UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

 

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

(Amendment No. 4)

 

Filed by the Registrant Filed by a Party other than the Registrant

 

Check the appropriate box:

 

  Preliminary Proxy Statement
   
  Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
   
  Definitive Proxy Statement
   
  Definitive Additional Materials
   
  Soliciting Material Pursuant to §240.14a-12

  

AVALON GLOBOCARE CORP.

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

 

Payment of Filing Fee (Check the appropriate box):

 

  No fee required.
   
  Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
     
    (1)   Title of each class of securities to which transaction applies:
       

Common shares, $1.00 par value per share, of Lonlon Biotech Ltd.

         
    (2)   Aggregate number of securities to which transaction applies:
       

10,001 shares, $1.00 par value, Lonlon Biotech Ltd.

         
    (3)  

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

$0.33 per share, calculated in accordance with Rule 0-11(c)(1)(i) based on the value of the shares of Lonlon Biotech Ltd. being acquired by the registrant, who is the acquiring person, established in accordance with Rule 0-11(a)(4) for securities of issuers with an accumulated capital deficit based on one-third of the par value of such shares, or $3,333.67 in the aggregate. In accordance with Section 14(g) of the Securities Exchange Act of 1934, as amended, the filing fee was determined by multiplying the aggregate value calculated in the preceding sentence by $0.0001091.

         
    (4)   Proposed maximum aggregate value of transaction:
       

$3,333.67

         
    (5)   Total fee paid:
       

$0.37

   
  Fee paid previously with preliminary materials:
   
  Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
     
    (1)   Amount Previously Paid:
         
    (2)   Form, Schedule or Registration Statement No.:
         
    (3)   Filing Party:
         
    (4)   Date Filed:

 

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PRELIMINARY PROXY STATEMENT—SUBJECT TO COMPLETION

DATED NOVEMBER 24, 2021

 

AVALON GLOBOCARE CORP.

4400 Route 9 South, Suite 3100

Freehold, New Jersey 07728

 

[_], 2021

 

Dear Stockholder:

 

You are cordially invited to attend the annual meeting of stockholders of Avalon GloboCare Corp., a Delaware corporation (“Avalon” or the “Company”), which will be held at [_] on [_], 2021, beginning at [_], local time (the “annual meeting”), for the purposes detailed below, including (i) the election of our directors as described herein, (ii) the ratification of the appointment of Marcum LLP as the Company’s independent auditors for the fiscal year ending December 31, 2021 as described herein and (iii) the approval of the issuance of the shares of common stock, par value US$0.0001 per share, of Avalon (the “Avalon Common Stock”) to be issued in connection with the proposed acquisition of Lonlon Biotech Ltd., a company incorporated in the British Virgin Islands (“BVI”) (“Sen Lang BVI”) by Avalon and the related facilitating transactions, including the Equity Financing (as defined below), pursuant to the rules of the Nasdaq Stock Market (“Nasdaq”) as described herein.

 

As previously announced, on June 13, 2021, Avalon entered into a Share Purchase Agreement (the “Purchase Agreement”), by and among the Company, Sen Lang BVI, the holders of the share capital of Sen Lang BVI (the “Sen Lang BVI Shareholders”), the ultimate beneficial owners of the Sen Lang BVI Shareholders (the “Sen Lang BVI Beneficial Shareholders” and, together with the Sen Lang BVI Shareholders, the “Sen Lang BVI Owners”) and a representative of the Sen Lang BVI Owners (the “Sen Lang BVI Representative”). Pursuant to the Purchase Agreement, subject to the satisfaction of the conditions to closing therein, including approval by the Avalon stockholders pursuant to the rules of Nasdaq, Avalon agreed to purchase (the “Acquisition”) all of the issued and outstanding share capital of Sen Lang BVI (the “Sen Lang BVI Shares”). A copy of the Purchase Agreement is attached as Annex A to the accompanying proxy statement, and you are encouraged to read it in its entirety.

 

Both before and immediately after the Acquisition, Avalon was not and will not become a Chinese operating company, but will remain a Delaware operating and holding company. While Avalon is not a PRC operating company, certain of its subsidiaries are PRC operating companies and through them Avalon currently has substantial operations in the PRC. Sen Lang BVI, the company Avalon is seeking to acquire, is a BVI holding company with its operations conducted by its subsidiaries and through contractual arrangements with variable interest entities (“VIEs”) based in China. Sen Lang BVI, through the VIE structure (described in more detail in the section of the accompanying proxy statement titled “The Acquisition—The VIE Structure”) of contractual rights held by its wholly-owned subsidiary Beijing Langlang Runfeng Biotechnology Co., Ltd., a wholly foreign owned enterprise with limited liability organized and existing under the laws of the People’s Republic of China (the “PRC”) (the “PRC Subsidiary”), is deemed to have a controlling financial interest and be the primary beneficiary of, and is consolidated for accounting purposes with, Senlang Biotechnology Co. Ltd., a PRC domestic company with limited liability organized and existing under the laws of the PRC (the “OpCo” or “SenlangBio”), however, the PRC Subsidiary is a holding company and is not a Chinese operating company. The consolidation is due to Sen Lang BVI’s having (i) the power to direct activities of SenlangBio that most significantly impact SenlangBio’s economic performance and (ii) the obligation to absorb losses of SenlangBio that could potentially be significant to SenlangBio, or the right to receive benefits from SenlangBio that could potentially be significant to SenlangBio, in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810-10, Consolidation. See “Summary of the Proxy Statement—The VIE Structure.” SenlangBio operates its business in China and is mainly engaged in the business of research and development in relation to CAR-T cell therapy, immune cell therapy and related drug development. SenlangBio is owned 100% by certain of the Sen Lang BVI Beneficial Shareholders. A wholly-owned subsidiary of SenlangBio, Shijiazhuang Senlang Medical Laboratory Co., Ltd., a company with limited liability organized and existing under the laws of the PRC (“SenlangBio Clinical Laboratory”) operates its business in China and is engaged in the business of testing of immunology, serology and molecular genetics specialties for patients, including hematology-tumor diagnostics and testing prior to clinical trials for cell therapy. Upon completion of the Acquisition, investors will not directly hold any equity interest in the VIEs.

 

The VIE structure poses unique risks to investors. The VIE structure is routinely adopted by many Chinese-based companies to provide contractual exposure to foreign investment in Chinese-based companies where Chinese law prohibits or limits direct foreign investment in Chinese operating companies. Investors investing in such a company that operates in China through a VIE structure may never hold any equity interest in the Chinese operating company. Indeed, the VIE structure provides contractual exposure to foreign investment in Chinese-based companies rather than replicating an investment. PRC courts have not categorically decided on the validity of the VIE structure, nor do mandatory judicial precedents exist on this issue, as China follows a civil law tradition where the courts are not necessarily bound by judicial precedents. In cases involving the VIE structure, the validity of the contractual arrangements under such structure has been decided on a case-by-case basis. In 2012, the PRC Supreme People’s Court declared certain contractual arrangements similar to a VIE structure for a Hong Kong Company to gain economic control over a PRC company as void due to the parties’ improper purpose to bypass PRC regulatory supervision. If the PRC courts or regulatory authorities determine that Avalon’s contractual arrangements are in violation of applicable PRC laws, rules or regulations, the VIE contractual arrangements will become invalid or unenforceable, which would likely result in a material change in Avalon’s operations and/or value of Avalon’s common stock, including that it could cause the value of such securities to significantly decline or become worthless. See “Risk Factors—Risks Related to the VIE Structure and SenlangBio being a PRC Domestic Entity—Substantial uncertainties exist with respect to the interpretation and implementation of the PRC Foreign Investment Law, its implementing rules, Foreign Investment Security Review Measures, other regulations and how they may impact the viability of the VIE structure, business, financial condition, and results of operations.

 

 

 

 

The method by which cash will be transferred in Avalon’s organization following the Acquisition is complex, in light of the VIE Structure. Pursuant to the VIE contractual arrangements between Sen Lang BVI’s PRC Subsidiary, SenlangBio and SenlangBio’s shareholders, SenlangBio will pay the PRC Subsidiary a consulting service fee on a quarterly basis, which shall be the net income of SenlangBio during such quarter. Sen Lang BVI’s wholly-owned direct subsidiary Lonlon Biotech Investment Limited (“Senlang HK”), which owns 100% of the equity of the PRC Subsidiary, will then receive the economic benefit from the PRC Subsidiary by way of dividends. Sen Lang BVI, the entity which will be 100% owned by Avalon after the Acquisition, will further receive the economic benefit from Senlang HK by way of dividends. It is not currently anticipated that cash will flow from Sen Lang BVI to SenlangBio upon the completion of Acquisition. See “Summary of the Proxy Statement—The Flow of Economic Benefits from SenlangBio to Avalon Stipulated under the Contractual Arrangements.”

 

The payment and amount of any future dividend of the PRC Subsidiary to Senlang HK will be restricted by PRC laws and regulations regarding dividends and PRC foreign exchange regulations. PRC laws require that dividends be paid only out of the profit for the year calculated according to PRC accounting principles. PRC laws also require foreign-invested enterprises to set aside at least 10% of their after-tax profits as the statutory common reserve fund until the cumulative amount of the statutory common reserve fund reaches 50% or more of such enterprises’ registered capital, if any, to fund its statutory common reserves, which are not available for distribution as cash dividends. Sen Lang BVI, Avalon and, ultimately, Avalon stockholders will receive the economic benefit of Senlang HK by way of dividends, which are subject to restrictions under current Hong Kong, BVI and US laws and regulations regarding dividends. Furthermore, under applicable PRC laws and regulations, arrangements and transactions among related parties may be subject to audit or challenge by the PRC tax authorities within ten years after the taxable year when the transactions are conducted. Avalon, its subsidiaries and SenlangBio may face material and adverse tax consequences if the PRC tax authorities determine that the contractual arrangements were not entered into on an arm’s length basis. See “Risk Factors - Risks Related to the VIE Structure and SenlangBio being a PRC Domestic Entity — VIE contractual arrangements may be subject to scrutiny by the PRC tax authorities and they may determine that Avalon or its subsidiaries or SenlangBio owe additional taxes, which could negatively affect Avalon’s financial condition and the value of its stock.

 

Pursuant to the PRC Enterprise Income Tax Law, a withholding tax rate of 10% currently applies to dividends paid by a PRC resident enterprise to a foreign enterprise investor, unless any such foreign investor’s jurisdiction of incorporation has a tax treaty with China that provides for preferential tax treatment. Pursuant to the Arrangement between the Mainland China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and Tax Evasion on Income, such withholding tax rate may be lowered to 5% if a Hong Kong resident enterprise owns no less than 25% of the capital of a PRC enterprise and is the beneficial owner of the dividend income, subject to certain considerations described in the Proxy Statement. Avalon currently believes that the PRC Subsidiary’s distribution of dividends to Senlang HK, if any, shall be subject to a withholding tax rate of 10%, unless the reduced rate of 5% under the tax treaty is applicable.

 

After receiving distribution of dividends from the PRC Subsidiary by way of dividends, Senlang HK will further make payments of dividends to Sen Lang BVI. Senlang HK is incorporated in Hong Kong and is subject to the Hong Kong Profits Tax law on the taxable income. According to Division 2 of Part 6 in the Companies Ordinance of Hong Kong, Senlang HK may only make a distribution out of its profits available for distribution. It may not pay any dividend out of its share capital, or in advance of the generation of distributable profits. However, under the current Hong Kong laws, payments of dividends by Senlang HK to Sen Lang BVI are not subject to any Hong Kong withholding or income tax.

 

SenlangBio reported net losses and had negative net cash flows from operations in 2020. No net income will be generated from SenlangBio’s operations in the foreseeable future and therefore no dividends or distributions will be paid by Sen Lang BVI (or its subsidiaries) to Avalon and its stockholders in the foreseeable future following the Acquisition. However, if Sen Lang BVI (or its subsidiaries) do make distributions of cash or property to Avalon, absent a distribution by Avalon to the U.S. holders of Avalon common stock, there would be no flow-through of such income to the U.S. holders of Avalon common stock for U.S. federal income tax purposes. See “Summary of the Proxy Statement—The Flow of Economic Benefits from SenlangBio to Avalon Stipulated under the Contractual Arrangements.”

 

 

 

 

Moreover, Avalon has a significant portion of its existing operation in China. SenlangBio and SenlangBio Clinical Laboratory also have their business operations in China. These business operations are governed by PRC laws, rules and regulations, the associated legal and operational risks could result in a material change in the business operations of Avalon’s existing PRC subsidiaries, SenlangBio and SenlangBio Clinical Laboratory and could negatively impact the value of Avalon’s common stock or could even cause the value of such securities to significantly decline or be worthless. The PRC government has recently announced its plans to enhance its regulatory oversight of Chinese companies listing overseas, and there is some uncertainty with respect to the interpretation and implementation of such plans. The PRC government has also issued statements and has undertaken regulatory actions related to the use of variable interest entities, data security and anti-monopoly concerns. The PRC government may promulgate relevant laws, internal rules and regulations that may impose additional and significant obligations and liabilities on overseas listed Chinese companies regarding data security, cross-border data flow, compliance with PRC securities laws and anti-monopoly laws. These laws and regulations can be complex and stringent, and can be subjected to change and uncertain interpretation, which could limit Avalon’s ability to conduct its business and accept foreign investments, or could significantly impact its operating results and stock price. See “Risk Factors—Risks Related to the VIE Structure and SenlangBio being a PRC Domestic Entity—There are uncertainties regarding the interpretation and enforcement of PRC laws, rules, and regulations in general, as well as the actions taken by PRC regulatory authorities.” However, because Avalon is the issuer of the common stock listed on Nasdaq and is a Delaware operating and holding company, no approval or permission is required under current applicable PRC laws and regulations for any future issuances of Avalon securities to non-PRC investors. Nevertheless, PRC laws, regulations and/or their interpretations may change in the future, such that they may have an extraterritorial effect, whereby Avalon or the post-Acquisition company may be required to obtain such approval or permission under PRC laws and regulations. In such event, Avalon may face the risk that these future regulatory actions by the PRC government could significantly limit or completely hinder Avalon’s ability to offer future securities to investors. Under this scenario, Avalon’s ability to raise capital and thereby execute its business plan would be significantly limited or completely hindered, which would likely result in a material change in Avalon’s operations and the value of Avalon’s common stock, including that it could cause the value of such securities to significantly decline or become worthless. In addition, Avalon faces the risk that Avalon and the post-Acquisition company may not currently ascertain, and therefore may not actually have, all requisite permissions to offer securities, which would likely result in a material change in Avalon’s operations and/or value of Avalon’s common stock, including that it could cause the value of such securities to significantly decline or become worthless. See “Risk Factors—Risks Related to Avalon—The PRC government exerts substantial influence over the manner in which Avalon must conduct its business activities and Avalon may face the risk that the future regulatory actions by the PRC government could significantly limit or completely hinder Avalon’s ability to offer future securities to investors.

 

Prior to the execution of the Purchase Agreement, the Board of Directors of Avalon (the “Board”), unanimously (i) determined that the terms and provisions of the Purchase Agreement and the transactions contemplated thereby, including the Acquisition, are fair to, advisable and in the best interests of the Company and its stockholders, (ii) approved the Purchase Agreement and the transactions contemplated thereby, including the Acquisition and the issuance of the Acquisition Shares (as defined below), (iii) authorized, empowered and directed the Company to perform all of its obligations under the Purchase Agreement and the Exchange Agreement (as defined below) and related documents, and (iv) resolved to recommend the approval by the stockholders of the Company of the issuance of the Acquisition Shares in connection with the Acquisition and the issuance of the Exchange Shares (as defined below) in connection with the Exchange Agreement in compliance with the rules of Nasdaq (the “Company Board Recommendation”). Accordingly, the board recommends a vote “FOR” the proposal to approve the issuance of the Acquisition Shares in connection with the Acquisition and the issuance of the Exchange Shares in connection with the Exchange Agreement in compliance with the rules of Nasdaq and “FOR” each of the other proposals to be voted on at the annual meeting.

