Item 1A. Risk Factors 11
Item 1B. Unresolved Staff Comments 35
Item 2. Properties 35
Item 3. Legal Proceedings 35
Item 4. Mine Safety Disclosures 35
PART II
Item 6. Selected Financial Data 36
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 48
Item 8. Financial Statements and Supplementary Data 48
Item 9A. Controls and Procedures 49
Item 9B. Other Information 49
PART III
Item 10. Directors, Executive Officers and Corporate Governance 50
Item 11. Executive Compensation 57
Item 14. Principal Accounting Fees and Services 62
PART IV
Signatures 67
i
Forward-Looking Statements
CERTAIN STATEMENTS IN THIS ANNUAL REPORT
MAY CONSTITUTE “FORWARD LOOKING STATEMENTS”. WHEN THE WORDS “BELIEVES,” “EXPECTS,” “PLANS,”
“PROJECTS,” “ESTIMATES” AND SIMILAR EXPRESSIONS ARE USED, THEY IDENTIFY FORWARD-LOOKING STATEMENTS. THESE
FORWARD-LOOKING STATEMENTS ARE BASED ON MANAGEMENT’S CURRENT BELIEFS AND ASSUMPTIONS AND INFORMATION CURRENTLY AVAILABLE
TO MANAGEMENT AND INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE
OR ACHIEVEMENTS OF THE COMPANY TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED
BY THESE FORWARD-LOOKING STATEMENTS. INFORMATION CONCERNING FACTORS THAT COULD CAUSE OUR ACTUAL RESULTS TO DIFFER MATERIALLY FROM
THESE FORWARD-LOOKING STATEMENTS CAN BE FOUND IN OUR PERIODIC REPORTS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. WE UNDERTAKE
NO OBLIGATION TO PUBLICLY RELEASE REVISIONS TO THESE FORWARD-LOOKING STATEMENTS TO REFLECT FUTURE EVENTS OR CIRCUMSTANCES OR REFLECT
THE OCCURRENCE OF UNANTICIPATED EVENTS.
Unless otherwise indicated, references
to “we,” “us,” “our,” “Company,” or “Avalon” mean Avalon GloboCare
Corp. and its subsidiaries, and references to “fiscal” mean the Company’s fiscal year ended December 31. References
to the “parent company” mean Avalon GloboCare Corp.
ii
PART I
ITEM 1. BUSINESS
Overview
The Company is a
clinical-stage, vertically integrated, leading CellTech bio-developer dedicated to advancing and empowering innovative, transformative
immune effector cell therapy, exosome technology, as well as COVID-19 related diagnostics and therapeutics. The Company also provides
strategic advisory and outsourcing services to facilitate and enhance its clients’ growth and development, as well as competitiveness
in healthcare and CellTech industry markets. Through its subsidiary structure with unique integration of verticals from innovative
R&D to automated bioproduction and accelerated clinical development, the Company is establishing a leading role in the fields
of cellular immunotherapy (including CAR-T/NK), exosome technology (ACTEXTM), and COVID-19 related vaccine and therapeutics.
Avalon achieves and
fosters seamless integration of unique verticals to bridge and accelerate innovative research, bio-process development, clinical
programs and product commercialization. Avalon’s upstream innovative research includes:
● Development of Avalon Clinical-grade Tissue-specific Exosome (“ACTEXTM”)
Avalon’s midstream
bio-processing and bio-production facility is located in Nanjing, China with state-of-the-art, automated GMP and QC/QA infrastructure
for standardized bio-manufacturing of clinical-grade cellular products involved in our clinical programs in immune effector cell
therapy, regenerative therapeutics, as well as bio-banking.
Avalon’s downstream
medical team and facility consists of top-rated affiliated hospital network and experts specialized in hematology, oncology, cellular
immunotherapy, hematopoietic stem/progenitor cell transplant, as well as regenerative therapeutics. Our major clinical programs
include:
1
For the
year ended December 31, 2020 we generated revenue by providing medical related consulting services in advanced areas of immunotherapy
and second opinion/referral services through our wholly-owned subsidiary Avalon (Shanghai) Healthcare Technology Co., Ltd., or Avalon
Shanghai. We also own and operate rental commercial real property in New Jersey, where we are headquartered. We discontinued sales of
exosome isolation systems in China and the US through our joint venture Genexosome Technologies, Inc.
COVID-19
has not significantly impacted Company operations or the work performed as part of our clinical trials in China. The clinical trials are
being conducted at Hebei Yanda Lu Daopei Hospital and Beijing Lu Daopei Hospital. Both hospitals are considered primarily hematology specialty
hospitals and experienced minor disruption as part of the pandemic.
Corporate Information/Company History
We were incorporated under
the laws of the State of Delaware on July 28, 2014 under the name Global Technologies Corp. On October 18, 2016, we changed our
name to Avalon GloboCare Corp. and completed a reverse split of our shares of common stock at a ratio of 1:4.
