Change Agents Corporation. 10-K

ITEM 9A. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures We maintain disclosure controls and procedures that are designed to ensure that material information required to be disclosed in our periodic reports filed under the Securities Exchange Act of 1934, as amended, or 1934 Act, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and to ensure that such information is accumulated and communicated to our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) as appropriate, to allow timely decisions regarding required disclosure. We carried out an evaluation, under the supervision and with the participation of our management, including the principal executive officer and the principal financial officer (principal financial officer), of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13(a)-15(e) under the 1934 Act, as of the end of the period covered by this report. During evaluation of disclosure controls and procedures as of December 31, 2020 conducted as part of our annual audit and preparation of our annual financial statements, the CEO and CFO conducted an evaluation of the effectiveness of the design and operations of our disclosure controls and procedures and concluded that our disclosure controls and procedures were not effective due to the lack of segregation of duties resulting from our small size. Management’s Report on Internal Control over Financial Reporting Management is responsible for the preparation and fair presentation of the financial statements included in this annual report. The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America and reflect management’s judgment and estimates concerning effects of events and transactions that are accounted for or disclosed. Management is also responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting includes those policies and procedures that pertain to our ability to record, process, summarize and report reliable data. Management recognizes that there are inherent limitations in the effectiveness of any internal control over financial reporting, including the possibility of human error and the circumvention or overriding of internal control. Accordingly, even effective internal control over financial reporting can provide only reasonable assurance with respect to financial statement presentation. Further, because of changes in conditions, the effectiveness of internal control over financial reporting may vary over time. Management regularly assesses controls and did so most recently for our financial reporting as of December 31, 2020. This assessment was based on criteria for effective internal control over financial reporting described in the Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission. Based on this assessment, management has concluded that our internal control over financial reporting was not effective as of December 31, 2020 due to the lack of segregation of duties resulting from our small size. In addition, due to the lack of segregation of duties and limited resources, the Company has a small accounting staff to prepare and review its financial statements. This issue has risen to a material weakness for the year ended December 31, 2020. In light of the material weakness, we performed additional analyses and procedures in order to conclude that our consolidated financial statements for the year ended December 31, 2020 included in this Annual Report on Form 10-K were fairly stated in accordance with US GAAP. Accordingly, management believes that despite our material weakness, our consolidated financial statements for the year ended December 31, 2020 are fairly stated, in all material respects, in accordance with US GAAP. Changes in Internal Control over Financial Reporting There were no changes in our internal control over financial reporting, as such term is defined in Rules 13a-15(f) under the Exchange Act, during the quarter ended December 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Attestation Report of the Registered Public Accounting Firm This Annual Report on Form 10-K does not include an attestation report by our independent registered public accounting firm, regarding internal control over financial reporting. As a smaller reporting company, our internal control over financial reporting was not subject to audit by our independent registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit us to provide only management’s report. ITEM 9B. OTHER INFORMATION None. 49 PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Directors and Executive Officers Below are the names of and certain information regarding our executive officers and directors as of the date hereof: Name Age Position Wenzhao Lu 63 Chairman of the Board of Directors David Jin, MD, PhD 53 Chief Executive Officer, President and Director Meng Li 43 Chief Operating Officer, Secretary and Director Luisa Ingargiola 53 Chief Financial Officer Steven A. Sanders 75 Director Yancen Lu 46 Director Wilbert J. Tauzin II 76 Director William B. Stilley, III 53 Director Tevi Troy 53 Director Yue “Charles” Li 47 Director Officers are elected annually by the Board of Directors (subject to the terms of any employment agreement), at our annual meeting, to hold such officer until an officer’s successor has been duly appointed and qualified, unless an officer sooner dies, resigns or is removed by the Board. The principal occupation and business experience during at least the past five years for our executive officers and directors is as follows: Wenzhao Lu, Chairman of the Board of Directors Mr. Wenzhao Lu is our Chairman of the Board. He is a seasoned healthcare entrepreneur with extensive operational knowledge and experience in China. He has been serving as Chairman of the Board for the Daopei Medical Group, or DPMG, since 2010. Under his leadership, DPMG has recently expanded its clinical network involving a state-of-the-art stem cell bank at Wuhan Biolake, three top-ranked private hospitals (located in Beijing, Shanghai, and Hebei), specialty hematology laboratories, as well as a hematology research institute, with more than 100 partnering and collaborating hospitals in China. DPMG was founded by Professor Daopei Lu, a renowned hematologist pioneering in hematopoietic stem cell transplant and member of the Academy of Engineering in China. Mr. Wenzhao Lu received a Bachelor of Arts from Temple University Tyler School of Arts in 1988 and subsequently worked as senior Art Director at Ogilvy & Mather Advertising Company. Prior to joining DPMG, Mr. Lu served as Chief Operating Officer for BioTime Asia Limited, which is a subsidiary of BioTime, Inc. (NYSE American: BTX) in 2009. Mr. Lu is qualified to serve as a director because of his extensive operational knowledge of, and executive level management experience in, the healthcare industry. 50 David Jin, Chief Executive Officer, President and Director Dr. David Jin, MD, PhD, is our Chief Executive Officer, President and a member of the Board of Directors. From 2009 to 2017, Dr. Jin has served as the Chief Medical Officer of BioTime, Inc. (NYSE American: BTX), a clinical stage regenerative medicine company with a focus on pluripotent stem cell technology. Dr. Jin also acts as a senior translational clinician-scientist at the Howard Hughes Medical Institute and the Ansary Stem Cell Center at Weill Cornell Medical College of Cornell University. Prior to his current endeavors, Dr. Jin was Chief Consultant/Advisor for various biotech/pharmaceutical companies regarding hematology, oncology, immunotherapy and stem cell-based technology development. Dr. Jin has been Principle Investigator in more than 15 pre-clinical and clinical trials, as well as author/co-author of over 80 peer-reviewed scientific abstracts, articles, reviews, and book chapters. Dr. Jin studied medicine at SUNY Downstate College of Medicine in Brooklyn, New York. He received his clinical training and subsequent faculty tenure at the New York-Presbyterian Hospital (the teaching hospital for both Cornell and Columbia Universities) in the areas of internal medicine, hematology, and clinical oncology. Dr. Jin was honored as Top Chief Medical Officer by ExecRank in 2012, as well as recognized by Leading Physicians of the World in 2015. Dr. Jin is qualified to serve as a director because of his role with us, and his extensive operational knowledge of, and executive level management experience in, the healthcare industry. Meng Li, Chief Operating Officer and Secretary Ms. Meng Li is our Chief Operating Officer and Secretary and a former member of the Board of Directors. Ms. Li has over 15 years of executive experience in international marketing, branding, communications, and media investment consultancy. Ms. Li served as Managing Director at Maxus/GroupM (a WPP Group company) where she was responsible for business P&L and corporate management from 2006 to 2015. Prior to joining Maxus/Group M, Ms. Li worked for Zenith Media (a Publicis Group company) from 2000 to 2006 as Senior Manager. Ms. Li received a Bachelor of Arts in International Economic Law from Dalian Maritime University in China. Luisa Ingargiola, Chief Financial Officer Luisa Ingargiola is our Chief Financial Officer. Ms Ingargiola has significant experience serving as Chief Financial Officer or Audit Chair for multiple NASDAQ and NYSE companies. She currently serves as Director and Audit Chair for several public companies including ElectraMeccanica (NASDAQ:SOLO), AgEagle (NYSE:UAVS), Siyata Mobile (NASDAQ:SYTA) and Progress Acquisition Corporation (NASDAQ:PGRWU). From 2007 through 2016, Ms. Ingargiola served as the Chief Financial Officer and then Director at MagneGas Corporation (Nasdaq: MNGA.Prior to 2007, Ms. Ingargiola held various roles as Budget Director and Investment Analyst in several private companies. Ms. Ingargiola graduated in 1989 from Boston University with a Bachelor’s degree in Business Administration and a concentration in Finance. In 1996, she received her MBA in Health Administration from the University of South Florida. Ms. Ingargiola is qualified to serve as a Chief Financial Officer because of her extensive knowledge corporate governance, regulatory requirements, executive leadership and knowledge of, and experience in, financing and M&A transactions. Steven A. Sanders, Director Steven A. Sanders is a member of the Board of Directors. Since January 2017, Mr. Sanders has been Of Counsel to the law firm of Ortoli Rosenstadt LLP. From July 2007 until January 2017, Mr. Sanders was a Senior Partner of Ortoli Rosenstadt LLP. From January 1, 2004 until June 30, 2007, he was Of Counsel to the law firm of Rubin, Bailin, Ortoli, LLP. From January 1, 2001 to December 31, 2003, he was Counsel to the law firm of Spitzer & Feldman PC. Mr. Sanders also serves as a Director of Helijet International, Inc. and Electrameccanica Vehicles Corp. (OTCQB:ECCTF). Additionally, he has been a director at the American Academy of Dramatic Arts since October 2013 and has been a director of the Bay Street Theater since February 2015. Mr. Sanders received his JD from Cornell University and his BBA from The City College of New York. Mr. Sanders is qualified to serve as a director because of his corporate, securities and international law experience, including working with companies in the life sciences industry. 51 Yancen Lu, Director Yancen Lu is a member of the Board of Directors. Mr. Lu has more than 20 years of experience in investment banking and equity investment management. He is the Founder and CEO of PagodaTree Partners, a healthcare PE fund. Before this, Mr. Lu was the Managing Director of FountainVest Partners. In addition to his professionalism in securities, investment and capital management, Mr. Lu has a special focus and comprehensive understanding of the global medical and healthcare industry. He served as Director of leading healthcare corporations including Sino Hospital Investment Corporation (Hong Kong), Chang’an Hospital (the largest private hospital in Northwest China), and DIH Medical Technologies. Mr. Lu received Bachelor’s and Master’s degrees in Engineering Economics from Tianjin University. Mr. Lu is qualified to serve as a director because of his extensive operational knowledge of, and executive level management experience in, the healthcare industry. Wilbert J. Tauzin II, Director Wilbert J. Tauzin II is a member of the Board of Directors. From December 2010 until March 1, 2014, Congressman Tauzin served as Special Legislative Counsel to Alston & Bird LLP. From December 2004 to June 2010, Congressman Tauzin was President and Chief Executive Officer of the Pharmaceutical Research and Manufacturers of America, a trade group that serves as one of the pharmaceutical industry’s top lobbying groups. He served 12.5 terms in the U.S. House of Representatives, representing Louisiana’s 3rd Congressional District. From January 2001 through February 2004, Congressman Tauzin served as Chairman of the House Committee on Energy and Commerce. He also served as a senior member of the House Resources Committee and Deputy Majority Whip. Prior to serving as a member of Congress, Congressman Tauzin was a member of the Louisiana State Legislature, where he served as Chairman of the House Natural Resources Committee and Chief Administration Floor Leader. He currently serves as lead independent director of LHC Group, a publicly traded provider of quality home health care. Congressman Tauzin received a Bachelor of Arts Degree from Nicholls State University and a Juris Doctor degree from Louisiana State University. Congressman Tauzin is qualified to serve as a director because of his extensive knowledge of the pharmaceutical industry and his experience as a director of several publicly-traded and privately-held companies. William B. Stilley, III, Director William B. Stilley is a member of the Board of Directors. Mr. Stilley has been the chief executive officer and member of the board of directors of Adial Pharmaceuticals, Inc. since December 2010. From August 2008 until December 2010, he was the vice president, business development and strategic projects at Clinical Data, Inc. (NASDQ: CLDA). From February 2002, Mr. Stilley was the COO and CFO of Adenosine Therapeutics, LLC until certain assets of Adenosine Therapeutics were acquired by Clinical Data, Inc. in August 2008. Mr. Stilley has advised both public and private companies on financing and M&A transactions, has been the interim CFO of a public company, the interim Chief Business Officer and then Advisor for Diffusion Pharmaceuticals from September 2015 through March 2018, and the COO and CFO of a number of private companies. Before entering the business community, Mr. Stilley served as Captain in the U.S. Marine Corps. Mr. Stilley has an MBA with honors from the Darden School of Business and a B.S. in Commerce/Marketing from the McIntire School of Commerce at the University of Virginia. He currently serves on the Advisory Board of Virginia BIO, the statewide biotechnology organization. Mr. Stilley is qualified to serve as a director because of his extensive knowledge of the biotechnology industry, significant executive leadership and operational experience, and knowledge of, and experience in, financing and M&A transactions. Tevi Troy, Director Tevi Troy is a member of the Board of Directors and a former Deputy Secretary of the U.S. Department of Health and Human Services. Dr. Troy has previously been the founder and CEO of the American Health Policy Institute and a Senior Fellow at Hudson Institute, where he remains an Adjunct Fellow. On August 3, 2007, Dr. Troy was unanimously confirmed by the U.S. Senate as the Deputy Secretary of HHS. As Deputy Secretary, Dr. Troy was the chief operating officer of the largest civilian department in the federal government, with a budget of $716 billion and over 67,000 employees. Dr. Troy has extensive White House experience, having served in several high-level positions over a five-year period, culminating in his service as Deputy Assistant and then Acting Assistant to the President for Domestic Policy. Dr. Troy has held high-level positions on Capitol Hill as well. From 1998 to 2000, Dr. Troy served as the Policy Director for Senator John Ashcroft. From 1996 to 1998, Dr. Troy was Senior Domestic Policy Adviser and later Domestic Policy Director for the House Policy Committee, chaired by Christopher Cox. In addition to his senior level government work and health care expertise, Dr. Troy is also a best-selling presidential historian and the author of five books, including, most recently, "Fight House: Rivalries in the White House from Truman to Trump," which the Wall Street Journal listed as one of the top political books of 2020. Dr. Troy’s many other affiliations include: contributing editor for Washingtonian magazine; member of the publication committee of National Affairs; member of the Board of Fellows of the Jewish Policy Center; a Senior Fellow at the Potomac Institute; and a member of the Bipartisan Commission on Biodefense. Dr. Troy has a B.S. in Industrial and Labor Relations from Cornell University and an M.A and Ph.D. in American Civilization from the University of Texas at Austin. Dr. Troy is qualified to serve as a director because of his extensive knowledge of the healthcare industry and his significant leadership experience. 