 

The purchase price being paid by Avalon to the Sen Lang BVI Shareholders under the Purchase Agreement for the Sen Lang BVI Shares is an aggregate of 81 million shares (the “Acquisition Shares”) of Avalon Common Stock. Ten percent (10%), or 8.1 million, of such shares will be held in escrow for 12 months following the closing to satisfy any indemnification obligations of the Sen Lang BVI Shareholders under the Share Purchase Agreement. In addition, at the closing of the Acquisition, it is expected that Dr. Jianqiang Li, scientific founder and CSO of SenlangBio, will join the board of the Company, and Dr. Li will also be appointed as Chief Technology Officer of the Company. The Acquisition Shares will not be registered under the Securities Act of 1933, as amended (the “Securities Act”) and, therefore, will be restricted securities under Rule 144 under the Securities Act for six months or longer after the closing of the Acquisition, subject to “affiliate” status with the Company under the Securities Act.

 

 

 

 

In connection with the Acquisition, on June 13, 2021, an institutional investor (the “Investor”) entered into an agreement, as amended on June 24, 2021, with SenlangBio related to the purchase of registered capital of SenlangBio (the “OpCo Capital Increase Agreement”) pursuant to which the Investor will acquire an aggregate of up to 13.5% of the equity ownership of SenlangBio for an aggregate purchase price (the “Subscription Amount) of approximately US$30,000,000 (represented by an actual investment of RMB200,000,000) (the “Equity Financing”), which funds will be invested in SenlangBio in three equal installments of approximately US$10,000,000, at a fixed price, the first to be upon the closing of the Acquisition, the second to be within three months after the closing and the third to be within six months after the closing. In addition, pursuant to a Securities Exchange Agreement, as amended on June 24, 2021 (the “Exchange Agreement”), by and among the Company, Sen Lang BVI, SenlangBio and the Investor, dated June 13, 2021, the Investor shall have the right, exercisable between the six-month and five year-anniversaries of the respective initial closing and installment closings, to elect to exchange, from time to time, all or part of its then-owned equity ownership of SenlangBio for shares (the “Exchange Shares”) of Avalon Common Stock at a fixed exchange price of US$1.21 per share of Avalon Common Stock, which was the market price of the Avalon Common Stock as of the date of the Exchange Agreement under Nasdaq rules. In addition, the Exchange Agreement provides that the Investor may only exchange up to 10% of its total investment amount in any 30 day period.

 

The proxy statement attached to this letter and the enclosed Annual Report of Avalon to stockholders for the fiscal year ended December 31, 2020, which includes the information required by Rule 14a-3 of the Securities Exchange Act of 1934, provides you with information about the proposed Acquisition and the annual meeting. I encourage you to read the entire proxy statement and accompanying Annual Report carefully.

 

At the Avalon annual meeting of stockholders, Avalon will ask its stockholders to, among other things, elect the nine director nominees named in the proxy statement to hold office until the next annual meeting of stockholders and until their successors are duly elected and qualified, ratify the appointment of Marcum LLP as the Company’s independent auditors for the fiscal year ending December 31, 2021 and approve the issuance of the Acquisition Shares in connection with the Acquisition and the issuance of the Exchange Shares in connection with the Exchange Agreement in compliance with the rules of Nasdaq, each as described in the proxy statement.

 

Only stockholders of record at the close of business on [_], 2021, the record date for determining the stockholders entitled to notice of and to vote at the annual meeting, are entitled to notice of and to vote at the annual meeting and any adjournment thereof.

 

Your vote is very important. The Acquisition cannot be completed unless the issuances of the Acquisition Shares and the Exchange Shares are adopted by the affirmative vote of the holders of a majority of votes cast by the stockholders present in person or represented by proxy and entitled to vote thereon at the annual meeting.

 

Whether or not you are able to attend the annual meeting in person, please complete, sign and date the enclosed proxy card and return it in the envelope provided as soon as possible, or follow the instructions provided for submitting a proxy by telephone or the Internet. If you hold shares through a broker or other nominee, you should follow the procedures provided by your broker or other nominee. These actions will not limit your right to vote in person if you wish to attend the annual meeting and vote in person.

 

Thank you for your cooperation and your continued support of Avalon.

 

  Sincerely,
   
  Wenzhao “Daniel” Lu,
  Chairman of the Board of Directors

 

This proxy statement is dated [_], 2021 and is first being mailed along with the Annual Report to stockholders
on or about [_], 2021.

 

 

 

 

AVALON GLOBOCARE CORP.

4400 Route 9 South, Suite 3100

Freehold, New Jersey 07728

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

TO BE HELD ON [    ], 2021

 

To the Stockholders of Avalon GloboCare Corp.:

 

NOTICE IS HEREBY GIVEN that the annual meeting of stockholders (the “annual meeting”) of Avalon GloboCare Corp., a Delaware corporation (the “Company,” “Avalon,” “we,” “our” or “us”), will be held on [    ], 2021, at [    ] [a/p.m.], Eastern time at [    ]. Only stockholders who hold shares of Avalon common stock, $0.0001 par value per share (“Avalon Common Stock”) at the close of business on [ ], 2021, the record date for the annual meeting, are entitled to vote at the annual meeting and any adjournments or postponements thereof.

 

The annual meeting is being held for the following purposes:

 

1.The “Director Election Proposal”—to elect the nine director nominees named in the proxy statement to hold office until the next annual meeting of stockholders and until their successors are duly elected and qualified;

 

  2. The “Auditor Proposal”—to ratify the appointment of Marcum LLP as the Company’s independent auditors for the fiscal year ending December 31, 2021; and

 

  3. The “Nasdaq Proposal”—to approve, pursuant to the rules of the Nasdaq Stock Market as described herein, the issuance of (i) 81 million shares (the “Acquisition Shares”) of the common stock, par value US$0.0001 per share, of Avalon (the “Avalon Common Stock”) issuable to the holders (the “Sen Lang BVI Shareholders”) of the share capital of Lonlon Biotech Ltd., a company incorporated in the British Virgin Islands (“BVI”) (“Sen Lang BVI”), pursuant to the terms of the Share Purchase Agreement, dated as of June 13, 2021 (as may be amended from time to time, the “Purchase Agreement”), by and among Avalon, Sen Lang BVI, the ultimate beneficial owners of the Sen Lang BVI Shareholders (the “Sen Lang BVI Beneficial Shareholders” and, together with the Sen Lang BVI Shareholders, the “Sen Lang BVI Owners”) and a representative of the Sen Lang BVI Owners (the “Sen Lang BVI Representative”), pursuant to which Avalon will acquire (the “Acquisition”) all of the issued and outstanding share capital of Sen Lang BVI (the “Sen Lang BVI Shares”) and (ii) shares of Avalon Common Stock (the “Exchange Shares”) issuable upon the exchange of shares of Senlang Biotechnology Co. Ltd., a PRC domestic company with limited liability organized and existing under the laws of the PRC (the “OpCo” or “SenlangBio”) to be issued to an investor in a private placement of the equity of SenlangBio (all as described in more detail herein);
     
  4. The “Adjournment Proposal”—to approve the adjournment of the annual meeting to a later date or time, if necessary, to solicit additional proxies if, based upon the tabulated vote at the time of the annual meeting, there are not sufficient votes to approve the Nasdaq Proposal.

 

After careful consideration, Avalon’s board of directors has unanimously determined that the forms, terms and provisions of the Purchase Agreement and the Exchange Agreement, including the Acquisition and the Equity Financing, are advisable and in the best interests of Avalon and its stockholders, and unanimously recommends you vote “FOR” Proposals 1 through 3, as well as the Adjournment Proposal.

 

Avalon will transact no other business at the annual meeting, except such business as may properly be brought before the annual meeting or any adjournment or postponement thereof. Please refer to the proxy statement of which this notice is a part for further information with respect to the business to be transacted at the annual meeting.

 

 

 

 

The approval of the Auditor Proposal, the Nasdaq Proposal, and the Adjournment Proposal requires the affirmative vote of the holders of a majority of votes cast by the stockholders present in person or represented by proxy and entitled to vote thereon at the annual meeting. The approval of the Director Election Proposal requires the affirmative vote of a plurality of the votes properly cast on the election of directors.

 

Completion of the Acquisition is conditioned upon, among other things, approval of the Nasdaq Proposal.

 

Your attention is directed to the proxy statement and Annual Report of Avalon to stockholders for the fiscal year ended December 31, 2020, which includes the information required by Rule 14a-3 of the Securities Exchange Act of 1934, accompanying this notice (including the financial statements and annexes attached thereto) for a more complete description of the proposed Acquisition and related transactions and each of our proposals. We encourage you to read this proxy statement and Annual Report carefully in its entirety. In particular, we urge you to read carefully the sections entitled “Risk Factors” beginning on page 31 of the accompanying proxy statement and in the Annual Report. If you have any questions or need assistance voting your shares, please call Avalon at 732-780-4400.

 

Your vote is very important, regardless of the number of shares of Avalon Common Stock that you own. Even if you plan to attend the annual meeting, we request that you complete, sign, date and return the enclosed proxy card in the envelope provided, or submit your proxy by telephone or the Internet prior to the annual meeting, and thus ensure that your shares will be represented and voted at the annual meeting if you later become unable to attend. If your shares are held in a stock brokerage account or by a bank or other nominee, please follow the instructions that you receive from your broker, bank or other nominee to vote your shares.

 

  By Order of the Board of Directors,
   
  /s/ Wenzhao “Daniel” Lu
  Wenzhao “Daniel” Lu
[   ], 2021 Chairman of the Board of Directors

 

 

 

 

TABLE OF CONTENTS

 

QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING AND THE ACQUISITION   1
     
SUMMARY OF THE PROXY STATEMENT   9
Parties to the Acquisition   9
The Purchase Agreement   10
The Equity Financing   11
The VIE Structure   11
Interests of Certain Persons in the Acquisition   14
Reasons for the Approval of the Acquisition   15
Regulatory Approvals Required for the Acquisition   15
Accounting Treatment of the Acquisition   17
Material U.S. Federal Income Tax Consequences of the Acquisition   19
Ownership Following the Acquisition and the Equity Financing   19
     
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS   34
     
THE ANNUAL MEETING OF AVALON STOCKHOLDERS   35
The Avalon annual meeting   35
Date, Time and Place of the annual meeting   35
Purpose of the annual meeting   35
Recommendation of the Avalon Board of Directors   35
Record Date and Voting   36
Voting Your Shares   36
Who Can Answer Your Questions About Voting Your Shares   36
Quorum and Vote Required for the Proposals   36
Abstentions and Broker Non-Votes   37
Revocability of Proxies   37
Appraisal or Dissenters’ Rights   37
Solicitation of Proxies   37
RISK FACTORS   38
Risks Related to SenlangBio   38
Risks Related to the Acquisition   50
Risks Related to Avalon   59
     
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION   60
     
THE ACQUISITION   68
The Background of the Acquisition   68
Reasons for the Acquisition   69
The VIE Structure   71
Interests of Avalon’s Directors and Officers in the Acquisition   74
Regulatory Approvals Required for the Acquisition   75
Accounting Treatment of the Acquisition   75
     
THE PURCHASE AGREEMENT   76
     
THE EQUITY FINANCING   81
     
PROPOSAL NO. 1—THE DIRECTOR ELECTION PROPOSAL   82
     
PROPOSAL NO. 2—THE AUDITOR PROPOSAL   86
     
PROPOSAL NO. 3—THE NASDAQ PROPOSAL   88
     
PROPOSAL NO. 4—THE ADJOURNMENT PROPOSAL   89

 

i

 

 

INFORMATION ABOUT SENLANGBIO   90
     
SEN LANG BVI MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS   101
     
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS   113
     
INFORMATION ABOUT AVALON   116
     
AVALON’S CORPORATE GOVERNANCE AND EXECUTIVE COMPENSATION   117
     
AVALON MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS   128
     
MANAGEMENT AFTER THE ACQUISITION   144
     
DESCRIPTION OF AVALON’S SECURITIES   148
     
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT   149
     
ADDITIONAL INFORMATION   150
     
WHERE YOU CAN FIND MORE INFORMATION   151
     
INDEX TO FINANCIAL STATEMENTS   F-1
     
SEN LANG BVI FINANCIAL STATEMENTS   F-3
     
AVALON FINANCIAL STATEMENTS   F-63
     
ANNEX A: Purchase Agreement   A-1

 

ii

 

 

QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING AND THE ACQUISITION

 

The following questions and answers briefly address some commonly asked questions regarding the proposed Acquisition and about the proposals to be presented at the Avalon annual meeting of stockholders, including with respect to the proposed Acquisition. The following questions and answers may not include all the information that is important to Avalon stockholders. Stockholders are urged to read carefully this entire proxy statement, including the financial statements and annexes attached hereto and the other documents referred to herein. Except where indicated, the information in this proxy statement does not give effect to the closing of the Equity Financing described in Proposal No. 3 of this proxy statement. References in this proxy statement to “$” refer to U.S. dollars. All references in this proxy statement to “Avalon,” the “Company,” “we,” “us,” or “our” mean Avalon GloboCare Corp. unless we state otherwise or the context otherwise indicates.

 

Q:Why am I receiving this proxy statement?

 

A:Avalon has furnished these materials to you by mail, in connection with the Company’s solicitation of proxies for use at the Annual Meeting of Stockholders to be held on [    ], 2021, at [ : ] [    ].m. Eastern Time. This year’s annual meeting of shareholders will be held as a virtual meeting. Stockholders attending the virtual meeting will be afforded the same rights and opportunities to participate as they would at an in-person meeting. You will be able to attend and participate in the annual meeting online via a live webcast by visiting [   ]. These materials have also been made available to you on the Internet. These materials describe the proposals on which the Company would like you to vote and also give you information on these proposals so that you can make an informed decision. We are furnishing our proxy materials on or about [    ], 2021 to all stockholders of record entitled to vote at the annual meeting.

 

In addition, on June 13, 2021, Avalon GloboCare Corp., a Delaware corporation (the “Company” or “Avalon”), entered into a Share Purchase Agreement (the “Purchase Agreement”), by and among the Company, Lonlon Biotech Ltd., a company incorporated in the British Virgin Islands (“BVI”) (“Sen Lang BVI”), the holders of the share capital of Sen Lang BVI (the “Sen Lang BVI Shareholders”), the ultimate beneficial owners of the Sen Lang BVI Shareholders (the “Sen Lang BVI Beneficial Shareholders” and, together with the Sen Lang BVI Shareholders, the “Sen Lang BVI Owners”) and a representative of the Sen Lang BVI Owners (the “Sen Lang BVI Representative”). Pursuant to the Purchase Agreement, subject to the satisfaction of the conditions to closing therein, including approval by the Avalon stockholders pursuant to the rules of the Nasdaq Stock Market (“Nasdaq”), Avalon agreed to purchase (the “Acquisition”) all of the issued and outstanding share capital of Sen Lang BVI (the “Sen Lang BVI Shares”).

