What changed in this filing

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Item 1. Business

2022-03-30 compared with 2021-03-30 · 754 added, 524 removed, 61 unchanged (95% of the section changed)

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 (ACTEX™), 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 (“ACTEX™”)

Novel therapeutic and diagnostic targets development utilizing QTY-code protein design technology with Massachusetts Institute of Technology (MIT) including using the QTY code protein design technology for development of a hemofiltration device to treat Cytokine Storm.

Co-development of next generation, transposon-based, multi-target CAR-T, CAR-NK and other immune effector cell therapeutic modalities with Arbele Limited.

Strategic partnership with the University of Natural Resources and Life Sciences (BOKU) in Vienna, Austria to develop an S-layer vaccine that can be administered by an intranasal or oral route against SARS-CoV-2, the novel coronavirus that causes COVID-19 disease.

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.

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.

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 (ACTEX™), and COVID-19 related vaccine and therapeutics.

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:

of Avalon Clinical-grade Tissue-specific Exosome (“ACTEX™”)

therapeutic and diagnostic targets development utilizing QTY-code protein design technology with Massachusetts Institute of Technology

(MIT) including using the QTY code protein design technology for development of a hemofiltration device to treat Cytokine Storm.

Co-development

of next generation, transposon-based, multi-target CAR-T, CAR-NK and other immune effector cell therapeutic modalities with Arbele

partnership with the University of Natural Resources and Life Sciences (BOKU) in Vienna, Austria to develop an S-layer vaccine that

can be administered by an intranasal or oral route against SARS-CoV-2, the novel coronavirus that causes COVID-19 disease.

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.

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

Avalon has initiated its first-in-human clinical trial of CD19 CAR-T candidate, AVA-001 in August 2019 at the Hebei Yanda Lu Daopei Hospital and Beijing Lu Daopei Hospital in China (the world’s single largest CAR-T treatment network with over 600 patients being treated with CAR-T) for the indication of relapsed/refractory B-cell acute lymphoblastic leukemia and non-Hodgkin Lymphoma.

The AVA-001 candidate (co-developed with China Immunotech Co.

Ltd) is characterized by the utilization of 4-1BB (CD137) co-stimulatory signaling pathway, conferring a strong anti-cancer activity during pre-clinical study.

It also features a shorter bio-manufacturing time which leads to the advantage of prompt treatment to patients where timing is important related hematologic malignancies.

Avalon has successfully completed the first-in-human clinical trial of its AVA-001 anti-CD19 CAR-T cell therapy as a bridge to allogeneic bone marrow transplantation for patients with relapsed/refractory B-cell acute lymphoblastic leukemia at the Lu Daopei Hospital (registered clinical trial number NCT03952923) with excellent efficacy (90% complete remission rate) and minimal adverse side effects.

Avalon is currently expanding the patient recruitment for AVA-001 to include relapsed/refractory non-Hodgkin lymphoma patients.

ACTEX™:

Stem cell-derived Avalon Clinical-grade Tissue-specific Exosomes (ACTEX™) is one of the core technology platforms that has been co-developed by Avalon GloboCare and Weill Cornell Medicine.

The Company formed a strategic partnership with HydroPeptide, LLC, a leading epigenetics skin care company, to engage in co-development and commercialization of a series of clinical-grade, exosome-based cosmeceutical and orthopedic products.

As part of this agreement, the Company signed a three-way Material Transfer Agreement between Avalon GloboCare, HydroPeptide and Weill Cornell Medicine.

FLASH-CAR™:

The Company advanced its next generation immune cell therapy using RNA-based, non-viral FLASH-CAR™

technology co-developed with the Company’s strategic partner Arbele Limited.

The adaptable FLASH-CAR™

platform can be used to create personalized cell therapy from a patient’s own cells, as well as off-the-shelf cell therapy from a universal donor.

Our leading candidate, AVA-011, is currently at process development stage to generate clinical-grade cell-therapy products for subsequent clinical studies.

AVA-Trap™:

Avalon’s AVA-Trap™

therapeutic program plans to enter animal model testing followed by expedited clinical studies with the goal of providing an effective therapeutic option to combat COVID-19 and other life-threatening conditions involving cytokine storms.

The Company initiated a sponsored research and co-development project with Massachusetts Institute of Technology (MIT) led by Professor Shuguang Zhang as Principal Investigator in May 2019.

