AVALON
GLOBOCARE CORP. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
|
|
For the Year Ended
|
|
|
For the Year Ended
|
|
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
|
|
|
|
|
|
|
REVENUES
|
|
|
|
|
|
|
Real property rental
|
|
$
|
1,121,483
|
|
|
$
|
828,663
|
|
Medical related consulting services - related parties
|
|
|
269,287
|
|
|
|
222,611
|
|
Development services and sales of developed products
|
|
|
171,516
|
|
|
|
26,276
|
|
Total Revenues
|
|
|
1,562,286
|
|
|
|
1,077,550
|
|
|
|
|
|
|
|
|
|
|
COSTS AND EXPENSES
|
|
|
|
|
|
|
|
|
Real property operating expenses
|
|
|
793,714
|
|
|
|
542,371
|
|
Medical related consulting services - related parties
|
|
|
250,320
|
|
|
|
272,400
|
|
Development services and sales of developed products
|
|
|
130,238
|
|
|
|
15,016
|
|
Total Costs and Expenses
|
|
|
1,174,272
|
|
|
|
829,787
|
|
|
|
|
|
|
|
|
|
|
REAL PROPERTY OPERATING INCOME
|
|
|
327,769
|
|
|
|
286,292
|
|
GROSS PROFIT (LOSS) FROM MEDICAL RELATED CONSULTING SERVICES
|
|
|
18,967
|
|
|
|
(49,789
|
)
|
GROSS PROFIT FROM DEVELOPMENT SERVICES AND SALES OF DEVELOPED PRODUCTS
|
|
|
41,278
|
|
|
|
11,260
|
|
|
|
|
|
|
|
|
|
|
OTHER OPERATING EXPENSES:
|
|
|
|
|
|
|
|
|
Selling expenses
|
|
|
-
|
|
|
|
15,253
|
|
Advertising expenses
|
|
|
335,900
|
|
|
|
-
|
|
Compensation and related benefits
|
|
|
2,715,323
|
|
|
|
1,291,183
|
|
Professional fees
|
|
|
3,477,276
|
|
|
|
1,033,308
|
|
Other general and administrative
|
|
|
1,490,650
|
|
|
|
464,544
|
|
Impairment loss
|
|
|
-
|
|
|
|
1,321,338
|
|
|
|
|
|
|
|
|
|
|
Total Other Operating Expenses
|
|
|
8,019,149
|
|
|
|
4,125,626
|
|
|
|
|
|
|
|
|
|
|
LOSS FROM OPERATIONS
|
|
|
(7,631,135
|
)
|
|
|
(3,877,863
|
)
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
4,314
|
|
|
|
1,370
|
|
Interest expense
|
|
|
(314,653
|
)
|
|
|
(138,110
|
)
|
Foreign currency transaction loss
|
|
|
(106,929
|
)
|
|
|
(57,244
|
)
|
Grant income
|
|
|
60,421
|
|
|
|
22,202
|
|
Loss from equity-method investment
|
|
|
(52,969
|
)
|
|
|
-
|
|
Other expense
|
|
|
(11,345
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total Other Expense, net
|
|
|
(421,161
|
)
|
|
|
(171,782
|
)
|
|
|
|
|
|
|
|
|
|
LOSS BEFORE INCOME TAXES
|
|
|
(8,052,296
|
)
|
|
|
(4,049,645
|
)
|
|
|
|
|
|
|
|
|
|
INCOME TAXES
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
NET LOSS
|
|
$
|
(8,052,296
|
)
|
|
$
|
(4,049,645
|
)
|
|
|
|
|
|
|
|
|
|
LESS: NET LOSS ATTRIBUTABLE TO NON-CONTROLLING INTEREST
|
|
|
(278,174
|
)
|
|
|
(585,360
|
)
|
|
|
|
|
|
|
|
|
|
NET LOSS ATTRIBUTABLE TO AVALON GLOBOCARE CORP. COMMON SHAREHOLDERS
|
|
$
|
(7,774,122
|
)
|
|
$
|
(3,464,285
|
)
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE LOSS:
|
|
|
|
|
|
|
|
|
NET LOSS
|
|
|
(8,052,296
|
)
|
|
|
(4,049,645
|
)
|
OTHER COMPREHENSIVE (LOSS) INCOME
|
|
|
|
|
|
|
|
|
Unrealized foreign currency translation (loss) gain
|
|
|
(143,498
|
)
|
|
|
2,540
|
|
COMPREHENSIVE LOSS
|
|
$
|
(8,195,794
|
)
|
|
$
|
(4,047,105
|
)
|
LESS: COMPREHENSIVE LOSS ATTRIBUTABLE TO NON-CONTROLLING INTEREST
|
|
|
(276,806
|
)
|
|
|
(585,394
|
)
|
COMPREHENSIVE LOSS ATTRIBUTABLE TO AVALON GLOBOCARE
CORP. COMMON SHAREHOLDERS
|
|
$
|
(7,918,988
|
)
|
|
$
|
(3,461,711
|
)
|
|
|
|
|
|
|
|
|
|
NET LOSS PER COMMON SHARE ATTRIBUTABLE TO AVALON
GLOBOCARE CORP. COMMON SHAREHOLDERS:
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(0.11
|
)
|
|
$
|
(0.05
|
)
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
72,004,081
|
|
|
|
65,033,472
|
|
The
accompanying notes are an integral part of these consolidated financial statements.
AVALON
GLOBOCARE CORP. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CHANGES IN EQUITY
For
the Years Ended December 31, 2018 and 2017
|
|
Avalon GloboCare
Corp. Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
Preferred Stock
|
|
|
Common Stock
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
Number of
|
|
|
|
|
|
Paid-in
|
|
|
Treasury
|
|
|
Accumulated
|
|
|
Statutory
|
|
|
Comprehensive
|
|
|
Non-controlling
|
|
|
Total
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Stock
|
|
|
Deficit
|
|
|
Reserve
|
|
|
Loss
|
|
|
Interest
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2016
|
|
|
-
|
|
|
$
|
-
|
|
|
|
61,628,622
|
|
|
$
|
6,163
|
|
|
$
|
3,681,387
|
|
|
$
|
-
|
|
|
$
|
(53,369
|
)
|
|
$
|
6,578
|
|
|
$
|
(94,568
|
)
|
|
$
|
-
|
|
|
$
|
3,546,191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued in connection
with Share Subscription Agreement
|
|
|
-
|
|
|
|
-
|
|
|
|
3,000,000
|
|
|
|
300
|
|
|
|
(300
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued for cash,
net of issuance costs of $50,625
|
|
|
-
|
|
|
|
-
|
|
|
|
5,150,000
|
|
|
|
515
|
|
|
|
5,098,860
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,099,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
992,997
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
992,997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets purchase
|
|
|
-
|
|
|
|
-
|
|
|
|
500,000
|
|
|
|
50
|
|
|
|
1,717,341
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,717,391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,574
|
|
|
|
(34
|
)
|
|
|
2,540
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss for the year
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,464,285
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(585,360
|
)
|
|
|
(4,049,645
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31,
2017
|
|
|
-
|
|
|
|
-
|
|
|
|
70,278,622
|
|
|
|
7,028
|
|
|
|
11,490,285
|
|
|
|
-
|
|
|
|
(3,517,654
|
)
|
|
|
6,578
|
|
|
|
(91,994
|
)
|
|
|
(585,394
|
)
|
|
|
7,308,849
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury stock purchase
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(522,500
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(522,500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayment made for Share Subscription
Agreement
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,000,000
|
)
|
|
|
(100
|
)
|
|
|
100
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Refundable deposit exchange
for common shares
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,000,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued in equity
raise, net of fees associated with equity raise
|
|
|
-
|
|
|
|
-
|
|
|
|
4,046,450
|
|
|
|
404
|
|
|
|
7,064,313
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7,064,717
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued for services
|
|
|
-
|
|
|
|
-
|
|
|
|
505,679
|
|
|
|
51
|
|
|
|
1,371,399
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,371,450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,227,281
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,227,281
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(144,866
|
)
|
|
|
1,368
|
|
|
|
(143,498
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the year
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(7,774,122
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(278,174
|
)
|
|
|
(8,052,296
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31,
2018
|
|
|
-
|
|
|
$
|
-
|
|
|
|
73,830,751
|
|
|
$
|
7,383
|
|
|
$
|
24,153,378
|
|
|
$
|
(522,500
|
)
|
|
$
|
(11,291,776
|
)
|
|
$
|
6,578
|
|
|
$
|
(236,860
|
)
|
|
$
|
(862,200
|
)
|
|
$
|
11,254,003
|
|
The
accompanying notes are an integral part of these consolidated financial statements.
AVALON
GLOBOCARE CORP. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
For the Year Ended
|
|
|
For the Year Ended
|
|
|
|
December 31, 2018
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
Net loss
|
|
$
|
(8,052,296
|
)
|
|
$
|
(4,049,645
|
)
|
Adjustments to reconcile net loss from operations
to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
522,835
|
|
|
|
181,637
|
|
Stock-based compensation expense
|
|
|
3,092,981
|
|
|
|
992,997
|
|
Loss on equity method investment
|
|
|
52,969
|
|
|
|
-
|
|
Impairment loss
|
|
|
-
|
|
|
|
1,321,338
|
|
Changes in operating assets and liabilities, net
of assets and liabilities assumed in business acquisition:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(114
|
)
|
|
|
(9,803
|
)
|
Accounts receivable - related parties
|
|
|
-
|
|
|
|
72,187
|
|
Tenants receivable
|
|
|
(4,015
|
)
|
|
|
(38,469
|
)
|
Inventory
|
|
|
(10,612
|
)
|
|
|
(1,509
|
)
|
Prepaid expenses - related parties
|
|
|
(35,450
|
)
|
|
|
-
|
|
Prepaid expenses and other current assets
|
|
|
(457,800
|
)
|
|
|
(98,917
|
)
|
Security deposit
|
|
|
(96,629
|
)
|
|
|
(30,294
|
)
|
Accounts payable
|
|
|
282
|
|
|
|
28
|
|
Advance from customer - related party
|
|
|
15,407
|
|
|
|
-
|
|
Accrued liabilities and other payables
|
|
|
701,496
|
|
|
|
214,628
|
|
Accrued liabilities and other payables - related
parties
|
|
|
(39,927
|
)
|
|
|
31,331
|
|
Deferred rental income
|
|
|
1,367
|
|
|
|
12,769
|
|
Interest payable
|
|
|
(62,768
|
)
|
|
|
-
|
|
Income taxes payable
|
|
|
-
|
|
|
|
(21,561
|
)
|
VAT and other taxes payable
|
|
|
1,838
|
|
|
|
(8,697
|
)
|
Tenants’ security
deposit
|
|
|
(25,588
|
)
|
|
|
92,288
|
|
|
|
|
|
|
|
|
|
|
NET CASH USED IN OPERATING
ACTIVITIES
|
|
|
(4,396,024
|
)
|
|
|
(1,339,692
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Prepayment made for purchase of long-term assets
|
|
|
-
|
|
|
|
(148,010
|
)
|
Purchase of property and equipment
|
|
|
(113,148
|
)
|
|
|
(53,812
|
)
|
Purchase of intangible assets
|
|
|
-
|
|
|
|
(876,087
|
)
|
Purchase of commercial real estate
|
|
|
-
|
|
|
|
(7,008,571
|
)
|
Improvement of commercial real estate
|
|
|
(391,506
|
)
|
|
|
-
|
|
Payment for acquired business
|
|
|
(350,000
|
)
|
|
|
-
|
|
Cash acquired on acquisition of business
|
|
|
-
|
|
|
|
72,032
|
|
Payment for equity method
investment
|
|
|
(453,159
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
NET CASH USED IN INVESTING
ACTIVITIES
|
|
|
(1,307,813
|
)
|
|
|
(8,014,448
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Proceeds received from loan payable
|
|
|
-
|
|
|
|
2,100,000
|
|
Repayments for loan
|
|
|
(500,000
|
)
|
|
|
(600,000
|
)
|
Proceeds received from related parties’ advance
|
|
|
-
|
|
|
|
210,000
|
|
Repayment for related parties’ advance
|
|
|
-
|
|
|
|
(307,150
|
)
|
Repurchase of common stock
|
|
|
(522,500
|
)
|
|
|
-
|
|
Refundable deposit in connection with Share Subscription
Agreement
|
|
|
-
|
|
|
|
3,000,000
|
|
Refund for refundable deposit in connection with
Share Subscription Agreement
|
|
|
(1,000,000
|
)
|
|
|
-
|
|
Proceeds received from equity offering
|
|
|
7,551,013
|
|
|
|
5,150,000
|
|
Disbursements for equity offering
costs
|
|
|
(486,296
|
)
|
|
|
(50,625
|
)
|
|
|
|
|
|
|
|
|
|
NET CASH PROVIDED BY FINANCING
ACTIVITIES
|
|
|
5,042,217
|
|
|
|
9,502,225
|
|
|
|
|
|
|
|
|
|
|
EFFECT OF EXCHANGE RATE
ON CASH
|
|
|
(113,126
|
)
|
|
|
(7,241
|
)
|
|
|
|
|
|
|
|
|
|
NET (DECREASE) INCREASE IN CASH
|
|
|
(774,746
|
)
|
|
|
140,844
|
|
|
|
|
|
|
|
|
|
|
CASH - beginning
of year
|
|
|
3,027,033
|
|
|
|
2,886,189
|
|
|
|
|
|
|
|
|
|
|
CASH - end of year
|
|
$
|
2,252,287
|
|
|
$
|
3,027,033
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
Cash paid for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
377,421
|
|
|
$
|
-
|
|
Income taxes
|
|
$
|
-
|
|
|
$
|
21,561
|
|
|
|
|
|
|
|
|
|
|
NON-CASH INVESTING AND FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Common stock issued in connection
with Share Subscription Agreement
|
|
$
|
-
|
|
|
$
|
300
|
|
Acquisition of equipment by
decreasing prepayment for long-term assets
|
|
$
|
151,053
|
|
|
$
|
-
|
|
Equipment acquired on credit
as payable
|
|
$
|
6,646
|
|
|
$
|
-
|
|
Acquisition of real estate
by decreasing prepayment for property
|
|
$
|
-
|
|
|
$
|
700,000
|
|
Common stock issued for future
services
|
|
$
|
495,750
|
|
|
$
|
-
|
|
Refundable deposit exchange
for common shares
|
|
$
|
2,000,000
|
|
|
$
|
-
|
|
Common stock issued on purchase
of intangible assets
|
|
$
|
-
|
|
|
$
|
500,000
|
|
GenExosome’s shares issued
on purchase of intangible assets
|
|
$
|
-
|
|
|
$
|
1,217,391
|
|
Business acquired on credit
|
|
$
|
-
|
|
|
$
|
450,000
|
|
The
accompanying notes are an integral part of these consolidated financial statements.
