UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2023
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT
Commission file number: 001-38728
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Freehold, New Jersey 07728
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number: (732)780-4400
Securities registered pursuant to Section 12(b)
of the Act:
Title of each Class: Trading Symbol Name of Each Exchange
Common Stock, $0.0001 par value per share ALBT The NASDAQ Capital Market
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark if the registrant is a
well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐No☒
Indicate by check mark if the registrant is not
required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐No☒
Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes☒ No ☐
Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit such files). Yes☒
No ☐
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company.
See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,”
and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer ☒ Smaller reporting company ☒
Emerging growth company ☐
If an emerging growth company, indicate by check
mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant
has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or
issued its audit report. Yes ☐ No ☒
If securities are registered pursuant to Section
12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction
of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error
corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s
executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
No ☒
As of June 30, 2023, the last business day of
the registrant’s most recently completed second fiscal quarter, the market value of our common stock held by non-affiliates was
approximately $7,398,000.
The number of shares of our common stock, $0.0001 par value per share,
outstanding as of March 29, 2024, was 11,104,534.
Documents incorporated by reference: NONE
TABLE OF CONTENTS
PART I
Item 1. Business 1
Item 1A. Risk Factors 12
Item 1B. Unresolved Staff Comments 44
Item 1C. Cybersecurity 44
Item 2. Properties 45
Item 3. Legal Proceedings 45
Item 4. Mine Safety Disclosures 45
PART II
Item 6. [Reserved] 46
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 57
Item 8. Financial Statements and Supplementary Data 57
Item 9A. Controls and Procedures 57
Item 9B. Other Information 58
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 58
PART III
Item 10. Directors, Executive Officers and Corporate Governance 59
Item 11. Executive Compensation 67
Item 14. Principal Accounting Fees and Services 75
PART IV
Signatures 86
i
Forward-Looking Statements
CERTAIN STATEMENTS IN THIS ANNUAL REPORT
ON FORM 10-K MAY CONSTITUTE “FORWARD LOOKING STATEMENTS”. WHEN THE WORDS “BELIEVES,” “EXPECTS,” “PLANS,”
“PROJECTS,” “ESTIMATES,” “OBJECTIVES,” “MAY,” “MIGHT,” “PREDICT,”
“TARGET,” “POTENTIAL,” “WILL,” “WOULD,” “COULD,” “SHOULD,” “CONTINUE,”
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. YOU SHOULD READ THIS ANNUAL REPORT ON FORM 10-K AND THE DOCUMENTS THAT WE HAVE FILED AS EXHIBITS TO
THIS ANNUAL REPORT ON FORM 10-K COMPLETELY. 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, EXCEPT AS REQUIRED BY APPLICABLE LAW.
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
We are dedicated
to developing and delivering innovative, transformative, precision diagnostics and clinical laboratory services. Our main strategy is
to acquire ownership or license rights in precision diagnostic assets, genetic testing and clinical laboratory companies through joint
ventures, share ownership structures or distribution rights. We plan to play a leading role in the innovation of diagnostic testing, utilizing
proprietary technology to deliver precise, genetics-driven results.
We have the following
areas of focus:
Laboratory Acquisitions
We have embarked on a laboratory
rollup strategy focused on forming joint ventures and acquiring laboratories that are accretive to our commercial strategy. On February
9, 2023, we entered into and closed an Amended and Restated Membership Interest Purchase Agreement (the “Amended MIPA”), by
and among Avalon Laboratory Services, Inc., our wholly owned subsidiary (“Avalon Laboratory Services”), SCBC Holdings LLC,
Laboratory Services MSO, LLC (“Lab Services MSO”), the Zoe Family Trust, Bryan Cox and Sarah Cox. The Amended MIPA amended
and restated, in its entirety, that certain Membership Interest Purchase Agreement, dated November 7, 2022 (the “Original MIPA”).
Under the Amended MIPA, we acquired from SCBC Holdings LLC through our
subsidiary Avalon Laboratory Services, forty percent (40%) of all the issued and outstanding equity interests of Lab Services MSO, free
and clear of all liens (the “Laboratory Services MSO Acquisition”). As part of the consideration for the Laboratory Services
MSO Acquisition, we issued shares of our newly designated Series B Convertible Preferred Stock, stated value $1,000 per share (“the
Series B Preferred Stock”). Further, Avalon Laboratory Services paid SCBC Holdings LLC $20,666,667 for 40% of all the issued and
outstanding equity interests of Lab Services MSO, which comprised of (i) $9,000,000 in cash, (ii) $11,000,000 pursuant to the issuance
of the Series B Preferred Stock, and (iii) a $666,667 cash payment on February 29, 2024.
