NOTE 3 – DISCONTINUED OPERATIONS AND DECONSOLIDATION

Sale and deconsolidation of RPM Interactive

On December 11, 2025, in anticipation of the sale of RPM Interactive as discussed below, the Company entered into a debt forgiveness and capital contribution agreement with RPM Interactive. Pursuant to the agreement, the Company forgave outstanding intercompany debt owed by RPM Interactive of $5,221,025. In accordance with ASC 470-50-40-2, this forgiveness was recorded as a contribution to the capital of RPM Interactive and an investment in subsidiaries on the books of the parent, to facilitate the subsequent merger and deconsolidation.

On December 12, 2025, the Company completed a merger pursuant to the Merger Agreement by and among the Company, RPM Interactive, and Avalon. Under the terms of the Merger Agreement, RPM Interactive merged with and into a wholly-owned subsidiary of Avalon, and the Company ceased to have a controlling financial interest in or be a primary beneficiary of RPM Interactive. In consideration for the merger, Avalon issued 19,500 shares of its Series E Preferred Stock to the stockholders of RPM Interactive with an aggregate stated and liquidation value of $19,500,000. Of this total consideration, the Company received 6,561.71 shares of Avalon Series E Preferred Stock, representing an aggregate stated value of $6,561,710.

Each share of Series E Preferred Stock has a stated value of $1,000 per share and is convertible into shares of Avalon common stock at a conversion price of $1.50 per share, subject to certain restrictive periods. Due to the lack of marketability and conversion restrictions, the Company determined that the stated value did not represent the immediate fair value. Utilizing a valuation model incorporating Avalon’s quoted common share price, market volume and liquidity constraints, the Company determined the fair value of the Avalon Series E Preferred Stock to be $2,920,000 as of the date of the transaction and as of December 31, 2025, and as of March 31, 2026, the Company determined the fair value of the Avalon Series E Preferred Stock to be $1,726,000. This valuation accounted for the estimated time required to liquidate the shares in the open market and the associated marketability discounts.

Pursuant to ASC 810-10-40-4, on December 12, 2025, the Company deconsolidated RPM Interactive since it no longer had a controlling financial interest in and was no longer a primary beneficiary of RPM Interactive and RPM Interactive became a wholly-owned subsidiary of Avalon. The Company will have no continuing involvement in RPM Interactive after it has been deconsolidated. 

In accordance with ASC 205-20, the disposal of RPM Interactive represents a strategic shift away from the development and costs with RPM Interactive products in order to concentrate on the Company’s product offerings. Accordingly, the results of operations of RPM interactive have been classified as discontinued operations in the accompanying unaudited consolidated statements of operations for all periods presented. The following table summarizes the results of the discontinued operations for the three months ended March 31, 2026 and 2025:

As of March 31, 2026 and December 31, 2025, the Company had no assets and liabilities of discontinued operations.