Quarterly report pursuant to Section 13 or 15(d)

Commitments and Contincengies

Commitments and Contincengies
3 Months Ended
Mar. 31, 2019
Commitments and Contingencies Disclosure [Abstract]  



Operating Leases


Beijing GenExosome Beijing Office Lease


In March 2019, Beijing GenExosome signed an agreement to lease its office space under operating lease. Pursuant to the signed lease, the annual rent is RMB 7,000 (approximately $1,000). The term of this lease is one year commencing on March 15, 2019 and expires on March 14, 2020. For the three months ended March 31, 2019, rent expense related to the lease amounted to $43.


Future minimum rental payment required under this operating lease is as follows:


Year Ending March 31:   Amount  
2020   $ 999  
Total   $ 999  


Avalon Shanghai Office Lease


On January 19, 2017, Avalon Shanghai entered into a lease for office space in Beijing, China, with a third party (the "Beijing Office Lease"). Pursuant to the Beijing Office Lease, the monthly rent is RMB 50,586 (approximately $7,500) with a required security deposit of RMB 164,764 (approximately $24,500). In addition, Avalon Shanghai needs to pay monthly maintenance fees of RMB 4,336 (approximately $600). The term of the Beijing Office Lease is 26 months commencing on January 1, 2017 and expired on February 28, 2019 with two months of free rent in the months of December 2017 and February 2019. On December 27, 2018, Avalon Shanghai signed an extension for the lease with expiration date of February 29, 2020. For the three months ended March 31, 2019 and 2018, rent expense and maintenance fees related to the Beijing Office Lease amounted to approximately $22,000 and $26,000, respectively.


Future minimum rental payment required under the Beijing Office Lease is as follows:


Year Ending March 31:   Amount  
2020   $ 90,007  
Total   $ 90,007  


Insurance Premium Financing Agreement


On July 18, 2018, the Company entered into a financing agreement, providing for the issuance of a loan in the principal amount of $108,528. The term of the loan is for a period of 10 months from the execution of the agreement. The annual interest rate for the loan is 6.9%. All of financed amount is used to pay for Directors & Officers Insurance premium. At March 31, 2019 and December 31, 2018, the outstanding principal balance of the loan and related unpaid interest was $22,690 and $45,088, respectively, which was included in the accrued liabilities and other payables on the accompanying consolidated balance sheets.


Equity Investment Commitment


On May 29, 2018, Avalon Shanghai entered into a Joint Venture Agreement with Jiangsu Unicorn Biological Technology Co., Ltd. ("Unicorn"), pursuant to which a company named Epicon Biotech Co., Ltd. ("Epicon") was formed on August 14, 2018. Epicon is owned 60% by Unicorn and 40% by Avalon Shanghai. Within two years of execution of the Joint Venture Agreement, Unicorn shall invest cash into Epicon in an amount not less than RMB 8,000,000 (approximately $1.2 million) and the premises of the laboratories of Nanjing Hospital of Chinese Medicine for exclusive use by Epicon, and Avalon Shanghai shall invest cash into Epicon in an amount not less than RMB 10,000,000 (approximately $1.5 million). Epicon is focused on cell preparation, third party testing, biological sample repository for commercial and scientific research purposes and the clinical transformation of scientific achievements. As of March 31, 2019, Avalon Shanghai has contributed RMB 3,000,000 (approximately $0.4 million) that was included in equity method investment on the accompanying consolidated balance sheets. Avalon Shanghai intends to use its present working capital together with loans/borrowings/equity raise to fund the project cost.


Joint Venture – AVAR BioTherapeutics (China) Co. Ltd.


On October 23, 2018, Avactis Biosciences, Inc. ("Avactis"), a wholly-owned subsidiary of the Company, and Arbele Limited ("Arbele") agreed to the establishment of AVAR BioTherapeutics (China) Co. Ltd. ("AVAR"), a Sino-foreign equity joint venture, pursuant to an Equity Joint Venture Agreement (the "AVAR Agreement"), which will be owned 60% by Avactis and 40% by Arbele. The purpose and business scope of the Joint Venture is to research, develop, produce, sell, distribute and generally commercialize CAR-T/CAR-NK/TCR-T/universal cellular immunotherapy in China. Avactis is required to contribute USD $10 million (or equivalent in RMB) in cash and/or services, which shall be contributed in tranches based on milestones to be determined jointly by AVAR and Avactis in writing subject to Avactis' cash reserves. Within 30 days, Arbele shall make contribution of USD $6.66 million in the form of entering into a License Agreement with AVAR granting AVAR with an exclusive right and license in China to its technology and intellectual property pertaining to CAR-T/CAR-NK/TCR-T/universal cellular immunotherapy technology and any additional technology developed in the future with terms and conditions to be mutually agreed upon Avactis and AVAR and services.


In addition, Avactis is responsible for:


Contributing registered capital of RMB 5,000,000 (approximately $700,000) for working capital purposes as required by local regulation, which is not required to be contributed immediately and will be contributed subject to Avactis' discretion;


assist AVAR in setting up its business operations and obtaining all required permits and licenses from the Chinese government;


assisting AVAR in recruiting, hiring and retaining personnel;


providing AVAR with access to various hospital networks in China to assist in the testing and commercialization of the CAR-T/CAR-NK/TCR-T/universal cellular immunotherapy technology in China;


assisting AVAR in managing the Good Manufacturing Practices (GMP) facility and clinic to be developed by AVAR;


providing AVAR with advice pertaining to conducting clinicals in China; and


Within 6 days of signing the AVAR Agreement, Avactis is required to pay to Arbele $300,000 as a research and development fee with an additional two payments of $300,000 (for a total of $900,000) to be paid upon mutually agreed upon milestones.


Under AVAR Agreement, Arbele shall be responsible for the following:


Entering into a License Agreement with AVAR; and


Providing AVAR with research and development expertise pertaining to clinical laboratory medicine when hired by AVAR.


As of the date of this report, Avactis has paid $600,000 to Arbele as research and development fee, AVAR is in process of being established and the License Agreement has not been finalized.