52 Yue “Charles” Li Mr. Li has about 20 years of experience in M&A and capital markets in China and the U.S. Mr. Li currently is a Managing Director at PagodaTree Partners, a private equity company with a focus on healthcare in Beijing. Prior to PagodaTree, he was a senior executive at a major conglomerate in China where he successfully closed $2 billion M&A transactions in healthcare and insurance areas. Previously, Mr. Li spent 8 years in Deloitte, as a director of financial advisory services in Beijing and capital markets in New York. His key clients included Merrill Lynch, Blackrock, KKR etc. In his early career, Mr. Li served for top tier financial institutions such as Credit Suisse and Fannie Mae, responsible for asset allocation strategy and risk management for multibillion USD portfolios. Mr. Li received Master’s degree from the Olin School of Business at Washington University in 2000 and a Bachelor of Engineering from Tianjin University in 1996. He is a CFA charter holder. Mr. Li is qualified to serve as a director because of his extensive investment and executive level management experience. Board Composition Our business and affairs are organized under the direction of our board of directors, which currently consists of nine members. The primary responsibility of our board of directors is to provide oversight, strategic guidance, counseling, and direction to our management team. Our board of directors meets on a regular basis and additionally as required. A majority of the authorized number of directors constitutes a quorum of the Board of Directors for the transaction of business. The directors must be present at the meeting to constitute a quorum. However, any action required or permitted to be taken by the Board of Directors may be taken without a meeting if all members of the Board of Directors individually or collectively consent in writing to the action. Director Independence Our board of directors currently consists of nine members. Our board of directors has determined that Yancen Lu, William B. Stilley, III, Steven A. Sanders, Tevi Troy and Yue “Charles” Li, qualify as independent directors in accordance with the Nasdaq Capital Market (“Nasdaq”) listing requirements. Mr. Wenzhao Lu, Dr. Jin, Meng Li and Wilbert Tauzin II are not considered independent. Nasdaq’s independence definition includes a series of objective tests, such as that the director is not, and has not been for at least three (3) years, one of our employees and that neither the director nor any of his or her family members has engaged in various types of business dealings with us. In addition, as required by Nasdaq rules, our board of directors has made a subjective determination as to each independent director that no relationships exist that, in the opinion of our board of directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. In making these determinations, our board of directors reviewed and discussed information provided by the directors and us with regard to each director’s business and personal activities and relationships as they may relate to us and our management. There are no family relationships among any of our directors or executive officers. As required under Nasdaq rules and regulations, our independent directors meet in regularly scheduled executive sessions at which only independent directors are present. Family Relationships There are no family relationships among our directors or executive officers. Board Leadership Structure and Role in Risk Oversight Our Board of Directors, or the Board, is primarily responsible for overseeing our risk management processes on behalf of our company. The Board receives and reviews periodic reports from management, auditors, legal counsel, and others, as considered appropriate regarding our company’s assessment of risks. In addition, the Board focuses on the most significant risks facing our company and our company’s general risk management strategy, and also ensures that risks undertaken by our company are consistent with the board’s appetite for risk. While the Board oversees our company’s risk management, management is responsible for day-to-day risk management processes. We believe this division of responsibilities is the most effective approach for addressing the risks facing our company and that our board leadership structure supports this approach. Involvement in Certain Legal Proceedings To our knowledge, our directors and executive officers have not been involved in any of the following events during the past ten years: ● any bankruptcy petition filed by or against such person or any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; ● any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); 53 ● being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from or otherwise limiting his involvement in any type of business, securities or banking activities or to be associated with any person practicing in banking or securities activities; ● being found by a court of competent jurisdiction in a civil action, the SEC or the Commodity Futures Trading Commission to have violated a Federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated; ● being subject of, or a party to, any Federal or state judicial or administrative order, judgment decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of any Federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or ● being subject of or party to any sanction or order, not subsequently reversed, suspended, or vacated, of any self-regulatory organization, any registered entity or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member. Board Committees Establishment of Board Committees and Adoption of Charters In November 2018, the Company established a Nominating and Corporate Governance Committee, a Compensation Committee and an Audit Committee (collectively, the “Committees”) and approved and adopted charters to govern each of the Committees. In connection with the establishment of the Nominating and Corporate Governance Committee, Compensation Committee and Audit Committee, the Board of Directors of the Company appointed members to each such committee. Currently, all three committees are comprised of at least three (3) directors meeting the requirements set forth in each applicable charter. The membership of these three standing committees of the Board of Directors of the Company is as follows: Nominating and Corporate Governance Committee Compensation Committee Audit Committee Steven Sanders (Chairman) Yancen Lu (Chairman) William Stilley (Chairman) Tevi Troy Steven Sanders Yancen Lu William Stilley Tevi Troy Steve Sanders Nominating and Corporate Governance Committee Our board of directors has determined that each of the members of the Nominating and Governance Committee (the “Governance Committee”) are “independent directors” as defined by Nasdaq. The Governance Committee generally responsible for recommending to our full board of directors’ policies, procedures, and practices designed to help ensure that our corporate governance policies, procedures, and practices continue to assist the board of directors and our management in effectively and efficiently promoting the best interests of our stockholders. The Governance Committee is also responsible for selecting and recommending for approval by our board of directors and our stockholders a slate of director nominees for election at each of our annual meetings of stockholders, and otherwise for determining the board committee members and chairmen, subject to board of directors ratification, as well as recommending to the board director nominees to fill vacancies or new positions on the board of directors or its committees that may occur or be created from time to time, all in accordance with our bylaws and applicable law. The Governance Committee’s principal functions include: ● developing and maintaining our corporate governance policy guidelines; ● developing and maintaining our codes of conduct and ethics; ● overseeing the interpretation and enforcement of our Code of Conduct and our Code of Ethics for Chief Executive Officer and Senior Financial and Accounting Officers; ● evaluating the performance of our board of directors, its committees, and committee chairmen and our directors; and ● selecting and recommending a slate of director nominees for election at each of our annual meetings of the stockholders and recommending to the board director nominees to fill vacancies or new positions on the board of directors or its committees that may occur from time to time. 54 During 2020, the Nominating and Corporate Governance Committee did not meet. The Governance Committee is governed by a written charter approved by our board of directors. A copy of the Governance Committee’s charter is posted on the Company’s website at www.avalon-globocare.com in the “Investors” section of the website. In identifying potential independent board of directors’ candidates with significant senior-level professional experience, the Governance Committee solicits candidates from the board of directors, senior management and others and may engage a search firm in the process. The Governance Committee reviews and narrows the list of candidates and interviews potential nominees. The final candidate is also introduced and interviewed by the board of directors and the lead director if one has been appointed. In general, in considering whether to recommend any particular candidate for inclusion in our board of directors’ slate of recommended director nominees, the Governance Committee will apply the criteria set forth in our corporate governance guidelines. These criteria include the candidate’s integrity, business acumen, commitment to understanding our business and industry, experience, conflicts of interest and the ability to act in the interests of our stockholders. Further, specific consideration is given to, among other things, diversity of background and experience that a candidate would bring to our board of directors. The Governance Committee does not assign specific weights to particular criteria and no particular criterion is a prerequisite for each prospective nominee. We believe that the backgrounds and qualifications of our directors, considered as a group, should provide a composite mix of experience, knowledge and abilities that will allow our board of directors to fulfill its responsibilities. Stockholders may recommend individuals to the Governance Committee for consideration as potential director candidates by submitting their names, together with appropriate biographical information and background materials to our Governance Committee. Assuming that appropriate biographical and background material has been provided on a timely basis, the Governance Committee will evaluate stockholder recommended candidates by following substantially the same process, and applying substantially the same criteria, as it follows for candidates submitted by others. Audit Committee We have a separately-designated standing Audit Committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Our board of directors has determined that the members are all “independent directors” as defined by the rules of Nasdaq applicable to members of an audit committee and Rule 10A-3(b)(i) under the Exchange Act. In addition, Mr. Stilley is an “audit committee financial expert” as defined in Item 407(d)(5) of Regulation S-K and demonstrates “financial sophistication” as defined by the rules of The NASDAQ Stock Market, Inc. The Audit Committee is appointed by our board of directors to assist our board of directors in monitoring (1) the integrity of our financial statements, (2) our compliance with legal and regulatory requirements, and (3) the independence and performance of our internal and external auditors. The Audit Committee’s principal functions include: ● reviewing our annual audited financial statements with management and our independent auditors, including major issues regarding accounting and auditing principles and practices and financial reporting that could significantly affect our financial statements; ● reviewing our quarterly financial statements with management and our independent auditor prior to the filing of our Quarterly Reports on Form 10-Q, including the results of the independent auditors’ reviews of the quarterly financial statements; ● recommending to the board of directors the appointment of, and continued evaluation of the performance of, our independent auditor; ● approving the fees to be paid to our independent auditor for audit services and approving the retention of our independent auditor for non-audit services and all fees for such services; ● reviewing periodic reports from our independent auditor regarding our auditor’s independence, including discussion of such reports with the auditor; ● reviewing the adequacy of our overall control environment, including internal financial controls and disclosure controls and procedures; and ● reviewing with our management and legal counsel legal matters that may have a material impact on our financial statements or our compliance policies and any material reports or inquiries received from regulators or governmental agencies. During 2020, the audit committee met four times. A copy of the Audit Committee’s charter is posted on the Company’s website at www.avalon-globocare.com in the “Investors” section of the website. Meetings may be held from time to time to consider matters for which approval of our Board of Directors is desirable or is required by law. Compensation Committee Our compensation committee consists of Yancen Lu, Steven Sanders and Tevi Troy. Our board of directors has determined that each of the members are an “independent director” as defined by the Nasdaq rules applicable to members of a compensation committee. The Compensation Committee is responsible for establishing the compensation of our senior management, including salaries, bonuses, termination arrangements, and other executive officer benefits as well as director compensation. The Compensation Committee also administers our equity incentive plans. During the year ended December 31, 2020, the Compensation Committee met one time. The Compensation Committee is governed by a written charter approved by the board of directors. A copy of the Compensation Committee’s charter is posted on the Company’s website at www.avalon-globocare.com in the “Investors” section of the website. The Compensation Committee works with the Chairman of the Board and Chief Executive Officer and reviews and approves compensation decisions regarding senior management including compensation levels and equity incentive awards. The Compensation Committee also approves employment and compensation agreements with our key personnel and directors. The Compensation Committee has the power and authority to conduct or authorize studies, retain independent consultants, accountants or others, and obtain unrestricted access to management, our internal auditors, human resources and accounting employees and all information relevant to its responsibilities. 55 The responsibilities of the Compensation Committee, as stated in its charter, include the following: ● review and approve the Company’s compensation guidelines and structure; ● review and approve on an annual basis the corporate goals and objectives with respect to compensation for the Chief Executive Officer; ● review and approve on an annual basis the evaluation process and compensation structure for the Company’s other officers, including salary, bonus, incentive and equity compensation; and ● periodically review and make recommendations to the Board of Directors regarding the compensation of non-management directors. The Compensation Committee is responsible for developing the executive compensation philosophy and reviewing and recommending to the Board of Directors for approval all compensation policies and compensation programs for the executive team. Compensation Committee Interlocks and Insider Participation None of our executive officers currently serves, or in the past year has served, as a member of the board of directors or compensation committee of any entity that has one or more executive officers on our board of directors or compensation committee. Code of Ethics We have a code of ethics that applies to all of our employees, including our principal executive officer, principal financial officer and principal accounting officer, and the Board. A copy of this code is available in our employee handbook and under the “About Us – Code of Conduct” section of our website at www.avalon-globocare.com. In addition, we intend to post on our website all disclosures that are required by law or the listing standards of our applicable trading market concerning any amendments to, or waivers from, any provision of the code. The reference to our website address does not constitute incorporation by reference of the information contained at or available through our website, and you should not consider it to be a part of this report. Indemnification of Directors and Officers Our directors and executive officers are indemnified as provided by the Delaware law and our Bylaws. These provisions state that our directors may cause us to indemnify a director or former director against all costs, charges and expenses, including an amount paid to settle an action or satisfy a judgment, actually and reasonably incurred by him or her as a result of him or her acting as a director. The indemnification of costs can include an amount paid to settle an action or satisfy a judgment. Such indemnification is at the discretion of our board of directors and is subject to the Securities and Exchange Commission’s policy regarding indemnification. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers or persons controlling us pursuant to the foregoing provisions, or otherwise. We have been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. 