We own 100% of the capital
stock of Avalon Healthcare Systems, Inc., a Delaware corporation, or AHS, which we acquired on October 19, 2016. AHS was incorporated
on May 18, 2015 under the laws of the State of Delaware. In addition, we own through AHS 100% of the capital stock of Avalon (Shanghai)
Healthcare Technology Co., Ltd., or Avalon Shanghai, which is a wholly foreign-owned enterprise, or WOFE, organized under the laws
of the People’s Republic of China, or PRC or China. Avalon Shanghai was incorporated on April 29, 2016 and is engaged in
medical related consulting services for customers. On January 23, 2017, we incorporated Avalon (BVI) Ltd, a British Virgin Islands
company (dormant and in process of being dissolved). On February 7, 2017, we formed Avalon RT 9 Properties, LLC, a New Jersey limited
liability company. In July 2017, we formed Genexosome Technologies Inc., a Nevada corporation, or Genexosome. Effective October
25, 2017, Genexosome owns 100% of the capital stock of Beijing Jieteng (Genexosome) Biotech Co., Ltd., a corporation incorporated
in the People’s Republic of China on August 7, 2015 (“Beijing Genexosome”), and the Company holds 60% of Genexosome
and Dr. Yu Zhou holds 40% of Genexosome. Beijing Genexosome is engaged in providing development services and selling developed
items to customers in China.
On May 29, 2018, Avalon
Shanghai entered into a Joint Venture Agreement with Jiangsu Unicorn Biological Technology Co., Ltd., or Unicorn, pursuant to
which a company named Epicon Biotech Co., Ltd. (“Epicon”) was formed on August 14, 2018. Epicon is owned 60% by Unicorn
and 40% by Avalon Shanghai. Within five years of execution of the Joint Venture Agreement, Unicorn shall invest cash into Epicon
in an amount not less than RMB 8,000,000 (approximately $1.2 million) and the premises of the laboratories of Nanjing Hospital
of Chinese Medicine for exclusive operation by Epicon, and Avalon Shanghai shall invest cash into Epicon in an amount not less
than RMB 10,000,000 (approximately $1.5 million). The board of directors of Epicon shall consist of five members with Unicorn
appointing three members and Avalon Shanghai appointing two members. As of December 31, 2020, Unicorn has invested the premises
of the laboratories of Nanjing BENQ hospital as GMP level research and manufacture facility and Avalon Shanghai has contributed
RMB 4,500,000 (approximately $0.7 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.
2
On July 18, 2018, we formed
a wholly owned subsidiary, Avactis Biosciences Inc. (“Avactis”), a Nevada corporation, which will be focused on accelerating
commercial activities related to cellular therapies, including regenerative medicine with stem/progenitor cells as well as cellular
immunotherapy including CAR-T, CAR-NK, TCR-T and others. The subsidiary is designed to integrate and optimize our global scientific
and clinical resources to further advance the use of cellular therapies to treat certain cancers. On October 23, 2018, Avactis
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. As of the date hereof, the License Agreement has not been finalized.
The following diagram illustrates
our corporate structure:
Sales and Marketing
We seek to develop new
business through relationships driven by our senior management, which have extensive contacts throughout the healthcare system.
Our senior management will be seeking opportunities for joint ventures, strategic relationships and acquisitions in consulting,
biomedical innovations, and telemedicine, and rehabilitation centers.
Services
We currently generate
revenue from related party strategic relationships through Avalon Shanghai that provide consultative services in advanced areas
of immunotherapy and second opinion/referral services. In addition, our services are targeted at serving our clients and using
our insights and deep expertise to produce tangible and significant results. Our services include research studies, executive
education, daily online executive briefings, tailored expert advisory services, and consulting and management services. We typically
charge an annual fee. Through our services, we attempt to have our clients focus on important problems by providing an analysis
of the evolving healthcare industry and the methods prevalent in the industry to solve those problems through counsel, business
planning and support. We tailor these solutions to the client’s specific strategic challenges, operational issues, and management
concerns. We plan to expand our business services throughout the United States via our “Technology + Service” platform:
“Avalon Cell”.
3
Strategic Partnerships and Acquisitions
We are actively seeking
potential strategic partnerships in our area of focus. In addition, we are actively seeking target acquisitions that add accretive
value to our strategic plan. There is no guarantee that we will be able to successfully sign a definitive agreement, close or implement
such business arrangement.
Markets
We will focus on the following
markets in developing our core business:
Platform “Avalon
Cell”
Regarded as the future
of medicine, we believe cell-based therapeutics will replace pharmaceuticals as a more effective and functional modality in disease
treatment. We are actively engaging in this revolutionary trend and positioning to take a leading role in cell-based technology
and therapeutics. The business model for our “Avalon Cell” platform is based on stringent criteria in the selection
and evaluation of candidate projects at different stages of their developmental cycle. We particularly focus on projects that have
strong intellectual property and distinctive innovation, as well as being translational, application-driven, and commercialization-ready.
Our technology-based platform, “Avalon Cell”, comprises four programs:
Revenue
Avalon RT 9 Properties,
LLC
In May 2017, we acquired
commercial property located in Freehold, New Jersey. This property is now our corporate headquarters and contains several commercial
tenants that generate revenue through rental income.
Avalon Shanghai
We currently generate revenue
by providing medical related consulting services in advanced areas of immunotherapy and second opinion/referral services through
Avalon (Shanghai) Healthcare Technology Co., Ltd., or Avalon Shanghai. Our medical related consulting services include research
studies, executive education, daily online executive briefings, tailored expert advisory services, and consulting and management
services. Through our services we attempt to have our clients focus on important problems by providing an analysis of the evolving
healthcare industry and the methods prevalent in the industry to solve those problems through counsel, business planning and support.
