DEF 14A: Avalon GloboCare Corp. Seeks Stockholder Approval for Reverse Stock Split, Share Issuance, and More at Upcoming Annual Meeting

Avalon GloboCare Corp. is convening its 2024 Annual Meeting of Stockholders to vote on key proposals including a reverse stock split, share issuance, director elections, and auditor ratification.

Summary

• Avalon GloboCare Corp. will hold its 2024 Annual Meeting of Stockholders on October 7, 2024, virtually.
• Stockholders will vote on electing seven directors, ratifying the appointment of M&K CPAS, PLLC as the independent auditor for the fiscal year ending December 31, 2024, and approving the potential issuance of common stock exceeding 19.99% of outstanding shares.
• A key proposal involves amending the company's certificate of incorporation to effectuate a reverse stock split at a ratio between 1-for-2 and 1-for-15, determined by the Board.
• Another proposal, contingent on the reverse stock split, seeks to reduce the total authorized shares from 490,000,000 to 100,000,000.
• Stockholders will also cast an advisory vote on executive compensation.
• The Board recommends voting FOR all proposals.
• Only stockholders of record as of August 28, 2024, are eligible to vote.
• The company's common stock is listed on The NASDAQ Capital Market.
• The company is seeking stockholder approval of the potential issuance of shares of its common stock to Mast Hill Fund, L.P. in excess of 19.99% of its outstanding common stock in order to comply with Nasdaq Listing Rule 5635.
• The company is seeking stockholder approval of the potential issuance of shares of its common stock to Mast Hill in excess of 19.99% of its outstanding common stock in order to comply with Nasdaq Listing Rule 5635(b), 5635(d) and 5635(e).

Sentiment

Score: 5

Explanation: The document presents a mix of positive and negative aspects. The company is actively addressing its Nasdaq compliance issues, but faces risks related to potential delisting and dilution. The sentiment is neutral, reflecting the uncertainty of the outcomes.

Positives

• The Board is actively seeking to regain compliance with Nasdaq listing requirements through the proposed reverse stock split.
• The Board believes that maintaining the Companys Nasdaq listing is in the best interests of the Company and its stockholders.
• The Board believes that decreasing the number of authorized shares of common stock may have the effect of making investment in our common stock more attractive to investors because the risk of dilution by issuance of additional shares is more limited.

Negatives

• The company received written notice from Nasdaq that the closing bid price for the Company's common stock had been below $1.00 per share for the previous 30 consecutive business days, and that the Company was therefore not in compliance with the minimum bid price requirement for continued listing on the Nasdaq Capital Market as set forth in Nasdaq Listing Rule 5550(a)(2).
• If the Company does not regain compliance within the allotted compliance period, Nasdaq will provide notice that the Company's common stock will be subject to delisting.
• Existing stockholders will suffer dilution in their ownership interests in the future upon the issuance of the shares of common stock upon conversion of the Notes, upon exercise of the Warrants, and upon issuance of the Commitment Shares.
• The sale into the public market of these shares could materially and adversely affect the market price of our common stock.
• The failure of our stockholders to approve this Proposal No. 3 will mean that: (i) we cannot permit the full conversion of the Notes and the Warrants, and (ii) we may incur substantial additional costs and expenses.
• The Securities Purchase Agreement provides that it is an event of default if we do not receive stockholder approval for the Proposal No. 3 as provided in the Securities Purchase Agreement, and therefore, our failure to obtain such approval could result in a default under the Securities Purchase Agreement.
• If, as a result of failing to obtain stockholder approval, we are prohibited from issuing shares of common stock pursuant to exercise of the Warrant or conversion of the Notes in excess of 19.99% of our outstanding common stock (or in an amount that would violate Nasdaq Listing Rule 5635(b)), we would likely be required to seek alternative sources of financing, which may not be available on terms favorable to the Company, or at all.
• We cannot assure you that the proposed Reverse Stock Split will increase our common stock price.
• The proposed Reverse Stock Split may decrease the liquidity of our common stock and result in higher transaction costs.

Risks

• Failure to regain compliance with Nasdaq's minimum bid price requirement could lead to delisting.
• The reverse stock split may not increase the stock price or attract capital investment.
• The reverse stock split may decrease the liquidity of the company's common stock and result in higher transaction costs.
• Approval of the share issuance proposal will result in dilution for existing stockholders.
• Failure to approve the share issuance proposal could result in a default under the Securities Purchase Agreement.
• The company may be required to seek alternative sources of financing, which may not be available on terms favorable to the Company, or at all.

Future Outlook

The company is focused on regaining compliance with Nasdaq listing requirements and believes the proposed actions will benefit stockholders.

Management Comments

• The Board believes that maintaining the Companys Nasdaq listing is in the best interests of the Company and its stockholders.
• The Board intends to select the Reverse Stock Split ratio that it believes will be most likely to achieve the anticipated benefits of the Reverse Stock Split described above.

Industry Context

Companies often undertake reverse stock splits to meet minimum listing requirements of exchanges like Nasdaq, aiming to improve investor perception and attract institutional investment.

Comparison to Industry Standards

• Reverse stock splits are a common strategy employed by companies facing delisting from major exchanges, with the goal of increasing share price and regaining compliance.
• Comparable companies that have recently undertaken reverse stock splits include [hypothetical company A] and [hypothetical company B], which experienced [hypothetical result A] and [hypothetical result B] respectively.
• The proposed share issuance is subject to Nasdaq rules regarding issuances exceeding 20% of outstanding shares, a threshold that triggers stockholder approval requirements.

Related Party Transactions

• The Company leases part of its commercial real property located in New Jersey to D.P. Capital Investments LLC, a company controlled by Wenzhao Lu, the Company's largest shareholder and chairman of the Board.
• From time to time, Wilbert Tauzin, a director of the Company, and his son provide consulting services to the Company.
• On August 29, 2019, the Company entered into a Line of Credit Agreement providing the Company with a $20 million line of credit from Wenzhao Lu, the largest shareholder and Chairman of the Board.
• On November 17, 2023, the Company entered into a Membership Interest Purchase Agreement with Wenzhao Lu, the largest shareholder and Chairman of the Board, pursuant to which (i) the Purchaser will acquire from the Company 30% of the total outstanding membership interests of Avalon RT 9, a wholly owned subsidiary of the Company for a cash purchase price of $3,000,000 (the Acquisition), and (ii) for a period of twelve months following the closing of the Acquisition, the Purchaser shall have the option to purchase from the Company up to an additional 70% of the outstanding membership interests of Avalon RT 9 for a purchase price of up to $7,000,000 (the Option), subject to the terms and conditions of a membership interest purchase agreement to be negotiated and entered into between the Purchaser and the Company at such time that the Purchaser desires to exercise the Option.

Stakeholder Impact

• Stockholders face potential dilution and the risk of a lower stock price if the reverse stock split is not effective.
• Employees may be affected by the company's ability to maintain its Nasdaq listing and access capital.
• The company's ability to execute its business strategy depends on the outcome of the stockholder votes and the subsequent actions taken by the Board.

Next Steps

• Stockholders to vote on the proposals at the Annual Meeting on October 7, 2024.
• Board to determine the reverse stock split ratio and effective date, if approved.
• Board to determine whether to implement the Authorized Share Decrease, if approved.
• Company to monitor stock price and compliance with Nasdaq listing requirements.

Key Dates

Keywords

Annual Meeting, Reverse Stock Split, Proxy Statement, Stockholder Vote, Director Election, Executive Compensation, Auditor Ratification, Share Issuance, Nasdaq Listing Rules, M&K CPAS, Board Recommendation, Authorized Shares