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Research and Development
We are focused on bringing
forward intellectual property through joint patent filings with the Massachusetts Institute of Technology (MIT). We completed a sponsored
research and co-development project with MIT, led by Professor Shuguang Zhang as Principal Investigator. Using the unique QTY code protein
design platform, six water-soluble variant cytokine receptors have been successfully designed and tested to show binding affinity to the
respective cytokines. We currently are focused on bringing forward the intellectual property associated with this program through joint
patent submissions.
Product
Commercialization
We have begun work on
the commercialization and development of a versatile breathalyzer system.
We were granted exclusive
distributorship rights for the KetoAir from Qi Diagnostics in Hong Kong for the following territories: North America, South America,
the EU and the UK. We had a pilot launch and exhibition of the KetoAir in this year’s KetoCon conference in Austin, Texas (April
21-23, 2023). For our commercialization strategy, we intend to target the diabetes and obesity markets. We are evaluating options for
commercialization, including identifying distribution partners or distributing the KetoAir ourselves.
The KetoAir breathalyzer
system (the “KetoAir”) is a handheld device that allows the user to detect acetone levels in exhaled breath. The acetone level
is in concentration units (ppm, part-per-million) such that the user will know his/her real-time ketosis status: inadequate ketosis (0-3.99
ppm), mild ketosis (4-9.99 ppm), optimal ketosis (10-40 ppm), or alarming level (> 40 ppm). The breathalyzer is registered with the
United States Food and Drug Administration (“FDA”) as a Class I medical device. The device is also paired with an “AI
Nutritionist” software program (via Bluetooth connection) which is downloadable from Google Play (for Android mobile phones, approved)
and iPhone (the app is currently being reviewed by Apple iOS AppStore). It helps users monitor and manage their ketogenic diet and related
programs. We believe the KetoAir can be an essential tool to help diabetic patients adhere to their therapeutic programs and optimize
their ketogenic dietary management.
2
Other Areas
In
order to preserve cash and focus on our core laboratory rollup strategy and product commercialization, we have currently suspended all
research and development efforts related to cellular therapy (except for our joint patent filing with MIT as noted above) in order to
redirect our funding efforts to our core business strategies outlined above.
Corporate and Available Information
We are incorporated in Delaware.
Our website is located at http://www.avalon-globocare.com. On our website, investors can obtain, free of charge, a copy of our
Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, our Code of Conduct and Business Ethics, including
disclosure related to any amendments or waivers thereto, other reports and any amendments thereto filed or furnished pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as soon as reasonably practicable
after we file such material electronically with, or furnish it to, the Securities and Exchange Commission (the “SEC”). None
of the information posted on our website is incorporated by reference into this Annual Report. The SEC also maintains a website at http://www.sec.gov
that contains reports, proxy and information statements and other information regarding us and other companies that file materials with
the SEC electronically.
China Operations
Due to the winding down of
the medical related consulting services segment, in November 2022, we decided to cease all operations in the People’s Republic of
China (the “PRC”) with the exception of a small administrative office, in Beijing. We, through our Nevada Subsidiary Avactis
Biosciences Inc., will continue to own Avactis Nanjing Biosciences Ltd., which only owns a patent and is not considered an operating entity.
In addition, we reconstituted our Board of Directors (the “Board”) in December 2022 at our annual meeting of stockholders
and our directors who were citizens of China did not stand for re-election at our annual meeting. We do not expect nor do we plan that
we will further operate in the PRC or generate revenue from PRC operations for the foreseeable future.
The accompanying consolidated financial statements
reflect the activities of the Company and each of the following entities:
3
Sales and Marketing
Laboratory Services
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, laboratory,
and medical device companies. In addition, through our membership interest in Lab Services MSO, we plan to generate revenue from toxicology
and wellness laboratory testing. We also intend to seek opportunities to expand the operations of Lab Services MSO and our wholly owned
subsidiary, Avalon Laboratory Services, through the acquisition of additional lab companies and through the opening of new lab locations.
Breathalyzer System (KetoAir)
We are in the process of launching sales of the KetoAir in the US.
We have retained a marketing expert to assist us to bring this product to market through social media, influencer promotion and our website.