The revenue generated from our related parties in China is managed by our employees residing in China and contactors who are retained
as needed. Consulting services have been provided by Avalon Shanghai under the contract include:
● providing scientific research consulting services;
● providing technical education and training; and
● assisting in publication of academic papers.
4
Strategic Development
We intend to pursue the
acquisition and development of healthcare related technologies for cell related diagnostics and therapeutics through acquisition,
licensing or joint ventures with major universities and biotech companies. We will also consider a third avenue of investing in
certain technologies for cell related diagnostics and therapeutics.
Genexosome Technologies,
Inc.
Through our majority-owned subsidiary, Genexosome Technologies,
Inc., or Genexosome, during certain periods of 2019, marketed and sold our proprietary exosome isolation systems. Exosomes are
small extracellular vesicles that we believe may be used as a vehicle for drug delivery in the treatment of various diseases, and
biomarkers for early stage diagnosis and as enhancements to certain cosmetic treatments and procedures. We discontinued sales of
exosome isolation systems in China and the US through our joint venture Genexosome Technologies, Inc. Feedback received from our
research partners is that our exosome isolation systems did not produce consistent results and did not deliver high exosome yields
and concentrations.
Intellectual Property
Our goal is to obtain,
maintain and enforce patent rights for our products, formulations, processes, methods of use and other proprietary technologies,
preserve our trade secrets, and operate without infringing on the proprietary rights of other parties, both in the United States
and abroad. Our policy is to actively seek to obtain, where appropriate, the broadest intellectual property protection possible
for our current product candidates and any future product candidates, proprietary information and proprietary technology through
a combination of contractual arrangements and patents, both in the United States and abroad. Even patent protection, however, may
not always afford us with complete protection against competitors who seek to circumvent our patents. If we fail to adequately
protect or enforce our intellectual property rights or secure rights to patents of others, the value of our intellectual property
rights would diminish. To this end, we require all of our employees, consultants, advisors and other contractors to enter into
confidentiality agreements that prohibit the disclosure and use of confidential information and, where applicable, require disclosure
and assignment to us of the ideas, developments, discoveries and inventions relevant to our technologies and important to our business.
Competition
Avalon Shanghai
In our current consulting
business in the People’s Republic of China, or PRC or China, we compete with a number of advisory firms offering similar
service including consulting and strategy firms; market research, data, benchmarking, and forecasting providers; technology vendors
and services firms; healthcare information technology firms; technology advisory firms; outsourcing firms; and specialized providers
of educational and training services. Other organizations, such as state and national trade associations, group purchasing organizations,
non-profit think-tanks, and database companies, also may offer research, consulting, tools, and education services to health care
and education organizations.
We believe that the principal
competitive factors in our market include quality and timeliness of our services, strength and depth of relationships with our
clients, ability to meet the changing needs of current and prospective clients, measurable returns on customer investment, and
service and affordability.
As our business develops
and we expand through joint ventures, acquisitions and strategic partnerships in the U.S. and PRC, we will have competition with
other direct service providers, emerging technologies and medical communication platforms. We will seek to maintain a competitive
advantage through intellectual property, superior quality management and cutting-edge technology.
Avalon RT 9 Properties
LLC
Our executive commercial
building in Freehold, New Jersey is located on a major highway and is one of the largest buildings in the surrounding areas. It
is centrally located and maintains high occupancy. There are other commercial properties in the vicinity that offer similar amenities.
However, premier executive offices are limited and as such we expect to continue to maintain high occupancy in the near term.
Genexosome Technologies,
Inc.
We discontinued sales
of exosome isolation systems in China and the US through our joint venture Genexosome Technologies, Inc. Feedback received from
our research partners is that our exosome isolation systems did not produce consistent results and did not deliver high exosome
yields and concentrations. There are other companies that produce exosome isolation systems.
5
Employees
As of March 29, 2021, we
employed eight employees, six of which are full time employees. None of our employees are represented by a collective bargaining
arrangement.
Government Regulation
Overview
The healthcare industry
in the PRC and U.S. is highly regulated and subject to changing political, legislative, regulatory, and other influences. Further,
the healthcare industry is currently undergoing rapid change. We are uncertain how, when or in what context these new changes will
be adopted or implemented. These new regulations could create unexpected liabilities for us, could cause us or our members to incur
additional costs and could restrict our or our clients’ operations. Many of the laws are complex and their application to
us, our clients, or the specific services and relationships we have with our members are not always clear. Our failure to anticipate
accurately the application of these laws and regulations, or our other failure to comply, could create liability for us, result
in adverse publicity, and otherwise negatively affect our business.
Despite efforts to develop
its legal system over the past several decades, including but not limited to legislation dealing with economic matters such as
foreign investment, corporate organization and governance, commerce, taxation and trade, the PRC continues to lack a comprehensive
system of laws. Further, the laws that do exist in the PRC are often vague, ambiguous and difficult to enforce, which could negatively
affect our ability to do business in China and compete with other companies in our segments.