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.

year ended December 31, 2020 we generated revenue by providing medical related consulting services in advanced areas of immunotherapy

Avalon has initiated

its first-in-human clinical trial of CD19 CAR-T candidate, AVA-001 in August 2019 at the Hebei Yanda Lu Daopei Hospital and Beijing

Lu Daopei Hospital in China (the world’s single largest CAR-T treatment network with over 600 patients being treated with CAR-T)

for the indication of relapsed/refractory B-cell acute lymphoblastic leukemia and non-Hodgkin Lymphoma.

The AVA-001 candidate (co-developed

with China Immunotech Co.

Ltd) is characterized by the utilization of 4-1BB (CD137) co-stimulatory signaling pathway, conferring

a strong anti-cancer activity during pre-clinical study.

It also features a shorter bio-manufacturing time which leads to the advantage

of prompt treatment to patients where timing is important related hematologic malignancies.

Avalon has successfully completed the

first-in-human clinical trial of its AVA-001 anti-CD19 CAR-T cell therapy as a bridge to allogeneic bone marrow transplantation for

patients with relapsed/refractory B-cell acute lymphoblastic leukemia at the Lu Daopei Hospital (registered clinical trial number

NCT03952923) with excellent efficacy (90% complete remission rate) and minimal adverse side effects.

Avalon is currently expanding

the patient recruitment for AVA-001 to include relapsed/refractory non-Hodgkin lymphoma patients.

AVA-011 and FLASH-CAR™:

The Company advanced its next generation immune cell therapy using RNA-based, non-viral FLASH-CAR™ technology co-developed

with the Company’s strategic partner Arbele Limited.

The adaptable FLASH-CAR™ platform can be used to create personalized

cell therapy from a patient’s own cells, as well as off-the-shelf cell therapy from a universal donor.

Our leading candidate,

AVA-011, is currently at process development stage to generate clinical-grade cell-therapy products for subsequent clinical studies.

On July 8, 2021, the Company and the University of Pittsburgh of the Commonwealth System of Higher Education (the “University”)

entered into a Corporate Research Agreement (the “University Agreement”).

Pursuant to the University Agreement, for a

term of two years the University agreed to use its reasonable efforts to perform academic research funded by the Company in connection

with the development of point-of-care modular autonomous processing system to generate clinical-grade AVA-011, a RNA-based chimeric

antigen receptor (CAR) T-cell therapy candidate (the “Project”) subject to the appointment of Dr.

Yen Michael S.

as Principal Investigator.

During the term, the Company agreed to make eight payments of $125,000 to the University.

As of December

31, 2021, the Company did not make any payment.

The Company and the University shall each own an undivided, one half interest in

any intellectual property rights jointly developed by both parties.

The Company has been granted a worldwide, irrevocable, non-exclusive,

royalty free, fully paid-up, perpetual right to use intellectual property developed by the University in connection with the Project

for commercial purposes research activities and other purposes.

Further, the Company will have an exclusive right of first offer

to an exclusive royalty-bearing license to intellectual property developed by the University or co-developed by the Company and the

University in connection with the Project.

Stem cell-derived

Avalon Clinical-grade Tissue-specific Exosomes (ACTEX™) is one of the core technology platforms that has been co-developed

by Avalon GloboCare and the University of Pittsburgh Medical Center.

The Company formed a strategic partnership with HydroPeptide,

LLC, a leading epigenetics skin care company, to engage in co-development and commercialization of a series of clinical-grade, exosome-based

cosmeceutical and orthopedic products.

As part of this agreement, the Company signed a three-way Material Transfer Agreement between

Avalon GloboCare, HydroPeptide and the University of Pittsburgh Medical Center.

AVA-Trap™ therapeutic program plans to enter animal model testing followed by expedited clinical studies with the goal of providing

an effective therapeutic option to combat COVID-19 and other life-threatening conditions involving cytokine storms.

The Company initiated

a sponsored research and co-development project with Massachusetts Institute of Technology (MIT) led by Professor Shuguang Zhang

as Principal Investigator in May 2019.

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.

the year ended December 31, 2021 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

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.

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.

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.

Avalon is not a People’s Republic of China (the “PRC”) operating company, certain of its subsidiaries are PRC operating

companies and through them Avalon currently has operations in PRC, which involves unique risks.

See “China Operations” below,

and “Risk Factors—Risks Related to Doing Business in China.”

Information/Company History

were incorporated under the laws of the State of Delaware on July 28, 2014 under the name Global Technologies Corp.