56 ITEM 11. EXECUTIVE COMPENSATION Executive Officers’ Compensation The following table sets forth information concerning all cash and non-cash compensation awarded to, earned by or paid to our Chief Executive Officer, Chief Financial Officer and Chief Operation Officer during the last two (2) fiscal years. No other executive officer received compensation in excess of $100,000 during the fiscal year ended December 31, 2020. Summary Annual Compensation Table Name and Principal Position Fiscal Year Salary Stock Award Option Awards Non-Equity Incentive Plan Compensation Change in Pension Value and Non- Qualified Deferred Compensation Earnings All Other Compensation Total ($) ($) ($) ($) ($) ($) ($) Dr. David Jin 2020 360,000 - 642,584 - - - 1,002,584 CEO 2019 540,000 - 394,722 - - - 934,722 Luisa Ingargiola 2020 350,000 - 712,028 - - - 1,062,028 CFO 2019 490,000 - 833,333 - - - 1,323,333 Meng Li 2020 340,000 - 481,942 - - - 821,942 COO and Secretary 2019 374,000 - 394,722 - - - 768,722 Employment Agreements David Jin On December 1, 2016, the Company entered into an Executive Employment Agreement with David Jin, the Company’s CEO and President. Pursuant to the agreement, Mr. Jin will be employed as President and Chief Executive Officer of the Company until November 30, 2017 unless earlier terminated pursuant to the terms of the agreement. During the term of the agreement, Mr. Jin will be entitled to a base salary at the annualized rate of $200,000 and will be eligible for a discretionary performance bonus, equity awards and to participate in employee benefits plans as the Company may institute from time to time at the discretion of the Company’s Board of Directors. Pursuant to the agreement, Mr. Jin may be terminated for “cause” as defined and Mr. Jin may resign for “good reason” as defined. In the event Mr. Jin is terminated without cause or resigns for good reason, the Company will be required to pay Mr. Jin all accrued salary and bonuses, reimbursement for all business expenses and Mr. Jin’s salary for one year. In the event Mr. Jin is terminated with cause, resigns without good reason, dies or is disabled, the Company will be required to pay Mr. Jin all accrued salary and bonuses and reimbursement for all business expenses. Under the agreement Mr. Jin is subject to confidentiality, non-compete and non-solicitation restrictions. On January 3, 2019, the Company entered into a Letter Agreement with Dr. Jin, pursuant to which his annual base salary set forth in his employment agreement was increased to $360,000 effective January 1, 2019. Further, the Company agreed to grant Dr. Jin stock options to acquire 150,000 shares of common stock at an exercise price of $2.00 per share. On February 20, 2020, the Company entered into a Letter Agreement with Dr. Jin pursuant to which the term of Dr. Jin’s Executive Employment Agreement entered between the Company and Dr. Jin dated December 1, 2016 was extended an additional three years and granted Dr. Jin a Stock Option to acquire 400,000 shares of common stock at an exercise price of $1.52 per share for a period of ten years. Meng Li On January 11, 2017, Avalon Shanghai entered into an Executive Employment Agreement with Meng Li, the Company’s COO and Secretary. Pursuant to the agreement, Ms. Li will be employed as Chief Operating Officer and President of Avalon Shanghai through November 30, 2019, unless earlier terminated pursuant to the terms of the agreement. During the term of the agreement, Ms. Li will be entitled to a base salary at the annualized rate of $100,000 and will be eligible for a discretionary performance bonus, equity awards and to participate in employee benefits plans as the Avalon Shanghai may institute from time to time at the discretion of its Board of Directors. Pursuant to the agreement, Ms. Li may be terminated for “cause” as defined and Ms. Li may resign for “good reason” as defined. In the event Ms. Li is terminated without cause or resigns for good reason, Avalon Shanghai will be required to pay Ms. Li all accrued salary and bonuses, reimbursement for all business expenses and Ms. Li’s salary for one year. In the event Ms. Li is terminated with cause, resigns without good reason, dies or is disabled, Avalon Shanghai will be required to pay Ms. Li all accrued salary and bonuses and reimbursement for all business expenses. Under the agreement Ms. Li is subject to confidentiality, non-compete and non-solicitation restrictions. 57 On January 3, 2019, the Company entered into a Letter Agreement with Ms. Li, pursuant to which her annual base salary set forth in her employment agreement was increased to $340,000 effective January 1, 2019. Further, the Company agreed to grant Ms. Li stock options to acquire 150,000 shares of common stock at an exercise price of $2.00 per share. On February 20, 2020, the Company entered into a Letter Agreement with Meng Li pursuant to which the term of Ms. Li’s Executive Employment Agreement entered between the Company’ subsidiary and Ms. Li dated January 11, 2017 was extended an additional three years and granted Ms. Li a Stock Option to acquire 300,000 shares of common stock at an exercise price of $1.52 per share for a period of ten years. Luisa Ingargiola On February 21, 2017, Ms. Ingargiola and the Company entered into an Executive Retention Agreement effective February 9, 2017 pursuant to which Ms. Ingargiola agreed to serve as Chief Financial Officer in consideration of an annual salary of $200,000 to be increased to $225,000 on the 60-day anniversary. The Company has agreed to provide a bonus of 50% of her base salary upon the Company timely filing its annual report on Form 10-K for the year ended December 31, 2017 and the Company raising gross proceeds of $20 million in debt and/or equity capital and a bonus of 100% of her base salary upon the Company achieving (i) any merger or sale of the Company or its assets, (ii) the Company achieving adjusted EBITDA of $10 million in a fiscal year, (iii) the Company achieving a listing on a national exchange and then or subsequently raising gross proceeds in the amount of $10 million. The Company also granted Ms. Ingargiola a Stock Option to acquire two million shares of common stock of the Company at an exercise price of $0.50 per share for a period of ten years. The Stock Options vest in 36 equal tranches commencing on the grant date. The Company and Ms. Ingargiola also entered into an Indemnification Agreement. The employment of Ms. Ingargiola is at will and may be terminated at any time, with or without formal cause. Pursuant to the terms of executive retention agreement with Ms. Ingargiola, the Company has agreed to provide specified severance and bonus amounts and to accelerate the vesting on their equity awards upon termination upon a change of control or an involuntary termination, as each term is defined in the agreements. In the event of a termination upon a change of control, Ms. Ingargiola is entitled to receive an amount equal to 12 months of her base salary and the target bonus then in effect for the executive officer for the year in which such termination occurs, such bonus payment to be pro-rated to reflect the full number of months the executive remained in the Company’s employ. In addition, the vesting on any stock option held by the executive officer will be accelerated in full. At the election of the executive officer, the Company will also continue to provide health related employee insurance coverage for twelve months, at the Company’s expense. In the event of an involuntary termination, Ms. Ingargiola is entitled to receive an amount equal to six months of her base salary and the target bonus then in effect for the executive officer for the six months in which such termination occurs, such bonus payment to be pro-rated to reflect the full number of months the executive remained in the Company’s employ. Such payment will be increased to 12 months upon the one-year anniversary of the retention agreement. In addition, the vesting on any stock option held by the executive officer will be accelerated in full. At the election of the executive officer, the Company will also continue to provide health related employee insurance coverage for twelve months, at the Company’s expense. On January 3, 2019, the Company entered into a Letter Agreement with Ms. Ingargiola, pursuant to which her annual base salary set forth in her employment agreement was increased to $350,000 effective January 1, 2019. On February 20, 2020, the Company entered into a Letter Agreement with Ms. Ingargiola granting Ms. Ingargiola a Stock Option to acquire 400,000 shares of common stock at an exercise price of $1.52 per share for a period of ten years. Yu Zhou On October 25, 2017, Dr. Yu Zhou and Genexosome entered into an Executive Retention Agreement pursuant to which Dr. Zhou agreed to serve as Co-Chief Executive Officer in consideration of an annual salary of $160,000. Dr. Zhou and Genexosome also entered into an Invention Assignment, Confidentiality, Non-Compete and Non-Solicit Agreement. On August 14, 2019, Genexosome terminated Yu Zhou as Co-Chief Executive Officer. In addition, Dr. Zhou’s Executive Retention Agreement was also terminated and he was not elected to serve as a director for the year ended 2020. Option Exercises and Stock Vested There were no options exercised by our executive officers or stock vested to our executive officers during the year ended December 31, 2020. 58 Outstanding Equity Awards The following table sets forth information with respect to the outstanding equity awards of our principal executive officers and principal financial officer during 2020, and each person who served as an executive officer of the Company as of December 31, 2020: Outstanding Equity Awards Option Awards Stock Awards Name and principal position Number of securities underlying unexercised options Exercisable (#) Number of securities underlying unexercised options Unexercisable (#) Equity incentive plan awards: Number of securities underlying unexercised options (#) Options exercise price ($) Option expiration Date Number of shares or units of stock that have not vested (#) Market value of shares or units of stock that have not vested ($) Equity incentive plan awards: Number of unearned shares, units or other rights that have not vested (#) Equity incentive plan awards: Market or payout value of unearned shares, units or other rights that have not vested ($) Luisa Ingargiola, CFO 455,556 - 455,556 0.50 and 1.52 2/8/2027 and 2/18/2030 - - - - David Jin, CEO 400,000 - 400,000 1.52 2/18/2030 - - - - Meng Li, COO and Secretary 300,000 - 300,000 1.52 2/18/2030 - - - - No Pension Benefits The Company does not maintain any plan that provides for payments or other benefits to its executive officers at, following or in connection with retirement and including, without limitation, any tax-qualified defined benefit plans or supplemental executive retirement plans. No Nonqualified Deferred Compensation The Company does not maintain any defined contribution or other plan that provides for the deferral of compensation on a basis that is not tax-qualified. Director Compensation Name Fees Earned or Paid in Cash $ Stock Awards $ Option Awards $ Non-equity Incentive Plan Compensation $ Change in Pension Value and Non- Qualified Deferred Compensation Earnings All Other Compensation $ Total $ Yue (Charles) Li (1) 60,000 - 116,808 - - - 176,808 Yancen Lu (2) 70,000 - 116,808 - - - 186,808 Wilbert Tauzin (3) - - 249,137 - - - 249,137 Wenzhao Lu 100,000 - - - - - 100,000 David Jin - - - - - - - Meng Li - - - - - - - Steven Sanders (4) 70,000 - 116,808 - - - 186,808 Tevi Troy (5) 60,000 - 116,808 - - - 176,808 William Stilley (6) 70,000 - 116,808 - - - 186,808 (1) Mr. Li’s 2020 compensation consisted of cash of $60,000 and 80,000 options vested and valued at $116,808. (2) Mr. Lu’s 2020 compensation consisted of cash of $70,000 and 80,000 options vested and valued at $116,808. (3) Mr. Tauzin’s 2020 compensation consisted of 200,000 options vested and valued at $249,137. (4) Mr. Sanders’s 2020 compensation consisted of cash of $70,000 and 80,000 options vested and valued at $116,808. (5) Mr. Troy’s 2020 compensation consisted of cash of $60,000 and 80,000 options vested and valued at $116,808. (6) Mr. Stilley’s 2020 compensation consisted of cash of $70,000 and 80,000 options vested and valued at $116,808. On February 19, 2020, the Board of Directors of the Company approved an increase in the number of shares of common stock to be acquired pursuant to option grants for all independent Directors from 50,000 shares to 80,000 shares annually going forward, which shall vest at the rate of 20,000 shares under such option per quarter. 59 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. In accordance with SEC rules, shares of our common stock which may be acquired upon exercise of stock options or warrants which are currently exercisable or which become exercisable within 60 days of the date of the applicable table below are deemed beneficially owned by the holders of such options and warrants and are deemed outstanding for the purpose of computing the percentage of ownership of such person, but are not treated as outstanding for the purpose of computing the percentage of ownership of any other person. Subject to community property laws, where applicable, the persons or entities named in the tables below have sole voting and investment power with respect to all shares of our common stock indicated as beneficially owned by them. The following table sets forth certain information, as of March 29, 2021 with respect to the beneficial ownership of the outstanding common stock by (i) any holder of more than five (5%) percent; (ii) each of our executive officers and directors; and (iii) our directors and executive officers as a group. The numbers below reflect a 1:4 reverse stock split implemented on October 18, 2016. Except as otherwise indicated, each of the stockholders listed below has sole voting and investment power over the shares beneficially owned. Name of Beneficial Owner (1) Common Stock Beneficially Owned Percentage of Common Stock (2) Wenzhao Lu* (3) 30,045,161 33.0 % David Jin, MD, PhD* (4) 16,000,000 17.6 % Meng Li* (5) 5,600,000 6.2 % Luisa Ingargiola* (6) 2,400,000 2.6 % Yancen Lu* (7) 5,370,000 5.9 % Steven A. Sanders* (8) 170,000 ** Wilbert J. Tauzin II* (9) 660,000 ** William B. Stilley III* (10) 170,000 ** Tevi Troy* (11) 170,000 ** Yue (Charles) Li* (12) 130,000 ** All officers and directors as a group (10 persons) 60,715,161 66.7 % * Officer and/or director of our company. ** Less than 1.0%. (1) Except as otherwise indicated, the address of each beneficial owner is c/o Avalon GloboCare Corp., 4400 Route 9 South, Suite 3100, Freehold, New Jersey 07728. (2) Applicable percentage ownership is based on 84,405,614 shares of common stock outstanding as of March 29, 2021, together with securities exercisable or convertible into shares of common stock within 60 days of March 29, 2021 for each stockholder. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Shares of common stock that are currently exercisable or exercisable within 60 days of March 29, 2021 are deemed to be beneficially owned by the person holding such securities for the purpose of computing the percentage of ownership of such person, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person. (3) Wenzhao Lu holds (i) 28,545,161 shares of common stock and (ii) 1,500,000 vested options to acquire 1,500,000 shares of common stock of our company. (4) David Jin holds (i) 15,450,000 shares of common stock and (ii) 550,000 vested options to acquire 550,000 shares of common stock of our company. (5) Meng Li holds (i) 5,150,000 shares of common stock and (ii) 450,000 vested options to acquire 450,000 shares of common stock of our company. (6) Represents 2,400,000 vested options to acquire 2,400,000 shares of common stock of our company. (7) Yancen Lu holds (i) 5,000,000 shares of common stock and (ii) 370,000 options, of which 350,000 shares have vested and an additional 20,000 shares shall vest within 60 days. (8) Represents stock option to acquire 170,000 shares of common stock of our company, which included 20,000 shares to be vested within 60 days. (9) Represents stock option to acquire 660,000 shares of common stock of our company, which included 10,000 shares to be vested within 60 days. (10) Represents stock option to acquire 170,000 shares of common stock of our company, which included 20,000 shares to be vested within 60 days. (11) Represents stock option to acquire 170,000 shares of common stock of our company, which included 20,000 shares to be vested within 60 days. (12) Represents stock option to acquire 130,000 shares of common stock of our company, which included 20,000 shares to be vested within 60 days. 60 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE Medical Related Consulting Services Revenue from Related Parties and Accounts Receivable – Related Party During the years ended December 31, 2020 and 2019, medical related consulting services revenue from related parties was as follows: Years Ended December 31, 2020 2019 Medical related consulting services provided to: Beijing Daopei * $ - $ 54,909 Shanghai Daopei * 170,908 13,926 Hebei Daopei * - 286,709 $ 170,908 $ 355,544 * Beijing Daopei, Shanghai Daopei, and Hebei Daopei are subsidiaries of an entity whose chairman is Wenzhao Lu, the largest shareholder of the Company. As of December 31, 2020, accounts receivable – related party was $0. Accounts receivable – related party at December 31, 2019 amounted to $215,418 and no allowance for doubtful accounts is deemed to be required on accounts receivable – related party at December 31, 2019. Accrued Liabilities and Other Payables – Related Parties The Company acquired Beijing Genexosome for a cash payment of $450,000. As of December 31, 2020 and 2019, the unpaid acquisition consideration of $100,000, was payable to Dr. Yu Zhou, former director and former co-chief executive officer and 40% owner of Genexosome, and has been included in accrued liabilities and other payables – related parties on the accompanying consolidated balance sheets. As of December 31, 2020 and 2019, the accrued and unpaid interest related to borrowings from Wenzhao Lu, the Company’s largest shareholder and chairman of the Board of Directors, amounted to $167,956 and $49,194, respectively, and have been included in accrued liabilities and other payables – related parties on the accompanying consolidated balance sheets. Borrowings from Related Party Promissory Note On March 18, 2019, the Company issued Wenzhao Lu, the Company’s largest shareholder and Chairman of the Board of Directors, a Promissory Note in the principal amount of $1,000,000 (“Promissory Note”) in consideration of cash in the amount of $1,000,000. The Promissory Note accrues interest at the rate of 5% per annum and matures March 19, 2022. The Company repaid principal of $410,000 and $200,000 in the third quarter of 2019 and second quarter of 2020, respectively. As of December 31, 2020 and 2019, the outstanding principal balance was $390,000 and $590,000, respectively. Line of Credit On August 29, 2019, the Company entered into a Line of Credit Agreement (the “Line of Credit Agreement”) providing the Company with a $20 million line of credit (the “Line of Credit”) from Wenzhao Lu (the “Lender”), the largest shareholder and Chairman of the Board of Directors of the Company. The Line of Credit allows the Company to request loans thereunder and to use the proceeds of such loans for working capital and operating expense purposes until the facility matures on December 31, 2024. The loans are unsecured and are not convertible into equity of the Company. Loans drawn under the Line of Credit bears interest at an annual rate of 5% and each individual loan will be payable three years from the date of issuance. The Company has a right to draw down on the line of credit and not at the discretion of the related party Lender. The Company may, at its option, prepay any borrowings under the Line of Credit, in whole or in part at any time prior to maturity, without premium or penalty. The Line of Credit Agreement includes customary events of default. If any such event of default occurs, the Lender may declare all outstanding loans under the Line of Credit to be due and payable immediately. As of December 31, 2020 and 2019, $3,200,000 and $2,600,000 was outstanding under the Line of Credit, respectively. For the years ended December 31, 2020 and 2019, the interest expense related to above borrowings amounted to $168,762 and $49,194, respectively, and has been included in interest expense – related party on the accompanying consolidated statements of operations and comprehensive loss. As of December 31, 2020 and 2019, the related accrued and unpaid interest for above borrowings was $167,956 and $49,194, respectively, and has been included in accrued liabilities and other payables – related parties on the accompanying consolidated balance sheets. 