In September 2006, the
Ministry of Commerce, or MOFCOM, promulgated the Regulations on Foreign Investors’ Mergers and Acquisitions of Domestic Enterprises,
or the M&A Regulations, in an effort to better regulate foreign investment in the PRC. The M&A Regulations were adopted
in part as a needed codification of certain joint venture formation and operating practices, and also in response to the government’s
increasing concern about protecting domestic companies in perceived key industries and those associated with national security,
as well as the outflow of well-known trademarks, including traditional Chinese brands.
As a U.S. based company
doing business in the PRC, we seek to comply with all PRC laws, rules and regulations and pronouncements, and endeavor to obtain
all necessary approvals from applicable PRC regulatory agencies such as the MOFCOM, the State Assets Supervision and Administration
Commission, the State Administration for Taxation, the State Administration for Industry and Commerce, the China Securities Regulatory
Commission, and the State Administration of Foreign Exchange, or SAFE.
Drug
Approval Process
The research, development,
testing, manufacture, labeling, promotion, advertising, distribution and marketing, among other things, of our product candidates
are extensively regulated by governmental authorities in the United States and other countries. In the United States, the FDA regulates
drugs under the Federal Food, Drug, and Cosmetic Act, or the FDCA, and its implementing regulations. Failure to comply with the
applicable U.S. requirements may subject us to administrative or judicial sanctions, such as the FDA’s refusal to approve
a pending new drug application, or NDA, or a pending biologics license application, or BLA, warning letters, product recalls, product
seizures, total or partial suspension of production or distribution, injunctions and/or criminal prosecution.
6
Pharmaceutical products
such as ours may not be commercially marketed without prior approval from the FDA and comparable regulatory agencies in other countries.
In the United States, the process to receiving such approval is long, expensive and risky, and includes the following steps:
● pre-clinical laboratory tests, animal studies, and formulation studies;
● submission to the FDA of an NDA or BLA;
● FDA review and approval of the NDA or BLA.
Regulation by U.S. and
foreign governmental authorities is a significant factor affecting our ability to commercialize any of our products, as well as
the timing of such commercialization and our ongoing research and development activities. The commercialization of drug products
requires regulatory approval by governmental agencies prior to commercialization. Various laws and regulations govern or influence
the research and development, non-clinical and clinical testing, manufacturing, processing, packing, validation, safety, labeling,
storage, record keeping, registration, listing, distribution, advertising, sale, marketing and post-marketing commitments of our
products. The lengthy process of seeking these approvals, and the subsequent compliance with applicable laws and regulations, require
expending substantial resources.
The results of pre-clinical
testing, which include laboratory evaluation of product chemistry and formulation, animal studies to assess the potential safety
and efficacy of the product and its formulations, details concerning the drug manufacturing process and its controls, and a proposed
clinical trial protocol and other information must be submitted to the FDA as part of an IND that must be reviewed and become effective
before clinical testing can begin. The study protocol and informed consent information for patients in clinical trials must also
be submitted to an independent Institutional Review Board, or IRB, for approval covering each institution at which the clinical
trial will be conducted. Once a sponsor submits an IND, the sponsor must wait 30 calendar days before initiating any clinical trials.
If the FDA has comments or questions within this 30-day period, the issue(s) must be resolved to the satisfaction of the FDA before
clinical trials can begin. In addition, the FDA, an IRB or the company may impose a clinical hold on ongoing clinical trials due
to safety concerns. If the FDA imposes a clinical hold, clinical trials can only proceed under terms authorized by the FDA. Our
pre-clinical and clinical studies must conform to the FDA’s Good Laboratory Practice, or GLP, and Good Clinical Practice,
or GCP, requirements, respectively, which are designed to ensure the quality and integrity of submitted data and protect the rights
and well-being of study patients. Information for certain clinical trials also must be publicly disclosed within certain time limits
on the clinical trial registry and results databank maintained by the NIH.
7
Typically, clinical testing
involves a three-phase process; however, the phases may overlap or be combined:
A therapeutic product candidate
being studied in clinical trials may be made available for treatment of individual patients, in certain circumstances. Pursuant
to the 21st Century Cures Act (Cures Act), which was signed into law in December 2016. The manufacturer of an investigational product
for a serious disease or condition is required to make available, such as by posting on its website, its policy on evaluating and
responding to requests for individual patient access to such investigational product.
The results of the pre-clinical
and clinical testing, chemistry, manufacturing and control information, proposed labeling and other information are then submitted
to the FDA in the form of either an NDA or BLA for review and potential approval to begin commercial sales. In responding to an
NDA or BLA, the FDA may grant marketing approval, request additional information in a Complete Response Letter, or CRL, or deny
the approval if it determines that the NDA or BLA does not provide an adequate basis for approval. A CRL generally contains a statement
of specific conditions that must be met in order to secure final approval of an NDA or BLA and may require additional testing.
If and when those conditions have been met to the FDA’s satisfaction, the FDA will typically issue an approval letter, which
authorizes commercial marketing of the product with specific prescribing information for specific indications, and sometimes with
specified post-marketing commitments and/or distribution and use restrictions imposed under a Risk Evaluation and Mitigation Strategy
program. Any approval required from the FDA might not be obtained on a timely basis, if at all.