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

4 unchanged sentences

Effective October 25, 2017,

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

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.

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.

(“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.

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.

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.

Both Genexosome and Beijing Genexosome are inactive now.

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, 2021, 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 4,760,000 (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.

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.

23, 2018, Avactis and Arbele Limited (“Arbele”) agreed to the establishment of AVAR BioTherapeutics (China) Co.

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 $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 $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.

following diagram illustrates our corporate structure:

June 13, 2021, the Company entered into a Share Purchase Agreement (the “Purchase Agreement”), by and among the Company,

Lonlon Biotech Ltd., a company incorporated in the British Virgin Islands (“BVI”) (“Sen Lang BVI”), the holders

of the share capital of Sen Lang BVI (the “Sen Lang BVI Shareholders”), the ultimate beneficial owners of the Sen Lang BVI

Shareholders (the “Sen Lang BVI Beneficial Shareholders” and, together with the Sen Lang BVI Shareholders, the “Sen

Lang BVI Owners”) and a representative of the Sen Lang BVI Owners (the “Sen Lang BVI Representative”).

On January 1,

2022, the Company, on the one hand, and Sen Lang BVI, the Sen Lang Shareholders, the Sen Lang Beneficial Shareholders and Ding Wei, in

his capacity as the Sen Lang Representative, on the other hand, terminated the Purchase Agreement.

Certain of Avalon’s

subsidiaries are PRC operating companies, and through them Avalon currently has operations in the People’s Republic of China, which

involves unique risks.

method by which cash is transferred in Avalon’s organization, in light of its PRC subsidiaries, is complex.

The payment and amount

of any future dividend of the PRC subsidiaries to Avalon will be restricted by PRC laws and regulations regarding dividends and PRC foreign

exchange regulations.

PRC laws require that dividends be paid only out of the profit for the year calculated according to PRC accounting

PRC laws also require foreign-invested enterprises to set aside at least 10% of their after-tax profits as the statutory

common reserve fund until the cumulative amount of the statutory common reserve fund reaches 50% or more of such enterprises’ registered

capital, if any, to fund its statutory common reserves, which are not available for distribution as cash dividends.

Avalon and, ultimately,

Avalon stockholders will receive the economic benefit of its PRC subsidiaries by way of dividends, which are subject to restrictions

under current United States (“U.S.”) laws and regulations regarding dividends.

Furthermore, under applicable PRC laws and

regulations, arrangements and transactions among related parties may be subject to audit or challenge by the PRC tax authorities within

ten years after the taxable year when the transactions are conducted.

Avalon and its subsidiaries may face material and adverse tax consequences

if the PRC tax authorities determine that the contractual arrangements were not entered into on an arm’s length basis.

to the PRC Enterprise Income Tax Law, a withholding tax rate of 10% currently applies to dividends paid by a PRC resident enterprise

to a foreign enterprise investor, unless any such foreign investor’s jurisdiction of incorporation has a tax treaty with China

that provides for preferential tax treatment.

Avalon currently believes that its PRC subsidiaries’ distribution of dividends to

Avalon, if any, shall be subject to a withholding tax rate of 10%, unless a reduced rate under a tax treaty is applicable.

Avalon reported

net losses and had negative net cash flows from operations in 2021.

No net income will be generated from Avalon’s PRC subsidiaries’

operations in the foreseeable future and therefore no dividends or distributions will be paid by such subsidiaries to Avalon and its

stockholders in the foreseeable future.

However, if such subsidiaries do make distributions of cash or property to Avalon, absent a distribution

by Avalon to the U.S.

holders of Avalon common stock, there would be no flow-through of such income to the U.S.

holders of Avalon common

stock for U.S.

federal income tax purposes.

As of the date of this report, no transfers, dividends or distributions from our PRC subsidiaries

to Avalon have been made to date.

As described below under “ 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

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.

Although Avalon is currently not subject to the HFCA Act, any uncertainty of its

applicability to Avalon, for example if Avalon switched to using a PRC-based auditing firm, could cause the market price of Avalon’s

securities to be materially and adversely affected and could cause Avalon’s securities to be delisted or prohibited from being traded

“over-the-counter”.

If Avalon’s securities are unable to be listed on another securities exchange, such a delisting

would substantially impair your ability to sell or purchase Avalon’s securities when you wish to do so, and the risk and uncertainty

associated with a potential delisting would have a negative impact on the price of Avalon’s securities.