AVALON GLOBOCARE
CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2018
NOTE
1 –
ORGANIZATION AND NATURE OF OPERATIONS
Avalon
GloboCare Corp. (f/k/a Global Technologies Corp.) (the “Company” or “AVCO”) is a
Delaware corporation. The Company was incorporated under the laws of the State of Delaware on July 28, 2014. On October 18,
2016, the Company changed its name to Avalon GloboCare Corp. and completed a reverse split its shares of common stock at a
ratio of 1:4. On October 19, 2016, the Company entered into and closed a Share Exchange Agreement with the shareholders of
Avalon Healthcare System, Inc., a Delaware corporation (“AHS”), each of which are accredited investors
(“AHS Shareholders”) pursuant to which we acquired 100% of the outstanding securities of AHS in exchange for
50,000,000 shares of our common stock (the “AHS Acquisition”). AHS was incorporated on May 18, 2015 under the
laws of the State of Delaware. As a result of such acquisition, the Company’s operations now are focused on integrating
and managing global healthcare services and resources, as well as empowering high-impact biomedical innovations and
technologies to accelerate their clinical applications. We are dedicated to advancing cell-based technologies and
therapeutics, as well as empowering high-impact biomedical innovations to accelerate their clinical applications. Our
ecosystem covers the areas of exosome technology (including liquid biopsy and regenerative therapeutics) and cellular
immunotherapy. We plan to integrate technologies and services through joint venture and subsidiary structures that bring
shareholder value both in the short term, through operational entities and long term, through biomedical innovation
development, such as our recent joint venture for the advancement of exosome isolation systems and related products. AHS owns
100% of the capital stock of Avalon (Shanghai) Healthcare Technology Co., Ltd. (“Avalon Shanghai”), which is a
wholly foreign-owned enterprise organized under the laws of the People’s Republic of China (“PRC”). Avalon
Shanghai was incorporated on April 29, 2016 and is engaged in medical related consulting services for customers.
For
accounting purposes, AHS was the surviving entity. The transaction was accounted for as a recapitalization of AHS pursuant to
which AHS was treated as the accounting acquirer, surviving and continuing entity although the Company is the legal acquirer.
The Company did not recognize goodwill or any intangible assets in connection with this transaction. Accordingly, the Company’s
historical financial statements are those of AHS and its wholly-owned subsidiary, Avalon Shanghai immediately following the consummation
of this reverse merger transaction.
On
January 23, 2017, the Company incorporated Avalon (BVI) Ltd., a British Virgin Island company. There was no activity for the subsidiary
since its incorporation through December 31, 2018. Avalon (BVI) Ltd. is dormant and is in process of being dissolved.
On
February 7, 2017, the Company formed Avalon RT 9 Properties, LLC (“Avalon RT 9”), a New Jersey limited liability company.
On May 5, 2017, Avalon RT 9 purchased a real property located in Township of Freehold, County of Monmouth, State of New Jersey,
having a street address of 4400 Route 9 South, Freehold, NJ 07728. This property was purchased to serve as the Company’s
world-wide headquarters for all corporate administration and operation. In addition, the property generates rental income. Avalon
RT 9 owns this office building. Currently, Avalon RT 9’s business consists of the ownership and operation of the income-producing
real estate property in New Jersey.
On
July 31, 2017, the Company formed GenExosome Technologies Inc. (“GenExosome”) in Nevada.
On
October 25, 2017, GenExosome and the Company entered into a Securities Purchase Agreement pursuant to which the Company acquired
600 shares of GenExosome in consideration of $1,326,087 in cash and 500,000 shares of common stock of the Company.
On
October 25, 2017, GenExosome entered into and closed an Asset Purchase Agreement with Yu Zhou, MD, PhD, pursuant to which the
Company acquired all assets, including all intellectual property, held by Dr. Zhou pertaining to the business of researching,
developing and commercializing exosome technologies including, but not limited to, patent application number CN 2016 1 0675107.5
(application of an Exosomal MicroRNA in plasma as biomaker to diagnosis liver cancer), patent application number CN 2016 1 0675110.7
(clinical application of circulating exosome carried miRNA-33b in the diagnosis of liver cancer), patent application number CN
2017 1 0330847.X (saliva exosome based methods and composition for the diagnosis, staging and prognosis of oral cancer) and patent
application number CN 2017 1 0330835.7 (a novel exosome-based therapeutics against proliferative oral diseases). In consideration
of the assets, GenExosome agreed to pay Dr. Zhou $876,087 in cash, transfer 500,000 shares of common stock of the Company to Dr.
Zhou and issue Dr. Zhou 400 shares of common stock of GenExosome.
As
a result of the above transactions, effective October 25, 2017, the Company holds 60% of GenExosome and Dr. Zhou holds 40% of
GenExosome. GenExosome is engaged in developing proprietary diagnostic and therapeutic products leveraging its exosome technology
and marketing and distributing its proprietary Exosome Isolation Systems.
On
October 25, 2017, 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”)
and Dr. Zhou, 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.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2018
NOTE
1 –
ORGANIZATION AND NATURE OF OPERATIONS (continued)
Beijing
GenExosome is engaged in the development of exosome technology to improve diagnosis and management of diseases. Exosomes are tiny,
subcellular, membrane-bound vesicles in diameter of 30-150 nm that are released by almost all cell types and that can carry membrane
and cellular proteins, as well as genetic materials that are representative of the cell of origin. Profiling various bio-molecules
in exosomes may serve as useful biomarkers for a wide variety of diseases. Beijing GenExosome’s research kits are designed
to be used by researchers for biomarker discovery and clinical diagnostic development, and the advancement of targeted therapies.
Currently, research kits and service are available to isolate exosomes or extract exosomal RNA/protein from serum/plasma, urine
and saliva samples. Beijing GenExosome is seeking to decode proteomic and genomic alterations underlying a wide-range of pathologies,
thus allowing for the introduction of novel non-invasive “liquid biopsies”. Its mission is focused toward diagnostic
advancements in the fields of oncology, infectious diseases and fibrotic diseases, and discovery of disease-specific exosomes
to provide disease origin insight necessary to enable personalized clinical management.
On
July 18, 2018, the Company formed a wholly owned subsidiary, Avactis Biosciences Inc., a Nevada corporation, which will be focused
on accelerating commercial activities related to cellular therapies, including regenerative medicine with stem/progenitor cells
as well as cellular immunotherapy including CAR-T, CAR-NK, TCR-T and others. The subsidiary is designed to integrate and optimize
our global scientific and clinical resources to further advance the use of cellular therapies to treat certain cancers. There
was no activity for the subsidiary since its incorporation through December 31, 2018.
Details
of the Company’s subsidiaries which are included in these consolidated financial statements as of December 31, 2018 are
as follows:
Name of Subsidiaries
|
|
Place and date of
Incorporation
|
|
Percentage of
Ownership
|
|
Principal Activities
|
Avalon Healthcare System, Inc.
(“AHS”)
|
|
Delaware
May 18, 2015
|
|
100% held by AVCO
|
|
Provides medical related consulting services and developing Avalon Cell
and Avalon Rehab in United States of America (“USA”)
|
|
|
|
|
|
|
|
Avalon (BVI) Ltd.
(“Avalon BVI”)
|
|
British Virgin Island
January 23, 2017
|
|
100% held by AVCO
|
|
Dormant, is in process of being dissolved
|
|
|
|
|
|
|
|
Avalon RT 9 Properties LLC
(“Avalon RT 9”)
|
|
New Jersey
February 7, 2017
|
|
100% held by AVCO
|
|
Owns and operates an income-producing real property and holds and manages
the corporate headquarters
|
|
|
|
|
|
|
|
Avalon (Shanghai) Healthcare Technology Co., Ltd.
(“Avalon Shanghai”)
|
|
PRC
April 29, 2016
|
|
100% held by AHS
|
|
Provides medical related consulting services and developing Avalon Cell
and Avalon Rehab in China
|
|
|
|
|
|
|
|
GenExosome Technologies Inc.
(“GenExosome”)
|
|
Nevada
July 31, 2017
|
|
60% held by AVCO
|
|
Develops proprietary diagnostic and therapeutic products leveraging exosome
technology and markets and distributes proprietary Exosome Isolation Systems in USA
|
|
|
|
|
|
|
|
Beijing Jieteng (GenExosome) Biotech Co., Ltd.
(“Beijing GenExosome”)
|
|
PRC
August 7, 2015
|
|
100% held by GenExosome
|
|
Provides development services for hospitals and other customers and sells
developed items to hospitals and other customers in China
|
|
|
|
|
|
|
|
Avactis Biosciences Inc.
(“Avactis”)
|
|
Nevada
July 18, 2018
|
|
100% held by AVCO
|
|
Integrate and optimize global scientific and clinical resources to further
advance cellular therapies, including regenerative medicine with stem/progenitor cells as well as cellular immunotherapy including
CAR-T, CAR-NK, TCR-T and others to treat certain cancers
|
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2018
NOTE
2 –
BASIS OF PRESENTATION AND GOING CONCERN
Basis of Presen
tation
The
accompanying consolidated financial statements and related notes have been prepared in accordance with accounting principles generally
accepted in the United States of America (“U.S. GAAP”) and with the rules and regulations of the U.S. Securities and
Exchange Commission for financial information.
The
Company’s consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.
Going Concern
The
Company
currently has limited operations. Currently, the Company’s operations are focused on: (i) real estate property ownership
and operation in the United States; (ii) providing outsourced, customized international healthcare services to the rapidly changing
health care industry primarily focused in the People’s Republic of China; (iii) performing
development services for
hospitals and other customers and sales of developed products to hospitals and other customers
.
The Company is also pursuing the provision of healthcare services in the United States. These 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 consolidated financial statements, the Company had an accumulated deficit of $11,291,776 at December 31,
2018, and has incurred recurring net loss and negative cash flow from operating activities of $8,052,296 and $4,396,024 for
the year ended December 31, 2018, respectively. The Company has a limited operating history and its continued growth is
dependent upon the continuation of providing medical consulting services to its only four clients who are related parties and
generating rental revenue from its income-producing real estate property in New Jersey and performing development
services for hospitals and other customers and sales of developed products to hospitals and other customers
;
hence generating revenues, and obtaining additional financing to fund future obligations and pay liabilities arising from
normal business operations. In addition, the current cash balance cannot be projected to cover the operating expenses for the
next twelve months from the release date of this report. These matters raise substantial doubt about the Company’s
ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the
Company’s ability to raise additional capital, implement its business plan, and generate significant revenues. There
are no assurances that the Company will be successful in its efforts to generate significant revenues, maintain sufficient
cash balance or report profitable operations or to continue as a going concern. The Company plans on raising capital through
the sale of equity or debt instruments 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 consolidated financial statements do not include any adjustments related to the recoverability or classification of
asset-carrying amounts or the amounts and classification of liabilities that may result should the Company be unable to continue
as a going concern.
NOTE
3 –
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use
of Estimates
The
preparation of the consolidated financial statements in conformity with generally accepted accounting principles in the United
States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from these estimates. Significant estimates during the years
ended December 31, 2018 and 2017 include the allowance for doubtful accounts, reserve for obsolete inventory, the useful life
of property and equipment and investment in real estate and intangible assets, assumptions used in assessing impairment of long-term
assets, valuation of deferred tax assets and the associated valuation allowances, and valuation of stock-based compensation.