Among the conditions for
an NDA or BLA approval is the requirement that the manufacturing operations conform on an ongoing basis with cGMPs. In complying
with cGMPs, we must expend time, money and effort in the areas of training, production and quality control within our own organization
and at our contract manufacturing facilities. A successful inspection of the manufacturing facility by the FDA is usually a prerequisite
for final approval of a pharmaceutical product. Following approval of the NDA or BLA, we and our manufacturers will remain subject
to periodic inspections by the FDA to assess compliance with cGMPs requirements and the conditions of approval. We will also face
similar inspections coordinated by foreign regulatory authorities.
Disclosure of Clinical
Trial Information
Sponsors of certain clinical
trials of FDA-regulated products are required to register and disclose certain clinical trial information. Information related
to the product, patient population, phase of investigation, trial sites and investigators, and other aspects of the clinical trial
are then made public as part of the registration. Sponsors are also obligated to disclose the results of their clinical trials
after completion. Disclosure of the results of these trials can be delayed in certain circumstances for up to two years after the
date of completion of the trial. Competitors may use this publicly available information to gain knowledge regarding the progress
of development programs.
Expedited Development
and Review Programs
The FDA has a Fast Track
program that is intended to expedite or facilitate the process for reviewing new drugs and biological products that meet certain
criteria. Specifically, new drugs and biological products are eligible for Fast Track designation if they are intended to treat
a serious or life-threatening condition and demonstrate the potential to address unmet medical needs for the condition. Fast Track
designation applies to the combination of the product and the specific indication for which it is being studied. The sponsor of
a new drug or biologic may request the FDA to designate the drug or biologic as a Fast Track product at any time during the clinical
development of the product. Unique to a Fast Track product, the FDA may consider for review sections of the marketing application
on a rolling basis before the complete application is submitted, if the sponsor provides a schedule for the submission of the sections
of the application, the FDA agrees to accept sections of the application and determines that the schedule is acceptable, and the
sponsor pays any required user fees upon submission of the first section of the application.
Any product submitted
to the FDA for marketing, including under a Fast Track program, may be eligible for other types of FDA programs intended to expedite
development and review, such as priority review and accelerated approval. Under the Breakthrough Therapy program, products intended
to treat a serious or life-threatening disease or condition may be eligible for the benefits of the Fast Track program when preliminary
clinical evidence demonstrates that such product may have substantial improvement on one or more clinically significant endpoints
over existing therapies. Additionally, FDA will seek to ensure the sponsor of a breakthrough therapy product receives timely advice
and interactive communications to help the sponsor design and conduct a development program as efficiently as possible. Any product
is eligible for priority review if it has the potential to provide safe and effective therapy where no satisfactory alternative
therapy exists or a significant improvement in the treatment, diagnosis or prevention of a disease compared to marketed products.
The FDA will attempt to direct additional resources to the evaluation of an application for a new drug or biological product designated
for priority review in an effort to facilitate the review. Additionally, a product may be eligible for accelerated approval. Drug
or biological products studied for their safety and effectiveness in treating serious or life-threatening illnesses and that provide
meaningful therapeutic benefit over existing treatments may receive accelerated approval, which means that they may be approved
on the basis of adequate and well-controlled clinical studies establishing that the product has an effect on a surrogate endpoint
that is reasonably likely to predict a clinical benefit, or on the basis of an effect on a clinical endpoint other than survival
or irreversible morbidity. As a condition of approval, the FDA may require that a sponsor of a drug or biological product receiving
accelerated approval perform adequate and well-controlled post-marketing clinical studies. In addition, the FDA currently requires
as a condition for accelerated approval the pre-approval of promotional materials, which could adversely impact the timing of
the commercial launch of the product. Fast Track designation, Breakthrough Therapy designation, priority review and accelerated
approval do not change the standards for approval but may expedite the development or approval process.
8
Regenerative Medicine
Advanced Therapies (RMAT) Designation
The FDA has established
a Regenerative Medicine Advanced Therapy, or RMAT, designation as part of its implementation of the 21st Century Cures Act, or
Cures Act. The RMAT designation program is intended to fulfill the Cures Act requirement that the FDA facilitate an efficient development
program for, and expedite review of, any drug that meets the following criteria: (1) it qualifies as a RMAT, which is defined as
a cell therapy, therapeutic tissue engineering product, human cell and tissue product, or any combination product using such therapies
or products, with limited exceptions; (2) it is intended to treat, modify, reverse, or cure a serious or life-threatening disease
or condition; and (3) preliminary clinical evidence indicates that the drug has the potential to address unmet medical needs for
such a disease or condition. Like breakthrough therapy designation, RMAT designation provides potential benefits that include more
frequent meetings with FDA to discuss the development plan for the product candidate, and eligibility for rolling review and priority
review. Products granted RMAT designation may also be eligible for accelerated approval on the basis of a surrogate or intermediate
endpoint reasonably likely to predict long-term clinical benefit, or reliance upon data obtained from a meaningful number of sites,
including through expansion to additional sites. RMAT-designated products that receive accelerated approval may, as appropriate,
fulfill their post-approval requirements through the submission of clinical evidence, clinical studies, patient registries, or
other sources of real world evidence (such as electronic health records); through the collection of larger confirmatory data sets;
or via post-approval monitoring of all patients treated with such therapy prior to approval of the therapy.