We will also be launching this product at the 2024 “KetoCon” convention taking place May 31, 2024 in Austin Texas, where we
plan to begin taking orders for this product.
Markets
Laboratory Services
Through our membership interest
in Lab Services MSO, we are focused on delivering high quality services related to toxicology and wellness testing. We use fast, accurate,
and efficient equipment to provide practitioners with the tools to quickly determine if a patient is following their designated treatment
plan. In most instances, we are able to provide a practitioner with qualitative drug class results the same day the sample is received.
We provide an extensive chemistry test menu that gives physicians the information to better treat their patients and maintain their overall
wellness. The panels that we test for are thyroid panel, comprehensive metabolic panel, kidney profile, liver function tests, and other
individual tests.
We are currently offering
our laboratory services in California, Texas and Arizona.
Breathalyzer System (KetoAir)
Our current area of focus
for the launch of the KetoAir is within the United States (“US”). We are focused on the population within the US that is using
the Keto Diet approach to weight loss and diabetic management.
Avalon RT 9 Properties, LLC
In May 2017, we acquired commercial
property located in Freehold, New Jersey. This property serves as our corporate headquarters and contains several commercial tenants that
generate revenue through rental income.
Strategic Development
Through our wholly owned subsidiary
Avalon Laboratory Services and through our membership interest in Lab Services MSO, we plan to execute on a rollup acquisition strategy
of small to medium size laboratories accretive to our strategy and complimentary to our membership interest in Lab Services MSO. We also
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 seeking laboratory or medical device acquisitions.
4
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
Laboratory Services
While there has been consolidation
in the diagnostic information services industry in recent years, the laboratory testing industry is fragmented and highly competitive.
We primarily compete with three types of clinical testing providers: commercial clinical laboratories IDN-affiliated laboratories and
physician-office laboratories. Our largest commercial clinical laboratory competitors are Quest Diagnostic Laboratories and Laboratory
Corporation of America. In addition, we compete with many smaller regional and local commercial clinical laboratories, specialized advanced
laboratories and providers of consumer-initiated testing. There also has been a trend among physician practices to establish their own
histology laboratory capabilities and/or bring pathologists into their practices, thereby reducing referrals from these practices and
increasing the competitive position of these practices.
In addition, we believe that
consolidation in the diagnostic information services industry will continue. A significant portion of clinical testing is likely to continue
to be performed by independent delivery networks (including hospitals and hospital health systems) (“IDNs”), which generally
have affiliations with community clinicians and may have more, or more convenient, locations in a particular market. As a result, we compete
against these affiliated laboratories primarily on the basis of service capability, quality and pricing. In addition, market activity
may increase the competitive environment. For example, IDN ownership of physician practices may enhance the ties of the clinicians to
IDN-affiliated laboratories, enhancing the competitive position of IDN-affiliated laboratories.
The diagnostic information
services industry is faced with changing technology, new product introductions and new service offerings. Competitors may compete using
advanced technology, including technology that enables more convenient or cost-effective testing. Digital pathology, still in an emerging
state, is an example of this. Competitors also may compete on the basis of new service offerings. Competitors also may offer testing to
be performed outside of a commercial clinical laboratory, such as (1) point-of-care testing that can be performed by physicians in their
offices; (2) testing that can be performed by IDNs in their own laboratories; and (3) home testing that can be carried out without requiring
the services of outside providers.
Clinical
The development and commercialization
of new drug products is highly competitive. We expect that we will continue to face significant competition from major pharmaceutical
companies, specialty pharmaceutical companies and biotechnology companies worldwide with respect to our product candidates that we may
seek to develop or commercialize in the future. Specifically, due to the large unmet medical need, global demographics and relatively
attractive reimbursement dynamics, the markets in which we are seeking to develop products are fiercely competitive and there are a number
of large pharmaceutical and biotechnology companies that currently market and sell products or are pursuing the development of product
candidates similar to ours. Our competitors may succeed in developing, acquiring or licensing technologies and drug products that are
more effective, have fewer or more tolerable side effects or are less costly than any product candidates that we are currently developing
or that we may develop, which could render our product candidates obsolete and noncompetitive.
5
Our commercial opportunity
could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer or less
severe side effects, are more convenient or are less expensive than any products that we may develop. Our competitors also may obtain
FDA or other marketing approval for their products before we are able to obtain approval for ours, which could result in our competitors
establishing a strong market position before we are able to enter the market.