 

Both before and immediately after the Acquisition, Avalon was not and will not become a Chinese operating company, but will remain as a Delaware corporation. While Avalon is not a PRC operating company, certain of its subsidiaries are PRC operating companies and through them Avalon currently has substantial operations in the PRC. Sen Lang BVI, the company Avalon is seeking to acquire, is a BVI holding company with its operations conducted by its subsidiaries and through contractual arrangements with variable interest entities (“VIEs”) based in China. Sen Lang BVI, through the VIE structure (described in more detail in the section of the accompanying proxy statement titled “The Acquisition—The VIE Structure”) of contractual rights held by its wholly-owned subsidiary Beijing Langlang Runfeng Biotechnology Co., Ltd., a wholly foreign owned enterprise with limited liability organized and existing under the laws of the People’s Republic of China (the “PRC”) (the “PRC Subsidiary”), is deemed to have a controlling financial interest and be the primary beneficiary of, and is consolidated for accounting purposes with, Senlang Biotechnology Co. Ltd., a PRC domestic company with limited liability organized and existing under the laws of the PRC (the “OpCo” or “SenlangBio”), however, the PRC Subsidiary is a holding company and is not a Chinese operating company. The consolidation is due to Sen Lang BVI’s having (i) the power to direct activities of SenlangBio that most significantly impact SenlangBio’s economic performance and (ii) the obligation to absorb losses of SenlangBio that could potentially be significant to SenlangBio, or the right to receive benefits from SenlangBio that could potentially be significant to SenlangBio, in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810-10, Consolidation. See “Summary of the Proxy Statement—The VIE Structure.” SenlangBio operates its business in China and is mainly engaged in the business of research and development in relation to CAR-T cell therapy, immune cell therapy and related drug development. SenlangBio is owned 100% by certain of the Sen Lang BVI Beneficial Shareholders. A wholly-owned subsidiary of SenlangBio, Shijiazhuang Senlang Medical Laboratory Co., Ltd., a company with limited liability organized and existing under the laws of the PRC (“SenlangBio Clinical Laboratory”) operates its business in China and is engaged in the business of testing of immunology, serology and molecular genetics specialties for patients, including hematology-tumor diagnostics and testing prior to clinical trials for cell therapy. For a more detailed discussion of the business of SenlangBio and SenlangBio Clinical Laboratory, please see the section entitled “Information about SenlangBio.”

  

Prior to the execution of the Purchase Agreement, the Board of Directors of Avalon (the “Board”), unanimously (i) determined that the terms and provisions of the Purchase Agreement and the transactions contemplated thereby, including the Acquisition, are fair to, advisable and in the best interests of the Company and its stockholders, (ii) approved the Purchase Agreement and the transactions contemplated thereby, including the Acquisition and the issuance of the Acquisition Shares (as defined below), (iii) authorized, empowered and directed the Company to perform all of its obligations under the Purchase Agreement and the Exchange Agreement (as defined below) and related documents, and (iv) resolved to recommend the approval by the stockholders of the Company of the issuance of the Acquisition Shares in connection with the Acquisition and the issuance of the Exchange Shares (as defined below) in connection with the Exchange Agreement in compliance with the rules of Nasdaq (the “Company Board Recommendation”).

 

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The purchase price being paid by Avalon to the Sen Lang BVI Shareholders under the Purchase Agreement for the Sen Lang BVI Shares is an aggregate of 81 million shares (the “Acquisition Shares”) of the common stock, par value US$0.0001 per share, of Avalon (the “Avalon Common Stock”). Ten percent (10%), or 8.1 million, of such shares will be held in escrow for 12 months following the closing to satisfy any indemnification obligations of the Sen Lang BVI Shareholders under the Share Purchase Agreement. In addition, at the closing of the Acquisition, it is expected that Dr. Jianqiang Li, scientific founder and CSO of SenlangBio, will join the board of the Company, and Dr. Li will also be appointed as Chief Technology Officer of the Company. The Acquisition Shares will not be registered under the Securities Act of 1933, as amended (the “Securities Act”) and, therefore, will be restricted securities under Rule 144 under the Securities Act for six months or longer after the closing of the Acquisition, subject to “affiliate” status with the Company under the Securities Act.

 

A copy of the Purchase Agreement is attached to this proxy statement as Annex A. For a more detailed discussion of the Purchase Agreement, please see the section entitled “The Purchase Agreement.”

 

In connection with the Acquisition, on June 13, 2021, an institutional investor (the “Investor”) entered into an agreement, as amended on June 24, 2021, with SenlangBio related to the purchase of registered capital of SenlangBio (the “OpCo Capital Increase Agreement”) pursuant to which the Investor will acquire an aggregate of up to 13.5% of the equity ownership of SenlangBio for an aggregate purchase price (the “Subscription Amount) of approximately US$30,000,000 (represented by an actual investment of RMB200,000,000) (the “Equity Financing”), which funds will be invested in SenlangBio in three equal installments of approximately US$10,000,000, at a fixed price, the first to be upon the closing of the Acquisition, the second to be within three months after the closing and the third to be within six months after the closing. In addition, pursuant to a Securities Exchange Agreement, as amended on June 24, 2021 (the “Exchange Agreement”), by and among the Company, Sen Lang BVI, SenlangBio and the Investor, dated June 13, 2021, the Investor shall have the right, exercisable between the six-month and five year-anniversaries of the respective initial closing and installment closings, to elect to exchange, from time to time, all or part of its then-owned equity ownership of SenlangBio for shares (the “Exchange Shares”) of Avalon Common Stock at a fixed exchange price of US$1.21 per share of Avalon Common Stock, which was the market price of the Avalon Common Stock as of the date of the Exchange Agreement under Nasdaq rules. In addition, the Exchange Agreement provides that the Investor may only exchange up to 10% of its total investment amount in any 30 day period.

 

This proxy statement and its annexes contain important information about the proposed Acquisition and Equity Financing and the proposals to be acted upon at the annual meeting. You should read this proxy statement and its annexes and the Annual Report, which is incorporated in its entirety into this proxy statement by reference, carefully and in their entirety.

 

Q: What is included in these materials?

 

A: These materials include:

 

this Proxy Statement for the annual meeting; and

 

the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020 (the “Annual Report”).

 

Q: What is the proxy card?

 

A: The proxy card enables you to appoint David Jin, our Chief Executive Officer, and Luisa Ingargiola, our Chief Financial Officer, as your representatives at the annual meeting. By completing and returning a proxy card, you are authorizing these individuals to vote your shares at the annual meeting in accordance with your instructions on the proxy card. This way, your shares will be voted whether or not you attend the annual meeting.

 

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Q:What matters will stockholders consider at the Avalon annual meeting?

 

A:At the Avalon annual meeting of stockholders, Avalon will ask its stockholders to vote in favor of the following proposals (the “Avalon Proposals”):

 

Proposal 1—to elect the nine director nominees named in the proxy statement to hold office until the next annual meeting of stockholders and until their successors are duly elected and qualified (the “Director Election Proposal”);

 

Proposal 2—to ratify the appointment of Marcum LLP as the Company’s independent auditors for the fiscal year ending December 31, 2021 (the “Auditor Proposal”); and

 

Proposal 3—to approve, pursuant to the rules of the Nasdaq Stock Market, the issuance of (i) the Acquisition Shares pursuant to the terms of the Purchase Agreement and (ii) the Exchange Shares (the “Nasdaq Proposal”);

 

Proposal 4—to adjourn the annual meeting, if necessary, to another time or place to solicit additional proxies if there are not sufficient votes in favor of Proposal 1 (the “Adjournment Proposal”).

 

Q:What will happen upon the consummation of the Acquisition and the Equity Financing?

 

  A: On the date of closing of the Acquisition (the “Closing Date”), Avalon will issue the Acquisition Shares to the Sen Lang BVI Shareholders in exchange for all of the outstanding equity of Sen Lang BVI, and will thereby be deemed to have a controlling financial interest and be the primary beneficiary of, and consolidate for accounting purposes with, SenlangBio. In addition, the Equity Financing will be consummated, whereby the Investor will begin to acquire up to approximately 13.5% of the equity ownership of SenlangBio for an aggregate purchase price of approximately US$30 million (represented by an actual investment of RMB200,000,000), which funds will be invested in SenlangBio in three equal installments of approximately US$10,000,000, at a fixed price, the first to be on the Closing Date, the second to be within three months after the closing and the third to be within six months after the closing.

 

Q:Why is Avalon proposing to effect the Acquisition?

 

A:Avalon believes that the post-Acquisition company will have several potential advantages, including: (i) a diverse pipeline of cell therapy product candidates, (ii) expanded footprint in China, (iii) operational synergies and (iv) an experienced management team.

 

For a more complete discussion of Avalon’s reasons for the Acquisition, please see the sections entitled “The Acquisition—Reasons for the Acquisition.

 

Q: What equity stake will current Avalon stockholders and the Sen Lang BVI Shareholders have in Avalon after the closing of the Acquisition and prior to the consummation of the Equity Financing?

 

A:It is anticipated that, upon the consummation of the Acquisition, the ownership of Avalon will be as follows:

 

  Current Avalon stockholders will own 51.4% of the total voting shares outstanding; and

 

  Current Sen Lang BVI Shareholders will own 48.6% of the total voting shares outstanding.

 

The numbers of shares and percentage interests set forth above do not take into account (i) shares of Avalon Common Stock issuable upon the exchange of shares of SenlangBio purchased by the Investor in the Equity Financing, pursuant to the Exchange Agreement, (ii) shares of Avalon Common Stock issuable upon the exercise of outstanding options and warrants and (iii) potential future issuances of Avalon securities.

 

In addition, under the Exchange Agreement, the Investor shall have the right, exercisable between the six-month and five year-anniversaries of the respective initial closing and installment closings, to elect to exchange, from time to time, all or part of its equity ownership of SenlangBio for Exchange Shares of Avalon at an effective exchange price of $1.21 per share of Avalon Common Stock. Following the completion of the financing and assuming the full funding by the investor in the financing, the aggregate number of shares of Avalon Common Stock that would be issuable under the Exchange Agreement (assuming the exchange of all shares) would be approximately 25,885,000 (using the conversion rate of US dollars to RMB of 6.3856 as of June 11, 2021). The resultant equity ownership of Avalon would be as follows:

 

  Current Avalon stockholders will own 44.5% of the total voting shares outstanding;

 

  Current Sen Lang BVI Shareholders will own 42.1% of the total voting shares outstanding and

 

  The Investor will own 13.4% of the total voting shares outstanding.

 

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Q:Who will be the officers and directors of the post-Acquisition company if the Acquisition is consummated?

 

A:It is currently expected that Dr. Jianqiang Li, scientific founder and CSO of SenlangBio, will join the board of Avalon, and Dr. Li will also be appointed as Chief Technology Officer of Avalon. Meng Li, Avalon’s Chief Operating Officer and a director, will resign from her position on the board of Avalon. The Avalon board and management will otherwise remain the same aside from Dr. Li, with Wenzhao Lu (Chairman), David Jin, MD, PhD, Steven A. Sanders, Yancen Lu, Wilbert J. Tauzin II, Willliam B. Stilley, III, Tevi Troy and Yue “Charles” Li continuing to serve on the board and Dr. Jin continuing to serve as President and Chief Executive Officer, Ms. Li as Chief Operating Officer and Luisa Ingargiola as Chief Financial Officer.

 

Please see the section entitled “Management After the Acquisition.”

 

Q:What is the VIE Structure?

 

  A: As a part of the restructure of Sen Lang BVI, its subsidiaries and SenlangBio and its subsidiary (collectively, the “Acquired Companies”) before the closing of the Acquisition, by entering into a series of variable interest entities agreements among the PRC Subsidiary, SenlangBio and all current shareholders of SenlangBio, as well as the Investor (such agreements are collectively referred to as the “VIE Agreements”, and such contractual control arrangement is referred to as the “VIE Structure”), Sen Lang BVI will be deemed to have a controlling financial interest and be the primary beneficiary of, and be consolidated for accounting purposes with, SenlangBio. However, the PRC Subsidiary is a holding company and is not a Chinese operating company. The consolidation is due to Sen Lang BVI’s having (i) the power to direct activities of SenlangBio that most significantly impact SenlangBio’s economic performance and (ii) the obligation to absorb losses of SenlangBio that could potentially be significant to SenlangBio, or the right to receive benefits from SenlangBio that could potentially be significant to SenlangBio, in accordance with ASC 810-10, Consolidation. See “Summary of the Proxy Statement—The VIE Structure.”

 

In the PRC, the VIE structure has become a popular and widely used overseas listing mode for enterprises in the sectors which are foreign investment restricted or prohibited, like the development and application of genetic diagnosis and treatment technology, which includes SenlangBio’s business. The VIE structure refers to an agreement mode in which the PRC domestic operating entity is separated from the overseas-listed entity, and the overseas-listed party/holding company gains a controlling financial interest and becomes the primary beneficiary of the domestic operating entity by signing relevant agreements with the parties who would otherwise receive the benefits of ownership of SenlangBio and manage its operations (i.e., VIE Agreements), and is able to consolidate the financial statements of the PRC domestic operating entity into the overseas-listed entity/holding company.

 

It is a condition to closing under the Purchase Agreement that SenlangBio, the PRC Subsidiary and the shareholders of SenlangBio (including the Investor) execute the VIE Agreements. These VIE Agreements include (i) an exclusive technical consultation and service agreement; (ii) an exclusive purchase option agreement; (iii) an entrustment agreement of shareholders’ rights; (iv) a share pledge agreement; and (v) a spouse consent letter.

 

The VIE structure poses unique risks to investors. The VIE structure is routinely adopted by many Chinese-based companies to provide contractual exposure to foreign investment in Chinese-based companies where Chinese law prohibits or limits direct foreign investment in the operating companies. Investors investing in such a company that operates in China through a VIE structure may never hold any equity interest in the operating company. Indeed, the VIE structure provides contractual exposure to foreign investment in Chinese-based companies rather than replicating an investment. PRC courts have not categorically decided on the validity of the VIE structure, nor do mandatory judicial precedents exist on this issue, as China follows a civil law tradition where the courts are not necessarily bound by judicial precedents. As a result, in cases involving the VIE structure, the validity of the contractual arrangements under such structure has been decided on a case-by-case basis. In 2012, the PRC Supreme People’s Court declared certain contractual arrangements that are similar to a VIE structure and that were used by a Hong Kong Company to gain economic control over a PRC company as void due to the parties’ improper purpose to bypass PRC regulatory supervision. If the PRC courts or regulatory authorities determine that Avalon’s contractual arrangements are in violation of applicable PRC laws, rules or regulations, the VIE contractual arrangements will become invalid or unenforceable, which would likely result in a material change in Avalon’s operations and/or value of Avalon’s common stock, including that it could cause the value of such securities to significantly decline or become worthless. See “Risk Factors—Risks Related to the VIE Structure and SenlangBio being a PRC Domestic Entity—Substantial uncertainties exist with respect to the interpretation and implementation of the PRC Foreign Investment Law, its implementing rules, Foreign Investment Security Review Measures, other regulations and how they may impact the viability of the VIE structure, business, financial condition, and results of operations.

 

Q:What conditions must be satisfied to complete the Acquisition?

 

A:There are a number of closing conditions in the Purchase Agreement, including that Avalon’s stockholders approve the issuance of the Acquisition Shares and the Exchange Shares in accordance with Nasdaq rules and that Avalon consummate the Equity Financing. In addition, the VIE Agreements (as defined below) must have been executed and delivered. For a summary of the conditions that must be satisfied or waived prior to completion of the Acquisition, please see the section entitled “The Purchase Agreement—Conditions to the Closing of the Acquisition.”

 

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Q:What vote is required to approve the proposals presented at the Avalon annual meeting of stockholders?

 

A:The approval of each of the Auditor Proposal, the Nasdaq Proposal, and the Adjournment Proposal requires the affirmative vote of the holders of a majority of votes cast by the stockholders present in person or represented by proxy and entitled to vote thereon at the annual meeting, and the approval of the Director Election Proposal requires the affirmative vote of a plurality of the votes properly cast on the election of directors. Accordingly, abstentions and broker non-votes, if any, will have no effect on the outcome of the Director Election Proposal, the Auditor Proposal, the Nasdaq Proposal and the Adjournment Proposal.

 

Q:How much stock is owned by 5% stockholders, directors, and executive officers?

 

A: As of September 30, 2021, Avalon’s directors and executive officers beneficially owned approximately 66.0% of the shares of Avalon Common Stock (calculated in accordance with SEC rules that define beneficial ownership) and owned 54,145,161 shares, 63.3% of the issued and outstanding Avalon Common Stock on such date. Although under no contractual or other obligation to do so, all of such directors and executive officers are currently expected to vote in favor of all of the Avalon Proposals, including the Nasdaq Proposal.