61 Common Shares Sold to Related Party On April 1, 2020, the Company sold 645,161 shares of its common stock to WLM Limited (“WLM”), an entity owned by Wenzhao Lu, Chairman of the Board of Directors of the Company, at a price per share of $1.55 for an aggregate purchase price of $1,000,000 (See Note 11 – Common Shares Sold for Cash). Office Space from Related Party Beijing Genexosome uses office space of a related party, free of rent, which is considered immaterial. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES Marcum LLP served as our independent auditors for the years ended December 31, 2020 and 2019. Aggregate fees billed to the Company for professional services rendered by Marcum LLP during the last two fiscal years were as follows: December 31, 2020 December 31, 2019 Audit Fees $ 252,144 $ 186,669 Audit Related Fees - - Tax Fees 15,450 2,575 All Other Fees - - Totals $ 267,594 $ 189,244 AUDIT FEES. Consists of fees billed for professional services rendered for the audit of our annual consolidated financial statements, review of the Form 10-K, and review of the interim consolidated financial statements included in quarterly reports, and services that are normally provided by our independent auditors in connection with statutory and regulatory filings or engagements, including registration statements. AUDIT-RELATED FEES. Consists of fees billed for assurance and related services that are reasonably related to the performance of the audit and or review of our consolidated financial statements and are not reported under “Audit Fees”, such as audits and reviews in connection with acquisitions. TAX FEES. Consists of fees billed for professional services for tax compliance, tax advice and tax planning. ALL OTHER FEES. Consists of fees for products and services other than the services reported above. There were no management consulting services provided in fiscal 2020 or 2019. POLICY ON AUDIT COMMITTEE PRE-APPROVAL OF AUDIT AND PERMISSIBLE NON-AUDIT SERVICES OF INDEPENDENT AUDITORS The current policy of the directors, acting as the audit committee, is to approve the appointment of the principal auditing firm and any permissible audit-related services. The audit and audit related fees include fees for the annual audit of the financial statements and review of financial statements included in 10Q filings. Fees charged by the auditor were approved by the Board with engagement letters signed by the audit committee chairman. The Audit Committee is responsible for the pre-approval of audit and permitted non-audit services to be performed by the Company’s independent auditor. The Audit Committee will, on an annual basis, consider and, if appropriate, approve the provision of audit and non-audit services by the auditor. Thereafter, the Audit Committee will, as necessary, consider and, if appropriate, approve the provision of additional audit and non-audit services by the auditor which are not encompassed by the Audit Committee’s annual pre-approval and are not prohibited by law. The Audit Committee has delegated to the Chair of the Audit Committee the authority to pre-approve, on a case-by-case basis, non-audit services to be performed by the auditor. The Audit Committee has approved all audit and permitted non-audit services performed by the auditor for the year ended December 31, 2020. 62 PART IV ITEM 15. EXHIBITS Exhibit Number Description 1.1 Open Market Sale Agreement SM , dated as of December 13, 2019, by and between Avalon GloboCare Corp. and Jefferies LLC. (incorporated by reference to Exhibit 1.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on December 13, 2019) 3.1 Amended and Restated Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 of the Current Report on Form 8-K/A filed with the Securities and Exchange Commission on April 26, 2018) 3.2 Amended and Restated Bylaws of the Registrant (incorporated by reference to Exhibit 3.2 of the Current Report on Form 8-K/A filed with the Securities and Exchange Commission on April 26, 2018) 4.1 Form of Subscription Agreement by and between Avalon GloboCare Corp. and the December 2016 Accredited Investors (incorporated by reference to Exhibit 4.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on December 21, 2016) 4.2 † Stock Option issued to Luisa Ingargiola dated February 21, 2017 (incorporated by reference to Exhibit 4.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on February 21, 2017) 4.3 Form of Subscription Agreement by and between Avalon GloboCare Corp. and the March 2017 Accredited Investor (incorporated by reference to Exhibit 4.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on March 7, 2017) 4.4 Share Subscription Agreement between Avalon GloboCare Corp., Avalon (Shanghai) Healthcare Technology Co., Ltd., Beijing DOING Biomedical Technology Co., Ltd. and Daron Liang (incorporated by reference to Exhibit 4.2 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on March 7, 2017) 4.5 Warranty Agreement between Lu Wenzhao and Beijing DOING Biomedical Technology Co., Ltd. (incorporated by reference to Exhibit 4.3 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on March 7, 2017) 4.6 Form of Subscription Agreement between Avalon GloboCare Corp. and the October 2017 Accredited Investors (incorporated by reference to Exhibit 4.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on October 26, 2017) 4.7 Form of Warrant to Boustead Securities, LLC in connection with the private placements (incorporated by reference to Exhibit 4.8 of the Registration Statement on Form S-1/A filed with the Securities and Exchange Commission on July 27, 2018) 4.8 Form of Warrant (April 2019) (Incorporated by reference to Exhibit 4.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on April 26, 2019) 4.9* Description of Securities Registered under Section 12 of the Securities Exchange Act of 1934 10.1 Share Exchange Agreement dated as of October 19, 2016 by and among Avalon Healthcare System, Inc., the shareholders of Avalon Healthcare System, Inc. and Avalon GloboCare Corp. (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on October 19, 2016) 10.2 † Executive Employment Agreement, effective December 1, 2016, by and between Avalon GloboCare Corp. and David Jin (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on December 2, 2016) 10.3 Agreement of Sale by and between Freehold Craig Road Partnership, as Seller, and Avalon GloboCare Corp., as Buyer dated as of December 22, 2016 (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on December 23, 2016) 10.4 † Executive Employment Agreement by and between Avalon (Shanghai) Healthcare Technology Ltd. and Meng Li dated January 11, 2017 (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on January 11, 2017) 63 10.5 † Executive Retention Agreement by and between Avalon GloboCare Corp. and Luisa Ingargiola dated February 21, 2017 (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on February 21, 2017) 10.6 † Indemnification Agreement by and between Avalon GloboCare Corp. and Luisa Ingargiola dated February 21, 2017 (incorporated by reference to Exhibit 10.2 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on February 21, 2017) 10.7 † Director Agreement by and between Avalon GloboCare Corp. and Steven P. Sukel dated April 28, 2017 (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on April 28, 2017) 10.8 † Director Agreement by and between Avalon GloboCare Corp. and Yancen Lu dated April 28, 2017 (incorporated by reference to Exhibit 10.2 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on April 28, 2017) 10.9 Consultation Service Contract between Daopei Investment Management (Shanghai) Co., Ltd. and Avalon HealthCare System Inc. dated April 1, 2016 (English translation) (incorporated by reference to Exhibit 10.8 of Amendment No. 1 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on July 7, 2017) 10.10 Consultation Service Contract between Hebei Yanda Ludaopei Hospital Co., Ltd and Avalon HealthCare System Inc. dated April 1, 2016 (English translation) (incorporated by reference to Exhibit 10.9 of Amendment No. 1 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on July 7, 2017) 10.11 Consultation Service Contract between Nanshan Memorial Stem Cell Biotechnology Co., Ltd. and Avalon HealthCare System Inc. dated April 1, 2016 (English translation) (incorporated by reference to Exhibit 10.10 of Amendment No. 1 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on July 7, 2017) 10.12 Loan Agreement between Lotus Capital Overseas Limited and Avalon (Shanghai) Healthcare Technology Co., Ltd. dated April 19, 2017 (English translation) (incorporated by reference to Exhibit 10.12 of the Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on August 14, 2017) 10.13 Securities Purchase Agreement between Avalon GloboCare Corp. and Genexosome Technologies Inc. dated October 25, 2017 (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on October 26, 2017) 10.14 Asset Purchase Agreement between Genexosome Technologies Inc. and Yu Zhou dated October 25, 2017 (incorporated by reference to Exhibit 10.2 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on October 26, 2017) 10.15 Stock Purchase Agreement between Genexosome Technologies Inc., Beijing Jieteng (Genexosome) Biotech Co. Ltd. and Yu Zhou dated October 25, 2017 (incorporated by reference to Exhibit 10.3 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on October 26, 2017) 10.16 † Executive Retention Agreement between Genexosome Technologies Inc. and Yu Zhou dated October 25, 2017 (incorporated by reference to Exhibit 10.4 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on October 26, 2017) 10.17 Invention Assignment, Confidentiality, Non-Compete and Non-Solicit Agreement between Genexosome Technologies Inc. and Yu Zhou dated October 25, 2017 (incorporated by reference to Exhibit 10.5 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on October 26, 2017) 10.18 † Director Agreement by and between Avalon GloboCare Corp. and Wilbert J. Tauzin II dated November 1, 2017 (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on November 7, 2017) 10.19 Agreement between Avalon GloboCare Corp. and Tauzin Consultants, LLC dated November 1, 2017 (incorporated by reference to Exhibit 10.2 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on November 7, 2017) 10.20 † Letter Agreement by and between Avalon GloboCare Corp. and David Jin dated April 3, 2018 (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on April 4, 2018) 64 10.21 † Letter Agreement by and between Avalon GloboCare Corp. and Meng Li dated April 3, 2018 (incorporated by reference to Exhibit 10.2 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on April 4, 2018) 10.22 Advisory Service Contract between Ludaopei Hematology Research Institute Co., Ltd. and Avalon (Shanghai) Healthcare Technology Co., Ltd. dated April 1, 2018 (English translation) (Incorporated by reference to that Form S-1 Registration Statement filed with the Securities and Exchange Commission on April 19, 2018) 10.23 Form of Subscription Agreement by and between Avalon GloboCare Corp. and the April 2018 Accredited Investors (incorporated by reference to Exhibit 4.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on April 18, 2018) 10.24 Supplementary Agreement Related to Share Subscription by and between Avalon GloboCare Corp., Avalon (Shanghai) Healthcare Technology Co., Ltd., Beijing DOING Biomedical Technology Co., Ltd. and Daron Liang dated April 23, 2018 (English translation) (incorporated by reference to Exhibit 4.2 of the Current Report on Form 8-K/A filed with the Securities and Exchange Commission on April 26, 2018) 10.25 Loan Extension Agreement between Lotus Capital Overseas Limited and Avalon (Shanghai) Healthcare Technology Co., Ltd. dated May 3, 2018 (English translation) (incorporated by reference to Exhibit 10.18 of the Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 11, 2018) 10.26 † Director Agreement by and between Avalon GloboCare Corp. and Tevi Troy dated June 4, 2018 (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on June 6, 2018) 10.27 Joint Venture Agreement by and between Avalon (Shanghai) Healthcare Technology Co., Ltd. and Jiangsu Unicorn Biological Technology Co., Ltd. dated May 29, 2018 (English translation) (incorporated by reference to Exhibit 99.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on June 6, 2018) 10.28 † Director Agreement by and between Avalon GloboCare Corp. and William Stilley, III dated July 5, 2018 (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 10, 2018) 10.29 † Director Agreement by and between Avalon GloboCare Corp. and Steven A. Sanders dated July 30, 2018 (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 31, 2018) 10.30 Loan Extension Agreement between Lotus Capital Overseas Limited and Avalon (Shanghai) Healthcare Technology Co., Ltd. dated August 3, 2018 (English translation) (incorporated by reference to Exhibit 10.30 of the Registration Statement on Form S-1/A filed with the Securities and Exchange Commission on August 7, 2018) 10.31 Strategic Partnership Agreement between Avalon GloboCare Corp. and Weill Cornell Medical College of Cornell University dated August 6, 2018 (incorporated by reference to Exhibit 10.31 of the Registration Statement on Form S-1/A filed with the Securities and Exchange Commission on August 7, 2018) 10.32 Equity Joint Venture Agreement by and between Avactis Biosciences, Inc., a wholly-owned subsidiary of Avalon GloboCare Corp., and Arbele Limited for the establishment of AVAR (China) BioTherapeutics Ltd. dated October 23, 2018 (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on October 29, 2018) 10.33 Letter Agreement by and between Avalon GloboCare Corp. and David Jin dated January 3, 2019 (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on January 4, 2019) 10.34 Letter Agreement by and between Avalon GloboCare Corp. and Luisa Ingargiola dated January 3, 2019 (incorporated by reference to Exhibit 10.2 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on January 4, 2019) 10.35 Letter Agreement by and between Avalon (Shanghai) Healthcare Technology Co. Ltd. and Meng Li dated January 3, 2019 (incorporated by reference to Exhibit 10.3 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on January 4, 2019) 10.36 Promissory Note issued to Daniel Lu dated Mach 18, 2019 (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on March 22, 2019) 10.37† Director Agreement by and between Avalon GloboCare Corp. and Meng Li dated April 5, 2019 (Incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on April 8, 2019) 10.38† Director Agreement by and between Avalon GloboCare Corp. and Yue “Charles” Li dated April 5, 2019 (Incorporated by reference to Exhibit 10.2 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on April 8, 2019) 10.39 Form of Securities Purchase Agreement dated April 25, 2019 (Incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on April 26, 2019) 65 10.40 Revolving Line of Credit Agreement dated as of August 29, 2019 between Avalon GloboCare Corp. and Wenzhao “Daniel” Lu dated August 29, 2019 (Incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on September 3, 2019) 10.41 Form of Warrant Redemption and Cancellation Agreement (Incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on October 21, 2019) 10.42 Letter Agreement by and between Avalon GloboCare Corp. and David Jin dated February 20, 2020 (Incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on February 24, 2020) 10.43 Letter Agreement by and between Avalon GloboCare Corp. and Meng Li dated February 20, 2020 (Incorporated by reference to Exhibit 10.2 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on February 24, 2020) 10.44 Letter Agreement by and between Avalon GloboCare Corp. and Luisa Ingargiola dated February 20, 2020 (Incorporated by reference to Exhibit 10.3 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on February 24, 2020) 21.1 List of Subsidiaries (incorporated by reference to Exhibit 21.1 of the Registration Statement on Form S-1/A filed with the Securities and Exchange Commission on July 20, 2018) 23.1* Consent of Independent Registered Accounting Firm 31.1* Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes Oxley Act 31.2* Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes Oxley Act 32.1* Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act 32.2* Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act 101.INS* XBRL INSTANCE DOCUMENT 101.SCH* XBRL TAXONOMY EXTENSION SCHEMA DOCUMENT 101.CAL* XBRL TAXONOMY EXTENSION CALCULATION LINKBASE DOCUMENT 101.DEF* XBRL TAXONOMY EXTENSION DEFINITION LINKBASE DOCUMENT 101.LAB* XBRL TAXONOMY EXTENSION LABEL LINKBASE DOCUMENT 101.PRE* XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE DOCUMENT * Filed herewith † Management contract or compensatory plan or arrangement. ITEM 16. FORM 10-K SUMMARY. None. 66 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. AVALON GLOBOCARE CORP. Dated: March 30, 2021 By: /s/ David Jin Name: David Jin Title: Chief Executive Officer, President and Director (Principal Executive Officer) Dated: March 30, 2021 By: /s/ Luisa Ingargiola Name: Luisa Ingargiola Title: Chief Financial Officer (Principal Financial and Accounting Officer) In accordance with the Exchange Act, this report has been signed below by the following persons on March 30, 2021, on behalf of the registrant and in the capacities indicated. Signature Title /s/ David Jin Chief Executive Officer, President and Director David Jin (Principal Executive Officer) /s/ Luisa Ingargolia Chief Financial Officer Luisa Ingargolia (Principal Financial Officer) /s/ Wenzhao Lu Chairman of the Board of Directors Wenzhao Lu /s/ Meng Li Chief Operating Officer, Secretary and Director Meng Li /s/ Steven A. Sanders Director Steven A. Sanders /s/ Yancen Lu Director Yancen Lu /s/ Wilbert J. Tauzin II Director Wilbert J. Tauzin II /s/ William B. Stilley III Director William B. Stilley III /s/ Tevi Troy Director Tevi Troy /s/ Yue “Charles” Li Director Yue “Charles” Li 67 AVALON GLOBOCARE CORP. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS December 31, 2020 and 2019 AVALON GLOBOCARE CORP. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2020 and 2019 CONTENTS Report of Independent Registered Public Accounting Firm F-2 Consolidated Financial Statements: Consolidated Balance Sheets - As of December 31, 2020 and 2019 F-3 Consolidated Statements of Operations and Comprehensive Loss - For the Years Ended December 31, 2020 and 2019 F-4 Consolidated Statements of Changes in Equity - For the Years Ended December 31, 2020 and 2019 F-5 Consolidated Statements of Cash Flows – For the Years Ended December 31, 2020 and 2019 F-6 Notes to Consolidated Financial Statements F-7 F- 1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and Board of Directors of Avalon GloboCare Corp. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Avalon GloboCare Corp. (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of operations and comprehensive loss, changes in stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2020, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America. Explanatory Paragraph – Going Concern The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 2, the Company has a significant working capital deficiency, has incurred significant losses and needs to raise additional funds to meet its obligations and sustain its operations. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters Critical Audit Matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters. /s/ Marcum llp Marcum llp We have served as the Company’s auditor since 2019. New York, NY March 30, 2021 F- 2 AVALON GLOBOCARE CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 2020 2019 ASSETS CURRENT ASSETS: Cash $ 726,577 $ 764,891 Accounts receivable - 4,710 Accounts receivable - related party - 215,418 Rent receivable 35,395 23,759 Deferred financing costs 222,141 311,177 Prepaid expenses and other current assets 302,224 251,140 Total Current Assets 1,286,337 1,571,095 NON-CURRENT ASSETS: Rent receivable - noncurrent portion 111,840 99,235 Deferred leasing costs 144,197 - Operating lease right-of-use assets, net 137,333 - Property and equipment, net 479,115 601,425 Investment in real estate, net 7,685,686 7,735,680 Equity method investment 521,758 483,101 Total Non-current Assets 9,079,929 8,919,441 Total Assets $ 10,366,266 $ 10,490,536 LIABILITIES AND EQUITY CURRENT LIABILITIES: Accrued professional fees $ 1,212,822 $ 1,243,190 Accrued research and development fees 513,533 650,000 Accrued payroll liability and directors’ compensation 154,292 488,083 Accrued liabilities and other payables 297,777 226,759 Accrued liabilities and other payables - related parties 267,956 149,194 Operating lease obligation 76,379 - Tenants’ security deposit 69,634 78,237 Total Current Liabilities 2,592,393 2,835,463 NON-CURRENT LIABILITIES: Operating lease obligation - noncurrent portion 66,954 - Note payable - related party 390,000 590,000 Loan payable - related party 3,200,000 2,600,000 Total Non-current Liabilities 3,656,954 3,190,000 Total Liabilities 6,249,347 6,025,463 Commitments and Contingencies - (Note 17) EQUITY: Preferred stock, $0.0001 par value; 10,000,000 shares authorized; no shares issued and outstanding at December 31, 2020 and 2019 - - Common stock, $0.0001 par value; 490,000,000 shares authorized; 82,795,297 shares issued and 82,275,297 shares outstanding at December 31, 2020; 76,730,802 shares issued and 76,210,802 shares outstanding at December 31, 2019 8,279 7,673 Additional paid-in capital 46,856,447 34,593,006 Less: common stock held in treasury, at cost; 520,000 shares at December 31, 2020 and 2019 (522,500 ) (522,500 ) Accumulated deficit (42,041,375 ) (29,361,937 ) Statutory reserve 6,578 6,578 Accumulated other comprehensive loss - foreign currency translation adjustment (190,510 ) (257,747 ) Total Avalon GloboCare Corp. stockholders’ equity 4,116,919 4,465,073 Non-controlling interest - - Total Equity 4,116,919 4,465,073 Total Liabilities and Equity $ 10,366,266 $ 10,490,536 See accompanying notes to the consolidated financial statements. F- 3 AVALON GLOBOCARE CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS For the Years Ended December 31, 2020 2019 REVENUES Real property rental $ 1,206,854 $ 1,155,677 Medical related consulting services - related parties 170,908 355,544 Development services and sales of developed products - 35,084 Total Revenues 1,377,762 1,546,305 COSTS AND EXPENSES Real property operating expenses 851,754 818,662 Medical related consulting services - related parties 135,805 284,472 Development services and sales of developed products - 103,258 Total Costs and Expenses 987,559 1,206,392 REAL PROPERTY OPERATING INCOME 355,100 337,015 GROSS PROFIT FROM MEDICAL RELATED CONSULTING SERVICES 35,103 71,072 GROSS LOSS FROM DEVELOPMENT SERVICES AND SALES OF DEVELOPED PRODUCTS - (68,174 ) Total Gross Profit 390,203 339,913 OTHER OPERATING EXPENSES: Professional fees 6,553,009 5,994,129 Compensation and related benefits 4,156,150 8,743,691 Research and development expenses 883,855 1,781,869 Other general and administrative 1,251,208 2,187,443 Impairment loss - 1,010,011 Total Other Operating Expenses 12,844,222 19,717,143 LOSS FROM OPERATIONS (12,454,019 ) (19,377,230 ) OTHER (EXPENSE) INCOME Interest expense - (33,714 ) Interest expense - related party (168,762 ) (49,194 ) Change in fair value of warrants liabilities - 2,817,241 Financing expense - (525,418 ) Loss from equity method investment (51,673 ) (55,776 ) Loss from noncontrolling interest deficit adjustment - (862,200 ) Other (expense) income (4,984 ) 16,130 Total Other (Expense) Income, net (225,419 ) 1,307,069 LOSS BEFORE INCOME TAXES (12,679,438 ) (18,070,161 ) INCOME TAXES - - NET LOSS $ (12,679,438 ) $ (18,070,161 ) LESS: NET LOSS ATTRIBUTABLE TO NON-CONTROLLING INTEREST - - NET LOSS ATTRIBUTABLE TO AVALON GLOBOCARE CORP. COMMON SHAREHOLDERS $ (12,679,438 ) $ (18,070,161 ) COMPREHENSIVE LOSS: NET LOSS $ (12,679,438 ) $ (18,070,161 ) OTHER COMPREHENSIVE INCOME (LOSS) Unrealized foreign currency translation gain (loss) 67,237 (20,887 ) COMPREHENSIVE LOSS (12,612,201 ) (18,091,048 ) LESS: COMPREHENSIVE LOSS ATTRIBUTABLE TO NON-CONTROLLING INTEREST - - COMPREHENSIVE LOSS ATTRIBUTABLE TO AVALON GLOBOCARE CORP. COMMON SHAREHOLDERS $ (12,612,201 ) $ (18,091,048 ) NET LOSS PER COMMON SHARE ATTRIBUTABLE TO AVALON GLOBOCARE CORP. COMMON SHAREHOLDERS: Basic and diluted $ (0.16 ) $ (0.24 ) WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: Basic and diluted 79,508,149 75,116,895 See accompanying notes to the consolidated financial statements. F- 4 AVALON GLOBOCARE CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY For the Years Ended December 31, 2020 and 2019 Avalon GloboCare Corp. Stockholders’ Equity Preferred Stock Common Stock Additional Treasury Stock Accumulated Other Non- Number of Number of Paid-in Number of Accumulated Statutory Comprehensive controlling Total Shares Amount Shares Amount Capital Shares Amount Deficit Reserve Loss Interest Equity Balance, January 1, 2019 - $ - 73,830,751 $ 7,383 $ 24,153,378 (520,000 ) $ (522,500 ) $ (11,291,776 ) $ 6,578 $ (236,860 ) $ (862,200 ) $ 11,254,003 Noncontrolling interest deficit adjustment - - - - - - - - - - 862,200 862,200 Issuance of common stock upon cashless exercise of stock warrants - - 350,856 35 (35 ) - - - - - - - Issuance of common stock upon cashless exercise of stock options - - 158,932 16 (16 ) - - - - - - - Sale of common stock, net - - 1,852,883 185 1,672,903 - - - - - - 1,673,088 Issuance of common stock for services - - 537,380 54 1,318,546 - - - - - - 1,318,600 Stock-based compensation - - - - 7,448,230 - - - - - - 7,448,230 Foreign currency translation adjustment - - - - - - - - - (20,887 ) - (20,887 ) Net loss for the year - - - - - - - (18,070,161 ) - - - (18,070,161 ) Balance, December 31, 2019 - - 76,730,802 7,673 34,593,006 (520,000 ) (522,500 ) (29,361,937 ) 6,578 (257,747 ) - 4,465,073 Sale of common stock, net - - 4,558,574 456 7,405,019 - - - - - - 7,405,475 Issuance of common stock for services - - 1,505,921 150 1,892,370 - - - - - - 1,892,520 Stock-based compensation - - - - 2,966,052 - - - - - - 2,966,052 Foreign currency translation adjustment - - - - - - - - - 67,237 - 67,237 Net loss for the year - - - - - - - (12,679,438 ) - - - (12,679,438 ) Balance, December 31, 2020 - $ - 82,795,297 $ 8,279 $ 46,856,447 (520,000 ) $ (522,500 ) $ (42,041,375 ) $ 6,578 $ (190,510 ) $ - $ 4,116,919 See accompanying notes to the consolidated financial statements. F- 5 AVALON GLOBOCARE CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31, 2020 2019 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (12,679,438 ) $ (18,070,161 ) Adjustments to reconcile net loss to net cash used in operating activities: Bad debt provision 55,133 - Depreciation and amortization 314,780 506,744 Amortization of straight-line rent receivable 7,554 - Amortization of use-of-right asset 63,695 - Stock-based compensation and service expense 5,494,033 9,209,147 Loss from equity method investment 51,673 55,776 Loss on fixed assets disposal 2,679 344 Changes in warrants derivative liabilities - (2,817,241 ) Allocated financing costs - 525,418 Impairment loss - 1,010,011 Loss from noncontrolling interest deficit adjustment - 862,200 Changes in operating assets and liabilities: Accounts receivable - 4,948 Accounts receivable - related party 217,394 (217,080 ) Rent receivable (82,174 ) (80,510 ) Prepaid expenses - related parties - 34,043 Prepaid expenses and other current assets (206,632 ) 480,460 Security deposit - 102,102 Accrued liabilities and other payables (837,261 ) 1,230,029 Accrued liabilities and other payables - related parties 118,762 72,362 Operating lease obligation (57,695 ) - Tenants’ security deposit (8,603 ) 11,537 NET CASH USED IN OPERATING ACTIVITIES (7,546,100 ) (7,079,871 ) CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment - (377,454 ) Improvement of commercial real estate (111,213 ) (16,321 ) Additional investment in equity method investment (57,972 ) (159,192 ) NET CASH USED IN INVESTING ACTIVITIES (169,185 ) (552,967 ) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds received from note payable - related party - 1,000,000 Repayments of note payable - related party (200,000 ) (410,000 ) Proceeds received from loan payable - related party 600,000 2,600,000 Repurchase of warrants - (1,400,000 ) Proceeds received from offering 7,804,099 6,273,744 Disbursements for offering costs (539,818 ) (908,834 ) Repayments of loan payable - (1,000,000 ) NET CASH PROVIDED BY FINANCING ACTIVITIES 7,664,281 6,154,910 EFFECT OF EXCHANGE RATE ON CASH 12,690 (9,468 ) NET DECREASE IN CASH (38,314 ) (1,487,396 ) CASH - beginning of year 764,891 2,252,287 CASH - end of year $ 726,577 $ 764,891 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for: Interest $ 50,000 $ 109,056 NON-CASH INVESTING AND FINANCING ACTIVITIES: Property and equipment acquired on credit as payable $ - $ 80,190 Common stock issued for future services $ 34,629 $ 124,583 Common stock issued for accrued liabilities $ 187,725 $ 116,575 See accompanying notes to the consolidated financial statements. F- 6 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 – ORGANIZATION AND NATURE OF OPERATIONS Avalon GloboCare 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 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 were accredited investors (“AHS Shareholders”) pursuant to which we acquired 100% of the outstanding securities of AHS in exchange for 50,000,000 shares of the Company’s common stock (the “AHS Acquisition”). AHS was incorporated on May 18, 2015 under the laws of the State of Delaware. 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) Healthcare Technology Co., Ltd. (“Avalon Shanghai”) immediately following the consummation of this reverse merger transaction. AHS owns 100% of the capital stock of 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. The Company is a clinical-stage, vertically integrated, leading CellTech bio-developer dedicated to advancing and empowering innovative, transformative immune effector cell therapy, exosome technology, as well as COVID-19 related diagnostics and therapeutics. The Company also provides strategic advisory and outsourcing services to facilitate and enhance its clients’ growth and development, as well as competitiveness in healthcare and CellTech industry markets. Through its subsidiary structure with unique integration of verticals from innovative R&D to automated bioproduction and accelerated clinical development, the Company is establishing a leading role in the fields of cellular immunotherapy (including CAR-T/NK), exosome technology (ACTEX™), and regenerative therapeutics. 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, 2020. 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 operations. 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. Currently, the occupancy rate of the building is 83.7%. On July 31, 2017, the Company formed Genexosome Technologies Inc. (“Genexosome”) in Nevada. Genexosome is engaged in developing proprietary diagnostic and therapeutic products using exosomes. Effective October 25, 2017, Genexosome owns 100% of the capital stock of Beijing Jieteng (Genexosome) Biotech Co., Ltd., a corporation incorporated in the People’s Republic of China on August 7, 2015 (“Beijing Genexosome”), and the Company holds 60% of Genexosome and Dr. Yu Zhou holds 40% of Genexosome. Beijing Genexosome is engaged in providing development services and selling developed items to customers in China. On July 18, 2018, the Company formed a wholly owned subsidiary, Avactis Biosciences Inc., a Nevada corporation, which will focus 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. On June 13, 2019, the Company formed a wholly owned subsidiary, International Exosome Association LLC, a Delaware company. There was no activity for the subsidiary since its incorporation through December 31, 2020. F- 7 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 – ORGANIZATION AND NATURE OF OPERATIONS (continued) Details of the Company’s subsidiaries which are included in these consolidated financial statements as of December 31, 2020 are as follows: Name of Subsidiary 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 using exosomes 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 International Exosome Association LLC (“Exosome”) Delaware June 13, 2019 100% held by AVCO Promotes standardization related to exosome industry NOTE 2 – BASIS OF PRESENTATION AND GOING CONCERN CONDITION Basis of Presentation 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. F- 8 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 – BASIS OF PRESENTATION AND GOING CONCERN CONDITION (continued) Going Concern The Company is a clinical-stage, vertically integrated, leading CellTech bio-developer dedicated to advancing and empowering innovative, transformative immune effector cell therapy, exosome technology, as well as COVID-19 related diagnostics and therapeutics. The Company also provides strategic advisory and outsourcing services to facilitate and enhance its clients’ growth and development, as well as competitiveness in healthcare and CellTech industry markets. Through its subsidiary structure with unique integration of verticals from innovative R&D to automated bioproduction and accelerated clinical development, the Company is establishing a leading role in the fields of cellular immunotherapy (including CAR-T/NK), exosome technology (ACTEX™), and regenerative therapeutics. In addition, the Company owns commercial real estate that houses its headquarters in Freehold, New Jersey and provides outsourced, customized international healthcare services to the rapidly changing health care industry primarily focused in the People’s Republic of China. The Company did not generate any revenue from development services and sales of developed products segment during the year ended December 31, 2020. 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 has incurred recurring net loss and generated negative cash flow from operating activities of $12,679,438 and $7,546,100 for the year ended December 31, 2020, 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 few 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 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 occurrence of an uncontrollable event such as the COVID-19 pandemic had negatively impact on the Company’s operations. Some tenants have delayed on rent payment and our occupancy of our rental property has decreased in 2020. Most tenants are paid up to date and our occupancy has increased from 83.7% to 89.4% in subsequent period. Our general development operations have continued during the COVID-19 pandemic and we have not had significant disruption. However, we are uncertain if the COVID-19 pandemic will impact future operations at our laboratory, or our ability to collaborate with other laboratories and universities. In addition, we are unsure if the COVID-19 pandemic will impact future clinical trials. Given the dynamic nature of these circumstances, the duration of business disruption and reduced traffic, the related financial effect cannot be reasonably estimated at this time but is expected to adversely impact the Company’s business for the year of 2021. 