Fair
Value of Financial Instruments and Fair Value Measurements
The
Company adopted the guidance of Accounting Standards Codification (“ASC”) 820 for fair value measurements which clarifies
the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify
the inputs used in measuring fair value as follows:
|
●
|
Level
1-Inputs are unadjusted quoted prices in active markets for identical assets or liabilities
available at the measurement date.
|
|
●
|
Level
2-Inputs are unadjusted quoted prices for similar assets and liabilities in active markets,
quoted prices for identical or similar assets and liabilities in markets that are not
active, inputs other than quoted prices that are observable, and inputs derived from
or corroborated by observable market data.
|
|
●
|
Level
3-Inputs are unobservable inputs which reflect the reporting entity’s own assumptions
on what assumptions the market participants would use in pricing the asset or liability
based on the best available information.
|
The
carrying amounts reported in the consolidated balance sheets for cash, accounts receivable, tenants receivable, security deposit,
inventory, prepaid expenses – related parties, prepaid expenses and other current assets, accounts payable, advance from
customer – related party, accrued liabilities and other payables, accrued liabilities and other payables – related
parties, deferred rental income, interest payable, Value Added Tax (“VAT”) and other taxes payable, tenants’
security deposit, and due to related party, approximate their fair market value based on the short-term maturity of these instruments.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2018
NOTE
3 –
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Fair Value of Financial Instruments
and Fair Value Measurements (continued)
At
December 31, 2018 and 2017, intangible assets were measured at fair value on a nonrecurring basis as shown in the following tables.
|
|
Quoted Price in
Active Markets
for Identical
Assets
(Level 1)
|
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
Balance at
December 31,
2018
|
|
|
Impairment
Loss
|
|
Patents and other technologies
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,255,689
|
|
|
$
|
1,255,689
|
|
|
$
|
-
|
|
|
|
Quoted Price in
Active Markets
for
Identical
Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
Balance at
December 31,
2017
|
|
|
Impairment
Loss
|
|
Patents and other technologies
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,583,260
|
|
|
$
|
1,583,260
|
|
|
$
|
923,769
|
|
Goodwill
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
397,569
|
|
Total
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,583,260
|
|
|
$
|
1,583,260
|
|
|
$
|
1,321,338
|
|
In December 2017, the Company assessed its
long-lived assets for any impairment and concluded that there were indicators of impairment as of December 31, 2017 and it calculated
that the estimated undiscounted cash flows were less than the carrying amount of the intangible assets. Based on its analysis,
the Company recognized an impairment loss of $1,321,338 for the year ended December 31, 2017, which reduced the value of intangible
assets acquired to $1,583,260. The Company did not record any impairment charge for the year ended December 31, 2018 as there
was no impairment indicator noted as of the filing date of this report.
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
Cash
consists of cash on hand and cash in banks. The Company maintains cash with various financial institutions in the PRC and United
States. At December 31, 2018 and 2017, cash balances in PRC are $1,216,485 and $1,327,009, respectively, are uninsured. At December
31, 2018 and 2017, cash balances in United States are $1,035,802 and $1,700,024, respectively. The Company has not experienced
any losses in bank accounts and believes it is not exposed to any risks on its cash in bank accounts.
Concentrations
of Credit Risk
Currently,
a portion of the Company’s operations are carried out in PRC. Accordingly, the Company’s business, financial condition
and results of operations may be influenced by the political, economic and legal environment in the PRC, and by the general state
of the PRC’s economy. The Company’s operations in PRC are subject to specific considerations and significant risks
not typically associated with companies in North America. The Company’s results may be adversely affected by changes in
governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad,
and rates and methods of taxation, among other things.
Financial
instruments which potentially subject the Company to concentrations of credit risk consist principally of cash, trade accounts
receivable and tenants receivable. A portion of the Company’s cash is maintained with state-owned banks within the PRC,
and none of these deposits are covered by insurance. The Company has not experienced any losses in such accounts and believes
it is not exposed to any risks on its cash in bank accounts. A portion of the Company’s sales are credit sales which is
to the customer whose ability to pay is dependent upon the industry economics prevailing in these areas; however, concentrations
of credit risk with respect to trade accounts receivable and tenants receivable is limited due to generally short payment terms.
The Company also performs ongoing credit evaluations of its customers to help further reduce credit risk.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2018
NOTE
3 –
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
At
December 31, 2018 and 2017, the Company’s cash balances by geographic area were
as follows:
|
|
December 31, 2018
|
|
|
December 31, 2017
|
|
Country:
|
|
|
|
|
|
|
United States
|
|
$
|
1,035,802
|
|
|
|
46.0
|
%
|
|
$
|
1,700,024
|
|
|
|
56.2
|
%
|
China
|
|
|
1,216,485
|
|
|
|
54.0
|
%
|
|
|
1,327,009
|
|
|
|
43.8
|
%
|
Total cash
|
|
$
|
2,252,287
|
|
|
|
100.0
|
%
|
|
$
|
3,027,033
|
|
|
|
100.0
|
%
|
Accounts
Receivable and Allowance for Doubtful Accounts
Accounts
receivable are presented net of an allowance for doubtful accounts. The Company maintains allowances for doubtful accounts for
estimated losses. The Company reviews the accounts receivable on a periodic basis and makes general and specific allowances when
there is doubt as to the collectability of individual balances. In evaluating the collectability of individual receivable balances,
the Company considers many factors, including the age of the balance, a customer’s historical payment history, its current
credit-worthiness and current economic trends. Accounts are written off after exhaustive efforts at collection.
Management
believes that the accounts receivable are fully collectable. Therefore, no allowance for doubtful accounts is deemed to be required
on its accounts receivable at December 31, 2018 and 2017. The Company historically has not experienced uncollectible accounts
from customers granted with credit sales.
Tenants
Receivable and Allowance for Doubtful Accounts
Tenants
receivable are presented net of an allowance for doubtful accounts. Tenants receivable balance consist of base rents, tenant reimbursements
and receivables arising from straight-lining of rents primarily represent amounts accrued and unpaid from tenants in accordance
with the terms of the respective leases, subject to the Company’s revenue recognition policy. An allowance for the uncollectible
portion of tenant receivable is determined based upon an analysis of the tenant’s payment history, the financial condition
of the tenant, business conditions in the industry in which the tenant operates and economic conditions in Freehold, New Jersey
in which the property is located.
Management
believes that the tenants receivable are fully collectable. Therefore, no allowance for doubtful accounts is deemed to be required
on its tenants receivable at December 31, 2018 and 2017.
Inventory
Inventory is stated at the lower of cost and
net realizable value. Cost is determined using the first-in, first-out (FIFO) method. A reserve is established when management
determines that certain inventory may not be saleable. If inventory costs exceed expected market value due to obsolescence or
quantities in excess of expected demand, the Company will record a write down in inventory for the difference between the cost
and the lower of cost or estimated net realizable value. The reserve and write down are recorded based on estimates. The Company
did not record any inventory reserve and or write down at December 31, 2018 and 2017.
Property
and Equipment
Property
and equipment are carried at cost and are depreciated on a straight-line basis over the estimated useful lives of the assets.
The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized. When assets
are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses
are included in income in the period of disposition. The Company examines the possibility of decreases in the value of fixed assets
when events or changes in circumstances reflect the fact that their recorded value may not be recoverable.
Investment
In Real Estate and Depreciation
Investment
in real estate is carried at cost less accumulated depreciation and consists of building and improvement. The Company depreciates
real estate building and improvement on a straight-line basis over estimated useful life. Expenditures for ordinary repair and
maintenance costs are charged to expense as incurred. Expenditure for improvements, renovations, and replacements of real estate
asset is capitalized and depreciated over its estimated useful life if the expenditure qualifies as betterment. Real estate depreciation
expense was $135,378 and $84,814 for the years ended December 31, 2018 and 2017, respectively.
Intangible
Assets
Intangible
assets consist of patents and other technologies. Patents and other technologies are being amortized on a straight-line method
over the estimated useful life of 5 years.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2018
NOTE
3 –
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Investment in Unconsolidated Company
– Epicon Biotech Co., Ltd.
The
Company uses the equity method of accounting for its investment in, and earning or loss of, company that it does not control but
over which it does exert significant influence. The Company considers whether the fair value of its equity method investment has
declined below its carrying value whenever adverse events or changes in circumstances indicate that recorded value may not be
recoverable. If the Company considers any decline to be other than temporary (based on various factors, including historical financial
results and the overall health of the investee), then a write-down would be recorded to estimated fair value. See Note 10
for discussion of equity method investment.
Impairment
of Long-lived Assets
In accordance with ASC Topic 360, the Company
reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the
assets may not be fully recoverable, or at least annually. The Company recognizes an impairment loss when the sum of expected
undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference
between the asset’s estimated fair value and its book value. The Company did not record any impairment charge for the year
ended December 31, 2018 as there was no impairment indicator noted as of the filing date of this report.
In
December 2017, the Company assessed its long-lived assets for any impairment and concluded that there were indicators of impairment
as of December 31, 2017 and it calculated that the estimated undiscounted cash flows were less than the carrying amount of the
intangible assets. Based on its analysis, the Company recognized an impairment loss of $1,321,338 for the year ended December
31, 2017, which reduced the value of intangible assets acquired to $1,583,260.
Deferred
Rental Income
Deferred
rental income represents rental income collected but not earned as of the reporting date. The Company defers the revenue related
to lease payments received from tenants in advance of their due dates. As of December 31, 2018 and 2017, deferred rental income
totaled $14,136 and $12,769, respectively.
Value
Added Tax
Avalon
Shanghai and Beijing GenExosome are subject to a value added tax (“VAT”) for providing medical related consulting
services and performing development services and sales of developed products. The amount of VAT liability is determined by applying
the applicable tax rates to the invoiced amount of medical related consulting services provided and the invoiced amount of development
services provided and sales of developed products (output VAT) less VAT paid on purchases made with the relevant supporting invoices
(input VAT). The Company reports revenue net of PRC’s value added tax for all the periods presented in the consolidated
statements of operations.
Revenue
Recognition
Effective
January 1, 2018, the Company began recognizing revenue under Accounting Standards Codification (“ASC”) Topic
606, Revenue from Contracts with Customers (“ASC 606”), using the modified retrospective transition method.
The impact of adopting the new revenue standard was not material to the Company’s consolidated financial statements
and there was no adjustment to beginning accumulated deficit on January 1, 2018. The core principle of this new
revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers
in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services.
The following five steps are applied to achieve that core principle:
|
●
|
Step
1: Identify the contract with the customer
|
|
●
|
Step
2: Identify the performance obligations in the contract
|
|
●
|
Step
3: Determine the transaction price
|
|
●
|
Step
4: Allocate the transaction price to the performance obligations in the contract
|
|
●
|
Step
5: Recognize revenue when the company satisfies a performance obligation
|
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2018
NOTE
3 –
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Revenue
Recognition (continued)
In
order to identify the performance obligations in a contract with a customer, a company must assess the promised goods or services
in the contract and identify each promised good or service that is distinct. A performance obligation meets ASC 606’s definition
of a “distinct” good or service (or bundle of goods or services) if both of the following criteria are met:
|
●
|
The
customer can benefit from the good or service either on its own or together with other
resources that are readily available to the customer (i.e., the good or service is capable
of being distinct).
|
|
●
|
The
entity’s promise to transfer the good or service to the customer is separately
identifiable from other promises in the contract (i.e., the promise to transfer the good
or service is distinct within the context of the contract).
|
If
a good or service is not distinct, the good or service is combined with other promised goods or services until a bundle of goods
or services is identified that is distinct.
The
transaction price is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised
goods or services to a customer, excluding amounts collected on behalf of third parties (for example, some sales taxes). The consideration
promised in a contract with a customer may include fixed amounts, variable amounts, or both. Variable consideration is included
in the transaction price only to the extent that it is probable that a significant reversal in the amount of cumulative revenue
recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved.
The
transaction price is allocated to each performance obligation on a relative standalone selling price basis. The transaction price
allocated to each performance obligation is recognized when that performance obligation is satisfied, at a point in time or over
time as appropriate.
Types
of revenue:
|
●
|
Rental
revenue from leasing commercial property under operating leases with terms of generally
three years or more.
|
|
●
|
Service
fees under consulting agreements with related parties to provide medical related consulting
services to its clients. The Company is paid for its services by its clients pursuant
to the terms of the written consulting agreements. Each contract calls for a fixed payment.
|
|
●
|
Service
fees under agreements to perform development services for hospitals and other customers.
The Company does not perform contracts that are contingent upon successful results.
|
|
●
|
Sales
of developed products to hospitals and other customers.
|
Revenue
recognition criteria:
|
●
|
The
Company recognizes rental revenue from its commercial leases on a straight-line basis
over the life of the lease including rent holidays, if any. Straight-line rent receivable
consists of the difference between the tenants’ rents calculated on a straight-line
basis from the date of lease commencement over the remaining terms of the related leases
and the tenants’ actual rents due under the lease agreements and is included in
tenants receivable in the accompanying consolidated balance sheets. Revenues associated
with operating expense recoveries are recognized in the period in which the expenses
are incurred.
|
|
●
|
The
Company recognizes revenue by providing medical related consulting services under written
service contracts with its customers. Revenue related to its service offerings is recognized
as the services are performed.
|
|
●
|
Revenue
from development services performed under written contracts is recognized as services
are provided.
|
|
●
|
Revenue
from sales of developed items to hospitals and other customers is recognized when items
are shipped to customers and titles are transferred.
|
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2018
NOTE
3 –
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Revenue
Recognition (continued)
The
Company does not offer promotional payments, customer coupons, rebates or other cash redemption offers to its customers.
Sales
tax collected is not recognized as revenue and amounts outstanding are included in accrued liabilities and other payables in the
consolidated balance sheets.
Office
Lease
When
a lease contains “rent holidays”, the Company records rental expense on a straight-line basis over the term of
the lease and the difference between the average rental amount charged to expense and the amount payable under the lease is recorded
as prepaid expenses in the consolidated balance sheets. The Company begins recording rent expense on the lease possession date.
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 the Company’s rental properties.
Medical
Related Consulting Services Costs
Costs
of medical related consulting services includes the cost of internal labor and related benefits, travel expenses related to consulting
services, subcontractor costs, other related consulting costs, and other overhead costs. Subcontractor costs were costs related
to medical related consulting services incurred by our subcontractor, such as medical professional’s compensation and travel
costs.
Development
Services and Sales of Developed Products Costs
Costs
of development services and sales of developed items includes inventory costs, materials and supplies costs, depreciation, internal
labor and related benefits, other overhead costs and shipping and handling costs incurred.
Shipping
and Handling Costs
Shipping
and handling costs are expensed as incurred and are included in cost of sales. For the years ended December 31, 2018 and 2017,
shipping and handling costs amounted to $25 and $0, respectively.
