Quarterly report pursuant to Section 13 or 15(d)

Subsequent Events

v3.21.2
Subsequent Events
9 Months Ended
Sep. 30, 2021
Subsequent Events [Abstract]  
SUBSEQUENT EVENTS

NOTE 15 – SUBSEQUENT EVENTS

 

Acquisition and Equity Financing

 

On June 13, 2021, the Company 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”), the Company agreed to purchase (the “Acquisition”) all of the issued and outstanding share capital of Sen Lang BVI (the “Sen Lang BVI Shares”).

Sen Lang BVI, through a “variable interest entity” structure (“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 Subsidiary”), has full economic benefit and management control over, 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”). SenlangBio 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”) 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 purchase price being paid by the Company 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 of the Company (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.

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.

 

Common Shares Issued for Services

 

In October 2021, the Company issued 200,000 shares of its common stock to a consultant for services rendered. These shares were valued at $188,000, the fair market value on the grant date using the reported closing share price on the date of grant.

 

Common Shares Sold for Cash

 

On December 13, 2019, the Company entered into an Open Market Sale AgreementSM with Jefferies LLC, as sales agent (“Jefferies”). From October 1, 2021 to November 15, 2021, Jefferies sold an aggregate of 268,561 shares of common stock at an average price of $1.06 per share to investors. The Company received net cash proceeds of $276,022, net of commission paid to sales agent of $8,537.

 

Line of Credit

 

As of November 4, 2021, the Company drew down an additional aggregate of $1,000,000 from its credit facility under that certain credit line agreement with Wenzhao “Daniel” Lu (the “Lender”), a significant shareholder and director of the Company, which provides the Company with a $20 million line of credit (together with related documentation, the “Line of Credit”). The draw down aggregating $1,000,000 is intended to provide working capital for the Company to use on a temporary basis for certain obligations in connection with the Company’s business. As a result of these draw downs, the Company has approximately $15.3 million remaining available under the Line of Credit.  This draw down increased the total principal amount outstanding under the Line of Credit to $4.7 million.