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 U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Significant estimates during the years ended December 31, 2020 and 2019 include the useful life of property and equipment and investment in real estate, 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. F- 9 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 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. Assets and liabilities measured at fair value on a nonrecurring basis. Certain assets and liabilities are measured at fair value on a nonrecurring basis. These assets and liabilities are not measured at fair value on an ongoing basis, but are subject to fair value adjustments in certain circumstances. These assets and liabilities can include intangible assets that are written down to fair value when they are impaired. Intangible assets. The factors used to determine fair value are subject to management’s judgment and expertise and include, but are not limited to, lower sales of the product than anticipated and future ability to use the product. These assumptions represent Level 3 inputs. Impairment of intangible assets for the year ended December 31, 2020 and 2019 was $0 and $1,010,011, respectively. Assets and liabilities measured at fair value on a recurring basis. Certain assets and liabilities are measured at fair value on a recurring basis. These assets and liabilities are measured at fair value on an ongoing basis. These assets and liabilities include derivative liabilities. Derivative liabilities. Derivative liabilities are carried at fair value and measured on an ongoing basis. The Company did not have derivative liabilities in the year ended December 31, 2020. The table below reflects the activity of derivative liabilities measured at fair value for the year ended December 31, 2019: Significant Unobservable Inputs (Level 3) Balance of derivative liabilities as of January 1, 2019 $ - Initial fair value of derivative liabilities attributable to warrants issuance with fund raise 4,217,241 Gain from change in the fair value of derivative liabilities (2,817,241 ) Warrants were redeemed and cancelled (1,400,000 ) Balance of derivative liabilities as of December 31, 2019 $ - The carrying amounts reported in the consolidated balance sheets for cash, rent receivable, accrued liabilities and other payables, accrued liabilities and other payables – related parties, operating lease obligation, tenants’ security deposit, approximate their fair market value as of December 31, 2020 and 2019 based on the short-term maturity of these instruments. 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. F- 10 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Cash and Cash Equivalents At December 31, 2020 and 2019, the Company’s cash balances by geographic area were as follows: Country: December 31, 2020 December 31, 2019 United States $ 559,711 77.0 % $ 371,929 48.6 % China 166,866 23.0 % 392,962 51.4 % Total cash $ 726,577 100.0 % $ 764,891 100.0 % For purposes of the consolidated statements of cash flows, the Company considers all highly liquid instruments with a maturity of three months or less when purchased and money market accounts to be cash equivalents. The Company had no cash equivalents at December 31, 2020 and 2019. Credit Risk and Uncertainties A portion of the Company’s cash is maintained with state-owned banks within the PRC. Balances at state-owned banks within the PRC are covered by insurance up to RMB 500,000 (approximately $77,000) per bank. Any balance over RMB 500,000 per bank in PRC will not be covered. At December 31, 2020, cash balances held in the PRC are RMB 1,089,733 (approximately $167,000), of which, RMB 563,458 (approximately $86,000) was not covered by such limited 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. The Company maintains a portion of its cash in bank and financial institution deposits within U.S. that at times may exceed federally-insured limits of $250,000. The Company manages this credit risk by concentrating its cash balances in high quality financial institutions and by periodically evaluating the credit quality of the primary financial institutions holding such deposits. The Company has not experienced any losses in such bank accounts and believes it is not exposed to any risks on its cash in bank accounts. At December 31, 2020, the Company’s cash balances in United States bank accounts had approximately $51,000 in excess of the federally-insured limits. 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 trade accounts receivable. 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 is limited due to generally short payment terms. The Company also performs ongoing credit evaluations of its customers to help further reduce credit risk. Rent Receivable and Allowance for Doubtful Accounts Rent receivable is presented net of an allowance for doubtful accounts. Rent receivable balance consists of base rents, tenant reimbursements and receivables arising from straight-lining of rents 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 rent 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 rent receivable is fully collectable. Therefore, no allowance for doubtful accounts is deemed to be required on its rent receivable at December 31, 2020 and 2019. F- 11 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Deferred financing costs Deferred financing costs consist of legal, accounting and other costs that are directly related to the Company’s open market sale equity financing and will be charged to stockholders’ equity upon the completion of the equity offering. As of December 31, 2020 and 2019, deferred financing costs amounted to $222,141 and $311,177, respectively. Deferred leasing costs Costs incurred to obtain tenant leases are amortized using the straight-line method over the term of the related lease agreement. Such costs include lease incentives and leasing commissions. If the lease is terminated early, the remaining unamortized deferred leasing cost is written off. 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. Investment in Unconsolidated Company – Epicon Biosciences 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 7 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. In September 2019, the Company assessed its long-lived assets for any impairment and concluded that there were indicators of impairment as of September 30, 2019 and it calculated that the estimated undiscounted cash flows related to the sales of the exosome isolation systems were less than the carrying amount of the intangible assets. Based on its analysis, the Company recognized an impairment loss of $1,010,011 for the year ended December 31, 2019, which reduced the value of intangible assets acquired to $0. The Company did not record any impairment charge for the year ended December 31, 2020. 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, 2020 and 2019, deferred rental income totaled $23,510 and $13,136, respectively, which were included in accrued liabilities and other payables on the accompanying consolidated balance sheets. F- 12 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 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 and comprehensive loss. Revenue Recognition The Company recognizes revenue under Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”). The core principle of the 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 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 goods or service that is distinct. A performance obligation meets ASC 606’s definition of a “distinct” goods or service (or bundle of goods or services) if both of the following criteria are met: ● The customer can benefit from the goods or service either on its own or together with other resources that are readily available to the customer (i.e., the goods or service is capable of being distinct). ● The entity’s promise to transfer the goods or service to the customer is separately identifiable from other promises in the contract (i.e., the promise to transfer the goods or service is distinct within the context of the contract). If a goods or service is not distinct, the goods 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. F- 13 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Revenue Recognition (continued) Types of revenue: ● 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 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 . The Company has determined that the ASC 606 does not apply to rental contracts, which are within the scope of other revenue recognition accounting standards. Rental income from operating leases is recognized on a straight-line basis under the guidance of ASC 842. Lease payments under tenant leases are recognized on a straight-line basis over the term of the related leases. The cumulative difference between lease revenue recognized under the straight-line method and contractual lease payments are included in rent receivable on the consolidated balance sheets. The Company does not offer promotional payments, customer coupons, rebates or other cash redemption offers to its customers. Disaggregation of Revenue In the following tables, revenue is disaggregated by segment: For the Year Ended December 31, 2020 Medical Related Consulting Services Segment Development Services and Sales of Developed Products Segment Total Medical related consulting services $ 170,908 $ - $ 170,908 Development services and sales of developed products - - - Total revenues $ 170,908 $ - $ 170,908 For the Year Ended December 31, 2019 Medical Related Consulting Services Segment Development Services and Sales of Developed Products Segment Total Medical related consulting services $ 355,544 $ - $ 355,544 Development services and sales of developed products - 35,084 35,084 Total revenues $ 355,544 $ 35,084 $ 390,628 F- 14 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 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 paid 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 include the cost of labor and related benefits, travel expenses related to consulting services, other related consulting costs, and other overhead costs. Development Services and Sales of Developed Products Costs Costs of development services and sales of developed items include inventory costs, materials and supplies costs, labor and related benefits, depreciation, other overhead costs and shipping and handling costs incurred. Research and Development Expenditures for research and product development costs are expensed as incurred. The Company incurred research and development expense of $883,855 and $1,781,869 in the years ended December 31, 2020 and 2019, respectively. Advertising Costs All costs related to advertising are expensed as incurred. For the years ended December 31, 2020 and 2019, advertising costs amounted to $294,352 and $685,064, respectively. Stock-based Compensation The Company accounts for its stock-based compensation awards in accordance with Accounting Standards Codification (“ASC”) Topic 718, Compensation—Stock Compensation (“ASC 718”). ASC 718 requires all stock-based payments to employees and non-employees including grants of stock options, to be recognized as expense in the statements of operations based on their grant date fair values. The Company estimates the grant date fair value of each option award using the Black-Scholes option-pricing model. The Company periodically issues common stock and common stock options to consultants for various services. Costs of these transactions are measured at the fair value of the service received or the fair value of the equity instruments issued, whichever is more reliably measurable. The value of the common stock is measured at the earlier of (i) the date at which a firm commitment for performance by the counterparty to earn the equity instruments is reached or (ii) the date at which the counterparty’s performance is complete. Income Taxes The Company is governed by the income tax laws of China and the United States. 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. F- 15 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Income Taxes (continued) 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, 2020 and 2019, 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, 2020, 2019 and 2018. 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, 2020 and 2019. 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, Avactis, and Exosome, 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, 2020 and 2019 were translated at 6.5306 RMB and 6.9632 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, 2020 and 2019 were 6.8999 RMB and 6.9099 RMB to $1.00, respectively. Cash flows from the Company’s operations are calculated based upon the local currencies using the average translation rate. 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, 2020 and 2019 consisted of net loss and unrealized gain/loss 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. F- 16 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Per Share Data (continued) 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: Years Ended December 31, 2020 2019 Stock options 7,140,000 5,260,000 Warrants - 2,293,179 Potentially dilutive securities 7,140,000 7,553,179 Non-controlling Interest As of December 31, 2020, Dr. Yu Zhou, former director and former Co-Chief Executive Officer of Genexosome, who owns 40% of the equity interests of Genexosome, which is not under the Company’s control. 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. Fiscal Year End The Company has adopted a fiscal year end of December 31st. Recent Accounting Standards 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 adoption of ASU 2018 – 13 did not have a material impact on the Company’s consolidated financial statements. F- 17 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Recent Accounting Standards (continued) In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (“Topic 326”). The ASU introduces a new accounting model, the Current Expected Credit Losses model (“CECL”), which requires earlier recognition of credit losses and additional disclosures related to credit risk. The CECL model utilizes a lifetime expected credit loss measurement objective for the recognition of credit losses at the time the financial asset is originated or acquired. ASU 2016-13 is effective for annual period beginning after December 15, 2022, including interim reporting periods within those annual reporting periods. The Company expects that the adoption will not have a material impact on the Company’s consolidated financial statements. In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes , as part of its Simplification Initiative to reduce the cost and complexity in accounting for income taxes. This standard removes certain exceptions related to the approach for intra period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. It also amends other aspects of the guidance to help simplify and promote consistent application of GAAP. The guidance is effective for interim and annual periods beginning after December 15, 2020, with early adoption permitted. The Company is evaluating the effects that the adoption of this guidance will have its consolidated financial statements. Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its consolidated financial condition, results of operations, cash flows or disclosures. NOTE 4 – PREPAID EXPENSES AND OTHER CURRENT ASSETS At December 31, 2020 and 2019, prepaid expenses and other current assets consisted of the following: December 31, 2020 December 31, 2019 Prepaid professional fees $ 78,639 $ 153,478 Prepaid research and development fees 60,610 - Prepaid directors and officers liability insurance premium 64,929 4,990 Prepaid VAT on purchase 40,446 40,602 Security deposit 26,493 24,847 Other 31,107 27,223 Total $ 302,224 $ 251,140 NOTE 5 – PROPERTY AND EQUIPMENT At December 31, 2020 and 2019, property and equipment consisted of the following: Useful life December 31, 2020 December 31, 2019 Laboratory equipment 5 Years $ 741,842 $ 705,982 Office equipment and furniture 3 – 10 Years 39,573 38,681 781,415 744,663 Less: accumulated depreciation (302,300 ) (143,238 ) $ 479,115 $ 601,425 For the years ended December 31, 2020 and 2019, depreciation expense of property and equipment amounted to $145,603 and $100,540, respectively, of which, $3,276 and $3,276 was included in real property operating expenses, $0 and $39,070 was included in costs of development services and sales of developed products, $70,241 and $30,947 was included in other operating expenses, and $72,086 and $27,247 was included in research and development expense, respectively. F- 18 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 6 – INVESTMENT IN REAL ESTATE At December 31, 2020 and 2019, investment in real estate consisted of the following: Useful life December 31, 2020 December 31, 2019 Commercial real property building 39 Years $ 7,708,571 $ 7,708,571 Improvement 12 Years 527,010 407,827 8,235,581 8,116,398 Less: accumulated depreciation (549,895 ) (380,718 ) $ 7,685,686 $ 7,735,680 For the years ended December 31, 2020 and 2019, depreciation expense of this commercial real property amounted to $169,177 and $160,527, which was included in real property operating expenses. NOTE 7 – EQUITY METHOD INVESTMENT As of December 31, 2020 and 2019, the equity method investment amounted to $521,758 and $483,101, respectively. 