 

Q:Are there any subsequent approvals required from the Acquired Companies’ shareholders to approve the Acquisition?

 

A: No. All of the Sen Lang BVI Shareholders and Sen Lang BVI Beneficial Shareholders executed the Purchase Agreement, and all of the equity of SenlangBio is owned by certain of the Sen Lang BVI Beneficial Shareholders. Therefore, no other proceedings are necessary for the consummation of the Acquisition, other than the execution and delivery of the VIE Agreements by the Investor and the Sen Lang BVI Beneficial Shareholders who are the owners of SenlangBio.

 

Q:How many votes do Avalon stockholders have at the annual meeting of stockholders?

 

A:Each share of Avalon Common Stock is entitled to one vote at the annual meeting for each share of Avalon Common Stock held of record as of the record date. As of the close of business on the record date, there were [  ] outstanding shares of Avalon Common Stock.

 

Q:What interests do Avalon’s current officers and directors have in the Acquisition?

 

A:Avalon’s board of directors and executive officers may have interests in the Acquisition that are different from, in addition to or in conflict with, yours.

 

As of September 30, 2021, Avalon’s directors and executive officers beneficially owned approximately 66.0% of the shares of Avalon Common Stock (calculated in accordance with SEC rules that define beneficial ownership). All of the current executive officers of Avalon will continue in their current positions after the Acquisition, and all of the directors except for Meng Li will continue on the Avalon board after the Acquisition. In addition, On April 10, 2020, in the ordinary course of business, SenlangBio entered into a scientific research project cooperation agreement with Beijing Lu Daopei Hospital Co., Ltd., under which Beijing Lu Daopei Hospital Co., Ltd. conducts scientific research for the interest of SenlangBio on the cytoplasmic CD79a antibody gated multicolor flow cytometry monitoring CD19-CAR-T bridging allogeneic transplantation for the treatment of refractory and relapsed acute B lymphocytic leukemia. SenlangBio provides research funds in the amount of RMB 2 million to Beijing Lu Daopei Hospital Co., Ltd. Beijing Lu Daopei Hospital Co., Ltd. is a wholly-owned subsidiary of an entity whose chairman is Wenzhao Lu, the Chairman and largest shareholder of Avalon.

 

For more information, please see the sections entitled “The Acquisition—Interests of Avalon’s Directors and Officers in the Acquisition.

 

Q:What are the U.S. federal income tax consequences of the Acquisition?

 

A:Neither Avalon nor its stockholders are expected to recognize federal income tax or gain as a result of the Acquisition.

 

Q:Do Avalon stockholders have appraisal rights if they object to the proposed Acquisition?

 

A:No. There are no appraisal rights available to holders of shares of Avalon Common Stock in connection with the Acquisition.

 

Q:What will happen to Avalon if, for any reason, the Acquisition does not close?

 

A:There are certain circumstances under which the Purchase Agreement may be terminated. Please see the section entitled “The Purchase Agreement—Termination of the Purchase Agreement” for information regarding the parties’ specific termination rights.

 

If, as a result of the termination of the Purchase Agreement or otherwise, Avalon is unable to complete the Acquisition by December 31, 2021 or obtain the approval to extend the deadline for Avalon to consummate the Acquisition, the Avalon board of directors may elect to, among other things, attempt to complete another strategic transaction like the Acquisition, attempt to purchase additional assets, enter into collaboration or joint venture agreements or attempt to sell or otherwise dispose of the various assets of Avalon.

 

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Q:When is the Acquisition expected to be completed?

 

A:It is currently anticipated that the Acquisition will be consummated promptly following the Avalon annual meeting of stockholders, provided that all other conditions to the consummation of the Acquisition have been satisfied or waived, including consummation of the Equity Financing. For a description of the conditions to the completion of the Acquisition, please see the section entitled “The Purchase Agreement—Conditions to the Closing of the Acquisition.”

 

Q:When and where will the annual meeting of Avalon stockholders be held?

 

A:The Avalon annual meeting will be held in a virtual meeting format only. The annual meeting will be held on [  ], 2021 at [  ] [a/p].m. Eastern time. In order to participate in the annual meeting live via the Internet, you must register at [   ] by 11:59 p.m. Eastern Time by [  ], 2021. On the day of the Avalon annual meeting, if you have properly registered, you may enter the annual meeting by logging in using the event password you received via email in your registration confirmation at [  ]. You will not be able to attend the Avalon annual meeting in-person.

 

If you are a registered holder, you must register using the virtual control number included in your proxy materials or your proxy card. If you hold your shares beneficially through a bank or broker, you must provide a legal proxy from your bank or broker during registration and you will be assigned a virtual control number in order to vote your shares during the Annual meeting. If you are unable to obtain a legal proxy to vote your shares, you will still be able to attend the Annual meeting (but will not be able to vote your shares) so long as you demonstrate proof of stock ownership. Instructions on how to connect and participate via the Internet, including how to demonstrate proof of stock ownership, are posted at [    ].

 

Q:What do I need to do now?

 

AYou are urged to carefully read and consider the information contained in this proxy statement, including the financial statements and annexes attached hereto, and in the Annual Report and to consider how the Acquisition will affect you. You should then vote as soon as possible in accordance with the instructions provided in this proxy statement on the enclosed proxy card or, if you hold your shares through a brokerage firm, bank or other nominee, on the voting instruction form provided by the broker, bank or nominee.

 

Q:How do I vote?

 

A:If you were a holder of Avalon Common Stock on [  ], 2021, the record date for the annual meeting of stockholders, you may provide your proxy instructions in one of three different ways. First, you can mail your signed proxy card in the enclosed return envelope. Second, you may provide your proxy instructions via the Internet by following the instructions on your proxy card or voting instruction form. You may also vote your shares at the annual meeting via live webcast. Please provide your proxy instructions only once, unless you are revoking a previously delivered proxy instruction, and as soon as possible so that your shares can be voted at the annual meeting of Avalon stockholders.

 

Q:What happens if I do not return a proxy card or otherwise provide proxy instructions, as applicable?

 

A:Signed and dated proxies received by Avalon without an indication of how the stockholder intends to vote on a proposal will be voted “FOR” each of the Avalon Proposals presented to Avalon’s stockholders in accordance with the recommendation of Avalon’s board of directors. The proxyholders may use their discretion to vote on any other matters which properly come before the Avalon annual meeting.

 

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Q:May I vote in person at the annual meeting of stockholders of Avalon?

 

A:Due to the public health impact of the coronavirus outbreak (“COVID-19”) and to support the health and well-being of Avalon’s stockholders, the Avalon annual meeting will be held in a virtual meeting format only. If your shares of Avalon Common Stock are registered directly in your name with the Avalon transfer agent, you are considered to be the stockholder of record with respect to those shares, and the proxy materials and proxy card are being sent directly to you by Avalon. If you are an Avalon stockholder of record, you must register using the virtual control number included in your proxy materials or your proxy card (if you received a printed copy of the proxy materials) in order to vote at the annual meeting. If you hold your shares beneficially through a bank or broker, you are considered the beneficial owner of shares held in “street name” and you must provide a legal proxy from your bank or broker during registration and you will be assigned a virtual control number in order to vote your shares during the annual meeting. If you are unable to obtain a legal proxy to vote your shares, you will still be able to attend the annual meeting, so long as you demonstrate proof of stock ownership, but you will not be able to vote your shares. Even if you plan to attend the Avalon annual meeting live via the internet, Avalon encourages you to vote in advance by internet or mail so that your vote will be counted if you later decide not to attend the annual meeting live via the internet.

 

For more information, please see the section entitled “The Annual Meeting of Avalon Stockholders—Voting Your Shares.”

 

Q:If my Avalon shares are held in “street name” by my broker, will my broker vote my shares for me?

 

A:If you are a beneficial owner of shares of Avalon Common Stock and do not instruct your broker, bank, or other agent how to vote your shares, the question of whether your broker or nominee will still be able to vote your shares depends on whether the New York Stock Exchange (the “NYSE”), deems the particular proposal to be a “routine” matter and how your broker or nominee exercises any discretion they may have in the voting of the shares that you beneficially own. Brokers and nominees can use their discretion to vote “uninstructed” shares with respect to matters that are considered to be “routine,” but not with respect to “non-routine” matters. Under the rules and interpretations of the NYSE, “non-routine” matters are matters that may substantially affect the rights or privileges of stockholder, such as mergers, stockholder proposals, elections of directors (even if not contested), executive compensation (including any advisory stockholder votes on executive compensation and on the frequency of stockholder votes on executive compensation), and certain corporate governance proposals, even if management-supported.

 

For any Avalon Proposal that is considered a “routine” matter, your broker or nominee may vote your shares in its discretion either for or against the proposal even in the absence of your instruction. For any Avalon Proposal that is considered a “non-routine” matter for which you do not give your broker instructions, the shares will be treated as broker non-votes. Broker non-votes occur when a beneficial owner of shares held in street name does not give instructions to the broker or nominee holding the shares as to how to vote on matters deemed “non-routine.” Broker non-votes will not be considered to be shares “entitled to vote” at the annual meeting and will not be counted as having been voted on the applicable proposal. Avalon currently anticipates that only the Auditor Proposal is likely to be deemed routine by the NYSE.

 

Q:May I change my vote after I have submitted a proxy or provided proxy instructions?

 

A:Yes. Avalon stockholders of record may change their vote at any time before their proxy is voted at the Avalon annual meeting, as applicable, in one of the following ways:

 

filing with the Secretary of Avalon, a letter revoking the proxy;

 

submitting another signed proxy with a later date; or

 

attending the Avalon annual meeting and voting online, provided you file a written revocation with the Secretary of the Avalon annual meeting prior to the voting of such proxy.

 

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Q:What is the quorum requirement for the annual meeting of stockholders?

 

A:The holders of at least a majority of the voting power of the outstanding shares of Avalon Common Stock entitled to vote, as of the record date, represented in person or by proxy, will constitute a quorum for the transaction of business at the Avalon annual meeting. Proxies marked as abstentions and broker non-votes, if any, will be included to determine the number of shares present at the annual meeting. In the absence of a quorum, a majority of Avalon’s stockholders, present in person or represented by proxy, and voting thereon will have the power to adjourn the annual meeting. As of the record date for the annual meeting, [  ] shares of Avalon Common Stock would be required to achieve a quorum.

 

Q:What risks should I consider in deciding whether to vote in favor of the Avalon Proposals?

 

A:You should carefully review this proxy statement and the Annual Report, including the sections entitled “Risk Factors,” which set forth certain risks and uncertainties related to the Acquisition, risks and uncertainties to which the post-Acquisition company’s business will be subject, and risks and uncertainties to which each of Avalon and SenlangBio, as an independent company, is subject.

 

Q: How are proxy materials delivered to households?

 

A: Only one copy of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020 and this Proxy Statement will be delivered to an address where two or more stockholders reside with the same last name or who otherwise reasonably appear to be members of the same family based on the stockholders’ prior express or implied consent.

 

We will deliver promptly upon written or oral request a separate copy of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020 and this Proxy Statement. If you share an address with at least one other stockholder, currently receive one copy of our Annual Report on Form 10-K and Proxy Statement at your residence, and would like to receive a separate copy of our Annual Report on Form 10-K and Proxy Statement for future stockholder meetings of the Company, please specify such request in writing and send such written request to Avalon GloboCare Corp., 4400 Route 9 South, Suite 3100, Freehold, New Jersey 07728; Attention: Chief Financial Officer.

 

If you want to receive separate copies of the Company’s proxy statement and annual report in the future, or if you are receiving multiple copies and would like to receive only one copy for your household, you should contact your bank, broker or other nominee record holder, or you may contact us at Avalon’s address and telephone number.

 

Q:Who will solicit and pay the cost of soliciting proxies?

 

A:Avalon will bear all costs and expenses in connection with the solicitation of proxies, including the costs of preparing, printing and mailing this proxy statement and the Annual Report for the Avalon annual meeting.

 

Q:Who can help answer my questions?

 

A:If you are an Avalon stockholder and would like additional copies, without charge, of this proxy statement and the Annual Report, or if you have questions about the Acquisition, including the procedures for voting your shares, you should contact Avalon at:

 

Avalon GloboCare Corp.

4400 Route 9 South, Suite 3100

Freehold, New Jersey 07728

732-780-4400

 

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SUMMARY OF THE PROXY STATEMENT

 

This summary highlights selected information from this proxy statement and does not contain all of the information that is important to you. To better understand the Acquisition and the other proposals to be considered at the annual meeting, you should read this entire proxy statement carefully, including the annexes. Please see the section entitled “Where You Can Find More Information.” All references in this proxy statement to “Avalon,” the “Company,” “we,” “us,” or “our” mean Avalon GloboCare Corp. unless we state otherwise or the context otherwise indicates.

 

The Annual Meeting

 

The annual meeting is being held for the following purposes:

 

1.The “Director Election Proposal”—to elect the nine director nominees named in the proxy statement to hold office until the next annual meeting of stockholders and until their successors are duly elected and qualified;

 

2.The “Auditor Proposal”—to ratify the appointment of Marcum LLP as the Company’s independent auditors for the fiscal year ending December 31, 2021; and

 

  3. The “Nasdaq Proposal”— to approve, pursuant to the rules of the Nasdaq Stock Market, the issuance of (i) the Acquisition Shares pursuant to the terms of the Purchase Agreement and (ii) the Exchange Shares (the “Nasdaq Proposal”);
     
  4. The “Adjournment Proposal”—to approve the adjournment of the annual meeting to a later date or time, if necessary, to solicit additional proxies if, based upon the tabulated vote at the time of the annual meeting, there are not sufficient votes to approve the Nasdaq Proposal.

 

Parties to the Acquisition

 

Avalon

 

Avalon GloboCare Corp. 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. Avalon 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, Avalon is establishing a leading role in the fields of cellular immunotherapy (including CAR-T/NK), exosome technology (ACTEX™), and regenerative therapeutics.

 

The principal executive offices of Avalon are located at 4400 Route 9 South, Suite 3100, Freehold, New Jersey 07728, and its telephone number is (732) 780-4400.

 

Sen Lang BVI

 

Lonlon Biotech Ltd., a company incorporated in the British Virgin Islands (“BVI”) (“Sen Lang BVI”), the ultimate beneficiary of SenlangBio through the VIE Structure, was established on October 15, 2020 to be a holding company of Lonlon Biotech Investment Limited (“Senlang HK”), which owns 100% of the equity of Beijing Langlang Runfeng Biotechnology Co., Ltd., a wholly foreign owned enterprise with limited liability organized and existing under the laws of the PRC (the “PRC Subsidiary”), and the PRC Subsidiary is the primary beneficiary of SenlangBio through the VIE Structure.

 

The principal executive offices of Sen Lang BVI are located at 5F, Huabin Center, Jianguomen Wai Ave, Chaoyang District, Beijing, China, 100022.

 

SenlangBio

 

SenlangBio is a clinical-stage biotechnology company that focuses on three advanced technology platforms—CAR T-cells, CAR γδT-cells and armTILs—to develop a robust pipeline of innovative and transformative cellular immunotherapies for cancer patients. Chimeric antigen receptor (CAR) T-cells (CAR-T) are natural cell-killing T-cells that have been engineered to specifically recognize and kill cancerous cells. Allogeneic (universal) CAR γδT-cells (CAR-GDT) are a specific class of donor-derived T-cells that can provide superior anti-tumor effectiveness. Armored tumor infiltrating lymphocytes (armTILs) are cancer-killing T-cells that provide a unique “personalized” cellular immunotherapy approach. 

 

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SenlangBio is currently the largest cell therapy company in Northern China in terms of the scale of bio-manufacturing, as well as the breadth and depth of active pre-clinical research and clinical development programs.