Research
and Development
Expenditures
for research and product development costs are expensed as incurred. The Company incurred research and development expense in
the amount of $39,061 related to the development of proprietary diagnostic and therapeutic products leveraging exosome technology
and optimization of Exosome Isolation Systems in the year ended December 31, 2018. The Company did not incur any research and
development costs during the year ended December 31, 2017.
Advertising
Costs
All
costs related to advertising are expensed as incurred. For the year ended December 31, 2018, advertising costs amounted to $335,900.
The Company did not incur any advertising expenses during the year ended December 31, 2017.
Stock-based
Compensation
Stock-based
compensation is accounted for based on the requirements of the Share-Based Payment topic of Accounting Standards Codification
(“ASC”) 718 which requires recognition in the financial statements of the cost of employee and director services received
in exchange for an award of equity instruments over the period the employee or director is required to perform the services in
exchange for the award. The Accounting Standards Codification also requires measurement of the cost of employee and director services
received in exchange for an award based on the grant-date fair value of the award.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2018
NOTE
3 –
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Stock-based
Compensation (continued)
Pursuant
to ASC Topic 505-50, for share-based payments to consultants and other third-parties, compensation expense is recognized over
the period of services or the vesting period, whichever is applicable. Until the measurement date is reached, the total amount
of compensation expense remains uncertain. The Company’s compensation expense for unvested options to non-employees is re-measured
at each balance sheet date and is being amortized over the vesting period of the options.
Income
Taxes
The
Company accounts for income taxes using the asset/liability method prescribed by ASC 740, “Income Taxes.” Under this
method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases
of assets and liabilities using enacted tax rates that will be in effect in the period in which the differences are expected to
reverse. The Company records a valuation allowance to offset deferred tax assets if, based on the weight of available evidence,
it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred
taxes of a change in tax rates is recognized as income or loss in the period that includes the enactment date.
The
Company follows the accounting guidance for uncertainty in income taxes using the provisions of ASC 740 “Income Taxes”.
Using that guidance, tax positions initially need to be recognized in the financial statements when it is more likely than not
the position will be sustained upon examination by the tax authorities. As of December 31, 2018 and 2017, the Company had no significant
uncertain tax positions that qualify for either recognition or disclosure in the financial statements. Tax year that remains subject
to examination is the years ended December 31, 2018, 2017 and 2016. The Company recognizes interest and penalties related to significant
uncertain income tax positions in other expense. However, no such interest and penalties were recorded as of December 31, 2018
and 2017.
In
December 2017, the United States Government passed new tax legislation that, among other provisions, lowered the corporate tax
rate from 35% to 21%. In addition to applying the new lower corporate tax rate in 2018 and thereafter to any taxable income the
Company may have, the legislation affects the way the Company can use and carryforward net operating losses previously accumulated
and results in a revaluation of deferred tax assets and liabilities recorded on the balance sheet. Given that current deferred
tax assets are offset by a full valuation allowance, these changes will have no net impact on the balance sheet. However, when
the Company becomes profitable, the Company will receive a reduced benefit from such deferred tax assets.
Foreign
Currency Translation
The
reporting currency of the Company is the U.S. dollar. The functional currency of the parent company, AHS, Avalon RT 9, GenExosome,
and Avactis, is the U.S. dollar and the functional currency of Avalon Shanghai and Beijing GenExosome, is the Chinese Renminbi
(“RMB”). For the subsidiaries whose functional currency is the RMB, result of operations and cash flows are translated
at average exchange rates during the period, assets and liabilities are translated at the unified exchange rate at the end of
the period, and equity is translated at historical exchange rates. As a result, amounts relating to assets and liabilities reported
on the statements of cash flows may not necessarily agree with the changes in the corresponding balances on the balance sheets.
Translation adjustments resulting from the process of translating the local currency financial statements into U.S. dollars are
included in determining comprehensive income/loss. Transactions denominated in foreign currencies are translated into the functional
currency at the exchange rates prevailing on the transaction dates. Assets and liabilities denominated in foreign currencies are
translated into the functional currency at the exchange rates prevailing at the balance sheet date with any transaction gains
and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency
are included in the results of operations as incurred.
All
of the Company’s revenue transactions are transacted in the functional currency of the operating subsidiaries. The Company
does not enter into any material transaction in foreign currencies. Transaction gains or losses have not had, and are not expected
to have, a material effect on the results of operations of the Company.
Asset
and liability accounts at December 31, 2018 and 2017 were translated at 6.8785 RMB to $1.00 and at 6.5067 RMB to $1.00, respectively,
which were the exchange rates on the balance sheet dates. Equity accounts were stated at their historical rates. The average translation
rates applied to the statements of operations for the years ended December 31, 2018 and 2017 were 6.6202 RMB and 6.7563 RMB to
$1.00, respectively. Cash flows from the Company’s operations are calculated based upon the local currencies using the average
translation rate.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2018
NOTE
3 –
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Comprehensive
Loss
Comprehensive
loss is comprised of net loss and all changes to the statements of equity, except those due to investments by stockholders, changes
in paid-in capital and distributions to stockholders. For the Company, comprehensive loss for the years ended December 31, 2018
and 2017 consisted of net loss and unrealized (loss) gain from foreign currency translation adjustment.
Per
Share Data
ASC
Topic 260 “Earnings per Share,” requires presentation of both basic and diluted earnings per share (“EPS”)
with a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted
EPS computation. Basic EPS excludes dilution. Diluted EPS reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that
then shared in the earnings of the entity.
Basic
net loss per share are 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.
Potentially dilutive common shares consist of the common shares issuable upon the exercise of common stock options and warrants
(using the treasury stock method). Common stock equivalents are not included in the calculation of diluted net loss per share
if their effect would be anti-dilutive. In a period in which the Company has a net loss, all potentially dilutive securities are
excluded from the computation of diluted shares outstanding as they would have had an anti-dilutive impact. The following table
presents a reconciliation of basic and diluted net loss per share:
|
|
Year Ended
December 31,
2018
|
|
|
Year Ended
December 31,
2017
|
|
Net loss available
to Avalon GloboCare Corp. common shareholders for basic and diluted net loss per share of common stock
|
|
$
|
(7,774,122
|
)
|
|
$
|
(3,464,285
|
)
|
Weighted average common stock
outstanding - basic and diluted
|
|
|
72,004,081
|
|
|
|
65,033,472
|
|
Net loss per common share attributable
to Avalon GloboCare Corp. common shareholders - basic and diluted
|
|
$
|
(0.11
|
)
|
|
$
|
(0.05
|
)
|
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:
|
|
Year Ended
December 31,
2018
|
|
|
Year Ended
December 31,
2017
|
|
Stock options
|
|
|
2,840,000
|
|
|
|
2,290,000
|
|
Warrants
|
|
|
578,891
|
|
|
|
-
|
|
Potentially dilutive securities
|
|
|
3,418,891
|
|
|
|
2,290,000
|
|
Business
Acquisition
The
Company accounts for business acquisition in accordance with ASC No. 805, Business Combinations. The assets acquired and
liabilities assumed from the acquired business are recorded at fair value, with the residual of the purchase price recorded as
goodwill. The result of operations of the acquired business is included in the Company’s operating result from the date
of acquisition.
Non-controlling
Interest
As
of December 31, 2018, Dr. Yu Zhou, director and Co-Chief Executive Officer of GenExosome, who owned 40% of the equity interests
of GenExosome, which is not under the Company’s control.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2018
NOTE
3 –
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Segment
Reporting
The Company
uses “the management approach” in determining reportable operating segments. The management approach considers the
internal organization and reporting used by the Company’s chief operating decision maker for making operating decisions
and assessing performance as the source for determining the Company’s reportable segments. The Company’s chief operating
decision maker is the chief executive officer (“CEO”) and president of the Company, who reviews operating results
to make decisions about allocating resources and assessing performance for the entire Company. The Company has determined that
it has three reportable business segments: real property operating segment, medical related consulting services segment, and development
services and sales of developed products segment. These reportable segments offer different types of services and products, have
different types of revenue, and are managed separately as each requires different operating strategies and management expertise.
Related
Parties
Parties
are considered to be related to the Company if the parties, directly or indirectly, through one or more intermediaries, control,
are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company,
its management, members of the immediate families of principal owners of the Company and its management and other parties with
which the Company may deal with if one party controls or can significantly influence the management or operating policies of the
other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. The
Company discloses all significant related party transactions.
Reclassification
Certain
prior period amounts have been reclassified to conform to the current period presentation. These reclassifications have no effect
on the previously reported financial position, results of operations and cash flows.
Reverse
Stock Split
The Company
effected a one-for-four reverse stock split of its common stock on October 18, 2016. All share and per share information has been
retroactively adjusted to reflect this reverse stock split.
Fiscal
Year End
The
Company has adopted a fiscal year end of December 31st.
Recent
Accounting Pronouncements
In
February 2016, the Financial Accounting Standards Board (“FASB”) established Topic 842,
Leases
, by
issuing Accounting Standards Update (“ASU”) No. 2016-02,
Leases
, in February 2016. Topic 842 was
subsequently amended by ASU No. 2018-01,
Land Easement Practical Expedient
for Transition to Topic 842;
ASU No. 2018-10,
Codification Improvements
to Topic 842, Leases; and ASU No. 2018-11,
Targeted Improvements
.
This guidance is intended to increase transparency and comparability among organizations by recognizing lease assets and lease
liabilities on the balance sheet and disclosing key information about leasing arrangements. The new guidance requires lessees
to recognize the assets and liabilities on the balance sheet for the rights and obligations created by leases with lease terms
of more than 12 months, amends various other aspects of accounting for leases by lessees and lessors, and requires enhanced disclosures.
Leases will be classified as finance or operating, with the classification affecting the pattern and classification of expense
recognition within the income statement.
The
new guidance is effective for fiscal years beginning after December 15, 2018 and requires a modified retrospective transition
approach with application in all comparative periods presented (the “comparative method”), or alternatively, as of
the effective date as the date of initial application without restating comparative period financial statements (the “effective
date method”). The Company adopts the new standard on January 1, 2019 and use the effective date as our date of initial
application. Consequently, financial information will not be updated and the disclosures required under the new standard will
not be provided for dates and periods before January 1, 2019. The new guidance also provides several practical expedients and
policies that companies may elect upon transition. The Company has elected the package of practical expedients under which we
will not reassess the classification of our existing leases, reevaluate whether any expired or existing contracts are or contain
leases or reassess initial direct costs under the new guidance. The
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2018
NOTE
3 –
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Recent
Accounting Pronouncements (continued)
Company
does not expect to elect the practical expedient pertaining to land easements, as it is not applicable to its leases. Additionally,
the Company elected to use the practical expedient that permits a reassessment of lease terms for existing leases using hindsight.
The
new standard also provides practical expedients for an entity’s ongoing accounting. The Company currently expects to elect
the short-term lease recognition exemption. This means, for those leases that qualify, we will not recognize right-of-use (“ROU”)
assets or lease liabilities, and this includes not recognizing ROU assets or lease liabilities for existing short-term leases
of those assets in transition. We also currently expect to elect the practical expedient to not separate lease and non-lease components.
The
Company performed an analysis of the impact of the new lease guidance and are in the process of completing the final phase of
a comprehensive plan for our implementation of the new guidance. The project plan includes analyzing the impact of the new guidance
on our current lease contracts, reviewing the completeness of our existing lease portfolio, comparing our accounting policies
under current accounting guidance to the new accounting guidance and identifying potential differences from applying the requirements
of the new guidance to our lease contracts. Upon transition to the new guidance on January 1, 2019, the Company currently expects
the new standard will not have a material effect on its consolidated financial statements but will impact certain disclosures
about the Company’s leasing activities.
In
August 2018, the FASB issued ASU No. 2018-13,
Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the
Disclosure Requirements for Fair Value Measurement
. The objective of ASU 2018-13 is to improve the effectiveness of disclosures
in the notes to the financial statements by removing, modifying, and adding certain fair value disclosure requirements to facilitate
clear communication of the information required by generally accepted accounting principles. The amendments are effective for
all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019 with early adoption
permitted upon issuance of this ASU. The Company is currently evaluating the potential impact of this new guidance.
Other
accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected
to have a material impact on the consolidated financial statements upon adoption. The Company does not discuss recent pronouncements
that are not anticipated to have an impact on or are unrelated to its consolidated financial condition, results of operations,
cash flows or disclosures.
NOTE
4 –
ACQUISITION
The
Company accounts for acquisition using the acquisition method of accounting, whereby the results of operations are included in
the financial statements from the date of acquisition. The purchase price is allocated to the acquired assets and assumed liabilities
based on their estimated fair values at the date of acquisition, and any excess is allocated to goodwill.
Effective
October 25, 2017, pursuant to the Stock Purchase Agreement as discussed in elsewhere in this report, the Company’s majority
owned subsidiary, GenExosome, acquired 100% of Beijing GenExosome.
In
according to the acquisition, Beijing GenExosome’s assets and liabilities were recorded at their fair values as of the effective
date, October 25, 2017, and the results of operations of Beijing GenExosome are consolidated with results of operations of the
Company, starting on October 25, 2017.
The
purchase price exceeded the fair value of net assets acquired by $397,569. The Company allocated the $397,569 excess to goodwill.
The results of operations of Beijing GenExosome are included in the consolidated results of operations of the Company from the
effective date of October 25, 2017 to December 31, 2017. For the period from the effective date of October 25, 2017 to December
31, 2017, revenue and net loss included in the consolidated statements of operations from Beijing GenExosome amounted to $26,276
and $30,327, respectively.
In
connection with the combination, for the year ended December 31, 2017, the Company incurred acquisition related costs of $101,236
which, pursuant to ASC 805, are expensed and included in professional fees on the accompanying consolidated statements of operations.