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 years ended December 31, 2020 and 2019, the Company’s share of Epicon’s net loss was $51,673 and $55,776, respectively, which was included in loss from equity method investment in the accompanying consolidated statements of operations and comprehensive loss. Activity recorded for the Company’s equity method investment in Epicon is summarized in the following table: Equity investment carrying amount at January 1, 2019 $ 385,162 Payment made for equity method investment 159,192 Epicon’s net loss attributable to the Company (55,776 ) Foreign currency fluctuation (5,477 ) Equity investment carrying amount at December 31, 2019 483,101 Payment made for equity method investment 57,972 Epicon’s net loss attributable to the Company (51,673 ) Foreign currency fluctuation 32,358 Equity investment carrying amount at December 31, 2020 $ 521,758 The tables below present the summarized financial information, as provided to the Company by the investee, for the unconsolidated company: December 31, 2020 December 31, 2019 Current assets $ 13,023 $ 77,272 Noncurrent assets 264,390 247,590 Current liabilities 6,615 324 Noncurrent liabilities - - Equity 270,798 324,538 F- 19 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 7 – EQUITY METHOD INVESTMENT (continued) For the Years Ended December 31, 2020 2019 Net revenue $ - $ - Gross profit - - Loss from operation 129,316 139,439 Net loss 129,183 139,439 NOTE 8 – ACCRUED LIABILITIES AND OTHER PAYABLES At December 31, 2020 and 2019, accrued liabilities and other payables consisted of the following: December 31, 2020 December 31, 2019 Accrued professional fees $ 1,212,822 $ 1,243,190 Accrued research and development fees 513,533 650,000 Accrued payroll liability and directors’ compensation 154,292 488,083 Accounts payable 87,190 84,316 Accrued tenants’ improvement reimbursement 81,900 - Deferred rental income 23,510 13,136 Other 105,177 129,307 $ 2,178,424 $ 2,608,032 NOTE 9 – RELATED PARTY TRANSACTIONS Medical Related Consulting Services Revenue from Related Parties and Accounts Receivable – Related Party During the years ended December 31, 2020 and 2019, medical related consulting services revenue from related parties was as follows: Years Ended December 31, 2020 2019 Medical related consulting services provided to: Beijing Daopei * $ - $ 54,909 Shanghai Daopei * 170,908 13,926 Hebei Daopei * - 286,709 $ 170,908 $ 355,544 *Beijing Daopei, Shanghai Daopei, and Hebei Daopei are subsidiaries of an entity whose chairman is Wenzhao Lu, the largest shareholder of the Company. As of December 31, 2020, accounts receivable – related party was $0. Accounts receivable – related party at December 31, 2019 amounted to $215,418 and no allowance for doubtful accounts was deemed to be required on accounts receivable – related party at December 31, 2019. F- 20 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 9 – RELATED PARTY TRANSACTIONS (continued) Accrued Liabilities and Other Payables – Related Parties The Company acquired Beijing Genexosome for a cash payment of $450,000. As of December 31, 2020 and 2019, the unpaid acquisition consideration of $100,000, was payable to Dr. Yu Zhou, former director and former co-chief executive officer and 40% owner of Genexosome, and has been included in accrued liabilities and other payables – related parties on the accompanying consolidated balance sheets. As of December 31, 2020 and 2019, the accrued and unpaid interest related to borrowings from Wenzhao Lu, the Company’s largest shareholder and chairman of the Board of Directors, amounted to $167,956 and $49,194, respectively, and have been included in accrued liabilities and other payables – related parties on the accompanying consolidated balance sheets. Borrowings from Related Party Promissory Note On March 18, 2019, the Company issued Wenzhao Lu, the Company’s largest shareholder and Chairman of the Board of Directors, a Promissory Note in the principal amount of $1,000,000 (“Promissory Note”) in consideration of cash in the amount of $1,000,000. The Promissory Note accrues interest at the rate of 5% per annum and matures March 19, 2022. The Company repaid principal of $410,000 and $200,000 in the third quarter of 2019 and second quarter of 2020, respectively. As of December 31, 2020 and 2019, the outstanding principal balance was $390,000 and $590,000, respectively. Line of Credit On August 29, 2019, the Company entered into a Line of Credit Agreement (the “Line of Credit Agreement”) providing the Company with a $20 million line of credit (the “Line of Credit”) from Wenzhao Lu (the “Lender”), the largest shareholder and Chairman of the Board of Directors of the Company. The Line of Credit allows the Company to request loans thereunder and to use the proceeds of such loans for working capital and operating expense purposes until the facility matures on December 31, 2024. The loans are unsecured and are not convertible into equity of the Company. Loans drawn under the Line of Credit bears interest at an annual rate of 5% and each individual loan will be payable three years from the date of issuance. The Company has a right to draw down on the line of credit and not at the discretion of the related party Lender. The Company may, at its option, prepay any borrowings under the Line of Credit, in whole or in part at any time prior to maturity, without premium or penalty. The Line of Credit Agreement includes customary events of default. If any such event of default occurs, the Lender may declare all outstanding loans under the Line of Credit to be due and payable immediately. As of December 31, 2020 and 2019, $3,200,000 and $2,600,000 was outstanding under the Line of Credit, respectively. For the years ended December 31, 2020 and 2019, the interest expense related to above borrowings amounted to $168,762 and $49,194, respectively, and has been included in interest expense – related party on the accompanying consolidated statements of operations and comprehensive loss. As of December 31, 2020 and 2019, the related accrued and unpaid interest for above borrowings was $167,956 and $49,194, respectively, and has been included in accrued liabilities and other payables – related parties on the accompanying consolidated balance sheets. Common Shares Sold to Related Party On April 1, 2020, the Company sold 645,161 shares of its common stock to WLM Limited (“WLM”), an entity owned by Wenzhao Lu, Chairman of the Board of Directors of the Company, at a price per share of $1.55, the fair market value on transaction date, for an aggregate purchase price of $1,000,000 (See Note 11 – Common Shares Sold for Cash). Office Space from Related Party Beijing Genexosome uses office space of a related party, free of rent, which is considered immaterial. F- 21 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 10 – 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 $2,005,685 as of December 31, 2020, which is included in the consolidated accumulated deficit. The Company’s loss before income taxes includes the following components: Years Ended December 31, 2020 2019 United States loss before income taxes $ (12,041,331 ) $ (17,310,582 ) China loss before income taxes (638,107 ) (759,579 ) Total loss before income taxes $ (12,679,438 ) $ (18,070,161 ) Components of income taxes expense (benefit) consisted of the following: Years Ended December 31, 2020 2019 Current: U.S. federal $ - $ - U.S. state and local - - China - - Total current income taxes expense $ - $ - Deferred: U.S. federal $ (2,333,680 ) $ (5,198,535 ) U.S. state and local (790,117 ) (1,760,074 ) China (132,578 ) (356,929 ) Total deferred income taxes (benefit) $ (3,256,375 ) $ (7,315,538 ) Change in valuation allowance 3,256,375 7,315,538 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, 2020 and 2019: Years Ended December 31, 2020 2019 U.S. federal rate 21.0 % 21.0 % U.S. state rate 6.8 % 7.5 % Non-deductible expenses - 2.1 % Non-US rate differential 0.2 % 0.3 % Prior year true-up 0.0 % 9.7 % U.S. valuation allowance (28.0 )% (40.6 )% Total provision for income taxes 0.0 % 0.0 % For the years ended December 31, 2020 and 2019, the Company did not incur any income taxes expense since it did not generate any taxable income in those periods. The Company’s foreign entities did not pay any income taxes during the years ended December 31, 2020 and 2019. F- 22 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 10 – INCOME TAXES (continued) The Company’s components of deferred taxes as of December 31, 2020 and 2019 were as follows: December 31, 2020 December 31, 2019 Deferred tax assets Stock-based compensation $ 3,667,375 $ 2,998,918 Disallowed business interest deduction 33,384 88,365 Lease liability 40,291 - Net operating loss carryforward 9,079,127 6,363,489 Total deferred tax assets, gross 12,820,177 9,450,772 Valuation allowance (12,649,005 ) (9,392,630 ) Total deferred tax assets, net $ 171,172 $ 58,142 Deferred tax liabilities Fixed assets book/tax basis difference (132,568 ) (58,142 ) Right-of-use assets (38,604 ) - Total deferred tax liabilities $ (171,172 ) $ (58,142 ) Net deferred tax assets $ - $ - As of December 31, 2020, the Company’s both federal and state net operating loss carryforwards amounted to $30,557,167. As of December 31, 2020, the Company has $28,079,726 of U.S. federal net operating loss carryovers that have no expiration date, the remaining of the federal net operating loss and state net operating loss carry-forwards begin to expire in 2035. As of December 31, 2020, the Company had net operating loss carryforwards in China of $1,958,029 that begin to expire in 2023. Additionally, as of December 31, 2020, $61,847 of the future utilization of the net operating loss carryforward to offset future taxable income is 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. A full valuation allowance has been provided against the Company’s deferred tax assets at December 31, 2020 as the Company believes it is more likely than not that sufficient taxable income will not be generated to realize these temporary differences. 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 has not been audited by any jurisdiction since its inception. The Company is open for audit by the U.S. Internal Revenue Service, and the Chinese Ministry of Finance and U.S. state tax jurisdictions from 2018 to 2020. There were no material uncertain tax positions as of December 31, 2020 and 2019. The Company recognizes interest and penalties related to unrecognized tax benefits as income tax expense, if any. The Company does not have any significant uncertain tax positions or events leading to uncertainty in a tax position. NOTE 11 – EQUITY 2020 Incentive Stock Plan The Company held its annual meeting on August 4, 2020. During its annual meeting, the Company approved 2020 Incentive Stock Plan and reserved 5,000,000 shares of common stock for issuance thereunder. Common Shares Issued for Warrant Exercise 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. Common Shares Issued for Option Exercise 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. F- 23 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 11 – EQUITY (continued) Common Shares Sold for Cash On December 13, 2019, the Company entered into an Open Market Sale Agreement SM (the “Sales Agreement”) with Jefferies LLC, as sales agent (“Jefferies”), pursuant to which the Company may offer and sell, from time to time, through Jefferies, shares of its common stock, par value $0.0001 per share, having an aggregate offering price of up to $20.0 million. In December 2019, Jefferies sold 138,595 shares of common stock at an average price of $1.98 per share to investors. The Company recorded net proceeds of $261,206, net of commission and other offering costs of $12,530. During the years ended December 31, 2020, Jefferies sold an aggregate of 3,913,413 shares of common stock at an average price of $1.74 per share to investors. The Company recorded net proceeds of $6,405,475, net of commission and other offering costs of $398,624. On April 1, 2020, the Company entered into a Subscription Agreement with WLM, an entity owned by Wenzhao Lu, Chairman of the Board of Directors of the Company, pursuant to which WLM purchased 645,161 shares of the Company’s common stock at a price per share of $1.55, the fair market value on transaction date, for an aggregate purchase price of $1,000,000. The closing occurred on April 1, 2020. Units Sold for Cash On April 25, 2019, the Company entered into a purchase agreement with several third-party institutional investors for the purchase of 1,714,288 units in a registered direct offering, for gross proceeds of $6,000,008 before placement agent fees and other offering expenses payable by the Company. Each unit was sold at a public offering price of $3.50 and consists of one share of common stock and a warrant to purchase one share of common stock. The Company received net cash proceeds of $5,103,704, net of cash paid for placement agent fees and other offering expenses. The warrants are exercisable immediately as of the date of issuance (the “Initial Exercise Date”), at an exercise price of $3.50 per share, subject to adjustment as provided in the warrants, and expire on the fifth (5 th ) anniversary of the Initial Exercise Date. The warrants include anti-dilution rights, which provide that if at any time the warrants are outstanding, the Company issues or is deemed to have issued any common stock or common stock equivalents for consideration less than the then current exercise price of the warrants, the exercise price of such warrants is automatically reduced to the lowest price per share of consideration provided or deemed to have been provided for such securities (subject to adjustment for reverse and forward stock splits, recapitalizations and similar transactions). The warrants include the fundamental transaction provisions and the exercise price of the warrants is protected against down-round financing throughout the term of the warrants. Upon evaluation, the warrants meet the definition of a derivative under FASB ASC 815, as the Company cannot avoid a net cash settlement under certain circumstances. Accordingly, the fair value of the warrants was classified as derivative liabilities of $4,217,241 on the issuance date, April 25, 2019. The estimated fair value of the warrants was computed at issuance using Black-Scholes option-pricing model, with the following assumptions: stock price of $2.82, volatility of 142.55%, risk-free rate of 2.33%, annual dividend yield of 0% and expected life of 5 years. On April 25, 2019, the derivative liabilities were recorded at fair value of $4,217,241. Given that the fair value of the derivative liabilities was less than the proceeds of the units sale fund raise of $6,000,008, the remaining proceeds of $1,782,767 were allocated to the common stock and additional paid-in capital. On October 18, 2019, the Company and third-party institutional investors entered into a Warrant Redemption and Cancellation Agreement (the “Redemption Agreement”). In accordance with the Redemption Agreement, the Company redeemed the 1,714,288 warrants for a purchase price of $1,400,000 in the fourth quarter of 2019, resulting in all of the 1,714,288 warrants being redeemed and cancelled. Increases or decreases in fair value of the derivative liabilities are included as a component of total other income (expenses) in the accompanying consolidated statements of operations and comprehensive loss. The change to the derivative liabilities for the warrants from April 25, 2019 through October 18, 2019 resulted in a decrease of $2,817,241 in the derivative liabilities and the corresponding increase in other income as a gain for the year ended December 31, 2019. F- 24 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 11 – EQUITY (continued) Common Shares Issued for Services During the year ended December 31, 2019, the Company issued a total of 537,380 shares of its common stock for services rendered and to be rendered. These shares were valued at $1,318,600, 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 $1,077,442 for the year ended December 31, 2019 and reduced accrued liabilities of $116,575 and recorded prepaid expense of $124,583 as of December 31, 2019 which will be amortized over the rest of corresponding service periods. During the year ended December 31, 2020, the Company issued a total of 1,505,921 shares of its common stock for services rendered and to be rendered. These shares were valued at $1,892,520, 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 $1,670,166 for the year ended December 31, 2020 and reduced accrued liabilities of $187,725 and recorded prepaid expense of $34,629 as of December 31, 2020 which will be amortized over the rest of corresponding service periods. Options The following table summarizes the shares of the Company’s common stock issuable upon exercise of options outstanding at December 31, 2020: Options Outstanding Options Exercisable Range of Exercise Price Number Outstanding at December 31, 2020 Weighted Average Remaining Contractual Life (Years) Weighted Average Exercise Price Number Exercisable at December 31, 2020 Weighted Average Exercise Price $ 0.50 2,000,000 6.11 $ 0.50 2,000,000 $ 0.50 1.00 – 1.93 2,370,000 5.73 1.45 2,151,666 1.48 2.00 – 2.80 2,740,000 2.76 2.17 2,740,000 2.17 4.76 30,000 3.26 4.76 30,000 4.76 $0.50 – 4.76 7,140,000 4.69 $ 1.48 6,921,666 $ 1.48 Stock option activities for the years ended December 31, 2020 and 2019 were as follows: Number of Options Weighted Average Exercise Price Outstanding at January 1, 2019 2,840,000 $ 0.77 Granted 2,620,000 2.17 Terminated / Exercised / Expired (200,000 ) (1.00 ) Outstanding at December 31, 2019 5,260,000 1.45 Granted 1,960,000 1.52 Terminated / Exercised / Expired (80,000 ) (1.00 ) Outstanding at December 31, 2020 7,140,000 $ 1.48 Options exercisable at December 31, 2020 6,921,666 $ 1.48 Options expected to vest 218,334 $ 1.18 The aggregate intrinsic value of both stock options outstanding and stock options exercisable at December 31, 2020 was $1,277,200. The fair values of options granted during the year ended December 31, 2020 were estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions: volatility of 131.16% - 139.58%, risk-free rate of 0.20% - 1.67%, annual dividend yield of 0% and expected life of 3.00 – 10.00 years. The aggregate fair value of the options granted during the year ended December 31, 2020 was $2,878,773. F- 25 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 11 – EQUITY (continued) Options (continued) The fair values of options granted during the year ended December 31, 2019 were estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions: volatility of 140.57% - 151.70%, risk-free rate of 1.55% - 2.49%, annual dividend yield of 0% and expected life of 3.00 – 5.00 years. The aggregate fair value of the options granted during the year ended December 31, 2019 was $6,461,970. Stock-based compensation expense associated with stock options granted amounted to $2,966,052 and $7,448,230, of which, $2,669,729 and $6,802,896 was recorded as compensation and related benefits, $240,354 and $640,978 was recorded as professional fees, $55,969 and $4,356 was recorded as research and development expenses, for the years ended December 31, 2020 and 2019, respectively. A summary of the status of the Company’s nonvested stock options granted as of December 31, 2020 and changes during the years ended December 31, 2020 and 2019 is presented below: Number of Options Weighted Average Exercise Price Nonvested at January 1, 2019 915,555 $ 0.63 Granted 2,620,000 2.17 Vested (3,270,832 ) (1.75 ) Nonvested at December 31, 2019 264,723 2.00 Granted 1,960,000 1.52 Vested (2,006,389 ) (1.62 ) Nonvested at December 31, 2020 218,334 $ 1.18 Warrants There were no stock warrants issued, terminated/forfeited and exercised during the year ended December 31, 2020. Stock warrants activities during the year ended December 31, 2019 were as follows: Number of Warrants Weighted Average Exercise Price Outstanding at January 1, 2019 578,891 $ 1.28 Issued 1,714,288 3.50 Exercised (578,891 ) (1.28 ) Redeemed and cancelled (1,714,288 ) (3.50 ) Outstanding and exercisable at December 31, 2019 - $ - NOTE 12 – 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. 