as compared to the three months ended March 31, 2024, which was mainly attributable to an increase in service fee related to setting up our British Virgin Islands company for our potential merger with YOOV of approximately $4,000, and an increase in other miscellaneous items of approximately $1,000. |
Loss from Operations
As a result of the foregoing, for the three months ended March 31, 2025, loss from operations amounted to $1,806,775, as compared to $843,062 for the three months ended March 31, 2024, representing an increase of $963,713, or 114.3%.
Other (Expense) Income
Other (expense) income mainly includes third party and related party interest expense, change in fair value of derivative liability, and other miscellaneous expense.
Other expense, net, totaled $675,336 for the three months ended March 31, 2025, as compared to $524,451 for the three months ended March 31, 2024, an increase of $150,885, or 28.8%, which was primarily attributable to an increase in third party interest expense of approximately $52,000, mainly driven by the increase in amortization of debt discount and debt issuance costs of approximately $42,000 and the increased interest expense of approximately $10,000 from third party debts, a decrease in gain from change in fair value of derivative liability of approximately $146,000, offset by a decrease in interest expense – related party of approximately $11,000, and a decrease in other expense of approximately $36,000.
Income Taxes
We did not have any income taxes expense for the three months ended March 31, 2025 and 2024 since we incurred losses in these periods.
Net Loss
As a result of the factors described above, our net loss was $2,482,111 for the three months ended March 31, 2025, as compared to $1,367,513 for the three months ended March 31, 2024, an increase of $1,114,598, or 81.5%.
Net Loss Attributable to Avalon GloboCare Corp. Common Shareholders
The net loss attributable to our common shareholders (after taking into effect $162,473 in deemed contribution) was $2,319,638, or $1.43 per share (basic and diluted), for the three months ended March 31, 2025, as compared to $1,367,513, or $1.86 per share (basic and diluted), for the three months ended March 31, 2024, an increase of $952,125, or 69.6%.
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Foreign Currency Translation Adjustment
Our reporting currency is the U.S. dollar. The functional currency of our parent company, AHS, Avalon RT 9, Avalon Lab, and Q&A Distribution 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 gain of $279 and a foreign currency translation loss of $2,920 for the three months ended March 31, 2025 and 2024, respectively. This non-cash gain/loss had the effect of decreasing/increasing our reported comprehensive loss in each respective period.
Comprehensive Loss
As a result of our foreign currency translation adjustment, we had comprehensive loss of $2,481,832 and $1,370,433 for the three months ended March 31, 2025 and 2024, respectively.
Liquidity and Capital Resources
We have a limited operating history and our continued growth is dependent upon the continuation of generating rental revenue from our income-producing real estate property in New Jersey, generating revenue for selling of Keto Air, 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, 2025 and December 31, 2024, we had a cash balance of approximately $1,370,000 and $2,856,000, respectively. These funds are kept in financial institutions located as follows:
| Country: | March 31, 2025 | December 31, 2024 | ||||||||||||||
| United States | $ | 1,351,923 | 98.7 | % | $ | 2,844,522 | 99.6 | % | ||||||||
| China | 17,663 | 1.3 | % | 11,787 | 0.4 | % | ||||||||||
| Total cash | $ | 1,369,586 | 100.0 | % | $ | 2,856,309 | 100.0 | % | ||||||||
The following table sets forth a summary of changes in our working capital deficit from December 31, 2024 to March 31, 2025:
| March 31, | December 31, | Changes in | ||||||||||||||
| 2025 | 2024 | Amount | Percentage | |||||||||||||
| Working capital deficit: | ||||||||||||||||
| Total current assets | $ | 2,794,258 | $ | 3,236,498 | $ | (442,240 | ) | (13.7 | )% | |||||||
| Total current liabilities | 14,449,353 | 13,882,555 | 566,798 | 4.1 | % | |||||||||||
| Working capital deficit | $ | (11,655,095 | ) | $ | (10,646,057 | ) | $ | (1,009,038 | ) | 9.5 | % | |||||
Our working capital deficit increased by $1,009,038 to $11,655,095 at March 31, 2025 from $10,646,057 at December 31, 2024. The increase in working capital deficit was primarily attributable to a decrease in cash of approximately $1,487,000, an increase in accrued professional fees of approximately $373,000 which was mainly attributable to the increase in professional services related to our potential merger with YOOV, an increase in advance from pending sale of noncontrolling interest – related party of approximately $220,000 resulting from advance received in connection with the membership interest purchase agreement entered into in November 2023 in three months ended March 31, 2025, and an increase in convertible note payable, net, of approximately $284,000 driven by the amortization of debt discount and debt issuance costs of approximately $284,000 in the three months ended March 31, 2025, offset by an increase in current portion of receivable from sale of equity method investment of $975,000 resulting from execution of the Redemption Agreement signed on February 26, 2025 as described elsewhere in this report, and a decrease in accrued liabilities and other payables – related parties of approximately $633,000 which was extinguished upon our sale of equity method investment in the first quarter of 2025.