In
connection with the acquisition, the Company entered into an at will employment agreement with the former sole shareholder of
Beijing GenExosome. The Company determined that the consideration under this employment agreement did not qualify as additional
purchase consideration.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2018
NOTE
4 –
ACQUISITION (continued)
The
fair value of the assets acquired and liabilities assumed from Beijing GenExosome are as follows:
|
|
October 25,
2017
|
|
Assets acquired:
|
|
|
|
Cash
|
|
$
|
72,032
|
|
Inventory
|
|
|
1,081
|
|
Prepaid expenses
|
|
|
142
|
|
Security deposit
|
|
|
753
|
|
Property, plant and equipment
|
|
|
3,346
|
|
Intangible assets - goodwill
|
|
|
397,569
|
|
Total assets
|
|
|
474,923
|
|
Liabilities assumed:
|
|
|
|
|
Accrued liabilities and other
payables
|
|
|
24,923
|
|
Total liabilities
|
|
|
24,923
|
|
Purchase price
|
|
$
|
450,000
|
|
Net
assets were valued at their respective carrying amounts, which the Company believes approximate their current fair values at the
acquisition date. Goodwill represents the excess of the purchase price over the fair value of the net assets acquired.
In
December 2017, the Company assessed goodwill for any impairment and concluded that there were indicators of impairment as of December
31, 2017 and the Company calculated that the estimated undiscounted cash flows were less than the carrying amount of goodwill.
Based on the Company’s analysis, the Company recognized an impairment loss of $397,569 for the year ended December 31, 2017,
which reduced the value of goodwill resulted from the acquisition to zero.
The
following unaudited pro forma consolidated result of operations have been prepared as if the acquisition of Beijing GenExosome
had occurred as of the beginning of the following period:
|
|
Year Ended
December 31,
2017
|
|
Net revenues
|
|
$
|
1,077,550
|
|
Net loss
|
|
$
|
(4,171,807
|
)
|
Net loss attributable to Avalon GloboCare Corp. common shareholders
|
|
$
|
(3,561,650
|
)
|
Net loss per share
|
|
$
|
(0.05
|
)
|
Pro
forma data does not purport to be indicative of the results that would have been obtained had these events actually occurred at
the beginning of the period presented and is not intended to be a projection of future results.
NOTE
5 –
INVENTORY
At
December 31, 2018 and 2017, inventory consisted of the following:
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
Raw material
|
|
$
|
12,953
|
|
|
$
|
2,667
|
|
Finished goods
|
|
|
41
|
|
|
|
-
|
|
|
|
|
12,994
|
|
|
|
2,667
|
|
Less: reserve for obsolete inventory
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
12,994
|
|
|
$
|
2,667
|
|
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2018
NOTE
6 –
PREPAID EXPENSES AND OTHER CURRENT ASSETS
At
December 31, 2018 and 2017, prepaid expenses and other current assets consisted of the following:
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
Prepaid professional fees
|
|
$
|
607,833
|
|
|
$
|
65,000
|
|
Prepaid research and development service fees
|
|
|
300,000
|
|
|
|
-
|
|
Prepaid insurance expense
|
|
|
72,352
|
|
|
|
-
|
|
Prepaid dues and subscriptions
|
|
|
70,000
|
|
|
|
49,167
|
|
Other
|
|
|
96,290
|
|
|
|
35,546
|
|
|
|
$
|
1,146,475
|
|
|
$
|
149,713
|
|
NOTE
7 –
PROPERTY AND EQUIPMENT
At
December 31, 2018 and 2017, property and equipment consisted of the following:
|
|
Useful life
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
Laboratory equipment
|
|
5 Years
|
|
$
|
258,345
|
|
|
$
|
3,685
|
|
Office equipment and furniture
|
|
3 – 10 Years
|
|
|
35,627
|
|
|
|
31,440
|
|
Leasehold improvement
|
|
Shorter of useful life or lease term
|
|
|
24,446
|
|
|
|
24,551
|
|
|
|
|
|
|
318,418
|
|
|
|
59,676
|
|
Less: accumulated depreciation
|
|
|
|
|
(68,863
|
)
|
|
|
(11,647
|
)
|
|
|
|
|
$
|
249,555
|
|
|
$
|
48,029
|
|
For
the years ended December 31, 2018 and 2017, depreciation expense of property and equipment amounted to $59,886 and $10,374, respectively,
of which, $3,275 and $1,321 was included in real property operating expenses, $38,229 and $112 was included in costs of development
services and sales of developed products, and $18,382 and $8,941 was included in other operating expenses, respectively.
NOTE
8 –
INVESTMENT IN REAL ESTATE
At
December 31, 2018 and 2017, investment in real estate consisted of the following:
|
|
Useful life
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
Commercial real property building
|
|
39 Years
|
|
$
|
7,708,571
|
|
|
$
|
7,708,571
|
|
Improvement
|
|
12 Years
|
|
|
391,506
|
|
|
|
-
|
|
|
|
|
|
|
8,100,077
|
|
|
|
7,708,571
|
|
Less: accumulated depreciation
|
|
|
|
|
(220,192
|
)
|
|
|
(84,814
|
)
|
|
|
|
|
$
|
7,879,885
|
|
|
$
|
7,623,757
|
|
For
the years ended December 31, 2018 and 2017, depreciation expense of this commercial real property amounted to $135,378 and $84,814,
which was included in real property operating expenses.
NOTE
9 –
INTANGIBLE ASSETS
In
connection with the acquisition (See Note 4) the valuation of identifiable intangible assets acquired, representing developed
technologies, and is amortized over the period of estimated benefit using the straight-line method and the estimated useful lives
of five years. The straight-line method of amortization represents the Company’s best estimate of the distribution of the
economic value of the identifiable intangible assets.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2018
NOTE
9 –
INTANGIBLE ASSETS (continued)
In December 2017, the Company assessed its
four patents and other technologies for any impairment and concluded that there were indicators of impairment as of December 31,
2017 and the Company calculated that the estimated undiscounted cash flows were less than the carrying amount of those patents
and other technologies. Based on the Company’s analysis, the Company recognized an impairment loss of $923,769 for the year
ended December 31, 2017, which reduced the value of four patents and other technologies purchased to $1,583,260. The Company did
not record any impairment charge for the year ended December 31, 2018 as there was no impairment indicator noted as of the filing
date of this report.
In
addition, in connection with the acquisition of Beijing GenExosome (See Note 4), the purchase price exceeded the fair value of
net assets acquired by $397,569. The Company allocated the $397,569 excess to goodwill. Goodwill is not amortized, but is
tested for impairment at December 31, 2017.
In
December 2017, the Company assessed its goodwill for any impairment and concluded that there were indicators of impairment as
of December 31, 2017 and the Company calculated that the estimated undiscounted cash flows were less than the carrying amount
of goodwill. Based on the Company’s analysis, the Company recognized an impairment loss of $397,569 for the year ended December
31, 2017, which reduced the value of goodwill acquired to zero.
At
December 31, 2018 and 2017, intangible assets consisted of the following:
|
|
Useful Life
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
Patents and other technologies
|
|
5 Years
|
|
$
|
1,583,260
|
|
|
$
|
2,593,478
|
|
Goodwill
|
|
|
|
|
-
|
|
|
|
397,569
|
|
Less: accumulated amortization
|
|
|
|
|
(327,571
|
)
|
|
|
(86,449
|
)
|
Less: impairment loss
|
|
|
|
|
-
|
|
|
|
(1,321,338
|
)
|
|
|
|
|
$
|
1,255,689
|
|
|
$
|
1,583,260
|
|
For
the years ended December 31, 2018 and 2017, amortization expense amounted to $327,571 and $86,449, respectively.
Amortization
of intangible assets attributable to future periods is as follows:
|
|
Amortization Amount
|
|
Year ending December 31:
|
|
|
|
2019
|
|
$
|
327,571
|
|
2020
|
|
|
327,571
|
|
2021
|
|
|
327,571
|
|
2022
|
|
|
272,976
|
|
|
|
$
|
1,255,689
|
|
NOTE
10 –
EQUITY METHOD INVESTMENT
As of December 31, 2018, equity method investment amounted to $385,162. The investment represents the
Company’s subsidiary, Avalon Shanghai’s interest in Epicon Biotech Co., Ltd. (“Epicon”). Epicon was incorporated
on August 14, 2018 in PRC. Avalon Shanghai and the other unrelated company, Jiangsu Unicorn Biological Technology Co., Ltd. (“Unicorn”),
accounted for 40% and 60% of the total ownership, respectively. Epicon is focused on cell preparation, third party testing, biological
sample repository for commercial and scientific research purposes and the clinical transformation of scientific achievements.
The
Company treats the equity investment in the consolidated financial statements under the equity method. Under the equity method,
the investment is initially recorded at cost, adjusted for any excess of the Company’s share of the incorporated-date fair
values of the investee’s identifiable net assets over the cost of the investment (if any). Thereafter, the investment is
adjusted for the post incorporation change in the Company’s share of the investee’s net assets and any impairment
loss relating to the investment. For the period from August 14, 2018 (inception) through December 31, 2018, the Company’s
share of Epicon’s net loss was $52,969, which was included in loss from equity-method investment in the accompanying consolidated
statements of operations and comprehensive loss.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2018
NOTE
10 –
EQUITY METHOD INVESTMENT (continued)
The
tables below present the summarized financial information, as provided to the Company by the investee, for the unconsolidated
company:
|
|
December 31,
2018
|
|
Current assets
|
|
$
|
301,714
|
|
Noncurrent assets
|
|
|
7,015
|
|
Current liabilities
|
|
|
38
|
|
Noncurrent liabilities
|
|
|
-
|
|
Equity
|
|
|
308,691
|
|
|
|
For the
Period from
August 14,
2018
(Inception) through
December 31,
2018
|
|
Net revenue
|
|
$
|
-
|
|
Gross profit
|
|
|
-
|
|
Loss from operation
|
|
|
132,423
|
|
Net loss
|
|
|
132,423
|
|
NOTE
11 –
ACCRUED LIABILITIES AND OTHER PAYABLES
At
December 31, 2018 and 2017, accrued liabilities and other payables consisted of the following:
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
Accrued payroll liability
|
|
$
|
529,472
|
|
|
$
|
6,767
|
|
Accrued professional fees
|
|
|
166,077
|
|
|
|
82,913
|
|
Insurance payable
|
|
|
45,088
|
|
|
|
-
|
|
Accrued dues and subscriptions
|
|
|
42,500
|
|
|
|
-
|
|
Other
|
|
|
76,213
|
|
|
|
34,384
|
|
|
|
$
|
859,350
|
|
|
$
|
124,064
|
|
NOTE
12 –
LOAN PAYABLE
On
April 19, 2017, the Company entered into a loan agreement, providing for the issuance of a loan in the principal amount of $2,100,000.
The term of the loan is one year. On May 3, 2018, the Company signed an extension agreement with the maturity date of March 31,
2019. On August 3, 2018, the Company signed an extension agreement for the loan with the maturity date of March 31, 2020. The
annual interest rate for the loan is 10%. The loan is guaranteed by the Company’s Chairman, Mr. Wenzhao Lu. The Company
repaid principal of $600,000 and $500,000 in November 2017 and in April 2018, respectively.
As
of December 31, 2018, the outstanding principal balance of the loan and related accrued and unpaid interest for the loan was $1,000,000
and $75,342, respectively.
AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2018
NOTE
13 –
VAT AND OTHER TAXES PAYABLE
At
December 31, 2018 and 2017, VAT and other taxes payable consisted of the following:
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
VAT payable
|
|
$
|
1,108
|
|
|
$
|
819
|
|
Other taxes payable
|
|
|
3,560
|
|
|
|
2,178
|
|
|
|
$
|
4,668
|
|
|
$
|
2,997
|
|
NOTE
14 –
RELATED PARTY TRANSACTIONS
Medical
Related Consulting Services Revenue from Related Parties
During
the years ended December 31, 2018 and 2017, medical related consulting services revenue from related parties was as follows:
|
|
Year Ended
December 31,
2018
|
|
|
Year Ended
December 31,
2017
|
|
Medical related consulting services provided to:
|
|
|
|
|
|
|
Beijing Daopei (1)
|
|
$
|
269,287
|
|
|
$
|
-
|
|
Shanghai Daopei (2)
|
|
|
-
|
|
|
|
67,576
|
|
Beijing Nanshan (3)
|
|
|
-
|
|
|
|
155,035
|
|
|
|
$
|
269,287
|
|
|
$
|
222,611
|
|
|
(1)
|
Beijing
Daopei is a subsidiary of an entity whose chairman is Wenzhao Lu, the largest shareholder
of the Company.
|
|
(2)
|
Shanghai
Daopei is a subsidiary of an entity whose chairman is Wenzhao Lu, the largest shareholder
of the Company.
|
|
(3)
|
Beijing
Nanshan is a subsidiary of an entity whose chairman is Wenzhao Lu, the largest shareholder
of the Company.
|
Prepaid
Expenses – Related Parties
As
of December 31, 2018 and 2017, the Company made prepayment of $1,897 and $0, respectively, to David Jin, its shareholder, chief
executive officer, president and board member, for business travel reimbursement, which have been included in prepaid expenses
– related parties on the accompanying consolidated balance sheets.
As
of December 31, 2018 and 2017, the Company made prepayment of $32,293 and $0, respectively, to Meng Li, its shareholder and chief
operating officer, for business travel reimbursement, which have been included in prepaid expenses – related parties on
the accompanying consolidated balance sheets.