 

A wholly-owned subsidiary of SenlangBio, Shijiazhuang Senlang Medical Laboratory Co., Ltd., a company with limited liability organized and existing under the laws of the PRC (“SenlangBio Clinical Laboratory”) is engaged in the business of testing of immunology, serology and molecular genetics specialties for patients, including hematology-tumor diagnostics and testing prior to clinical trials for cell therapy.

 

The principal executive offices of SenlangBio are located at Room 512 and 513, Building 1, 136 Yellow River Avenue, Shijiazhuang High-tech Development Zone, Hebei Province, China, and its telephone number is +86-311-82970975.

 

The Purchase Agreement

 

On June 13, 2021, Avalon GloboCare Corp., a Delaware corporation (the “Company” or “Avalon”), entered into a Share Purchase Agreement (the “Purchase Agreement”), by and among the Company, Lonlon Biotech Ltd., a company incorporated in the British Virgin Islands (“BVI”) (“Sen Lang BVI”), the holders of the share capital of Sen Lang BVI (the “Sen Lang BVI Shareholders”), the ultimate beneficial owners of the Sen Lang BVI Shareholders (the “Sen Lang BVI Beneficial Shareholders” and, together with the Sen Lang BVI Shareholders, the “Sen Lang BVI Owners”) and a representative of the Sen Lang BVI Owners (the “Sen Lang BVI Representative”). Pursuant to the Purchase Agreement, subject to the satisfaction of the conditions to closing therein, including approval by the Avalon stockholders pursuant to the rules of the Nasdaq Stock Market (“Nasdaq”), Avalon agreed to purchase (the “Acquisition”) all of the issued and outstanding share capital of Sen Lang BVI (the “Sen Lang BVI Shares”).

 

Both before and immediately after the Acquisition, Avalon was not and will not become a Chinese operating company, but will remain as a Delaware corporation. While Avalon is not a PRC operating company, certain of its subsidiaries are PRC operating companies and through them Avalon currently has substantial operations in the PRC. Sen Lang BVI, the company Avalon is seeking to acquire, is a BVI holding company with its operations conducted by its subsidiaries and through contractual arrangements with variable interest entities (“VIEs”) based in China. Sen Lang BVI, through the VIE structure (described in more detail in the section of the accompanying proxy statement titled “The Acquisition—The VIE Structure”) of contractual rights held by its wholly-owned subsidiary Beijing Langlang Runfeng Biotechnology Co., Ltd., a wholly foreign owned enterprise with limited liability organized and existing under the laws of the People’s Republic of China (the “PRC”) (the “PRC Subsidiary”), is deemed to have a controlling financial interest and be the primary beneficiary of, and is consolidated for accounting purposes with, Senlang Biotechnology Co. Ltd., a PRC domestic company with limited liability organized and existing under the laws of the PRC (the “OpCo” or “SenlangBio”), however, the PRC Subsidiary is a holding company and is not a Chinese operating company. The consolidation is due to Sen Lang BVI’s having (i) the power to direct activities of SenlangBio that most significantly impact SenlangBio’s economic performance and (ii) the obligation to absorb losses of SenlangBio that could potentially be significant to SenlangBio, or the right to receive benefits from SenlangBio that could potentially be significant to SenlangBio, in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810-10, Consolidation. See “Summary of the Proxy Statement—The VIE Structure.” SenlangBio operates its business in China and is mainly engaged in the business of research and development in relation to CAR-T cell therapy, immune cell therapy and related drug development. SenlangBio is owned 100% by certain of the Sen Lang BVI Beneficial Shareholders. A wholly-owned subsidiary of SenlangBio, Shijiazhuang Senlang Medical Laboratory Co., Ltd., a company with limited liability organized and existing under the laws of the PRC (“SenlangBio Clinical Laboratory”) operates its business in China and is engaged in the business of testing of immunology, serology and molecular genetics specialties for patients, including hematology-tumor diagnostics and testing prior to clinical trials for cell therapy. For a more detailed discussion of the business of SenlangBio and SenlangBio Clinical Laboratory, please see the section entitled “Information about SenlangBio.” Upon completion of the Acquisition, investors will not directly hold any equity interest in the VIEs.

  

The purchase price being paid by Avalon to the Sen Lang BVI Shareholders under the Purchase Agreement for the Sen Lang BVI Shares is an aggregate of 81 million shares (the “Acquisition Shares”) of the common stock, par value US$0.0001 per share, of Avalon (the “Avalon Common Stock”). Ten percent (10%), or 8.1 million, of such shares will be held in escrow for 12 months following the closing to satisfy any indemnification obligations of the Sen Lang BVI Shareholders under the Share Purchase Agreement. In addition, at the closing of the Acquisition, it is expected that Dr. Jianqiang Li, scientific founder and CSO of SenlangBio, will join the board of the Company, and Dr. Li will also be appointed as Chief Technology Officer of the Company. The Acquisition Shares will not be registered under the Securities Act of 1933, as amended (the “Securities Act”) and, therefore, will be restricted securities under Rule 144 under the Securities Act for six months or longer after the closing of the Acquisition, subject to “affiliate” status with the Company under the Securities Act.

 

A copy of the Purchase Agreement is attached to this proxy statement as Annex A. For a more detailed discussion of the Purchase Agreement, please see the section entitled “The Purchase Agreement.”

 

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Conditions to the Closing of the Acquisition

 

The Avalon stockholders must approve the Nasdaq Proposal. The approval of the Nasdaq Proposal requires the affirmative vote of the holders of a majority of votes cast by the stockholders present in person or represented by proxy and entitled to vote thereon at the annual meeting.

 

In addition, Avalon must consummate the Equity Financing and the VIE Agreements must have been executed and delivered. Please see the section entitled “The Purchase Agreement—Conditions to the Closing of the Acquisition.”

 

Non-Solicitation

 

In the Purchase Agreement, Sen Lang BVI and its affiliates agreed not to (i) solicit, initiate, or encourage the submission of any proposal or offer from any person relating to the acquisition of the equity or assets of Sen Lang BVI, its subsidiaries and SenlangBio and its subsidiaries (collectively, the “Acquired Companies”) or (ii) enter into or renew any distribution agreement related to the business of the Acquired Companies, in each case without the prior written consent of Avalon.

 

Termination of the Purchase Agreement

 

Either Avalon or the Sen Lang BVI Representative can terminate the Purchase Agreement under certain circumstances, which would prevent the Acquisition from being consummated. For more information, please see the section entitled “The Purchase Agreement—Termination of the Purchase Agreement.”

 

Equity Financing

 

In connection with the Acquisition, on June 13, 2021, an institutional investor (the “Investor”) entered into an agreement, as amended on June 24, 2021, with SenlangBio related to the purchase of registered capital of SenlangBio (the “OpCo Capital Increase Agreement”) pursuant to which the Investor will acquire an aggregate of up to 13.5% of the equity ownership of SenlangBio for an aggregate purchase price (the “Subscription Amount) of approximately US$30,000,000 (represented by an actual investment of RMB200,000,000) (the “Equity Financing”), which funds will be invested in SenlangBio in three equal installments of approximately US$10,000,000, at a fixed price, the first to be upon the closing of the Acquisition, the second to be within three months after the closing and the third to be within six months after the closing. In addition, pursuant to a Securities Exchange Agreement, as amended on June 24, 2021 (the “Exchange Agreement”), by and among the Company, Sen Lang BVI, SenlangBio and the Investor, dated June 13, 2021, the Investor shall have the right, exercisable between the six-month and five year-anniversaries of the respective initial closing and installment closings, to elect to exchange, from time to time, all or part of its then-owned equity ownership of SenlangBio for shares (the “Exchange Shares”) of Avalon Common Stock at a fixed exchange price of US$1.21 per share of Avalon Common Stock, which was the market price of the Avalon Common Stock as of the date of the Exchange Agreement under Nasdaq rules. In addition, the Exchange Agreement provides that the Investor may only exchange up to 10% of its total investment amount in any 30 day period.

 

The VIE Structure

 

As a part of the restructure of Sen Lang BVI, its subsidiaries and SenlangBio and its subsidiary (collectively, the “Acquired Companies”) before the closing of the Acquisition, by entering into a series of variable interest entities agreements among the PRC Subsidiary, SenlangBio and all current shareholders of SenlangBio, as well as the Investor (such agreements are collectively referred to as the “VIE Agreements”, and such contractual control arrangement is referred to as the “VIE Structure”), Sen Lang BVI will be deemed to have a controlling financial interest and be the primary beneficiary of, and be consolidated for accounting purposes with, SenlangBio. However, the PRC Subsidiary is a holding company and is not a Chinese operating company. The consolidation is due to Sen Lang BVI’s having (i) the power to direct activities of SenlangBio that most significantly impact SenlangBio’s economic performance and (ii) the obligation to absorb losses of SenlangBio that could potentially be significant to SenlangBio, or the right to receive benefits from SenlangBio that could potentially be significant to SenlangBio, in accordance with ASC 810-10, Consolidation.

 

In the PRC, the VIE structure has become a popular and widely used overseas listing mode for enterprises in the sectors which are foreign investment restricted or prohibited, like the development and application of genetic diagnosis and treatment technology, which includes SenlangBio’s business. The VIE structure refers to an agreement mode in which the PRC domestic operating entity is separated from the overseas-listed entity, and the overseas-listed party/holding company gains a controlling financial interest and becomes the primary beneficiary of the domestic operating entity by signing relevant agreements with the parties who would otherwise receive the benefits of ownership of SenlangBio and manage its operations (i.e., VIE Agreements), and is able to consolidate the financial statements of the PRC domestic operating entity into the overseas-listed entity/holding company. Indeed, the VIE structure provides contractual exposure to foreign investment in Chinese-based companies rather than replicating an investment.

 

It is a condition to closing under the Purchase Agreement that SenlangBio, the PRC Subsidiary and the shareholders of SenlangBio (including the Investor) execute the VIE Agreements. These VIE Agreements include (i) an exclusive technical consultation and service agreement; (ii) an exclusive purchase option agreement; (iii) an entrustment agreement of shareholders’ rights; (iv) a share pledge agreement; and (v) a spouse consent letter.

 

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The following diagram illustrates the post-Acquisition corporate structure, including equity ownership.

 

 

 

The VIE Contractual Arrangements

 

In connection with the Acquisition, Sen Lang BVI, through the PRC Subsidiary, has entered into an Equity Pledge Agreement, Exclusive Purchase Option Agreement, Shareholder’s Rights Proxy Agreement, and Exclusive Technical Consultation and Service Agreement with SenlangBio and SenlangBio’s 13 shareholders that enable Sen Lang BVI to (1) have power to direct activities of SenlangBio that most significantly impact SenlangBio’s economic performance, and (2) have the obligation to absorb losses of SenlangBio that could potentially be significant to SenlangBio or right to receive benefits from SenlangBio that could potentially be significant to SenlangBio. Pursuant to the VIE Agreements, SenlangBio pays service fees equal to all of its net income to the PRC Subsidiary. At the same time, the PRC Subsidiary is entitled to receive all of SenlangBio’s expected residual returns. The VIE Agreements are designed so that SenlangBio operates for the benefit of Sen Lang BVI. Accordingly, the accounts of SenlangBio will be consolidated with Sen Lang BVI’s consolidated financial statements pursuant to ASC 810-10, Consolidation. In addition, SenlangBio’s financial positions and results of operations will be included in Sen Lang BVI’s consolidated financial statements. Sen Lang BVI’s consolidated financial statements will be consolidated with Avalon’s consolidated financial statements following the closing. After the Acquisition, investors in Avalon securities will continue to hold their interest in Avalon, a Delaware corporation, which will own 100% of the equity of Sen Lang BVI, the BVI holding company, and a portion of Avalon’s operations will be conducted by Sen Lang BVI’s wholly-owned PRC Subsidiary, a PRC entity, through its contractual arrangements among SenlangBio, based in China and SenlangBio’s shareholders.

 

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Included among the VIE Agreements are the Exclusive Purchase Option Agreement, Shareholder’s Rights Proxy Agreement and Equity Pledge Agreement. Under the Exclusive Purchase Option Agreement, SenlangBio’s shareholders irrevocably grant the PRC Subsidiary (or its designee) an exclusive right to purchase the equity held by SenlangBio’s shareholders in SenlangBio, or the assets owned by SenlangBio, in whole or in part to the extent permitted by PRC laws. This agreement will remain in effect indefinitely, unless the PRC Subsidiary terminates this Agreement. Under the Shareholder’s Rights Proxy Agreement, SenlangBio’s shareholders authorize any entity or individual designated by the PRC Subsidiary to act on their behalf as their exclusive agent to exercise all shareholder’s rights under the PRC laws and SenlangBio’s Articles of Association, including but not limited to: (a) to convene, attend and vote on all matters during shareholders’ meetings; (b) to transfer, pledge or dispose of, or create encumbrance on the equity; (c) to receive dividends; (d) to participate in judicial proceedings or execute legal documents in relation to shareholders’ rights; (e) to appoint legal representatives, directors and officers of SenlangBio; and (f) to enter into contracts and exercise the Exclusive Purchase Option Agreement. Under this agreement, the proxy period will terminate on the earlier of the following dates: (a) the date on which SenlangBio’s shareholders are no longer SenlangBio’s nominee or actual shareholder; (b) the date on which the PRC Subsidiary requests to terminate the proxy in writing; or (c) the date on which the assets and licenses of SenglangBio have been fully transferred to the PRC Subsidiary or the entity or individual designated by the PRC Subsidiary. Under the Equity Pledge Agreement, SenlangBio’s shareholders agree to pledge all of their equity interests in SenlangBio to the PRC Subsidiary to guarantee the performance of SenlangBio and SenlangBio’s shareholders’ obligations under the Exclusive Technical Consultation and Service Agreement, the Exclusive Purchase Option Agreement, the Shareholder’s Rights Proxy Agreement, and the Spousal Consent. The term of validity of the pledge is the same as the longest term of validity in the VIE Agreements. By signing the Spousal Consents, the spouses of the shareholders of SenlangBio confirm, among other things, that the equity held by SenlangBio shareholders in SenlangBio are not community property and the SenlangBio shareholders shall have the right to dispose of the equity without the spouses’ consent. The Spousal Consent will be effective until the date when the last of the other VIE Agreements stops being effective.

 

Pursuant to the Exclusive Technical Consultation and Service Agreement between the PRC Subsidiary and SenlangBio, the PRC Subsidiary provides SenlangBio with technical consultation and services. Additionally, the PRC Subsidiary agrees to grant SenlangBio its intellectual property in relation to its services on a chargeable and revocable basis, but such grant shall not result in the transfer of any intellectual property or create any restriction on the PRC Subsidiary’s full ownership. For services rendered to SenlangBio under this agreement, the PRC Subsidiary is entitled to collect a service fee calculated based on the complexity of services rendered, time required by the PRC Subsidiary, and the exact contents and commercial value of services rendered. The term of service provided by the PRC Subsidiary under this agreement is ten (10) years. Unless terminated at an earlier date by the PRC Subsidiary, such engagement will be automatically renewed for successive 10-year terms. During the term of this agreement, the PRC Subsidiary shall enjoy all the economic benefits derived from SenlangBio’s operations, and in the event of serious difficulties in SenlangBio’s operations, the PRC Subsidiary may provide SenlangBio with financial support, and the PRC Subsidiary has the right to request SenlangBio to cease operation.