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, 2025 Compared to the Three Months Ended March 31, 2024
The following summarizes the key components of our cash flows for the three months ended March 31, 2025 and 2024:
| Three Months Ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| Net cash used in operating activities | $ | (1,801,926 | ) | $ | (915,709 | ) | ||
| Net cash provided by investing activities | 95,000 | - | ||||||
| Net cash provided by financing activities | 219,972 | 936,772 | ||||||
| Effect of exchange rate on cash | 231 | (995 | ) | |||||
| Net (decrease) increase in cash | $ | (1,486,723 | ) | $ | 20,068 | |||
Net cash flow used in operating activities for the three months ended March 31, 2025 was $1,801,926, which primarily reflected our consolidated net loss of approximately $2,482,000, 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 $314,000, 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 $556,000, mainly due to the increase in services related to our potential merger with YOOV in the three months ended March 31, 2025.
Net cash flow used in operating activities for the three months ended March 31, 2024 was $915,709, which primarily reflected our consolidated net loss of approximately $1,368,000, and the non-cash items adjustment, primarily consisting of income from equity method investment of approximately $107,000, offset by distribution of earnings from equity method investment of approximately $161,000, and amortization of debt issuance costs and debt discount of approximately $272,000, and the changes in operating assets and liabilities, primarily consisting of a decrease in rent receivable of approximately $113,000 driven by our collection efforts.
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 was $95,000 for the three months ended March 31, 2025, as compared to $0 for the three months ended March 31, 2024. During the three months ended March 31, 2025, we received proceeds from sale of equity method investment of $95,000. There was no investing activity during the three months ended March 31, 2024.
Net cash flow provided by financing activities was $219,972 for the three months ended March 31, 2025, as compared to $936,772 for the three months ended March 31, 2024. During the three months ended March 31, 2025, we received advance from sale of noncontrolling interest in subsidiary of approximately $220,000. During the three months ended March 31, 2024, we received net proceeds from issuance of convertible debt and warrants of approximately $592,000 (net of original issue discount of $35,000 and cash paid for convertible note issuance costs of approximately $73,000), and advance from sale of noncontrolling interest in subsidiary of approximately $1,210,000, offset by repayments made for convertible debt of $866,000.
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. |
In addition, the impact that the imposition of tariffs and changes to global trade policies could have on our results of operations is uncertain.
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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, 2025, 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, 2025 and 2024, we had an unrealized foreign currency translation gain of approximately $300 and an unrealized foreign currency translation loss of approximately $3,000, 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, 2025 and 2024.
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, 2025, our management, including our principal executive officer and principal financial officer, carried out an evaluation, as of March 31, 2025, 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, 2025 due to the material weaknesses that were previously reported in our Annual Report on Form 10-K for the year ended December 31, 2024, filed with the SEC on March 31, 2025, 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, 2024.
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 are subject to ordinary routine litigation incidental to our normal business operations. We are not currently a party to, and our property is not subject to, any material legal proceedings, except as set forth below.