Advance
from Customer – Related Party
At
December 31, 2018 and 2017, advance from customer – related party amounted to $14,829 and $0, respectively, which represents
prepayment received from our related party, Beijing Daopei, for medical related consulting services. When the services are performed,
the amount recorded as advance from customer – related party is recognized as revenue.
Accrued
Liabilities and Other Payables – Related Parties
At
December 31, 2018 and 2017, the Company owed David Jin, its shareholder, chief executive officer, president and board member,
of $0 and $15,387, respectively, for travel and other miscellaneous reimbursements, which have been included in accrued liabilities
and other payables – related parties on the accompanying consolidated balance sheets.
At December
31, 2018 and 2017, the Company owed Yu Zhou, co-chief executive officer of GenExosome, of $0 and $24,540, respectively, for accrued
payroll, travel and other miscellaneous reimbursements, which have been included in accrued liabilities and other payables –
related parties on the accompanying consolidated balance sheets.
Due
to Related Party
In
connection with the acquisition discussed elsewhere in this report, the Company acquired Beijing GenExosome in cash payment of
$450,000. On October 25, 2017, Dr. Yu Zhou, the former sole shareholder of Beijing GenExosome, was appointed to the board of directors
of GenExosome and served as co-chief executive officer of GenExosome. As of December 31, 2018 and 2017, the unpaid acquisition
consideration of $100,000 and $450,000, respectively, was payable to Dr. Yu Zhou, co-chief executive officer and board member
of GenExosome, and reflected as due to related party on the accompanying consolidated balance sheets.
AVALON
GLOBOCARE CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2018
NOTE
14 –
RELATED PARTY TRANSACTIONS (continued)
Operating
Lease
On
October 17, 2016, AHS entered into a lease for office space in New Jersey with a related party (the “AHS Office Lease”).
Pursuant to the AHS Office Lease, the monthly rent is $1,000. The AHS Office Lease was terminated in August 2017. For the year
ended December 31, 2017, rent expense related to the AHS Office Lease amounted to $8,000.
Real
Property Management Agreement
The
Company pays a company, which is controlled by Wenzhao Lu, the Company’s largest shareholder and chairman of the Board of
Directors, for the management of its commercial real property located in New Jersey. The monthly property management fee is $5,417.
The property management agreement commenced on May 5, 2017 and expired in March 2019. For the years ended December 31, 2018 and
2017, the management fee related to the property management agreement amounted to $65,004 and $43,336, respectively.
NOTE
15 –
INCOME TAXES
The
Company is governed by the Income Tax Law of the PRC and the U.S. Internal Revenue Code of 1986, as amended. Under the Income
Tax Laws of PRC, Chinese companies are generally subject to an income tax at an effective rate of 25% on income reported in the
statutory financial statements after appropriate tax adjustments. The Company has a cumulative deficit from its foreign subsidiaries
of approximately $608,000 as of December 31, 2018, which is included in the consolidated accumulated deficit.
The
U.S. tax reform bill that Congress voted to approve December 20, 2017, also known as the “Tax Cuts and Jobs Act”,
made sweeping modifications to the Internal Revenue Code, including a much lower corporate tax rate, changes to credits and deductions,
and a move to a territorial system for corporations that have overseas earnings.
The
act replaced the prior-law graduated corporate tax rate, which taxed income over $10 million at 35%, with a flat rate of 21%.
As
of December 31, 2018, the Company has incurred an aggregate net operating loss of approximately $7,390,000 for income taxes purposes.
The net operating loss carries forward for United States income taxes and may be available to reduce future years’ taxable
income. These carry forwards will expire, if not utilized, through 2038. Management believes that it appears more likely than
not that the Company will not realize these tax benefits due to the Company’s limited operating history and continuing losses
for United States income taxes purposes. Accordingly, the Company has provided a 100% valuation allowance on the deferred tax
asset benefit related to the U.S. net operating loss carry forward to reduce the asset to zero. Management will review this valuation
allowance periodically and make adjustments as necessary.
The
Company’s loss before income taxes includes the following components:
|
|
Year Ended
December 31,
2018
|
|
|
Year Ended
December 31,
2017
|
|
United States loss before income taxes (1)
|
|
$
|
(7,665,284
|
)
|
|
$
|
(3,794,872
|
)
|
China loss before income taxes
|
|
|
(387,012
|
)
|
|
|
(254,773
|
)
|
Total loss before income taxes
|
|
$
|
(8,052,296
|
)
|
|
$
|
(4,049,645
|
)
|
|
(1)
|
For
the years ended December 31, 2018 and 2017, amount of $572,613 and $1,433,074, respectively,
is included in the United States loss before income taxes, which is not included in the
Company’s consolidated income tax return, because the Company owns only 60% of
GenExosome. The U.S. tax law requires 80% ownership to consolidate.
|
AVALON
GLOBOCARE CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2018
NOTE
15 –
INCOME TAXES (continued)
Components
of income taxes expense consisted of the following:
|
|
|
Year
Ended
December 31,
2018
|
|
|
|
Year Ended
December 31,
2017
|
|
Current:
|
|
|
|
|
|
|
|
|
U.S. federal
|
|
$
|
-
|
|
|
$
|
-
|
|
U.S. state and local
|
|
|
-
|
|
|
|
-
|
|
China
|
|
|
-
|
|
|
|
-
|
|
Total current income taxes expense
|
|
$
|
-
|
|
|
$
|
-
|
|
Deferred:
|
|
|
|
|
|
|
|
|
U.S. federal
|
|
$
|
-
|
|
|
$
|
-
|
|
U.S. state and local
|
|
|
-
|
|
|
|
-
|
|
China
|
|
|
-
|
|
|
|
-
|
|
Total deferred income taxes expense
|
|
$
|
-
|
|
|
$
|
-
|
|
Total income taxes expense
|
|
$
|
-
|
|
|
$
|
-
|
|
The
table below summarizes the differences between the U.S. statutory rate and the Company’s effective tax rate for the years
ended December 31, 2018 and 2017:
|
|
Year Ended
December 31,
2018
|
|
|
Year Ended
December 31,
2017
|
|
U.S. federal rate
|
|
|
21.0
|
%
|
|
|
34.0
|
%
|
U.S. state rate
|
|
|
7.0
|
%
|
|
|
5.0
|
%
|
Non-deductible expenses
|
|
|
(10.8
|
)%
|
|
|
(22.3
|
)%
|
U.S. effective rate in excess of China tax rate
|
|
|
2.2
|
%
|
|
|
(1.0
|
)%
|
U.S. valuation allowance
|
|
|
(19.4
|
)%
|
|
|
(15.7
|
)%
|
Total provision for income taxes
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
For
the years ended December 31, 2018 and 2017, the Company did not incur any income taxes expense since it did not generate any taxable
income in those periods.
The
Company’s approximate net deferred tax assets as of December 31, 2018 and 2017 were as follows:
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
Deferred tax assets:
|
|
|
|
|
|
|
Net U.S. operating loss carryforward
|
|
$
|
2,077,091
|
|
|
$
|
420,695
|
|
Valuation allowance
|
|
|
(2,077,091
|
)
|
|
|
(420,695
|
)
|
Net deferred tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
At
December 31, 2018 and 2017, the valuation allowance was $2,077,091 and $420,695 related
to the U.S. net operating loss carryforward, respectively. During the year ended December 31, 2018, the valuation allowance increased
by approximately $1,656,396.
The Company provided a valuation allowance equal to the deferred income tax assets
for the years ended December 31, 2018 and 2017 because it was not known whether future taxable income will be sufficient to utilize
the loss carryforward. The potential tax benefit arising from the loss carryforward will expire in 2038. Additionally, the future
utilization of the net operating loss carryforward to offset future taxable income may be subject to special tax rules which may
limit their usage under IRS Section 382 (Change of Ownership) and possibly the Separate Return Limitation Year (“SRLY”)
rules. If necessary, the deferred tax assets will be reduced by any carryforward that expires prior to utilization as a result
of such limitations, with a corresponding reduction of the valuation allowance.
AVALON
GLOBOCARE CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2018
NOTE
15 –
INCOME TAXES (continued)
The
Company has been notified and assessed an IRS Section 6038 penalty of $10,000 for failure to file a foreign entity tax disclosure.
The Company has appealed the penalty and awaits the Internal Revenue Service’s review of the appeal. There is no assurance
such appeal will be successful.
The
Company does not have any significant uncertain tax positions or events leading to uncertainty in a tax position. The Company’s
2018, 2017 and 2016 Corporate Income Tax Returns are subject to Internal Revenue Service examination.
NOTE
16 –
EQUITY
Shares
Authorized
The
Company is authorized to issue 10,000,000 shares of preferred stock and 490,000,000 shares of common shares with a par value of
$0.0001 per share.
There
are no shares of its preferred stock issued and outstanding as of December 31, 2018 and 2017.
There
are 73,830,751 and 70,278,622 shares of its common stock issued as of December 31, 2018 and 2017, respectively
There
are 73,310,751 and 70,278,622 shares of its common stock outstanding as of December 31, 2018 and 2017, respectively.
Treasury
Stock
The Company
records treasury stock using the cost method. On March 27, 2018, the Company repurchased 520,000 shares of its common stock from
a third party through a privately negotiated transaction at an aggregate price of $522,500, of which $2,500 was paid to an escrow
agent as share repurchase cost.
Common
Shares Sold for Cash
During
the fourth quarter of 2017, the Company sold 5,150,000 shares of common stock at a purchase price of $1.00 per share to several
investors pursuant to subscription agreements. The Company received net proceeds of $5,099,375, net of placement agent service
fee of $50,625.
During the
year ended December 31, 2018, the Company sold 3,107,000 and 939,450 shares of common stock at $1.75 and $2.25 per share, respectively,
to investors pursuant to subscription agreements. The Company received net cash proceeds of $7,064,717, net of cash fee paid to
an investment banking firm of $486,296. In connection with this private offering, the Company issued a total of 218,391 stock
warrants to the placement agent for the transaction. Among these warrants, 151,235 warrants with a fixed exercise price of $1.62
per share, 5,960 warrants with a fixed exercise price of $1.85 per share, 36,750 warrants with a fixed exercise price of $1.90
per share, 24,446 warrants with a fixed exercise price of $2.24 per share. These warrants are exercisable at any time for a five-year
period.
Common
Shares Issued for Services
During the
year ended December 31, 2018, pursuant to consulting agreements, the Company issued an aggregate of 505,679 shares of common stock
for consulting services rendered and to be rendered. These shares were valued at $1,371,450, 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 $865,700 for the year ended December 31, 2018 and reduced accrued liabilities of $10,000 and recorded prepaid expense of $495,750
as of December 31, 2018 which will be amortized over the rest of corresponding service periods.
Common
Shares Issued for Share Subscription Agreement
On
March 3, 2017, the Company entered into and closed a Subscription Agreement with an accredited investor (the “March 2017
Accredited Investor”) pursuant to which the March 2017 Accredited Investor purchased 3,000,000 shares of the Company’s
common stock (“March 2017 Shares”) for a purchase price of $3,000,000 (the “Purchase Price”).
AVALON
GLOBOCARE CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2018
NOTE
16 –
EQUITY (continued)
Common
Shares Issued for Share Subscription Agreement (continued)
The
Company, Avalon (Shanghai) Healthcare Technology Co., Ltd. (“Avalon Shanghai”), Beijing DOING Biomedical Technology
Co., Ltd. (“DOING”), who is an unaffiliated third party, and the March 2017 Accredited Investor entered into a Share
Subscription Agreement whereby the parties acknowledged, among other things, that DOING agreed to transfer the Purchase Price
to Avalon Shanghai on behalf of the March 2017 Accredited Investor and the March 2017 Accredited Investor agreed to transfer the
March 2017 Shares to DOING upon DOING completing the registration of the acquisition of the March 2017 Shares with the Beijing
Commerce Commission (“BCC”) and obtaining an Enterprise Overseas Investment Certificate (the “Investment Certificate”)
from BCC. If DOING fails to complete the registration and acquire the Investment Certificate within one year of the closing then
Avalon Shanghai shall transfer $3,000,000 with an annual interest of 20% to DOING upon the request of DOING (the “BCC Repayment
Obligation”). Further, Wenzhao Lu, a director and shareholder of the Company, and DOING entered into a Warranty Agreement.
Pursuant to the Warranty Agreement, Mr. Lu agreed to (i) cause the Company to be liable to DOING in the event the March 2017 Accredited
Investor defaults in its obligations to DOING, (ii) cause the March 2017 Accredited Investor to transfer the March 2017 Shares
to DOING upon DOING’s receipt of the Investment Certificate from BCC, (iii) within three years from the date of the Warranty
Agreement, DOING may require Mr. Lu to acquire the March 2017 Shares at $1.20 per share upon three-month notice, and (iv) in the
event Mr. Lu does not acquire the March 2017 Shares within the three-month period, interest of 15% per annum will be added to
the purchase price.
On
April 23, 2018, the Company, Avalon Shanghai, DOING and March 2017 Accredited Investor entered into a Supplementary Agreement
Related to Share Subscription pursuant to which Avalon Shanghai agreed to pay RMB 8,256,000 (approximately $1.3 million based
on the exchange rate on April 23, 2018) to DOING representing one-third of the DOING Investment plus 20% interest for the one-third
DOING Investment resulting in a reduction in the March 2017 Shares by one-third to 2,000,000 shares. Further, the parties agreed
that the BCC Repayment Obligation was extended to July 31, 2018. The $1 million BCC Repayment Obligation and related interest
was paid in full in May 2018.
On
August 8, 2018, DOING and the March 2017 Accredited Investor sold the remaining 2,000,000 shares of common stock to a third party
in consideration of $2,000,000. Therefore, the BCC Repayment Obligation was satisfied in full and the Company has no further obligation
for DOING and the March 2017 Accredited Investor.