General
Many of our existing and potential
future competitors have significantly greater financial resources and expertise in lab services and operations, research and development,
manufacturing, preclinical testing, conducting clinical studies, obtaining marketing approvals and marketing approved products than we
do. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among
a smaller number of our competitors. Smaller, or early stage, companies may also prove to be significant competitors, particularly through
collaborative arrangements with large and established companies. These competitors also compete with us in recruiting and retaining qualified
scientific and management personnel and establishing clinical study sites and patient registration for clinical studies, as well as in
acquiring technologies complementary to, or necessary for, our programs.
We expect that our ability
to compete effectively will depend upon our ability to:
● successfully operate and expand our lab services and locations;
● attract and retain key personnel; and
Failure to do one or more of these activities
could have an adverse effect on our business, financial condition or results of operations.
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.
Employees
As of March 29, 2024, we employed
five employees, four of which are full time employees. None of our employees are represented by a collective bargaining arrangement.
6
Government Regulation
Overview
The healthcare industry in the 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.
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.
On December 16, 2021, the PCAOB issued a Determination
Report which reported that the PCAOB is unable to inspect or investigate completely registered public accounting firms headquartered in:
(1) mainland China of the People’s Republic of China, because of a position taken by one or more authorities in mainland China;
and (2) Hong Kong, a Special Administrative Region of the PRC, because of a position taken by one or more authorities in Hong Kong.
Avalon’s auditor is Marcum LLP (“Marcum”),
based in New York, New York. Marcum is registered with the PCAOB and is 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 Marcum is located in the United
States, the PCAOB has been able to conduct inspections of Marcum. In addition, Marcum is not among the PCAOB registered public accounting
firms registered in mainland China or Hong Kong that are subject to PCAOB’s determination on December 16, 2021.
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.
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;
7
● 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.
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.
8
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.
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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.
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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.
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.
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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.
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
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● Potential liability claims may adversely affect our business.
Risk Factors Related to our Laboratory Services
Business
Risk Factors Related to Clinical and Commercialization
Activity
● We have limited experience in conducting clinical trials.
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Risks Related to Our Securities
General Operating and Business Risks
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 net losses amounting to
approximately $16.7 million and $11.9 million for the years ended December 31, 2023 and 2022, respectively. As of December 31, 2023,
we had an accumulated deficit of approximately $79.8 million. 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.
There is substantial doubt about our ability
to continue as a going concern, which will affect our ability to obtain future financing and may require us to curtail our operations.
Our financial statements as of December 31, 2023
were prepared under the assumption that we will continue as a going concern. The independent registered public accounting firm that audited
our 2023 financial statements, in their report, included an explanatory paragraph referring to our recurring losses since inception and
expressing management’s assessment and conclusion that there is substantial doubt in our ability to continue as a going concern.
Our financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our ability to continue
as a going concern depends on our ability to obtain additional equity or debt financing, attain further operating efficiencies, reduce
expenditures, and, ultimately, to generate revenue. We cannot assure you, however, that we will be able to achieve any of the foregoing.
See Note 2 to our Consolidated Financial Statements for further details.
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Our cash will only fund our operations for
a limited time and we will need to raise additional capital in order to support our development.
We are currently operating at a loss and expect
our operating costs will increase significantly as we continue to grow our operations. The independent registered public accounting firm
that audited our 2023 financial statements, in their report, included an explanatory paragraph referring to our recurring losses since
inception and expressing management’s assessment and conclusion that there is substantial doubt in our ability to continue as a
going concern. At December 31, 2023, we had cash of approximately $285,000. We will need to raise additional capital or generate substantial
revenue in order to support our development and commercialization efforts.
If our available cash balances are insufficient
to satisfy our liquidity requirements, including due to risks described herein, we may seek to raise additional capital through equity
offerings, debt financings, collaborations or licensing arrangements. We will need to raise additional capital, and we may also consider
raising additional capital in the future to expand our business, to pursue strategic investments, to take advantage of financing opportunities,
or for other reasons, including to:
● fund development and expansion of our operations;
● acquire, license or invest in technologies and additional laboratories;
● acquire or invest in complementary businesses or assets; and
● finance capital expenditures and general and administrative expenses.
Our present and future funding requirements will
depend on many factors, including:
● our sales and marketing and research and development activities; and
● changes in regulatory oversight applicable to our products and services.
Other than our debt facility with our chairman,