 

Sen Lang BVI, its PRC Subsidiary, SenlangBio, and SenlangBio’s shareholders face uncertainty about potential future actions that could be undertaken by PRC administrative authorities and new regulations that could be promulgated by the PRC government that could affect the enforceability of the contractual arrangements between Sen Lang BVI’s PRC Subsidiary, SenlangBio and SenlangBio’s shareholders. Consequently, the business, financial condition, and results of operations of Sen Lang BVI and Avalon may be adversely affected by these potential regulatory changes. Although no law or regulation in the PRC explicitly prohibits the use of the VIE Structure, it is uncertain whether any new PRC laws or regulations relating to VIE Structures will be adopted, or if adopted, what they would provide. In particular, the National People’s Congress approved the Foreign Investment Law, or the 2019 PRC Foreign Investment Law on March 15, 2019, which came into effect on January 1, 2020. In addition, the PRC State Council approved the Implementation Rules of Foreign Investment Law on December 26, 2019, which came into effect on January 1, 2020. There are uncertainties as to how the 2019 PRC Foreign Investment Law and its Implementation Rules will be further interpreted and implemented and if it will represent a major change to the laws and regulations relating to the VIE Structure. Although Avalon believes that no approvals or permissions are required under current applicable PRC laws and regulations for Avalon to complete the Acquisition, if SenlangBio’s CAR-T cell therapies or other technologies that are being researched and developed are deemed by relevant PRC regulatory agencies as falling into certain categories of prohibited activities by foreign-invested entities, and if the VIE Structure is considered as “investment” in the context of the prohibition of foreign investment, SenlangBio would be prohibited from engaging in the research or development of such technologies. In that event, Avalon and the Sen Lang BVI Beneficial Shareholders would have to restructure Avalon’s financial benefit from SenlangBio. SenlangBio may also have to forfeit its income derived from the research and development of such technologies. PRC courts have not categorically decided on the validity of the VIE structure, nor do mandatory judicial precedents exist on this issue, as China follows a civil law tradition where the courts are not necessarily bound by judicial precedents. As a result, in cases involving the VIE structure, the validity of the contractual arrangements under such structure has been decided on a case-by-case basis. In 2012, the PRC Supreme People’s Court declared certain contractual arrangements that are similar to a VIE structure and that were used by a Hong Kong Company to gain economic control over a PRC company as void due to the parties’ improper purpose to bypass PRC regulatory supervision. If the PRC courts or regulatory authorities determine that Avalon’s contractual arrangements are in violation of applicable PRC laws, rules or regulations, the VIE contractual arrangements will become invalid or unenforceable, which would likely result in a material change in Avalon’s operations and/or value of Avalon’s common stock, including that it could cause the value of such securities to significantly decline or become worthless. See “Risk Factors—Risks Related to the VIE Structure and SenlangBio being a PRC Domestic Entity—The business of SenlangBio may fall into the prohibited foreign investment category under currently effective PRC laws” and “Risk Factors—Risks Related to the VIE Structure and SenlangBio being a PRC Domestic Entity—Substantial uncertainties exist with respect to the interpretation and implementation of the PRC Foreign Investment Law, its implementing rules, Foreign Investment Security Review Measures, other regulations and how they may impact the viability of the VIE structure, business, financial condition, and results of operations.

 

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Moreover, the VIE Structure, as a form of contractual arrangements, may be less effective than direct ownership, and Avalon may incur substantial costs to enforce the terms of the arrangements. As a result of the VIE Structure, the status of the rights of Sen Lang BVI with respect to its contractual arrangements with SenlangBio and its shareholders is uncertain. SenlangBio and its shareholders may not act in the best interests of Avalon or may not perform their obligations under these contractual arrangements. If Sen Lang BVI could have direct ownership of SenlangBio, Avalon would be able to exercise its rights as a shareholder through Sen Lang BVI to control SenlangBio to effect changes in the board of directors of SenlangBio, which in turn could implement changes, subject to any applicable fiduciary obligations, at the management and operational level. However, under the contractual arrangements, Avalon would rely on legal remedies under PRC laws for breach of contract if SenlangBio and its shareholders did not perform their obligations under the contractual arrangements. These legal remedies may not be as effective as direct ownership in providing Avalon with control over SenlangBio.

 

If SenlangBio or its shareholders fail to perform their obligations under the contractual arrangements, Avalon may have to incur substantial costs and expend additional resources to enforce such arrangements, and rely on legal remedies under PRC laws, including contractual remedies, which may not be sufficient or effective. All the agreements under the VIE contractual arrangements are governed by and interpreted in accordance with PRC laws, and disputes arising from these contractual arrangements will be resolved through arbitration in China. However, the legal framework and system in China, in particularly those relating to arbitration proceedings, are not as developed as in some other jurisdictions, such as United States. As a result, uncertainties in the PRC legal system could limit Sen Lang BVI’s ability to enforce these contractual arrangements. Meanwhile, there are very few precedents and little formal guidance as to how contractual arrangements in the context of a VIE should be interpreted or enforced under PRC law. There remain significant uncertainties regarding the ultimate outcome of such arbitration should legal action become necessary. In addition, under PRC laws, rulings by arbitrators are final, parties cannot appeal the arbitration results in courts for the same matter, and if the losing parties fail to carry out the arbitration awards within a prescribed time limit, the prevailing parties may only enforce the arbitration awards in the PRC courts through arbitration award recognition proceedings, which would require additional expenses and delay. If Sen Lang BVI is unable to enforce these contractual arrangements, or if Sen Lang BVI suffers significant delay or face other obstacles in the process of enforcing these contractual arrangements, Avalon may not be able to exert effective control over SenlangBio, and its ability to conduct businesses may be negatively affected. See “Risk Factors—Risks Related to the VIE Structure and SenlangBio being a PRC Domestic Entity—There are uncertainties regarding the interpretation and enforcement of PRC laws, rules, and regulations in general, as well as the actions taken by PRC regulatory authorities” and “Risk Factors—Risks Related to Acquisitions.”

 

The VIE Structure includes Senglang HK, a holding company incorporated under the laws of Hong Kong. Although Hong Kong remains a top destination for international business in Asia, recent events there and a continuous push for integration with the Mainland China’s economy may expose Senlang HK’s business and results of operations to political and economic influence from the PRC. However, the existence of Senlang HK does not violate any currently effective laws or regulations in the PRC and Hong Kong. In addition, Senglang HK is not an operating company in Hong Kong, but is a holding company. Therefore, Avalon does not expect that it will be heavily influenced by the political and economic influence from China. In addition, Senlang HK is not a contractual party to the VIE Agreements. Therefore, the adoption of the VIE Structure and Senlang HK’s position therein is not expected to cause a direct legal and operational risk to Senglang HK. However, the emerging legal and operational risks in relation to the VIE Structure generally apply to the overall VIE Structure and its holding companies, which include Senglang HK.

 

Interests of Certain Persons in the Acquisition

 

Avalon

 

In considering the recommendation of Avalon’s board of directors to vote in favor of the Avalon Proposals, stockholders should be aware that, aside from their interests as stockholders, certain Avalon directors and officers have interests in the Acquisition that are different from, or in addition to, those of other stockholders generally. Avalon’s directors were aware of and considered these interests, among other matters, in evaluating the Acquisition, and in recommending to stockholders that they approve the Avalon Proposals. Stockholders should take these interests into account in deciding whether to approve the Avalon Proposals.

 

As of September 30, 2021, Avalon’s directors and executive officers beneficially owned approximately 66.0% of the shares of Avalon Common Stock (calculated in accordance with SEC rules that define beneficial ownership). All of the current executive officers of Avalon will continue in their current positions after the Acquisition, and all of the directors except for Meng Li will continue on the Avalon board after the Acquisition. In addition, on April 10, 2020, in the ordinary course of business, SenlangBio entered into a scientific research project cooperation agreement with Beijing Lu Daopei Hospital Co., Ltd., under which Beijing Lu Daopei Hospital Co., Ltd. conducts scientific research for the interest of SenlangBio on the cytoplasmic CD79a antibody gated multicolor flow cytometry monitoring CD19-CAR-T bridging allogeneic transplantation for the treatment of refractory and relapsed acute B lymphocytic leukemia. SenlangBio provides research funds in the amount of RMB 2 million to Beijing Lu Daopei Hospital Co., Ltd. Beijing Lu Daopei Hospital Co., Ltd. is a wholly-owned subsidiary of an entity whose chairman is Wenzhao Lu, the Chairman and largest shareholder of Avalon.

 

These interests may influence Avalon’s board of directors in making their recommendation that you vote in favor of the approval of the Avalon Proposals.

 

For more information, please see the section entitled “The Acquisition—Interests of Avalon’s Directors and Officers in the Acquisition.”

 

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Reasons for the Approval of the Acquisition

 

After careful consideration, Avalon’s board of directors recommends that Avalon stockholders vote “FOR” each of the Avalon Proposals being submitted to a vote of the Avalon stockholders at the Avalon annual meeting of stockholders.

 

For a description of Avalon’s reasons for the approval of the Acquisition and the recommendation of its board of directors, see the section entitled “The Acquisition—Reasons for the Acquisition.”

 

Regulatory Approvals Required for Business Operation of VIEs, Completing the Acquisition and the Issuance of Future Securities to Investors 

 

Avalon must comply with applicable federal and state securities laws and the rules and regulations of Nasdaq in connection with the issuance of shares of Avalon Common Stock in connection with the Acquisition and the issuance of the Exchange Shares in the Equity Financing and the filing of this proxy statement with the SEC.

 

SenlangBio engages in (a) the research and development in relation to CAR-T cell therapy and immune cell therapy, (b) cooperating with various hospitals for investigator initiated clinical trials of CAR-T cell therapy and immune cell therapy, as well as (c) applying for drug approval in relation to CAR-T cell therapy and immune cell therapy. SenlangBio has obtained a business license, which permits SenlangBio to operate its business in the PRC. No other special permission is required for SenlangBio to conduct its current business under applicable PRC regulations and laws. In respect of its business operations, no additional permits, licenses, and approvals are currently materially necessary because of the use of the VIE Structure. An essential component of SenlangBio’s development activities is the collection and use of human genetic resources. Under PRC law, entities controlled by foreign investor shall not conduct such activities. If an entity controlled by a foreign investor needs to use the human genetic resources of China to conduct scientific research, such an entity must cooperate with a Chinese entity and obtain related approval. Since no laws or regulations explicitly prohibit VIE contractual arrangements with foreign investors as a way of providing contractual exposure to foreign investment in Chinese-based companies by foreign parites, the use of VIE contractual arrangements serves to avoid the need to obtain such approval. However, it is still uncertain whether in the future a PRC authority would determine that an entity that has entered into VIE agreements with any foreign investor shall be deemed as “an entity controlled by foreign investor.” If in the future the competent authority interprets the VIE Structure as a way of control by foreign investor, SenlangBio and SenlangBio Clinical Laboratory may be subject to a fine of a substantial amount and no longer be allowed to collect and use human genetic resources without approval. See “Risk Factors—Risks Related to the VIE Structure and SenlangBio being a PRC Domestic Entity—Substantial uncertainties exist with respect to the interpretation and implementation of the PRC Foreign Investment Law, its implementing rules, Foreign Investment Security Review Measures, other regulations and how they may impact the viability of the VIE structure, business, financial condition, and results of operations.

 

SenlangBio Clinical Laboratory engages in the business of testing of immunology, serology, and molecular genetics specialties for patients, including hematologic tumor diagnostics and testing prior to clinical trials for cell therapy. SenlangBio Clinical Laboratory has obtained a business license, which permits SenlangBio Clinical Laboratory to operate in the PRC. SenlangBio Clinical Laboratory has also obtained other permits, licenses and approvals specifically required for the business operation it conducts, including a Medical Institution Practice License, a Pathogenic Microbiology Laboratory Filling Certificate, and a Certificate of Technical Acceptance of Clinical Gene Amplification Test Laboratory.

 

Avalon’s existing PRC subsidiaries have obtained their respective business licenses, which permit each of Avalon’s existing PRC subsidiaries to operate its business in the PRC. No other special permission is required for Avalon’s existing PRC subsidiaries to conduct their respective current business under applicable PRC regulations and laws. Additionally, the operation of Avalon and its existing PRC subsidiaries are not covered by permissions requirements of the China Securities Regulatory Commission (CSRC) or the Cyberspace Administration of China (CAC). No approvals or permissions are required under current applicable PRC laws and regulations for Avalon to complete the Acquisition. However, as discussed above, it is uncertain whether in the future a PRC authority would determine that an entity that has entered into VIE agreements with a foreign investor shall be deemed as “an entity controlled by foreign investor.” Any such determination in the future would necessitate approvals from competent PRC authorities. Based on the current VIE Structure of Sen Lang BVI, no permission or approval is required by the China Securities Regulatory Commission or the Cyberspace Administration of China for the operations of SenlangBIo as a VIE. See “Risk Factors—Risks Related to the VIE Structure and SenlangBio being a PRC Domestic Entity—Substantial uncertainties exist with respect to the interpretation and implementation of the PRC Foreign Investment Law, its implementing rules, Foreign Investment Security Review Measures, other regulations and how they may impact the viability of the VIE structure, business, financial condition, and results of operations.” In addition, because Avalon is the issuer of the common stock listed on Nasdaq and is a Delaware operating and holding company, no approval or permission is required under current applicable PRC laws and regulations for any future issuances of Avalon securities to non-PRC investors. Nevertheless, according to the Opinions of the General Office of the CPC Central Committee and the General Office of the State Council on Strictly Cracking Down on Illegal Securities Activities in accordance with the Law (“Opinions”), the PRC intends to establish and improve the system of extraterritorial application of the PRC securities laws. Although the details of the extraterritorial application of the PRC securities laws are still scarce as of the date of this proxy statement, PRC laws, regulations and/or their interpretations may change in the future, such that they have may an extraterritorial effect, whereby Avalon or the post-Acquisition company may be required to obtain such approval or permission under PRC laws and regulations. In such event, Avalon may face the risk that these future regulatory actions by the PRC government could significantly limit or completely hinder Avalon’s ability to offer future securities to investors. Under this scenario, Avalon’s ability to raise capital and thereby execute its business plan would be significantly limited or completely hindered, which would likely result in a material change in Avalon’s operations and the value of Avalon’s common stock, including that it could cause the value of such securities to significantly decline or become worthless. In addition, Avalon faces the risk that Avalon and the post-Acquisition company may not currently ascertain, and therefore may not actually have, all requisite permissions to offer securities, which would likely result in a material change in Avalon’s operations and/or value of Avalon’s common stock, including that it could cause the value of such securities to significantly decline or become worthless.

 

15 

 

 

The Flow of Economic Benefits from SenlangBio to Avalon Stipulated under the Contractual Arrangements

 

Pursuant to the VIE contractual arrangements between Sen Lang BVI’s PRC Subsidiary, SenlangBio and SenlangBio’s shareholders, SenlangBio will pay the PRC Subsidiary the consulting service fee on a quarterly basis, which shall be the net income of SenlangBio during such quarter. Senlang HK will then receive the economic benefit from the PRC Subsidiary by way of dividends. Sen Lang BVI, the entity which will be 100% owned by Avalon after the Acquisition, will further receive the economic benefit from Senlang HK by way of dividends.

 

Pursuant to the Exclusive Technical Consultation and Service Agreement between the PRC Subsidiary and SenlangBio, upon the completion of the Acquisition, the PRC Subsidiary will grant SenlangBio its trademarks, software copyrights, management systems, management methods and other intellectual property in relation to the services on a chargeable and revocable basis, although the PRC Subsidiary currently does not possess any aforementioned intellectual property. Pursuant to the Exchange Agreement, Avalon will issue shares of Avalon Common Stock upon the exchange of shares of SenlangBio. Therefore, no cash will flow from Sen Lang BVI to SenlangBio upon the completion of Acquisition.