Common
Shares Issued for Intangible Assets Purchased
On
October 25, 2017, GenExosome entered into and closed an Asset Purchase Agreement with Yu Zhou, MD, PhD, pursuant to which the
Company acquired four patents and other technologies from Dr. Zhou in consideration of $876,087 in cash and 500,000 shares of
common stock of the Company and 400 shares of common stock of GenExosome.
The
fair value of 500,000 shares of the Company’s common stock given to acquire those intangible assets was $500,000 which was
valued based on the most recent sale price of the Company’s common share.
A
portion of consideration given for the intangible assets acquisition is in the form of GenExosome’s equity interest. The
fair value of 400 shares of GenExosome’s common stock given to acquire those intangible assets was $1,217,391 which was
valued based on the most recent sale price of 600 shares of GenExosome’s common stock, which was sold to the Company on
October 25, 2017 pursuant to the Securities Purchase Agreement entered into by GenExosome and the Company. The fair value of 400
shares of GenExosome’s common stock was recorded as additional paid-in capital. To determine the fair value of GenExosome’s
equity consideration given to acquire those intangible assets, the Company used the fair value of equity interest issued since
it was determined to be a better indicator than the fair value of the intangible assets acquired. Therefore, the measurement
of fair value of GenExosome’s equity interest is based on the fair value of the 400 shares of GenExosome’s common
stock given for the intangible assets acquisition since it is determined to be more clearly evident and, thus, more reliably measurable.
AVALON
GLOBOCARE CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2018
NOTE
16 –
EQUITY (continued)
Options
The
following table summarizes the shares of the Company’s common stock issuable upon exercise of options outstanding at December
31, 2018:
Options Outstanding
|
|
|
Options Exercisable
|
|
Range of Exercise Price
|
|
|
Number Outstanding at December 31,
2018
|
|
|
Range of Weighted Average Remaining Contractual
Life (Years)
|
|
|
Weighted Average Exercise Price
|
|
|
Number Exercisable at December 31,
2018
|
|
|
Weighted Average Exercise
Price
|
|
$
|
0.50
|
|
|
|
2,000,000
|
|
|
|
8.11
|
|
|
$
|
0.50
|
|
|
|
1,277,778
|
|
|
$
|
0.50
|
|
|
1.49
|
|
|
|
60,000
|
|
|
|
3.32
|
|
|
|
1.49
|
|
|
|
60,000
|
|
|
|
1.49
|
|
|
1.00
|
|
|
|
50,000
|
|
|
|
3.84
|
|
|
|
1.00
|
|
|
|
50,000
|
|
|
|
1.00
|
|
|
1.00
|
|
|
|
180,000
|
|
|
|
1.84
|
|
|
|
1.00
|
|
|
|
180,000
|
|
|
|
1.00
|
|
|
2.50
|
|
|
|
110,000
|
|
|
|
4.00
|
|
|
|
2.50
|
|
|
|
110,000
|
|
|
|
2.50
|
|
|
1.00
|
|
|
|
180,000
|
|
|
|
2.33
|
|
|
|
1.00
|
|
|
|
180,000
|
|
|
|
1.00
|
|
|
2.30
|
|
|
|
20,000
|
|
|
|
4.42
|
|
|
|
2.30
|
|
|
|
20,000
|
|
|
|
2.30
|
|
|
2.30
|
|
|
|
20,000
|
|
|
|
4.51
|
|
|
|
2.30
|
|
|
|
20,000
|
|
|
|
2.30
|
|
|
2.80
|
|
|
|
20,000
|
|
|
|
4.58
|
|
|
|
2.80
|
|
|
|
20,000
|
|
|
|
2.80
|
|
|
2.80
|
|
|
|
20,000
|
|
|
|
4.62
|
|
|
|
2.80
|
|
|
|
6,667
|
|
|
|
2.80
|
|
|
1.00
|
|
|
|
180,000
|
|
|
|
2.84
|
|
|
|
1.00
|
|
|
|
-
|
|
|
|
-
|
|
$
|
0.50–2.80
|
|
|
|
2,840,000
|
|
|
|
6.58
|
|
|
$
|
0.76
|
|
|
|
1,924,445
|
|
|
$
|
0.82
|
|
Stock
Options Granted to Employee and Director
Employee
and director stock option activities for the years ended December 31, 2018 and 2017 were as follows:
|
|
Number of Options
|
|
|
Weighted Average Exercise Price
|
|
Outstanding at December 31, 2016
|
|
|
-
|
|
|
$
|
-
|
|
Granted
|
|
|
2,110,000
|
|
|
|
0.54
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Outstanding at December 31, 2017
|
|
|
2,110,000
|
|
|
|
0.54
|
|
Granted
|
|
|
180,000
|
|
|
|
2.49
|
|
Terminated
|
|
|
(10,000
|
)
|
|
|
2.50
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Outstanding at December 31, 2018
|
|
|
2,280,000
|
|
|
$
|
0.69
|
|
Options exercisable at December 31, 2018
|
|
|
1,557,778
|
|
|
$
|
0.77
|
|
Options expected to vest
|
|
|
722,222
|
|
|
$
|
0.50
|
|
AVALON
GLOBOCARE CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2018
NOTE
16 –
EQUITY (continued)
Options
(continued)
Stock
Options Granted to Employee and Director (continued)
The
fair values of options granted to employee and director during the years ended December 31, 2018 and 2017 were estimated at the
date of grant using the Black-Scholes option-pricing model with the following assumptions:
|
|
Year Ended
December 31,
2018
|
|
|
Year Ended
December 31,
2017
|
|
Dividend rate
|
|
|
0
|
|
|
|
0
|
|
Terms (in years)
|
|
|
5.0
|
|
|
|
5.0
– 10.0
|
|
Volatility
|
|
|
167.86%
– 185.28%
|
|
|
|
313.18%
- 597.16%
|
|
Risk-free interest rate
|
|
|
2.25%
- 2.85%
|
|
|
|
1.81%
- 2.40%
|
|
The aggregate
fair value of the options granted to employee and director during the years ended December 31, 2018 and 2017 was $446,911 and
$2,719,960, of which, $422,816 and $843,881 for the years ended December 31, 2018 and 2017, respectively, has been reflected as
compensation and related benefits on the accompanying consolidated statements of operations because the options were fully earned
and non-cancellable.
As of
December 31, 2018, the aggregate value of nonvested employee and director options was $902,778, which will be amortized as stock-based
compensation expense as the options are vesting, over the remaining 1.08 years.
The aggregate
intrinsic values of the employee and director stock options outstanding and the employee and director stock options exercisable
at December 31, 2018 was $4,708,600 and $3,083,601, respectively.
A
summary of the status of the Company’s nonvested employee and director stock options granted as of December 31, 2018
and changes during the years ended December 31, 2018 and 2017 is presented below:
|
|
Number of Options
|
|
|
Weighted Average Exercise Price
|
|
|
Grant Date Fair Value
|
|
Nonvested at December 31, 2016
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Granted
|
|
|
2,110,000
|
|
|
|
0.54
|
|
|
|
2,719,960
|
|
Vested
|
|
|
(681,111
|
)
|
|
|
(0.59
|
)
|
|
|
(843,881
|
)
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Nonvested at December 31, 2017
|
|
|
1,428,889
|
|
|
|
0.51
|
|
|
|
1,876,079
|
|
Granted
|
|
|
180,000
|
|
|
|
2.49
|
|
|
|
446,911
|
|
Vested
|
|
|
(876,667
|
)
|
|
|
(0.91
|
)
|
|
|
(1,396,116
|
)
|
Terminated
|
|
|
(10,000
|
)
|
|
|
(2.50
|
)
|
|
|
(24,095
|
)
|
Nonvested at December 31, 2018
|
|
|
722,222
|
|
|
$
|
0.50
|
|
|
$
|
902,779
|
|
AVALON
GLOBOCARE CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2018
NOTE
16 –
EQUITY (continued)
Options
(continued)
Stock
Options Granted to Non-employee
Non-employee
stock option activities for the years ended December 31, 2018 and 2017 were as follows:
|
|
Number of Options
|
|
|
Weighted Average Exercise Price
|
|
Outstanding at December 31, 2016
|
|
|
-
|
|
|
$
|
-
|
|
Granted
|
|
|
180,000
|
|
|
|
1.00
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Outstanding at December 31, 2017
|
|
|
180,000
|
|
|
|
1.00
|
|
Granted
|
|
|
380,000
|
|
|
|
1.09
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Outstanding at December 31, 2018
|
|
|
560,000
|
|
|
|
1.06
|
|
Options exercisable at December 31, 2018
|
|
|
366,667
|
|
|
$
|
1.03
|
|
Options expected to vest
|
|
|
193,333
|
|
|
$
|
1.12
|
|
Stock-based
compensation expense associated with stock options granted to non-employee is recognized as the stock options vest. The stock-based
compensation expense related to non-employee will fluctuate as the fair value of the Company’s common stock fluctuates.
Stock-based compensation expense associated with stock options granted to non-employee amounted to $831,165 and $149,116 for the
years ended December 31, 2018 and 2017, respectively.
The
fair values of these non-employee options vested in the years ended December 31, 2018 and 2017, and nonvested non-employee options
as of December 31, 2018 and 2017 were estimated using the Black-Scholes option-pricing model with the following assumptions:
|
|
Year Ended
December 31,
2018
|
|
|
Year Ended
December 31,
2017
|
|
Dividend rate
|
|
|
0
|
|
|
|
0
|
|
Terms (in years)
|
|
|
2.50
– 5.00
|
|
|
|
3.0
|
|
Volatility
|
|
|
150.35%
– 188.29%
|
|
|
|
298.49%
- 313.18%
|
|
Risk-free interest rate
|
|
|
2.29%
- 2.94%
|
|
|
|
1.74%
- 1.98%
|
|
As of
December 31, 2018, the aggregate value of vested and nonvested non-employee options was $323,490, which will be amortized as stock-based
compensation expense over the remaining 0.63 years. The aggregate intrinsic values of the non-employee stock options outstanding
and the non-employee stock options exercisable at December 31, 2018 was $945,000 and $630,000, respectively.
A
summary of the status of the Company’s nonvested non-employee stock options granted as of December 31, 2018 and changes
during the years ended December 31, 2018 and 2017 is presented below:
|
|
Number of Options
|
|
|
Weighted Average Exercise Price
|
|
|
Fair Value at
December 31, 2018
|
|
Nonvested at December 31, 2016
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
Granted
|
|
|
180,000
|
|
|
|
1.00
|
|
|
|
|
|
Vested
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Nonvested at December 31, 2017
|
|
|
180,000
|
|
|
|
1.00
|
|
|
|
|
|
Granted
|
|
|
380,000
|
|
|
|
1.09
|
|
|
|
|
|
Vested
|
|
|
(366,667
|
)
|
|
|
(1.03
|
)
|
|
|
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Nonvested at December 31, 2018
|
|
|
193,333
|
|
|
$
|
1.12
|
|
|
$
|
323,490
|
|
AVALON
GLOBOCARE CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2018
NOTE
16 –
EQUITY (continued)
Warrants
The
Company did not have any warrants activity during the year ended December 31, 2017.
During
the year ended December 31, 2018, in connection with equity raise, the Company issued a total of 578,891 stock warrants at
various fixed exercise price to an investment banking firm. These warrants are exercisable at any time for a five-year period.
The fair values of warrants granted to the investment banking firm during the year ended December 31, 2018 were estimated at the
dates of grant using the Black-Scholes option-pricing model with the following assumptions:
|
|
Year Ended
December 31,
2018
|
|
Dividend rate
|
|
|
0
|
|
Terms (in years)
|
|
|
5.0
|
|
Volatility
|
|
|
177.12%
– 183.23%
|
|
Risk-free interest rate
|
|
|
2.56%
- 2.82%
|
|
The
aggregate fair value of these warrants was $1,213,605, which was debited to the account of additional paid-in capital and was
fully offset by the corresponding credit to the additional paid-in capital, resulting in no change in net equity of the balance
sheet.
Stock
warrants activities during the year ended December 31, 2018 were as follows:
|
|
Number of Warrants
|
|
|
Weighted Average Exercise Price
|
|
Outstanding at December 31, 2017
|
|
|
-
|
|
|
$
|
-
|
|
Issued
|
|
|
578,891
|
|
|
|
1.28
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Outstanding and exercisable at December 31, 2018
|
|
|
578,891
|
|
|
$
|
1.28
|
|
The aggregate
intrinsic value of the warrants outstanding and exercisable at December 31, 2018 was $850,840.
The
following table summarizes the shares of the Company’s common stock issuable upon exercise of warrants outstanding and exercisable
at December 31, 2018:
Warrants Outstanding and Exercisable
|
|
Range of Exercise Price
|
|
|
Number Outstanding at December 31, 2018
|
|
|
Range of Weighted Average Remaining Contractual
Life (Years)
|
|
|
Weighted Average
Exercise Price
|
|
$
|
1.00
|
|
|
|
360,500
|
|
|
|
4.25
|
|
|
$
|
1.00
|
|
|
1.62
|
|
|
|
151,235
|
|
|
|
4.30
|
|
|
|
1.62
|
|
|
1.85
|
|
|
|
5,960
|
|
|
|
4.32
|
|
|
|
1.85
|
|
|
1.90
|
|
|
|
36,750
|
|
|
|
4.34
|
|
|
|
1.90
|
|
|
2.24
|
|
|
|
24,446
|
|
|
|
4.39
|
|
|
|
2.24
|
|
$
|
1.00
– 2.24
|
|
|
|
578,891
|
|
|
|
4.28
|
|
|
$
|
1.28
|
|
NOTE
17 –
STATUTORY RESERVE
Avalon
Shanghai and Beijing GenExosome operate in the PRC, are required to reserve 10% of their net profit after income tax, as determined
in accordance with the PRC accounting rules and regulations. Appropriation to the statutory reserve by the Company is based on
profit arrived at under PRC accounting standards for business enterprises for each year.