On October 25, 2017, our subsidiary, Genexosome, entered into and closed a Stock Purchase Agreement with Beijing Jieteng (Genexosome) Biotech Co., Ltd., a corporation incorporated in the People’s Republic of China on August 7, 2015 (“Beijing Genexosome”) which was dissolved in June 2022, and Yu Zhou, MD, PhD, the sole shareholder of Beijing Genexosome, pursuant to which Genexosome acquired all of the issued and outstanding securities of Beijing Genexosome in consideration of a cash payment in the amount of $450,000, of which $100,000 is still owed. Further, on October 25, 2017, Genexosome entered into and closed an Asset Purchase Agreement with Dr. Zhou, pursuant to which the Company acquired all assets, including all intellectual property and exosome separation systems, held by Dr. Zhou pertaining to the business of researching, developing and commercializing exosome technologies. In consideration of the assets, Genexosome paid Dr. Zhou $876,087 in cash, transferred 3,333 shares of our common stock to Dr. Zhou and issued Dr. Zhou 400 shares of common stock of Genexosome. Dr. Zhou was terminated as Co-CEO of Genexosome on August 14, 2019. Further, on October 28, 2019, Research Institute at Nationwide Children’s Hospital (“Research Institute”) filed a Complaint in the United States District Court for the Southern District of Ohio Eastern Division against Dr. Zhou, Li Chen, the Company and Genexosome with various claims against the Company and Genexosome including misappropriation of trade secrets in violation of the Defend Trade Secrets Act of 2016 and violation of Ohio Uniform Trade Secrets Act. The Company, Genexosome and the Research Institute entered into a settlement agreement dated June 7, 2022 (the “Settlement Agreement”), whereby the Company agreed to pay the Research Institute $450,000 on each of the sixty-day, one year and two-year anniversaries of the Settlement Date. In addition, the Company agreed to pay the Research Institute 30% of the Company’s initial pre-tax profit of $3,333,333, 20% of the Company’s second pre-tax profit of $3,333,333 and 10% of the Company’s third pre-tax profit of $3,333,333. The parties provided a mutual release as well.
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, 2024, filed with the SEC on March 31, 2025, 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, 2024, as updated from time to time.
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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Common Shares Issued for Services
During the three months ended March 31, 2025, the Company issued a total of 22,278 shares of its common stock for services rendered and to be rendered. These shares were valued at $111,232, the fair market values on the grant dates using the reported closing share prices on the dates of grant, and the Company recorded stock-based compensation expense of $17,212 for the three months ended March 31, 2025 and reduced accrued liabilities of $42,385 and recorded prepaid expense of $51,635 as of March 31, 2025 which will be amortized over the rest of corresponding service periods.
Common Shares Issued for Warrant Exercise
In March 2025, pursuant to the terms of related warrant agreements, the Company issued 186,877 shares of its common stock upon cashless exercise of warrants.
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) 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
(a) None.
(b) There have been no material changes to the procedures by which security holders may recommend nominees to the Company’s Board of Directors since the Company last provided disclosure in response to the requirements of Item 407(c)(3) of Regulation S-K.
(c)
During the quarter ended March 31, 2025, no director or officer
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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
| * | 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/ David K. Jin | |
| Dated: May 13, 2025 | Name: | David K. Jin |
| Title: | Chief Executive Officer | |
| (Principal Executive Officer) | ||
| By: | /s/ Luisa Ingargiola | |
| Dated: May 13, 2025 | Name: | Luisa Ingargiola |
| Title: | Chief Financial Officer | |
| (Principal Financial and Accounting Officer) | ||
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Exhibit 31.1
Certification
I, David K. Jin, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of Avalon GloboCare Corp.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: May 13, 2025 | By: | /s/ David K. Jin |
| Name: | David K. Jin | |
| Title: | Chief Executive Officer | |
| (principal executive officer) |
Exhibit 31.2
Certification
I, Luisa Ingargiola, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of Avalon GloboCare Corp.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: May 13, 2025 | By: | /s/ Luisa Ingargiola |
| Name: | Luisa Ingargiola | |
| Title: | Chief Financial Officer (principal financial officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Avalon GloboCare Corp. (the “Company”) on Form 10-Q for the period ended March 31, 2025, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
| (1) | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: May 13, 2025 | By: | /s/ David K. Jin |
| Name: | David K. Jin | |
| Title: | Chief Executive Officer (Principal Executive Officer) |
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Avalon GloboCare Corp. (the “Company”) on Form 10-Q for the period ended March 31, 2025, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
| (1) | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: May 13, 2025 | By: | /s/ Luisa Ingargiola |
| Name: | Luisa Ingargiola | |
| Title: | Chief Financial Officer (Principal Financial Officer) |