 

The payment and amount of any future dividend of the PRC Subsidiary to Senlang HK will be restricted by PRC laws and regulations regarding dividends and PRC foreign exchange regulations. PRC laws require that dividends be paid only out of the profit for the year calculated according to PRC accounting principles, which differ in certain respects from the generally accepted accounting principles in other jurisdictions, including U.S. GAAP and IFRS. PRC laws also require foreign-invested enterprises to set aside at least 10% of their after-tax profits as the statutory common reserve fund until the cumulative amount of the statutory common reserve fund reaches 50% or more of such enterprises’ registered capital, if any, to fund its statutory common reserves, which are not available for distribution as cash dividends. See “Risk Factors - Risks Related to the VIE Structure and SenlangBio being a PRC Domestic Entity — Avalon intends to receive dividends and other distributions from VIEs, and any limitation on the ability of VIEs to make payments to Avalon could have an adverse effect on Avalon’s ability to conduct its business. Sen Lang BVI, Avalon and, ultimately, Avalon stockholders will receive the economic benefit of Senlang HK by way of dividends, which are subject to restrictions under current Hong Kong, BVI and US laws and regulations regarding dividends. Furthermore, under applicable PRC laws and regulations, arrangements and transactions among related parties may be subject to audit or challenge by the PRC tax authorities within ten years after the taxable year when the transactions are conducted. Avalon, its subsidiaries and SenlangBio may face material and adverse tax consequences if the PRC tax authorities determine that the contractual arrangements were not entered into on an arm’s length basis. See “Risk Factors - Risks Related to the VIE Structure and SenlangBio being a PRC Domestic Entity — VIE contractual arrangements may be subject to scrutiny by the PRC tax authorities and they may determine that Avalon or its subsidiaries or SenlangBio owe additional taxes, which could negatively affect Avalon’s financial condition and the value of its stock.

 

Pursuant to the PRC Enterprise Income Tax Law, a withholding tax rate of 10% currently applies to dividends paid by a PRC resident enterprise to a foreign enterprise investor, unless any such foreign investor’s jurisdiction of incorporation has a tax treaty with China that provides for preferential tax treatment. Pursuant to the Arrangement between the Mainland China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and Tax Evasion on Income, such withholding tax rate may be lowered to 5% if a Hong Kong resident enterprise owns no less than 25% of the capital of a PRC enterprise and is the beneficial owner of the dividend income. Furthermore, the Announcement of State Taxation Administration on Promulgation of the Administrative Measures on Non-Resident Taxpayers Enjoying Treaty Benefits, issued on October 14, 2019 by the PRC State Taxation Administration, which became effective from January 1, 2020, requires non-resident enterprises to determine whether they are qualified to enjoy the preferential tax treatment under the tax treaties and make appropriate filings with the competent tax authorities. In addition, based on the Notice on Issues concerning Beneficial Owner in Tax Treaties, or Circular 9, issued on February 3, 2018 by the PRC State Taxation Administration, which became effective from April 1, 2018, when determining the applicant’s “beneficial owner” status regarding tax treatments in connection with dividends, interests or royalties in the tax treaties, several factors, including, without limitation, whether the applicant is obligated to pay more than 50% of the applicant’s income for twelve months to residents in a third country or region, whether the business operated by the applicant constitutes the actual business activities, and whether the counterparty country or region to the tax treaties does not levy any tax or grant tax exemption on relevant incomes or levy tax at an extremely low rate, will be taken into account, and it will be analyzed according to the actual circumstances of the specific cases. There are also other conditions for enjoying the reduced withholding tax rate according to other relevant tax rules and regulations. Therefore, Avalon currently believes that the PRC Subsidiary’s distribution of dividends to Senlang HK, if any, shall be subject to a withholding tax rate of 10%, unless the reduced rate of 5% under the tax treaty is applicable.

 

After receiving distribution of dividends from the PRC Subsidiary by way of dividends, Senlang HK will further make payments of dividends to Sen Lang BVI. Senlang HK is incorporated in Hong Kong and is subject to the Hong Kong Profits Tax law on the taxable income. According to Division 2 of Part 6 in the Companies Ordinance of Hong Kong, Senlang HK may only make a distribution out of its profits available for distribution. It may not pay any dividend out of its share capital, or in advance of the generation of distributable profits. However, under the current Hong Kong laws, payments of dividends by Senlang HK to Sen Lang BVI are not subject to any Hong Kong withholding or income tax.

 

SenlangBio reported net losses and had negative net cash flows from operations in 2020. No net income will be generated from SenlangBio’s operations in the foreseeable future and therefore no dividends or distributions will be paid by Sen Lang BVI (or its subsidiaries) to Avalon and its stockholders in the foreseeable future following the Acquisition. However, if Sen Lang BVI (or its subsidiaries) do make distributions of cash or property to Avalon, absent a distribution by Avalon to the U.S. holders of Avalon common stock, there would be no flow-through of such income to the U.S. holders of Avalon common stock for U.S. federal income tax purposes.

 

16 

 

 

Restrictions on Foreign Exchange and Avalon’s Ability to Transfer Cash Across Borders

 

The PRC government imposes controls on the convertibility of RMB into foreign currencies and, in certain cases, the remittance of currency out of China. Under existing PRC foreign exchange regulations, payments of current account items, such as profit distributions and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior approval from the State Administration of Foreign Exchange, or SAFE, by complying with certain procedural requirements. However, approval from or registration with appropriate governmental authorities is required where RMB is to be converted into foreign currency and remitted out of China to pay capital expenses. As a result, SAFE approval may need to be obtained to use cash generated from the operations of SenlangBio. Any failure to comply with applicable foreign exchange regulations may subject us to administrative fines. See “Risk Factors - Risks Related to the VIE Structure and SenlangBio being a PRC Domestic Entity — Governmental control of currency conversion may limit Avalon’s ability to utilize its revenues effectively and affect the value of Investor’s investment.”

 

Accounting Treatment of the Acquisition

 

The Acquisition is expected to be accounted for as a business acquisition, with Avalon identified as the accounting acquirer. Avalon is considered the accounting acquirer since immediately following the closing: (i) Avalon stockholders will own a majority of the voting rights of the post-Acquisition company; (ii) Avalon will have designate a majority (eight of nine) of the initial members of the board of directors of the post-Acquisition company; (iii) Avalon’s senior management will hold the majority of the key positions in senior management of the post-Acquisition company; and (iv) Avalon will continue to maintain its corporate headquarters in Freehold, New Jersey, United States. SenlangBio will continue to maintain operations in the Shijiazhuang High-tech Development Zone, Hebei Province, China.

 

The acquisition consideration is 81,000,000 shares of Avalon Common Stock. The purchase price will be allocated to the acquired assets and assumed liabilities based on their fair values at the closing date, and any excess is initially allocated to identifiable intangible assets mainly consisting of cell and gene engineering technologies with the ability to generate innovative and transformative cellular immunotherapies for solid and hematologic cancers, which will be amortized over 10 years. The initial allocation is subject to change upon the final valuation which is to be done at the time of closing. Such change could have a material impact on Avalon’s financial statements.

 

Holding Foreign Companies Accountable Act Compliance

 

The Holding Foreign Companies Accountable Act, or the HFCA Act, was enacted on December 18, 2020. According to the HFCA Act, if the SEC determines that Avalon has filed audit reports issued by a registered public accounting firm that has not been subject to inspection by the PCAOB for three consecutive years beginning in 2021, the SEC will prohibit Avalon’s securities from being traded on a national securities exchange or in the over-the-counter trading market in the United States.

 

Avalon’s auditor is Marcum LLP, based in New York, New York. Sen Lang BVI’s auditor is Friedman LLP, based in Marlton, New Jersey. Both firms are registered with the PCAOB and are subject to laws in the United States pursuant to which the PCAOB conducts regular inspections to assess their compliance with the applicable professional standards. Since both firms are located in the United States, the PCAOB has been able to conduct inspections of Marcum LLP and Friedman LLP.

 

Although the audit reports of Avalon and Sen Lang BVI are prepared by U.S. auditors that are subject to inspection by the PCAOB, the PCAOB is currently unable to conduct inspections over the audit work of Avalon’s and Sen Lang BVI’s respective independent registered public accounting firms with respect to Avalon’s and Sen Lang BVI’s respective operations in mainland China without the approval of certain Chinese authorities. Also, there is no guarantee that future audit reports will be prepared by auditors that are completely inspected by the PCAOB and, as such, future investors may be deprived of such inspections, which could result in limitations or restrictions to Avalon’s access of the U.S. capital markets.

 

17 

 

 

Inspections of certain other firms that the PCAOB has conducted outside of China have identified deficiencies in those firms’ audit procedures and quality control procedures, which may be addressed as part of the inspection process to improve future audit quality. However, the PCAOB is currently unable to inspect an auditor’s audit work related to a company’s operations in China where such documentation of the audit work is located in China. As a result, Avalon’s investors may be deprived of the benefits of the PCAOB’s oversight of auditors that are located in China through such inspections.

 

On March 24, 2021, the SEC adopted interim final rules relating to the implementation of certain disclosure and documentation requirements of the HFCA Act. Avalon will be required to comply with these rules if the SEC identifies us as having a “non-inspection” year under a process to be subsequently established by the SEC. The SEC is assessing how to implement other requirements of the HFCA Act, including the listing and trading prohibition requirements described above.

 

On June 22, 2021, the U.S. Senate passed a bill which, if passed by the U.S. House of Representatives and signed into law, would reduce the number of consecutive non-inspection years required for triggering the prohibitions under the HFCA Act from three years to two, which would shorten the timeframe before Avalon’s share may be delisted and before the trading in Avalon’s shares is prohibited.

 

On November 5, 2021, the SEC approved Rule 6100 adopted by the PCAOB to determine its inability to inspect or investigate registered firms completely under the HFCA Act. This rule establishes the framework for the PCAOB to make these required determinations. The trading in Avalon’s securities may be prohibited under the HFCA Act if the PCAOB subsequently determines Avalon’s audit work is performed by auditors that the PCAOB is unable to inspect or investigate completely pursuant to Rule 6100, and as a result, U.S. national securities exchanges, such as Nasdaq, may determine to delist Avalon’s securities. Such a delisting would likely cause the value of such securities to significantly decline or become worthless.

 

The SEC may propose additional regulatory or legislative requirements or guidance that could impact us if our auditor is not subject to PCAOB inspection. For example, on August 6, 2020, the President’s Working Group on Financial Markets, or the PWG, issued the Report on Protecting United States Investors from Significant Risks from Chinese Companies to the then President of the United States. This report recommended the SEC implement five recommendations to address companies from jurisdictions that do not provide the PCAOB with sufficient access to fulfil its statutory mandate. Some of the concepts of these recommendations were implemented with the enactment of the HFCA Act. However, some of the recommendations were more stringent than the HFCA Act. For example, if a company was not subject to PCAOB inspection, the report recommended that the transition period before a company would be delisted would end on January 1, 2022.

 

The SEC has announced that the SEC staff is preparing a consolidated proposal for the rules regarding the implementation of the HFCA Act and to address the recommendations in the PWG report. It is unclear when the SEC will complete its rulemaking and when such rules will become effective and what, if any, of the PWG recommendations will be adopted. The implications of this possible regulation in addition to the requirements of the HFCA Act are uncertain. Although Avalon is currently not subject to the HFCA Act, any uncertainty of its applicability to Avalon, for example if Avalon or Sen Lang BVI switched to using a PRC-based auditing firm, could cause the market price of Avalon’s securities to be materially and adversely affected and could cause Avalon’s securities to be delisted or prohibited from being traded “over-the-counter”. If Avalon’s securities are unable to be listed on another securities exchange, such a delisting would substantially impair your ability to sell or purchase Avalon’s securities when you wish to do so, and the risk and uncertainty associated with a potential delisting would have a negative impact on the price of Avalon’s securities. See “Risk Factors— Trading in Avalon’s securities may be restricted under the Holding Foreign Companies Accountable Act if the PCAOB determines that it cannot inspect or fully investigate Avalon’s auditors, and as a result, U.S. national securities exchanges, such as Nasdaq, may determine to delist Avalon’s securities.

 

18 

 

 

Material U.S. Federal Income Tax Consequences of the Acquisition

 

Neither Avalon nor its stockholders are expected to recognize federal income tax or gain as a result of the Acquisition.

 

Ownership Following the Acquisition and the Equity Financing

 

It is anticipated that, upon the consummation of the Acquisition, the ownership of Avalon will be as follows:

 

  Current Avalon stockholders will own 51.4% of the total voting shares outstanding; and

 

  Current Sen Lang BVI Shareholders will own 48.6% of the total voting shares outstanding.

 

The numbers of shares and percentage interests set forth above do not take into account (i) shares of Avalon Common Stock issuable upon the exchange of shares of SenlangBio purchased by the Investor in the Equity Financing, pursuant to the Exchange Agreement, (ii) shares of Avalon Common Stock issuable upon the exercise of outstanding options and warrants and (iii) potential future issuances of Avalon securities.

 

In addition, under the Exchange Agreement, the Investor shall have the right, exercisable following the six month anniversary of the closing of the Acquisition and until the five year anniversary of the closing of the Acquisition, to elect to exchange, from time to time, all or part of its equity ownership of SenlangBio for Exchange Shares of Avalon at an effective exchange price of $1.21 per share of Avalon Common Stock. Following the completion of the financing and assuming the full funding by the investor in the financing, the aggregate number of shares of Avalon Common Stock that would be issuable under the Exchange Agreement (assuming the exchange of all shares) would be approximately 25,885,000 (using the conversion rate of US dollars to RMB of 6.3856 as of June 11, 2021). The resultant equity ownership of Avalon would be as follows:

 

  Current Avalon stockholders will own 44.5% of the total voting shares outstanding;

 

  Current Sen Lang BVI Shareholders will own 42.1% of the total voting shares outstanding and

 

  The Investor will own 13.4% of the total voting shares outstanding.

 

China Operations – Condensed Consolidating Schedule

 

Following the Acquisition, the China-based SenlangBio business will represent a material part of the consolidated financial statements of Avalon through the VIE Structure. In addition, Avalon currently has a portion of its business based in China. The following condensed consolidating schedules depict the financial position as of December 31, 2020 and 2019, cash flows and results of operations for the years ended December 31, 2020 and 2019 for (i) the parent Avalon, (ii) Avalon’s non-China subsidiaries, (iii) Avalon’s China subsidiaries, (iv) the parent Sen Lang BVI, (v) Sen Lang BVI’s non-China subsidiary, (vi) Sen Lang BVI’s China subsidiary and (vii) Sen Lang BVI’s consolidated VIE, and eliminating adjustments, in each case shown separately as well as combined into the pro forma information, adjusted as if Avalon had acquired Sen Lang BVI.

  

The pro forma condensed consolidated combined balance sheet as of December 31, 2020 gives effect to the acquisition as if they had been consummated on December 31, 2020. The pro forma condensed consolidated combined statement of operations and comprehensive loss for the year ended December 31, 2020 and the pro forma condensed consolidated combined statement of cash flows for the year ended December 31, 2020 give effect to the acquisition as if they had been consummated on January 1, 2020.

 

The pro forma condensed consolidated combined balance sheet as of December 31, 2019 gives effect to the acquisition as if they had been consummated on December 31, 2019. The pro forma condensed consolidated combined statement of operations and comprehensive loss for the year ended December 31, 2019 and the pro forma condensed consolidated combined statement of cash flows for the year ended December 31, 2019 give effect to the acquisition as if they had been consummated on January 1, 2019.