AVALON
GLOBOCARE CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2018
NOTE
17 –
STATUTORY RESERVE (continued)
The
profit arrived at must be set off against any accumulated losses sustained by the Company in prior years, before allocation is
made to the statutory reserve. Appropriation to the statutory reserve must be made before distribution of dividends to shareholders.
The appropriation is required until the statutory reserve reaches 50% of the registered capital. This statutory reserve is not
distributable in the form of cash dividends. The Company did not make any appropriation to statutory reserve for Avalon Shanghai
and Beijing GenExosome during the years ended December 31, 2018 and 2017 as they incurred net losses in the periods.
NOTE
18 –
NONCONTROLLING INTEREST
As of
December 31, 2018, Dr. Yu Zhou, director and Co-Chief Executive Officer of GenExsome, who owned 40% of the equity interests of
GenExosome, which is not under the Company’s control. The following is a summary of noncontrolling interest activities in
the years ended December 31, 2018 and 2017.
|
|
Amount
|
|
Noncontrolling interest at December 31, 2016
|
|
$
|
-
|
|
Net loss attributable to noncontrolling
interest
|
|
|
(585,360
|
)
|
Foreign currency translation adjustment attributable
to noncontrolling interest
|
|
|
(34
|
)
|
Noncontrolling interest at December 31, 2017
|
|
|
(585,394
|
)
|
Net loss attributable to noncontrolling interest
|
|
|
(278,174
|
)
|
Foreign currency translation adjustment attributable
to noncontrolling interest
|
|
|
1,368
|
|
Noncontrolling interest at December 31, 2018
|
|
$
|
(862,200
|
)
|
NOTE
19 –
RESTRICTED NET ASSETS
A
portion of the Company’s operations are conducted through its PRC subsidiaries, which can only pay dividends out of their
retained earnings determined in accordance with the accounting standards and regulations in the PRC and after they have met the
PRC requirements for appropriation to statutory reserve. In addition, a portion of the Company’s businesses and assets are
denominated in RMB, which is not freely convertible into foreign currencies. All foreign exchange transactions take place either
through the People’s Bank of China or other banks authorized to buy and sell foreign currencies at the exchange rates quoted
by the People’s Bank of China. Approval of foreign currency payments by the People’s Bank of China or other regulatory
institutions requires submitting a payment application form together with suppliers’ invoices, shipping documents and signed
contracts. These currency exchange control procedures imposed by the PRC government authorities may restrict the ability of the
Company’s PRC subsidiaries to transfer their net assets to the Parent Company through loans, advances or cash dividends.
Schedule
I of Article 5-04 of Regulation S-X requires the condensed financial information of the parent company to be filed when the
restricted net assets of consolidated subsidiaries exceed 25 percent of consolidated net assets as of the end of the most recently
completed fiscal year. For purposes of this test, restricted net assets of consolidated subsidiaries shall mean that amount of
the registrant’s proportionate share of net assets of its consolidated subsidiaries (after intercompany eliminations) which
as of the end of the most recent fiscal year may not be transferred to the parent company in the form of loans, advances or cash
dividends without the consent of a third party.
The
Company’s PRC subsidiaries’ net assets as of December 31, 2018 and 2017 did not exceed 25% of the Company’s
consolidated net assets. Accordingly, Parent Company’s condensed financial statements have not been required in accordance
with Rule 5-04 and Rule 12-04 of SEC Regulation S-X.
AVALON
GLOBOCARE CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2018
NOTE
20 –
SEGMENT INFORMATION
For
the years ended December 31, 2018 and 2017, the Company operated in three reportable business segments - (1) the real property
operating segment, (2) the medical related consulting services segment, and (3) the performing development services for hospitals
and other customers and sales of developed products to hospitals and other customers segment. The Company’s reportable
segments are strategic business units that offer different services and products. They are managed separately based on the fundamental
differences in their operations. Information with respect to these reportable business segments for the years ended December 31,
2018 and 2017 was as follows:
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
Revenues
|
|
|
|
|
|
|
Real property operating
|
|
$
|
1,121,483
|
|
|
$
|
828,663
|
|
Medical related consulting services – related
parties
|
|
|
269,287
|
|
|
|
222,611
|
|
Development services and sales of developed products
|
|
|
171,516
|
|
|
|
26,276
|
|
|
|
|
1,562,286
|
|
|
|
1,077,550
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
Real property operating
|
|
|
138,653
|
|
|
|
86,135
|
|
Medical related consulting services
|
|
|
16,598
|
|
|
|
8,774
|
|
Development services and sales of developed products
|
|
|
367,584
|
|
|
|
86,728
|
|
|
|
|
522,835
|
|
|
|
181,637
|
|
Interest expense
|
|
|
|
|
|
|
|
|
Real property operating
|
|
|
312,329
|
|
|
|
138,110
|
|
Medical related consulting services
|
|
|
-
|
|
|
|
-
|
|
Development services and sales of developed products
|
|
|
-
|
|
|
|
-
|
|
Other (a)
|
|
|
2,324
|
|
|
|
-
|
|
|
|
|
314,653
|
|
|
|
138,110
|
|
Net loss
|
|
|
|
|
|
|
|
|
Real property operating
|
|
|
230,022
|
|
|
|
309,415
|
|
Medical related consulting services
|
|
|
386,481
|
|
|
|
385,515
|
|
Development services and sales of developed products
|
|
|
695,435
|
|
|
|
1,463,401
|
|
Other (a)
|
|
|
6,740,358
|
|
|
|
1,891,314
|
|
|
|
$
|
8,052,296
|
|
|
$
|
4,049,645
|
|
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
Identifiable long-lived tangible assets at December 31, 2018 and 2017
|
|
|
|
|
|
|
Real property operating
|
|
$
|
7,898,224
|
|
|
$
|
7,645,371
|
|
Medical related consulting services
|
|
|
6,852
|
|
|
|
20,558
|
|
Development services and sales of developed products
|
|
|
224,364
|
|
|
|
5,857
|
|
|
|
$
|
8,129,440
|
|
|
$
|
7,671,786
|
|
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
Identifiable long-lived tangible assets at December 31, 2018 and 2017
|
|
|
|
|
|
|
United States
|
|
$
|
7,898,806
|
|
|
$
|
7,646,270
|
|
China
|
|
|
230,634
|
|
|
|
25,516
|
|
|
|
$
|
8,129,440
|
|
|
$
|
7,671,786
|
|
|
(a)
|
The
Company does not allocate any interest expense and general and administrative expense
of its being a public company activities to its reportable segments as these activities
are managed at a corporate level.
|
AVALON
GLOBOCARE CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2018
NOTE
21 –
COMMITMENTS AND CONTINCENGIES
Operating
Leases
Beijing
GenExosome Office Lease
In
March 2017, Beijing GenExosome signed an agreement to lease its facilities and equipment under operating lease. Pursuant to the
signed lease, the annual rent is RMB 41,000 (approximately $6,000). The term of the lease is one year commencing on March 15,
2017 and expired on March 14, 2018. Beijing GenExosome renewed the lease. Pursuant to the renewed lease, the annual rent is RMB
41,000 (approximately $6,000) and the renewed lease expires on March 14, 2020. During the year ended December 31, 2018, rent expense
related to the operating lease amounted to approximately $6,000. During the period from Beijing GenExosome’s acquisition
date, October 25, 2017, through December 31, 2017, rent expense related to the operating lease amounted to approximately $1,000. Future
minimum rental payment required under this operating lease is as follows:
Year Ending December 31:
|
|
Amount
|
|
2019
|
|
$
|
1,242
|
|
Total
|
|
$
|
1,242
|
|
Avalon
Shanghai Office Lease
On
January 19, 2017, Avalon Shanghai entered into a lease for office space in Beijing, China with a third party (the “Beijing
Office Lease”). Pursuant to the Beijing Office Lease, the monthly rent is RMB 50,586 (approximately $7,000) with a required
security deposit of RMB 164,764 (approximately $24,000). In addition, Avalon Shanghai needs to pay monthly maintenance fees of
RMB 4,336 (approximately $600). The term of the Beijing Office Lease is 26 months commencing on January 1, 2017 and expired on
February 28, 2019 with two months of free rent in the months of December 2017 and February 2019. Avalon Shanghai renewed the lease
with expiration date of February 29, 2020. For the years ended December 31, 2018 and 2017, rent expense and maintenance fees related
to the Beijing Office Lease amounted to approximately $91,000 and $87,000, respectively. Future minimum rental payment required
under the Beijing Office Lease is as follows:
Year Ending December 31:
|
|
Amount
|
|
2019
|
|
$
|
8,615
|
|
Total
|
|
$
|
8,615
|
|
Insurance
Premium Financing Agreement
On
July 18, 2018, the Company entered into a financing agreement, providing for the issuance of a loan in the principal amount of
$108,528. The term of the loan is for a period of 10 months from the execution of the agreement. The annual interest rate for
the loan is 6.9%. All of financed amount is used to pay for Directors & Officers Insurance premium. At December 31, 2018,
the outstanding principal balance of the loan and related unpaid interest was $45,088 which was included in the accrued liabilities
and other payables on the accompanying consolidated balance sheets.
Technology Service Contract
In fiscal 2018, the Company has entered
into a contract to receive technology service from a third party amounting to approximately $17,000. As of December 31, 2018, the
related service has not been provided yet.
Equity
Investment Commitment
On May 29, 2018, Avalon Shanghai entered
into a Joint Venture Agreement with Jiangsu Unicorn Biological Technology Co., Ltd. (“Unicorn”), pursuant to which
a company named Epicon Biotech Co., Ltd. (“Epicon”) was formed on August 14, 2018. Epicon is owned 60% by Unicorn and
40% by Avalon Shanghai. Within two years of execution of the Joint Venture Agreement, Unicorn shall invest cash into Epicon in
an amount not less than RMB 8,000,000 (approximately $1.2 million) and the premises of the laboratories of Nanjing Hospital of
Chinese Medicine for exclusive use by Epicon, and Avalon Shanghai shall invest cash into Epicon in an amount not less than RMB
10,000,000 (approximately $1.5 million). Epicon is focused on cell preparation, third party testing, biological sample repository
for commercial and scientific research purposes and the clinical transformation of scientific achievements. As of December 31,
2018, Avalon Shanghai has contributed RMB 3,000,000 (approximately $0.4 million) that was included in equity method investment
on the accompanying consolidated balance sheets. Avalon Shanghai intends to use its present working capital together with loans/borrowings/equity
raise to fund the project cost.
AVALON
GLOBOCARE CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2018
NOTE
22 -
CONCENTRATIONS
Customers
The
following table sets forth information as to each customer that accounted for 10% or more of the Company’s revenues for
the years ended December 31, 2018 and 2017.
|
|
Year Ended December 31,
2018
|
|
|
Year Ended December 31,
2017
|
|
Customer
|
|
|
|
|
|
|
A (Beijing Daopei, a related party)
|
|
|
17
|
%
|
|
|
0
|
%
|
B (Beijing Nanshan, a related party)
|
|
|
0
|
%
|
|
|
14
|
%
|
C
|
|
|
21
|
%
|
|
|
20
|
%
|
D
|
|
|
14
|
%
|
|
|
13
|
%
|
E
|
|
|
11
|
%
|
|
|
11
|
%
|
Two
customers, whose outstanding receivable accounted for 10% or more of the Company’s total outstanding accounts receivable
and accounts receivable – related party and tenants receivable at December 31, 2018, accounted for 56.0% of the Company’s
total outstanding accounts receivable and accounts receivable – related party and tenants receivable at December 31, 2018.
Two
customers, whose outstanding receivable accounted for 10% or more of the Company’s total outstanding accounts receivable
and tenants receivable at December 31, 2017, accounted for 48.9% of the Company’s total outstanding accounts receivable
and tenants receivable at December 31, 2017.
Suppliers
No
supplier accounted for 10% or more of the Company’s purchase during the years ended December 31, 2018 and 2017.
One
supplier, whose outstanding payable accounted for 10% or more of the Company’s total outstanding accounts payable at December
31, 2018, accounted for 95.5% of the Company’s total outstanding accounts payable at December 31, 2018.
One
supplier accounted for 100% of the Company’s total outstanding accounts payable at December 31, 2017.
Concentrations
of Credit Risk
At
December 31, 2018 and 2017, cash balances in the PRC are $1,216,485 and $1,327,009, respectively, are uninsured. The Company has
not experienced any losses in PRC bank accounts and believes it is not exposed to any risks on its cash in PRC bank accounts.
The Company maintains its cash in United
States bank and financial institution deposits that at times may exceed federally insured limits. At December 31, 2018 and 2017,
the Company’s cash balances in United States bank accounts had approximately $239,000 and $1,162,000 in excess of the federally-insured
limits, respectively. The Company has not experienced any losses in its United States bank accounts through and as of the date
of this report.
NOTE 23 –
SUBSEQUENT EVENTS
On January 9, 2019, the Company issued 350,856 shares of its
common stock upon cashless exercise of warrants to purchase 578,891 shares of common stock.
On February 27, 2019, the Company issued 158,932 shares of its
common stock upon cashless exercise of options to purchase 200,000 shares of common stock.
On March 18, 2019, the Company issued Daniel
Lu, Chairman of the Board of Directors of the Company, a Promissory Note in the principal amount of $1,000,000 (the “Lu Note”)
in consideration of cash in the amount of $1,000,000. The Lu Note accrues interest at the rate of 5% per annum and matures March
19, 2022.
F-35
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