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, 2020 and 2019 as they incurred net losses in these periods. F- 26 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 13 – NONCONTROLLING INTEREST As of December 31, 2020, Dr. Yu Zhou, former director and former co-chief executive officer of Genexosome, who owns 40% of the equity interests of Genexosome, which is not under the Company’s control. In 2019, the Company made a noncontrolling interest deficit adjustment of $862,200 since t he Company determined that the noncontrolling interest holder does not have the ability to satisfy the deficit, which adjusted the balance of noncontrolling interest to zero. During the years ended December 31, 2020 and 2019, the Company did not allocate any net loss and foreign currency translation adjustment to the noncontrolling interest holder due to its inability to satisfy these deficits. NOTE 14 – 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, 2020 and 2019 did not exceed 25% of the Company’s consolidated net assets. Accordingly, the Parent Company’s condensed consolidated financial statements have not been required in accordance with Rule 5-04 and Rule 12-04 of SEC Regulation S-X. NOTE 15 – 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, 2020 and 2019. Years Ended December 31, Customer 2020 2019 A (Shanghai Daopei, a related party) 12 % * B (Hebei Daopei, a related party) * 19 % C 24 % 26 % D 16 % 14 % E 12 % 11 % *Less than 10% Two customers, whose outstanding receivable accounted for 10% or more of the Company’s total outstanding accounts receivable, accounts receivable – related party, and rent receivable at December 31, 2020, accounted for 78.3% of the Company’s total outstanding accounts receivable, accounts receivable – related party, and rent receivable at December 31, 2020. F- 27 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 15 – CONCENTRATIONS (continued) Customers (continued) Two customers, whose outstanding receivable accounted for 10% or more of the Company’s total outstanding accounts receivable, accounts receivable – related party, and rent receivable at December 31, 2019, accounted for 93.0% of the Company’s total outstanding accounts receivable, accounts receivable – related party, and rent receivable at December 31, 2019. Suppliers No supplier accounted for 10% or more of the Company’s purchase during the years ended December 31, 2020 and 2019. One supplier, whose outstanding payable accounted for 10% or more of the Company’s total outstanding accounts payable at December 31, 2020, accounted for 93.6% of the Company’s total outstanding accounts payable at December 31, 2020. One supplier, whose outstanding payable accounted for 10% or more of the Company’s total outstanding accounts payable at December 31, 2019, accounted for 90.8% of the Company’s total outstanding accounts payable at December 31, 2019. NOTE 16 – SEGMENT INFORMATION For the years ended December 31, 2020 and 2019, 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, 2020 and 2019 was as follows: F- 28 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 16 – SEGMENT INFORMATION (continued) Years Ended December 31, 2020 2019 Revenues Real property operations $ 1,206,854 $ 1,155,677 Medical related consulting services 170,908 355,544 Development services and sales of developed products - 35,084 Total 1,377,762 1,546,305 Costs and expenses Real property operations 851,754 818,662 Medical related consulting services 135,805 284,472 Development services and sales of developed products - 103,258 Total 987,559 1,206,392 Gross profit (loss) Real property operations 355,100 337,015 Medical related consulting services 35,103 71,072 Development services and sales of developed products - (68,174 ) Total 390,203 339,913 Other operating expenses Real property operations 418,863 325,637 Medical related consulting services 577,962 628,625 Development services and sales of developed products 123,546 1,652,840 Corporate/Other 11,723,851 17,110,041 Total 12,844,222 19,717,143 Other income (expense) Interest expense Real property operations - (32,877 ) Corporate/Other (168,762 ) (50,031 ) Total (168,762 ) (82,908 ) Other income (expense) Real property operations (921 ) 2,182 Medical related consulting services (55,964 ) (40,459 ) Development services and sales of developed products 228 (1,369 ) Corporate/Other - 1,429,623 Total (56,657 ) 1,389,977 Total other (expense) income (225,419 ) 1,307,069 Net loss Real property operations 64,684 19,317 Medical related consulting services 598,823 598,012 Development services and sales of developed products 123,318 1,722,383 Corporate/Other 11,892,613 15,730,449 Total $ 12,679,438 $ 18,070,161 F- 29 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 16 – SEGMENT INFORMATION (continued) Identifiable long-lived tangible assets at December 31, 2020 and 2019 December 31, 2020 December 31, 2019 Real property operations $ 7,771,403 $ 7,750,743 Medical related consulting services 223,459 263,621 Development services and sales of developed products 243,869 322,741 Total $ 8,238,731 $ 8,337,105 Identifiable long-lived tangible assets at December 31, 2020 and 2019 December 31, 2020 December 31, 2019 United States $ 7,838,877 $ 7,839,093 China 399,854 498,012 Total $ 8,238,731 $ 8,337,105 NOTE 17 – COMMITMENTS AND CONTINCENGIES Litigation From time to time, the Company is subject to ordinary routine litigation incidental to its normal business operations. The Company is not currently a party to, and its property is not subject to, any material legal proceedings, except as set forth below. On October 25, 2017, Genexosome entered into and closed a Stock Purchase Agreement with Beijing Genexosome and Yu Zhou, MD, PhD, the sole shareholder of Beijing Genexosome, pursuant to which Genexosome acquired all of the issued and outstanding securities of Beijing Genexosome in consideration of a cash payment in the amount of $450,000, of which $100,000 is still owed. Further, on October 25, 2017, Genexosome entered into and closed an Asset Purchase Agreement with Dr. Zhou, pursuant to which the Company acquired all assets, including all intellectual property and exosome separation systems, held by Dr. Zhou pertaining to the business of researching, developing and commercializing exosome technologies. In consideration of the assets, Genexosome paid Dr. Zhou $876,087 in cash, transferred 500,000 shares of common stock of the Company to Dr. Zhou and issued Dr. Zhou 400 shares of common stock of Genexosome. Further, The Company had not been able to realize the financial projections provided by Dr. Zhou at the time of the acquisition and has decided to impair the intangible asset associated with this acquisition to zero. Dr. Zhou was terminated as Co-CEO of Genexosome on August 14, 2019. Further, on October 28, 2019, Research Institute at Nationwide Children’s Hospital (“Research Institute”) filed a Complaint in the United States District Court for the Southern District of Ohio Eastern Division against Dr. Zhou, Li Chen, the Company and Genexosome with various claims against the Company and Genexosome including misappropriation of trade secrets in violation of the Defend Trade Secrets Act of 2016 and violation of Ohio Uniform Trade Secrets Act. Research Institute is seeking monetary damages, injunctive relief, exemplary damages, injunctive relief and other equitable relief. The Company intends to vigorously defend against this action and pursue all available legal remedies. The civil case against Avalon is stayed pending resolution of the criminal proceedings against Dr. Zhou and Li Chen, and while there can be no assurances, the Company believes it has substantial legal and factual defenses to the Research Institute’s claims and the likelihood of any findings of liability for the Company cannot be assessed at this time. Operating Leases Avalon Shanghai Office Lease On February 24, 2020, 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 $8,000) with a required security deposit of RMB 164,764 (approximately $25,000). In addition, Avalon Shanghai needs to pay monthly maintenance fees of RMB 4,336 (approximately $700). The term of the Beijing Office Lease was 12 months commencing on March 1, 2020 and expired on February 28, 2021. As of December 31, 2020, the future minimum rental payment required under this Beijing Office Lease is $16,820. For the years ended December 31 2020 and 2019, rent expense and maintenance fees related to Avalon Shanghai office lease amounted to approximately $91,000 and $90,000, respectively. F- 30 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 17 – COMMITMENTS AND CONTINCENGIES (continued) Operating Leases (continued) Operating Lease for General Business In December 2019, the Company entered into a lease in New York, U.S., with a third party (the “New York Lease”). Pursuant to the New York Lease, the monthly rent is $6,000. The term of the New York Lease is 3 years commencing on January 1, 2020 and expires on December 31, 2022. For the year ended December 31, 2020, rent expense related to the New York Lease amounted to $72,000. Operating lease right-of-use asset related to the New York Lease is included in “Right-of-use asset, operating lease” on the accompanying consolidated balance sheets. With respect to lease liability, operating lease liability is included in “Operating lease obligation” and “Operating lease obligation – noncurrent portion,” on the accompanying consolidated balance sheets. The Company’s leases as of December 31, 2019 did not meet the requirements to be recorded as a right-of-use asset and operating lease obligation as they were immaterial and less than 12 months in term. Supplemental cash flow information related to the New York lease for the year ended December 31, 2020 is as follows: Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows paid for operating lease $ 66,000 Right-of-use asset obtained in exchange for lease obligation: Operating lease $ 201,028 Supplemental balance sheet information related to the New York Lease as of December 31, 2020 is as follows: Operating Lease: Operating lease right-of-use asset $ 137,333 Current portion of operating lease liability $ 76,379 Long-term operating lease liability 66,954 Total operating lease liability $ 143,333 Weighted Average Remaining Lease Term (in years): Operating lease 2.00 Weighted Average Discount Rate: Operating lease 5.0 % The following table summarizes the maturity of lease liability under the New York Lease as of December 31, 2020: For the Year Ending December 31: Operating Lease 2021 $ 72,000 2022 72,000 2023 and thereafter - Total lease payments 144,000 Amount of lease payments representing interest (6,667 ) Total present value of operating lease liability $ 137,333 F- 31 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 17 – COMMITMENTS AND CONTINCENGIES (continued) 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 five 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, 2020, Avalon Shanghai has contributed RMB 4,500,000 (approximately $0.7 million) that was included in equity method investment on the accompanying consolidated balance sheets. The Company intends to use its present working capital together with borrowings from related party and equity raises to fund the project cost. Joint Venture – AVAR BioTherapeutics (China) Co. Ltd. On October 23, 2018, Avactis Biosciences, Inc. (“Avactis”), a wholly-owned subsidiary of the Company, and Arbele Limited (“Arbele”) agreed to the establishment of AVAR BioTherapeutics (China) Co. Ltd. (“AVAR”), a Sino-foreign equity joint venture, pursuant to an Equity Joint Venture Agreement (the “AVAR Agreement”), which will be owned 60% by Avactis and 40% by Arbele. The purpose and business scope of the Joint Venture is to research, develop, produce, sell, distribute and generally commercialize CAR-T/CAR-NK/TCR-T/universal cellular immunotherapy in China. Avactis is required to contribute $10 million (or equivalent in RMB) in cash and/or services, which shall be contributed in tranches based on milestones to be determined jointly by AVAR and Avactis in writing subject to Avactis’ cash reserves. Within 30 days, Arbele shall make a contribution of $6.66 million in the form of entering into a License Agreement with AVAR granting AVAR with an exclusive right and license in China to its technology and intellectual property pertaining to CAR-T/CAR-NK/TCR-T/universal cellular immunotherapy technology and any additional technology developed in the future with terms and conditions to be mutually agreed upon Avactis and AVAR and services. In addition, Avactis is responsible for: ● Contributing registered capital of RMB 5,000,000 (approximately $0.8 million) for working capital purposes as required by local regulation, which is not required to be contributed immediately and will be contributed subject to Avactis’ discretion; ● assist AVAR in setting up its business operations and obtaining all required permits and licenses from Chinese government; ● assisting AVAR in recruiting, hiring and retaining personnel; ● providing AVAR with access to various hospital networks in China to assist in the testing and commercialization of the CAR-T/CAR-NK/TCR-T/universal cellular immunotherapy technology in China; ● assisting AVAR in managing the Good Manufacturing Practices (GMP) facility and clinic to be developed by AVAR; ● providing AVAR with advice pertaining to conducting clinicals in China; and ● Within 6 days of signing the AVAR Agreement, Avactis is required to pay to Arbele $300,000 as a research and development fee with an additional two payments of $300,000 (for a total of $900,000) to be paid upon mutually agreed upon milestones. Under AVAR Agreement, Arbele shall be responsible for the following: ● Entering into a License Agreement with AVAR; and ● Providing AVAR with research and development expertise pertaining to clinical laboratory medicine when hired by AVAR. As of December 31, 2020 and 2019, Avactis has paid $900,000 and $600,000 to Arbele as research and development fee, respectively. As of December 31, 2020, License Agreement has not been finalized. F- 32 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 17 – COMMITMENTS AND CONTINCENGIES (continued) Line of Credit Agreement On August 29, 2019, the Company entered into a Line of Credit Agreement (the “Line of Credit Agreement”) providing the Company with a $20 million line of credit (the “Line of Credit”) from Wenzhao Lu (the “Lender”), a significant shareholder and director of the Company. The Line of Credit allows the Company to request loans thereunder and to use the proceeds of such loans for working capital and operating expense purposes until the facility matures on December 31, 2024. The loans are unsecured and are not convertible into equity of the Company. Loans drawn under the Line of Credit bears interest at an annual rate of 5% and each individual loan will be payable three years from the date of issuance. The Company has a right to draw down on the line of credit and not at the discretion of the related party Lender. The Company may, at its option, prepay any borrowings under the Line of Credit, in whole or in part at any time prior to maturity, without premium or penalty. The Line of Credit Agreement includes customary events of default. If any such event of default occurs, the Lender may declare all outstanding loans under the Line of Credit to be due and payable immediately. As of December 31, 2020, $3,200,000 was outstanding under the Line of Credit. NOTE 18 – SUBSEQUENT EVENTS On December 13, 2019, the Company entered into an Open Market Sale Agreement SM (the “Sales Agreement”) with Jefferies LLC, as sales agent (“Jefferies”). From January 1, 2021 to March 29, 2021, Jefferies sold an aggregate of 1,830,317 shares of common stock at an average price of $1.34 per share to investors. The Company received net cash proceeds of $2,386,924, net of commission paid to sales agent of $73,822. In January 2021, the Company issued a total of 300,000 shares of its common stock for services rendered. These shares were valued at $360,000, the fair market values on the grant dates using the reported closing share prices on the dates of grant and the Company reduced accrued liabilities of $360,000. On February 2 2, 2021, 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 37,578 (approximately $6,000) with a required security deposit of RMB 125,741 (approximately $19,000). In addition, Avalon Shanghai needs to pay monthly maintenance fees of RMB 4,336 (approximately $700). The term of the Beijing Office Lease is 24 months commencing on March 1, 2021 and expires on February 28, 2023. F- 33