 

19 

 

 

AVALON GLOBOCARE CORP. AND SUBSIDIARIES

PRO FORMA CONDENSED CONSOLIDATED COMBINED BALANCE SHEET

As of December 31, 2020

 

        Historical     Pro Forma 
         Avalon GloboCare Corp. and Subsidiaries     Lonlon Biotech Ltd. and Subsidiaries             
             Non-China     China     Eliminating Adjustments             Non-China     China         Eliminating Adjustments         Pro Forma Adjustments     Pro Forma 
         Parent     Subsidiaries     Subsidiaries     Dr.     Cr.     Consolidated     Parent     Subsidiary     Subsidiary     VIE     Dr.     Cr.     Consolidated     Dr.     Cr.     Combined 
                                                                     
ASSETS                                                                
                                                                     
CURRENT ASSETS:                                                                
  Cash    $                 195,786    $             363,925    $        166,866    $                    -    $                     -    $          726,577    $        -    $                     -    $                -    $             18,935    $                   -    $                    -    $          18,935    $                        -    $                         -    $              745,512
  Accounts receivable                                   -                              -                          -                          -                           -                            -              -                           -                      -                   45,271                         -                          -                45,271                              -                               -                      45,271
  Rent receivable                                   -                     35,395                          -                          -                           -                  35,395              -                           -                      -                             -                         -                          -                         -                              -                               -                      35,395
  Deferred financing costs                       222,141                              -                          -                          -                           -                222,141              -                           -                      -                             -                         -                          -                         -                              -                               -                    222,141
  Recoverable VAT                                   -                              -                          -                          -                           -                            -              -                           -                      -                 335,150                         -                          -              335,150                              -                   335,150 a                              -
  Inventory                                   -                              -                          -                          -                           -                            -              -                           -                      -                 125,962                         -                          -              125,962                              -                   125,962 a                              -
  Prepaid expenses and other current assets                       207,162                     20,311                74,751                          -                           -                302,224              -                           -                      -                   21,017                         -                          -                21,017                  461,112 a                             -                    784,353
  Intercompany (Note *)                  18,249,595                              -                          -                          -          18,249,595 f                          -              -                           -                      -                             -                         -                          -                         -                              -                               -                                -
                                                                     
    Total Current Assets                  18,874,684                   419,631              241,617                          -          18,249,595             1,286,337              -                           -                      -                 546,335                         -                          -              546,335                  461,112                   461,112                 1,832,672
                                                                     
NON-CURRENT ASSETS:                                                                
  Rent receivable - noncurrent portion                                   -                   111,840                          -                          -                           -                111,840              -                           -                      -                             -                         -                          -                         -                              -                               -                    111,840
  Security deposit                                    -                              -                          -                          -                           -                            -              -                           -                      -                   50,012                         -                          -                50,012                              -                               -                      50,012
  Deferred leasing costs                                   -                   144,197                          -                          -                           -                144,197              -                           -                      -                             -                         -                          -                         -                              -                               -                    144,197
  Operating lease right-of-use assets, net                       137,333                              -                          -                          -                           -                137,333              -                           -                      -                 320,123                         -                          -              320,123                              -                               -                    457,456
  Property and equipment, net                                   -                     79,261              399,854                          -                           -                479,115              -                           -                      -              2,567,522                         -                          -           2,567,522                              -                               -                 3,046,637
  Investment in real estate, net                                   -                7,685,686                          -                          -                           -             7,685,686              -                           -                      -                             -                         -                          -                         -                              -                               -                 7,685,686
  Equity method investment                                   -                              -              521,758                          -                           -                521,758              -                           -                      -                             -                         -                          -                         -                              -                               -                    521,758
  Intangible assets                                   -                              -                          -                          -                           -                            -              -                           -                      -                             -                         -                          -                         -             97,420,815 b                             -               97,420,815
                                                                     
    Total Non-current Assets                       137,333                8,020,984              921,612                          -                           -             9,079,929              -                           -                      -              2,937,657                         -                          -           2,937,657             97,420,815                               -             109,438,401
                                                                     
    Total Assets    $            19,012,017    $          8,440,615    $     1,163,229    $                    -    $    18,249,595    $     10,366,266    $        -    $                     -    $                -    $        3,483,992    $                   -    $                    -    $     3,483,992    $       97,881,927    $             461,112    $       111,271,073
                                                                     
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)                                                                
                                                                     
CURRENT LIABILITIES:                                                                
  Accrued professional fees    $              1,178,200    $                        -    $          34,622    $                    -    $                     -    $       1,212,822    $        -    $                     -    $                -    $                       -    $                   -    $                    -    $                   -    $                        -    $             650,000  d   $           1,862,822
  Accrued research and development fees                       513,533                              -                          -                          -                           -                513,533              -                           -                      -                             -                         -                          -                         -                              -                               -                    513,533
  Accrued payroll liability and directors' compensation                       132,500                              -                21,792                          -                           -                154,292              -                           -                      -                 105,810                         -                          -              105,810                              -                               -                    260,102
  Accounts payable                                   -                              -                          -                          -                           -                            -              -                           -                      -                 310,330                         -                          -              310,330                  310,330 e                             -                                -
  Accrued leasehold improvements liabilities                                   -                              -                          -                          -                           -                            -              -                           -                      -                 315,583                         -                          -              315,583                  315,583 e                             -                                -
  Accrued liabilities and other payables                         14,671                   177,284              105,822                          -                           -                297,777              -                           -                      -                   37,432                         -                          -                37,432                              -                   975,100  e                1,310,309
  Notes payable                                   -                              -                          -                          -                           -                            -              -                           -                      -                 918,752                         -                          -              918,752                              -                               -                    918,752
  Accrued liabilities and other payables - related parties                       167,956                   100,000                          -                          -                           -                267,956              -                           -                      -                             -                         -                          -                         -                              -                               -                    267,956
  Deferred revenue                                   -                              -                          -                          -                           -                            -              -                           -                      -                   88,508                         -                          -                88,508                    88,508 e                             -                                -
  Deferred grant income                                   -                              -                          -                          -                           -                            -              -                           -                      -                 260,679                         -                          -              260,679                  260,679 e                             -                                -
  Operating lease obligation                         76,379                              -                          -                          -                           -                  76,379              -                           -                      -                 155,470                         -                          -              155,470                              -                               -                    231,849
  Note payable - related party                                   -                              -                          -                          -                           -                            -              -                           -                      -                 245,000                         -                          -              245,000                              -                               -                    245,000
  Tenants' security deposit                                   -                     69,634                          -                          -                           -                  69,634              -                           -                      -                             -                         -                          -                         -                              -                               -                      69,634
  Intercompany (Note *)                                   -              15,136,391           3,113,204         18,249,595 f                         -                            -              -                           -                      -                             -                         -                          -                         -                              -                               -                                -
                                                                     
    Total Current Liabilities                    2,083,239              15,483,309           3,275,440         18,249,595                           -             2,592,393              -                           -                      -              2,437,564                         -                          -           2,437,564                  975,100                1,625,100                 5,679,957
                                                                     
NON-CURRENT LIABILITIES:                                                                
  Deferred grant income - noncurrent portion                                   -                              -                          -                          -                           -                            -              -                           -                      -                 351,677                         -                          -              351,677                              -                               -                    351,677
  Operating lease obligation - noncurrent portion                         66,954                              -                          -                          -                           -                  66,954              -                           -                      -                 105,566                         -                          -              105,566                              -                               -                    172,520
  Note payable - related party                       390,000                              -                          -                          -                           -                390,000              -                           -                      -                             -                         -                          -                         -                              -                               -                    390,000
  Loan payable - related party                    3,200,000                              -                          -                          -                           -             3,200,000              -                           -                      -                             -                         -                          -                         -                              -                               -                 3,200,000
                                                                     
    Total Non-current Liabilities                    3,656,954                              -                          -                          -                           -             3,656,954              -                           -                      -                 457,243                         -                          -              457,243                              -                               -                 4,114,197
                                                                     
    Total Liabilities                    5,740,193              15,483,309           3,275,440         18,249,595                           -             6,249,347              -                           -                      -              2,894,807                         -                          -           2,894,807                  975,100                1,625,100                 9,794,154
                                                                     
SHAREHOLDERS' EQUITY (DEFICIT):                                                                
  Preferred stock, $0.0001 par value; 10,000,000 shares authorized;                                                                 
    no shares issued and outstanding                                   -                              -                          -                          -                           -                            -              -                           -                      -                             -                         -                          -                         -                              -                               -                                -
  Common stock, $0.0001 par value; 490,000,000 shares authorized;                                                                 
    82,795,297 shares issued and 82,275,297 shares outstanding,                                                                
    163,795,297 pro forma shares issued and                                                                
    163,275,297 pro forma shares outstanding                           8,279                              -                          -                          -                           -                    8,279              -                           -                      -                             -                         -                          -                         -                              -                       8,100  b                     16,379
  Additional paid-in capital                  45,639,056                1,139,985                77,406                          -                           -           46,856,447              -                           -                      -              8,946,197                         -                          -           8,946,197               8,946,197 c            98,001,900  b            144,858,347
  Ordinary shares                                   -                              -                          -                          -                           -                            -              -                           -                      -                   10,001                         -                          -                10,001                    10,001 c                             -                                -
  Less: common stock held in treasury, at cost; 520,000 shares                      (522,500)                              -                          -                          -                           -              (522,500)              -                           -                      -                             -                         -                          -                         -                              -                               -                   (522,500)
  Accumulated deficit                 (31,853,011)              (8,182,679)         (2,005,685)                          -                           -         (42,041,375)              -                           -                      -             (8,380,014)                         -                          -         (8,380,014)                  650,000  d               8,380,014  c             (42,691,375)
  Statutory reserve                                   -                              -                  6,578                          -                           -                    6,578              -                           -                      -                             -                         -                          -                         -                              -                               -                        6,578
  Accumulated other comprehensive (loss) income                                    -                              -            (190,510)                          -                           -              (190,510)              -                           -                      -                   13,001                         -                          -                13,001                    13,001 c                             -                   (190,510)
                                                                     
    Total shareholders' equity (deficit)                  13,271,824              (7,042,694)         (2,112,211)                          -                           -             4,116,919              -                           -                      -                 589,185                         -                          -              589,185               9,619,199            106,390,014             101,476,919
                                                                     
    Total Liabilities and Shareholders' Equity (Deficit)    $            19,012,017    $          8,440,615    $     1,163,229    $   18,249,595    $                     -    $     10,366,266    $        -    $                     -    $                -    $        3,483,992    $                   -    $                    -    $     3,483,992    $       10,594,299    $      108,015,114    $       111,271,073

 

20 

 

 

AVALON GLOBOCARE CORP. AND SUBSIDIARIES

PRO FORMA CONDENSED CONSOLIDATED COMBINED BALANCE SHEET

As of December 31, 2019

 

         Historical     Pro Forma 
         Avalon GloboCare Corp. and Subsidiaries     Lonlon Biotech Ltd. and Subsidiaries             
             Non-China     China     Eliminating Adjustments             Non-China     China         Eliminating Adjustments         Pro Forma Adjustments     Pro Forma 
         Parent     Subsidiaries     Subsidiaries     Dr.     Cr.     Consolidated     Parent     Subsidiary     Subsidiary     VIE     Dr.     Cr.     Consolidated     Dr.     Cr.     Combined 
                                                                     
ASSETS                                                                
                                                                     
CURRENT ASSETS:                                                                
  Cash    $              75,813    $         296,116    $        392,962    $                     -    $                    -    $          764,891    $              -    $                   -    $             -    $              164,994    $                 -    $                  -    $       164,994    $                        -    $                         -    $              929,885
  Accounts receivable                              -                           -                  4,710                           -                          -                    4,710                    -                         -                   -                        1,528                       -                        -                 1,528                              -                               -                        6,238
  Accounts receivable - related party                              -                           -              215,418                           -                          -                215,418                    -                         -                   -                               -                       -                        -                         -                              -                               -                    215,418
  Rent receivable                              -                 23,759                         -                           -                          -                  23,759                    -                         -                   -                               -                       -                        -                         -                              -                               -                      23,759
  Deferred financing costs                  311,177                           -                         -                           -                          -                311,177                    -                         -                   -                               -                       -                        -                         -                              -                               -                    311,177
  Recoverable VAT                              -                           -                         -                           -                          -                            -                    -                         -                   -                    320,247                       -                        -             320,247                              -                   320,247 a                              -
  Inventory                              -                           -                         -                           -                          -                            -                    -                         -                   -                    104,355                       -                        -             104,355                              -                   104,355 a                              -
  Prepaid expenses and other current assets                  171,118                   6,921                73,101                           -                          -                251,140                    -                         -                   -                      58,007                       -                        -               58,007                  424,602 a                             -                    733,749
  Intercompany (Note *)             17,234,994                           -                         -                           -         17,234,994 f                          -                    -                         -                   -                               -                       -                        -                         -                              -                               -                                -
                                                                     
    Total Current Assets             17,793,102               326,796              686,191                           -         17,234,994             1,571,095                    -                         -                   -                    649,131                       -                        -             649,131                  424,602                   424,602                 2,220,226
                                                                     
NON-CURRENT ASSETS:                                                                
  Rent receivable - noncurrent portion                              -                 99,235                         -                           -                          -                  99,235                    -                         -                   -                               -                       -                        -                         -                              -                               -                      99,235
  Security deposit and other long-term assets                              -                           -                         -                           -                          -                            -                    -                         -                   -                      75,843                       -                        -               75,843                              -                               -                      75,843
  Operating lease right-of-use assets, net                              -                           -                         -                           -                          -                            -                    -                         -                   -                    487,797                       -                        -             487,797                              -                               -                    487,797
  Property and equipment, net                              -               103,413              498,012                           -                          -                601,425                    -                         -                   -                 3,110,094                       -                        -          3,110,094                              -                               -                 3,711,519
  Investment in real estate, net                              -            7,735,680                         -                           -                          -             7,735,680                    -                         -                   -                               -                       -                        -                         -                              -                               -                 7,735,680
  Equity method investment                              -                           -              483,101                           -                          -                483,101                    -                         -                   -                               -                       -                        -                         -                              -                               -                    483,101
  Intangible assets                              -                           -                         -                           -                          -                            -                    -                         -                   -                               -                       -                        -                         -             95,037,259 b                             -               95,037,259
                                                                     
    Total Non-current Assets                              -            7,938,328              981,113                           -                          -             8,919,441                    -                         -                   -                 3,673,734                       -                        -          3,673,734             95,037,259                               -             107,630,434
                                                                     
    Total Assets    $       17,793,102    $      8,265,124    $     1,667,304    $                     -    $   17,234,994    $     10,490,536    $              -    $                   -    $             -    $           4,322,865    $                 -    $                  -    $    4,322,865    $       95,461,861    $             424,602    $       109,850,660
                                                                     
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)                                                                
                                                                     
CURRENT LIABILITIES:                                                                
  Accrued professional fees    $         1,174,595    $                     -    $          68,595    $                     -    $                    -    $       1,243,190    $              -    $                   -    $             -    $                         -    $                 -    $                  -    $                   -    $                        -    $             650,000  d   $           1,893,190
  Accrued research and development fees                  650,000                           -                         -                           -                          -                650,000                    -                         -                   -                               -                       -                        -                         -                              -                               -                    650,000
  Accrued payroll liability and directors' compensation                  469,000                           -                19,083                           -                          -                488,083                    -                         -                   -                    107,014                       -                        -             107,014                              -                               -                    595,097
  Accounts payable                              -                           -                         -                           -                          -                            -                    -                         -                   -                      79,439                       -                        -               79,439                    79,439 e                             -                                -
  Accrued leasehold improvements liabilities                              -                           -                         -                           -                          -                            -                    -                         -                   -                        1,428                       -                        -                 1,428                      1,428 e                             -                                -
  Accrued liabilities and other payables                    64,238                 54,758              107,763                           -                          -                226,759                    -                         -                   -                      59,329                       -                        -               59,329                              -                   254,762  e                   540,850
  Accrued liabilities and other payables - related parties                    49,194               100,000                         -                           -                          -                149,194                    -                         -                   -                               -                       -                        -                         -                              -                               -                    149,194
  Deferred revenue                              -                           -                         -                           -                          -                            -                    -                         -                   -                        2,821                       -                        -                 2,821                      2,821 e                             -                                -
  Deferred grant income                              -                           -                         -                           -                          -                            -                    -                         -                   -                    171,074                       -                        -             171,074                  171,074 e                             -                                -
  Operating lease obligation                              -                           -                         -                           -                          -                            -                    -                         -                   -                    133,133                       -                        -             133,133                              -                               -                    133,133
  Tenants' security deposit                              -                 78,237                         -