Avalon GloboCare (ALBT) - 2024 Q3 - Quarterly Report

Part I – Financial Information Unaudited Financial Statements The unaudited financial statements for the period ended September 30, 2024, reflect decreased total assets, increased liabilities, a net loss improvement, and negative operating cash flow, with a significant 'going concern' warning Condensed Consolidated Balance Sheets As of September 30, 2024, total assets decreased to $19.55 million, total liabilities increased to $14.15 million due to current liabilities, and total equity declined to $5.40 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2024 (Unaudited) | Dec 31, 2023 | | :--- | :--- | :--- | | Total Assets | $19,551 | $20,583 | | Total Current Assets | $1,397 | $851 | | Total Non-current Assets | $18,154 | $19,732 | | Total Liabilities | $14,149 | $13,214 | | Total Current Liabilities | $12,332 | $6,763 | | Total Non-current Liabilities | $1,817 | $6,451 | | Total Equity | $5,401 | $7,369 | - The working capital deficit significantly worsened, reaching approximately $10.94 million as of September 30, 2024[21] Condensed Consolidated Statements of Operations and Comprehensive Loss For Q3 2024, net loss was $1.68 million, while the nine-month net loss improved to $5.18 million due to reduced operating expenses, despite a shift in equity method investment Key Operating Results (in thousands) | Metric | Q3 2024 | Q3 2023 | Nine Months 2024 | Nine Months 2023 | | :--- | :--- | :--- | :--- | :--- | | Real Property Rental Revenue | $345 | $331 | $988 | $934 | | Loss from Operations | $(1,270) | $(1,141) | $(3,617) | $(5,963) | | Net Loss | $(1,679) | $(1,485) | $(5,179) | $(7,152) | | Net Loss Per Share (Basic & Diluted) | $(1.82) | $(2.06) | $(6.45) | $(10.34) | - A significant shift occurred in the equity method investment in Lab Services MSO, which generated a loss of $447,909 in Q3 2024 compared to an income of $354,500 in Q3 2023, due to amortization and a goodwill impairment charge[5][215] Condensed Consolidated Statements of Cash Flows For the nine months ended September 30, 2024, net cash used in operations was $3.89 million, offset by $4.73 million from financing activities, resulting in a net cash increase to $1.02 million Cash Flow Summary for the Nine Months Ended September 30 (in thousands) | Cash Flow Activity | 2024 | 2023 | | :--- | :--- | :--- | | Net Cash Used in Operating Activities | $(3,891) | $(5,708) | | Net Cash Used in Investing Activities | $(100) | $(22) | | Net Cash Provided by Financing Activities | $4,727 | $4,091 | | Net Increase (Decrease) in Cash | $739 | $(1,649) | | Cash at End of Period | $1,024 | $342 | - Financing activities in 2024 included $3.37 million from issuing convertible debt and $2.86 million from an equity offering, offset by $3.1 million in repayments of convertible debt[9] Notes to Unaudited Condensed Consolidated Financial Statements Key notes detail the company's business structure, a significant 'going concern' warning due to financial deficits, terms of convertible debt, related party transactions, and a recent reverse stock split - The company is a commercial-stage entity focused on precision diagnostics and clinical laboratory services, primarily through its 40% equity investment in Lab Services MSO and ownership of an income-producing real estate property[11][13][15] - There is substantial doubt about the company's ability to continue as a going concern due to a working capital deficit of approximately $10.9 million, recurring net losses ($5.18 million for the nine months ended Sep 30, 2024), and negative operating cash flow ($3.89 million)[21][22] - In June 2024, the company issued a $2.845 million convertible note to Mast Hill, using part of the proceeds to pay off previously issued notes; this note carries a 13% interest rate and has a conversion price of $11.25 per share[85][88] - The company effectuated a 1-for-15 reverse stock split on October 28, 2024, and decreased authorized common shares from 490 million to 100 million[51][177] - An impairment loss of $259,579 was recognized on the equity method investment in Laboratory Services MSO during the nine months ended September 30, 2024[62] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's strategic focus, reiterates the 'going concern' risk due to liquidity issues, and analyzes operational results showing a reduced net loss primarily from cost-cutting, despite a loss from the Lab Services MSO investment Overview and Strategy The company's strategy focuses on a laboratory rollup, R&D with MIT, and KetoAir commercialization, with cellular therapy R&D suspended to conserve cash - Core business strategies include a laboratory rollup (starting with a 40% interest in Lab Services