Post-Approval Requirements
Oftentimes, even after
a drug has been approved by the FDA for sale, the FDA may require that certain post-approval requirements be satisfied, including
the conduct of additional clinical studies. If such post-approval requirements are not satisfied, the FDA may withdraw its approval
of the drug. In addition, holders of an approved NDA or BLA are required to report certain adverse reactions to the FDA, comply
with certain requirements concerning advertising and promotional labeling for their products, and continue to have quality control
and manufacturing procedures conform to cGMPs after approval. The FDA periodically inspects the sponsor’s records related
to safety reporting and/or manufacturing facilities; this latter effort includes assessment of compliance with cGMPs. Accordingly,
manufacturers must continue to expend time, money, and effort in the area of production and quality control to maintain cGMPs compliance.
Other Healthcare
Fraud and Abuse Laws
In the U.S., our activities
are potentially subject to regulation by various federal, state and local authorities in addition to the FDA, including but not
limited to, the Centers for Medicare and Medicaid Services, or CMS, other divisions of the U.S. Department of Health and Human
Services (such as the Office of Inspector General and the Health Resources and Service Administration), the U.S. Department of
Justice, or the DOJ, and individual U.S. Attorney offices within the DOJ, and state and local governments. For example, sales,
marketing and scientific/educational grant programs may have to comply with the anti-fraud and abuse provisions of the Social Security
Act, the false claims laws, the privacy and security provisions of the Health Insurance Portability and Accountability Act, or
HIPAA, and similar state laws, each as amended, as applicable.
The federal Anti-Kickback
Statute prohibits, among other things, any person or entity from knowingly and willfully offering, paying, soliciting or receiving
any remuneration, directly or indirectly, overtly or covertly, in cash or in kind, to induce or in return for purchasing, leasing,
ordering or arranging for the purchase, lease or order of any item or service reimbursable, in whole or in part, under Medicare,
Medicaid or other federal healthcare programs. The term remuneration has been interpreted broadly to include anything of value.
The Anti-Kickback Statute has been interpreted to apply to arrangements between therapeutic product manufacturers on one hand and
prescribers, purchasers, and formulary managers on the other. There are a number of statutory exceptions and regulatory safe harbors
protecting some common activities from prosecution. The exceptions and safe harbors are drawn narrowly and practices that involve
remuneration that may be alleged to be intended to induce prescribing, purchasing or recommending may be subject to scrutiny if
they do not qualify for an exception or safe harbor. Failure to meet all of the requirements of a particular applicable statutory
exception or regulatory safe harbor does not make the conduct per se illegal under the Anti-Kickback Statute. Instead, the legality
of the arrangement will be evaluated on a case-by-case basis based on a cumulative review of all of its facts and circumstances.
Additionally, the intent standard under the Anti-Kickback Statute was amended by the ACA to a stricter standard such that a person
or entity no longer needs to have actual knowledge of the statute or specific intent to violate it in order to have committed a
violation. In addition, the ACA codified case law that a claim including items or services resulting from a violation of the federal
Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal False Claims Act, or FCA.
The federal false claims
and civil monetary penalty laws, including the FCA, which imposes significant penalties and can be enforced by private citizens
through civil qui tam actions, prohibit any person or entity from, among other things, knowingly presenting, or causing to be presented,
a false or fraudulent claim for payment to, or approval by, the federal healthcare programs, including Medicare and Medicaid, or
knowingly making, using, or causing to be made or used a false record or statement material to a false or fraudulent claim to the
federal government. A claim includes “any request or demand” for money or property presented to the U.S. government.
For instance, historically, pharmaceutical and other healthcare companies have been prosecuted under these laws for allegedly providing
free product to customers with the expectation that the customers would bill federal programs for the product. Other companies
have been prosecuted for causing false claims to be submitted because of the companies’ marketing of the product for unapproved,
off-label, and thus generally non-reimbursable, uses.
9
HIPAA created additional
federal criminal statutes that prohibit, among other things, knowingly and willfully executing, or attempting to execute, a scheme
to defraud or to obtain, by means of false or fraudulent pretenses, representations or promises, any money or property owned by,
or under the control or custody of, any healthcare benefit program, including private third-party payors, willfully obstructing
a criminal investigation of a healthcare offense, and knowingly and willfully falsifying, concealing or covering up by trick, scheme
or device, a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of
or payment for healthcare benefits, items or services. Like the Anti-Kickback Statute, the ACA amended the intent standard for
certain healthcare fraud statutes under HIPAA such that a person or entity no longer needs to have actual knowledge of the statute
or specific intent to violate it in order to have committed a violation.
Many states have similar,
and typically more prohibitive, fraud and abuse statutes or regulations that apply to items and services reimbursed under Medicaid
and other state programs, or, in several states, apply regardless of the payor. Additionally, to the extent that our product candidates
may in the future be sold in a foreign country, we may be subject to similar foreign laws.
We may be subject to data
privacy and security regulations by both the federal government and the states in which we conduct our business. HIPAA, as amended
by the Health Information Technology for Economic and Clinical Health Act, or HITECH, and its implementing regulations, imposes
requirements relating to the privacy, security and transmission of individually identifiable health information. Among other things,
HITECH makes HIPAA’s privacy and security standards directly applicable to business associates, independent contractors,
or agents of covered entities that receive or obtain protected health information in connection with providing a service on behalf
of a covered entity. HITECH also created four new tiers of civil monetary penalties, amended HIPAA to make civil and criminal penalties
directly applicable to business associates, and gave state attorneys general new authority to file civil actions for damages or
injunctions in federal courts to enforce HIPAA and seek attorneys’ fees and costs associated with pursuing federal civil
actions. In addition, many state laws govern the privacy and security of health information in specified circumstances, many of
which differ from each other in significant ways, are often not pre-empted by HIPAA, and may have a more prohibitive effect than
HIPAA, thus complicating compliance efforts.
