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Equity Method Investment

6 Months Ended

Jun. 30, 2025

Equity Method Investment [Abstract]

EQUITY METHOD INVESTMENT

NOTE 5 – EQUITY METHOD INVESTMENT

As of June 30, 2025 and December 31, 2024, the equity method investments, net, amounted to $0 and $10,636,544, respectively.

On February 9, 2023, the Company entered into and closed an Amended and Restated Membership Interest Purchase Agreement (the “Amended MIPA”), by and among Avalon Lab, SCBC Holdings LLC (the “Seller”), the Zoe Family Trust, Bryan Cox and Sarah Cox as individuals (each an “Owner” and collectively, the “Owners”), and Lab Services MSO.

Pursuant to the terms and conditions set forth in the Amended MIPA, Avalon Lab acquired from the Seller, 40% of the issued and outstanding equity interests of Lab Services MSO (the “Purchased Interests”). The consideration paid by Avalon Lab to Seller for the Purchased Interests consisted of $20,666,667, which was comprised of (i) $9,000,000 in cash, (ii) $11,000,000 pursuant to the issuance of 11,000 shares of the Company’s Series B Preferred Stock, stated value $1,000 (the “Series B Stated Value”), which approximated the fair value, and (iii) a $666,667 cash payment on February 9, 2024. The Series B Preferred Stock was convertible into shares of the Company’s common stock at a conversion price per share equal to $56.70, which approximated the market price at the date of closing, or an aggregate of 194,004 shares of the Company’s common stock, which were subject to a lock-up period and restrictions on sale.

During the first quarter of 2025, to preserve cash, the Company entered into discussions with Lab Services MSO for the potential redemption of the Company’s investment and on February 26, 2025, the Company and Lab Services MSO entered into a Redemption and Abandonment Agreement, whereby Lab Services MSO redeemed the 40% equity interest in Lab Services MSO held by the Company (See Note 3 - Receivable from Sale of Equity Method Investment).

Lab Services MSO, through its subsidiaries, was engaged in providing laboratory testing services. During the period from February 9, 2023 (date of investment) through February 26, 2025 (date of sale), Avalon Lab and an unrelated company, had an ownership interest in Lab Services MSO of 40% and 60%, respectively.

In accordance with ASC 810, the Company determined that Lab Services MSO did not qualify as a variable interest entity, nor did it have a controlling financial interest over the legal entity. However, the Company determined that it does have significant influence as a result of its board representation. Therefore, the Company treats the equity investment in the condensed consolidated financial statements under the equity method. Under the equity method, the investment is initially recorded at cost, adjusted for any excess of the Company’s share of the purchased-date fair values of the investee’s identifiable net assets over the cost of the investment (if any). At February 9, 2023 (date of investment), the excess of the Company’s share of the fair values of the investee’s identifiable net assets over the cost of the investment was approximately $19,460,000 which was attributable to intangible assets and goodwill. Thereafter, the investment was adjusted for the post purchase change in the Company’s share of the investee’s net assets and any impairment loss relating to the investment.

Intangible assets consisted of the valuation of identifiable intangible assets acquired, representing trade names and customers relationships, which were being amortized on a straight-line method over the estimated useful life of 15 years. The straight-line method of amortization represents the Company’s best estimate of the distribution of the economic value of the identifiable intangible assets.

For the three months ended June 30, 2024, amortization expense of these intangible assets amounted to $166,733 which was included in loss from equity method investment — Lab Services MSO in the accompanying condensed consolidated statements of operations and comprehensive loss. For the period from January 1, 2025 through February 26, 2025 (date of sale) and for the six months ended June 30, 2024, amortization expense of these intangible assets amounted to $111,156 and $333,466, respectively, which was included in income (loss) from equity method investment — Lab Services MSO in the accompanying condensed consolidated statements of operations and comprehensive loss.

Goodwill represents the excess of the purchase price paid over the fair value of net assets acquired in the business acquisition of Lab Services MSO incurred on February 9, 2023. Goodwill is not amortized but is tested for impairment at least once annually, or more frequently if events or changes in circumstances indicate that the asset might be impaired.

For the three months ended June 30, 2024, the Company’s share of Lab Services MSO’s net loss was $162,604, which was included in loss from equity method investment — Lab Services MSO in the accompanying condensed consolidated statements of operations and comprehensive loss.

For the period from January 1, 2025 through February 26, 2025 (date of sale) and for the six months ended June 30, 2024, the Company’s share of Lab Services MSO’s net income was $503,833 and $111,589, respectively, which was included in income (loss) from equity method investment — Lab Services MSO in the accompanying condensed consolidated statements of operations and comprehensive loss.

The Company classifies distributions received from its investment on Lab Services MSO using the cumulative earnings approach. Distributions received are considered returns on the investment and classified as cash inflows from operating activities. For the three months ended June 30, 2024, distribution of earnings from the Company’s investment on Lab Services MSO amounted to $312,465. For the period from January 1, 2025 through February 26, 2025 (date of sale) and for the six months ended June 30, 2024, distribution of earnings from the Company’s investment on Lab Services MSO amounted to $0 and $473,253, respectively.

The tables below present the summarized financial information, as provided to the Company by the investee, for the unconsolidated company:

		For the Three Months Ended June 30, 2024				For the Period from January 1, 2025 through February 26, 2025 (Date of Sale)				For the Six Months Ended June 30, 2024
Net revenue		$	2,687,129			$	4,241,732			$	6,063,501
Gross profit			310,690				2,155,760				1,314,479
(Loss) income from operation			(765,357	)			1,513,000				(490,331	)
Net (loss) income			(406,509	)			1,259,582				278,995