MSO), R&D with MIT, and product commercialization[183][184][187] - The company is commercializing the KetoAir, a handheld breathalyzer for detecting ketosis, targeting diabetes and obesity markets in North America, South America, the EU, and the UK[188][189][190] - All research and development efforts related to cellular therapy have been suspended to preserve cash and focus on core strategies[191] Results of Operations For the nine months ended September 30, 2024, real property rental revenue increased, but a significant loss from the Lab Services MSO investment occurred, while sharp cuts in advertising and professional fees led to a decreased loss from operations Comparison of Operating Results for the Nine Months Ended September 30 | Item | 2024 (in millions) | 2023 (in millions) | Change (%) | | :--- | :--- | :--- | :--- | | Real Property Rental Revenue | $0.99 | $0.93 | +5.7% | | (Loss) Income from Equity Investment | $(0.67) | $0.37 | N/A | | Other Operating Expenses | $(3.14) | $(6.49) | -51.6% | | Loss from Operations | $(3.62) | $(5.96) | -39.3% | | Net Loss | $(5.18) | $(7.15) | -27.6% | - The loss from the equity investment in Lab Services MSO for the nine months ended Sep 30, 2024 was $669,777, which included a $259,579 impairment of goodwill and $500,199 in amortization of intangible assets[218] - Advertising and marketing expenses for the nine months decreased by 84.6% to $252,394, and professional fees decreased by 55.3% to $1,190,125, reflecting significant cost-cutting measures[221][222] Liquidity and Capital Resources The company faces critical liquidity issues with a $10.9 million working capital deficit, relying on $4.73 million from financing activities, but current cash is insufficient for the next 12 months, reinforcing the 'going concern' risk - The company's working capital deficit increased by 85.0% to $10.9 million at September 30, 2024, from $5.9 million at December 31, 2023[245] - Net cash provided by financing activities for the nine months ended Sep 30, 2024 was $4.73 million, sourced from convertible debt, equity offerings, and advances from a related party[247][253] - Management estimates that available cash is insufficient to satisfy cash requirements for the next year, and future operations depend on securing additional financing[243][260] - The company has a $20 million line of credit from its Chairman, with approximately $13.2 million remaining available as of September 30, 2024[256] Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Avalon GloboCare Corp is not required to provide information for this item - The company is exempt from this disclosure requirement as it qualifies as a smaller reporting company[264] Controls and Procedures Management concluded that disclosure controls and procedures were ineffective as of September 30, 2024, due to un-remediated material weaknesses from the 2023 Annual Report, with no material changes to internal control during the quarter - Management concluded that disclosure controls and procedures were not effective as of September 30, 2024[267] - The ineffectiveness is due to material weaknesses previously reported in the Form 10-K for the year ended December 31, 2023, which have not yet been remediated[267] - There were no changes in internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, internal controls[268] Part II – Other Information Legal Proceedings The company is not currently a party to any legal proceedings that are expected to have a material adverse effect on its business, financial condition, or operations - The company is not presently a party to any material legal proceedings[270] Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2023 - No material changes have occurred from the risk factors disclosed in the Annual Report on Form 10-K for the year ended December 31, 2023[272] Unregistered Sales of Equity Securities and Use of Proceeds During the first nine months of 2024, the company issued 45,153 shares of common stock for services valued at $306,350; these issuances were exempt from registration under Section 4(a)(2) of the Securities Act as transactions not involving a public offering - In the nine months ended September 30, 2024, the company issued 45,153 shares of common stock for services, valued at $306,350[273] - These securities were issued in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act[274] Exhibits This section lists the exhibits filed with the Quarterly Report on Form 10-Q, including a certificate of amendment for the reverse stock split, CEO and CFO certifications, and XBRL data files - The exhibit list includes the Certificate of Amendment for the reverse stock split, Sarbanes-Oxley certifications (302 and 906), and Inline XBRL documents[279]