We expect our product,
after approval, may be eligible for coverage under Medicare, the federal health care program that provides health care benefits
to the aged and disabled, and covers outpatient services and supplies, including certain pharmaceutical products, that are medically
necessary to treat a beneficiary’s health condition. In addition, the product may be covered and reimbursed under other government
programs, such as Medicaid and the 340B Drug Pricing Program. The Medicaid Drug Rebate Program requires pharmaceutical manufacturers
to enter into and have in effect a national rebate agreement with the Secretary of the Department of Health and Human Services
as a condition for states to receive federal matching funds for the manufacturer’s outpatient drugs furnished to Medicaid
patients. Under the 340B Drug Pricing Program, the manufacturer must extend discounts to entities that participate in the program.
As part of the requirements to participate in certain government programs, many pharmaceutical manufacturers must calculate and
report certain price reporting metrics to the government, such as average manufacturer price, or AMP, and best price. Penalties
may apply in some cases when such metrics are not submitted accurately and timely.
Additionally, the federal
Physician Payments Sunshine Act, or the Sunshine Act, within the ACA, and its implementing regulations, require that certain manufacturers
of drugs, devices, biological and medical supplies for which payment is available under Medicare, Medicaid or the Children’s
Health Insurance Program (with certain exceptions) report annually to CMS information related to certain payments or other transfers
of value made or distributed to physicians and teaching hospitals, or to entities or individuals at the request of, or designated
on behalf of, the physicians and teaching hospitals and to report annually certain ownership and investment interests held by physicians
and their immediate family members. Failure to report accurately could result in penalties. In addition, many states also govern
the reporting of payments or other transfers of value, many of which differ from each other in significant ways, are often not
pre-empted, and may have a more prohibitive effect than the Sunshine Act, thus further complicating compliance efforts.
New Legislation and Regulations
From time to time, legislation
is drafted, introduced and passed in Congress that could significantly change the statutory provisions governing the testing, approval,
manufacturing and marketing of products regulated by the FDA. In addition to new legislation, FDA regulations and policies are
often revised or interpreted by the agency in ways that may significantly affect our business and our products. It is impossible
to predict whether further legislative changes will be enacted or whether FDA regulations, guidance, policies or interpretations
will be changed or what the effect of such changes, if any, may be.
10
ITEM
1A. RISK FACTORS
You
should carefully consider the following material risk factors as well as all other information set forth or referred to in this
report before purchasing shares of our common stock. Investing in our common stock involves a high degree of risk. We may not
be successful in preventing the material adverse effects that any of the following risks and uncertainties may cause. These potential
risks and uncertainties may not be a complete list of the risks and uncertainties facing us. There may be additional risks and
uncertainties that we are presently unaware of, or presently consider immaterial, that may become material in the future and have
a material adverse effect on us. You could lose all or a significant portion of your investment due to any of these risks and
uncertainties.
Summary of
Risk Factors
Our
business is subject to numerous risks and uncertainties that you should consider before investing in our company, as fully described
below. The principal factors and uncertainties that make investing in our company risky include, among others:
General
Operating and Business Risks
● We depend upon key personnel and need additional personnel.
● Our auditors have issued a “Going Concern” audit opinion.
● Potential liability claims may adversely affect our business.
● We face intense competition which could cause us to lose market share.
11
Risk
Factors Related to Clinical and Commercialization Activity
● We have limited experience in conducting clinical trials.
12
Risks
Related to Doing Business in China
Risks
Related to Our Securities
● We could be subject to securities class action litigation.
13
General
Operating and Business Risks
Our business is
subject to risks arising from epidemic diseases, such as the recent outbreak of the COVID-19 illness.
The recent outbreak of
the Coronavirus Disease 2019, or COVID-19, which has been declared by the World Health Organization to be a “public
health emergency of international concern,” has spread across the globe and is impacting worldwide economic activity. Although
several vaccines have been developed, a public health epidemic, including COVID-19, poses the risk that we or our employees, contractors,
suppliers, and other partners may be prevented from conducting business activities for an indefinite period of time, including
due to shutdowns that may be requested or mandated by governmental authorities. While it is not possible at this time to estimate
the impact that COVID-19 could have on our business, the continued spread of COVID-19 and the measures taken by the governments
of countries affected could disrupt the supply chain and adversely impact our business, financial condition or results of operations.
The COVID-19 outbreak and mitigation measures may also have an adverse impact on global economic conditions which could have an
adverse effect on our business and financial condition. The extent to which the COVID-19 outbreak impacts our results will depend
on future developments that are highly uncertain and cannot be predicted, including new information that may emerge concerning
the severity of the virus and the actions to contain its impact.
Our limited operating history makes it difficult
for us to evaluate our future business prospects and make decisions based on those estimates of our future performance.
We did not begin operations
of our business through AHS until May 2015. We have a limited operating history and limited revenue. As a consequence, it is difficult,
if not impossible, to forecast our future results based upon our historical data. Reliance on the historical results may not be
representative of the results we will achieve, particularly in our combined form. Because of the uncertainties related to our lack
of historical operations, we may be hindered in our ability to anticipate and timely adapt to increases or decreases in revenues
or expenses. If we make poor budgetary decisions as a result of unreliable historical data, we could be less profitable or incur
losses, which may result in a decline in our stock price.
Our results of operations have not resulted
in profitability and we may not be able to achieve profitability going forward.
We incurred a net
loss amounting to $12,679,438 for the year ended December 31, 2020 and a net loss amounting to $18,070,161 for the year ended
December 31, 2019. If we incur additional significant losses, our stock price may decline, perhaps significantly. Our
management is developing plans to achieve profitability. Our business plan is speculative and unproven. There is no assurance
that we will be successful in executing our business plan or that even if we successfully implement our business plan, that
we will be able to curtail our losses now or in the future. Further, as we are a new enterprise, we expect that net losses
will continue.
We depend upon key personnel and need additional
personnel.
Our success depends on
the continuing services of Wenzhao Lu, our Chairman of the Board, and David Jin, Meng Li and Luisa Ingargiola, our executive officers.
The loss of Mr. Lu, Dr. Jin, Ms. Li or Ms. Ingargiola could have a material and adverse effect on our business operations. Additionally,
the success of our operations will largely depend upon our ability to successfully attract and maintain competent and qualified
key management personnel. As with any company with limited resources, there can be no guaranty that we will be able to attract
such individuals or that the presence of such individuals will necessarily translate into profitability for us. Our inability to
attract and retain key personnel may materially and adversely affect our business operations.
Currently, we have several consulting contracts
with related parties in China. The loss of such customers could adversely impact our financial condition and results of operations.
During the year ended
December 31, 2020, we recognized an aggregate of $1,377,762 in revenue, of which $170,908 was generated from related parties.
During the year ended December 31, 2019, we recognized an aggregate of $1,546,305 in revenue, of which $355,544 was generated
from related parties. Wenzhao Lu, our Chairman and significant shareholder, is the Chairman of each of the related parties. The
loss of any related party customer would have a material adverse effect on our financial condition or results of operation, the
loss of more than one such related party customer, or our failure to replace such customer with other customers, could have a
material adverse effect on our financial condition and our results of operations.
14
Our auditors have issued an audit opinion
which raises substantial doubt about our ability to continue as a going concern.
Our independent auditors
have indicated, in their report on our December 31, 2020 consolidated financial statements, that there is substantial doubt about
our ability to continue as a going concern. We had an accumulated deficit of $42,041,375 at December 31, 2020. We have a limited
operating history, incurred recurring net loss and negative cash flows from operating activities, and our continued growth is dependent
upon the continuation of providing medical consulting services to our related parties, generating rental revenue from our income-producing
real estate property in New Jersey and generating revenue from development services and sales of developed products; hence generating
revenues, and obtaining additional financing to fund future obligations and pay liabilities arising from normal business operations.
Our ability to continue as a going concern is dependent on our ability to raise additional capital, implement our business plan,
and generate significant revenues. There are no assurances that we will be successful in our efforts to generate significant revenues,
maintain sufficient cash balance or report profitable operations or to continue as a going concern. We plan on raising capital
through the sale of equity to implement our business plan. However, there is no assurance these plans will be realized and that
any additional financings will be available to our company on satisfactory terms and conditions, if any.
We must effectively manage the growth of
our operations, or our company will suffer.
To manage our growth, we
believe we must continue to implement and improve our services and products. We may not have adequately evaluated the costs and
risks associated with our planned expansion, and our systems, procedures, and controls may not be adequate to support our operations.
In addition, our management may not be able to achieve the rapid execution necessary to successfully offer our products and services
and implement our business plan on a profitable basis. The success of our future operating activities will also depend upon our
ability to expand our support system to meet the demands of our growing business. Any failure by our management to effectively
anticipate, implement, and manage changes required to sustain our growth would have a material adverse effect on our business,
financial condition, and results of operations.
Our business requires substantial capital,
and if we are unable to maintain adequate financing sources our profitability and financial condition will suffer and jeopardize
our ability to continue operations.
In connection with the
strategic development portion of our business, we will need significant capital in order to implement acquisitions of technologies.
In addition, we will need a significant amount of capital in order to fully implement our advisory business, maintain our rental
property and further develop our exosome business. If we are unable to maintain adequate financing or other sources of capital
are not available, we could be forced to suspend, curtail or reduce our operations, which could harm our revenues, profitability,
financial condition and business prospects.
Our revenue and results of operations may
suffer if we are unable to attract new clients, continue to engage existing clients, or sell additional products and services.
We presently derive our
revenue from providing medical related consulting services to related parties and generating rental revenue from our income-producing
real estate property in New Jersey. Our growth therefore depends on our ability to attract new clients, maintain existing clients
and properties and sell additional products and services to existing clients. This depends on our ability to understand and anticipate
market and pricing trends and our clients’ needs and our ability to deliver consistent, reliable, high-quality services.
Our failure to engage new clients, continue to re-engage with our existing clients or cross-sell additional services could materially
and adversely affect our operating results.
Our prospects will suffer if we are not
able to hire, train, motivate, manage, and retain a significant number of highly skilled employees.