Avalon’s business operations in the PRC are governed by PRC laws, rules and regulations.

The associated legal and operational risks

could result in a material change in the business operations of Avalon’s PRC subsidiaries and could negatively impact the value

of Avalon’s common stock or could even cause the value of such securities to significantly decline or be worthless.

The PRC government

has recently announced its plans to enhance its regulatory oversight of Chinese companies listing overseas, and there is some uncertainty

with respect to the interpretation and implementation of such plans.

The PRC government has also issued statements and has undertaken

regulatory actions related to the use of variable interest entities, data security and anti-monopoly concerns.

The PRC government may

promulgate relevant laws, internal rules and regulations that may impose additional and significant obligations and liabilities on overseas

listed Chinese companies regarding data security, cross-border data flow, compliance with PRC securities laws and anti-monopoly laws.

These laws and regulations can be complex and stringent, and can be subjected to change and uncertain interpretation, which could limit

Avalon’s ability to conduct its business and accept foreign investments, or could significantly impact its operating results and

However, because Avalon is the issuer of the common stock listed on Nasdaq and is a Delaware operating and holding company,

no approval or permission is required under current applicable PRC laws and regulations for any future issuances of Avalon securities

to non-PRC investors.

Nevertheless, PRC laws, regulations and/or their interpretations may change in the future, such that they may have

an extraterritorial effect, whereby Avalon may be required to obtain such approval or permission under PRC laws and regulations.

event, Avalon may face the risk that these future regulatory actions by the PRC government could significantly limit or completely hinder

Avalon’s ability to offer future securities to investors.

Under this scenario, Avalon’s ability to raise capital and thereby

execute its business plan would be significantly limited or completely hindered, which would likely result in a material change in Avalon’s

operations and the value of Avalon’s common stock, including that it could cause the value of such securities to significantly

decline or become worthless.

In addition, Avalon faces the risk that Avalon may not currently ascertain, and therefore may not actually

have, all requisite permissions to offer securities, which would likely result in a material change in Avalon’s operations and/or

value of Avalon’s common stock, including that it could cause the value of such securities to significantly decline or become worthless.

See “Risk Factors—The PRC government exerts substantial influence over the manner in which Avalon must conduct its business

activities and Avalon may face the risk that the future regulatory actions by the PRC government could significantly limit or completely

hinder Avalon’s ability to offer future securities to investors.

and Marketing

seek to develop new business through relationships driven by our senior management, which have extensive contacts throughout the healthcare

Our senior management will be seeking opportunities for joint ventures, strategic relationships and acquisitions in consulting,

biomedical innovations, and telemedicine, and rehabilitation centers.

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.

biomedical innovations, laboratory, and medical device companies.

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.

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

We plan to expand our business services throughout the United States via our “Technology + Service”

“Avalon Cell”.

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.

We will focus on the following

markets in developing our core business:

Platform “Avalon

Regarded as the future

of medicine, we believe cell-based therapeutics will replace pharmaceuticals as a more effective and functional modality in disease

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:

● Novel therapeutic and diagnostic targets development utilizing

QTY-code protein design technology with Massachusetts Institute of Technology (MIT) including using the QTY code protein design

technology for development of a hemofiltration device to treat Cytokine Storm.

● Co-development of next generation, transposon-based, multi-target

CAR-T, CAR-NK and other immune effector cell therapeutic modalities with Arbele Limited.

● Strategic partnership with the University

of Natural Resources and Life Sciences (BOKU) in Vienna, Austria to develop an S-layer vaccine that can be administered by an intranasal

or oral route against SARS-CoV-2, the novel coronavirus that causes COVID-19 disease.

Exosome technology, small extracellular vesicles that have great potential to be used in diagnostics (“liquid biopsy”) and regenerative therapeutics.

We have commenced developing collaborative sites at Weill Cornell Medical College in the United States, as well as Lu Daopei Hospital of Daopei Medical Group and Da An Gene Co, Ltd.

in China, focusing on exosome-based diagnostics and therapeutics.

Avalon RT 9 Properties,

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

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

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

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.

these solutions to the client’s specific strategic challenges, operational issues, and management concerns.

Partnerships and Acquisitions

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.

focus on the following markets in developing our core business:

Immunotherapy in Oncology:

Regarded as the future of medicine, we believe cell-based technologies and therapeutics will replace pharmaceuticals

as a more effective and functional modality in certain unmet medical areas.

We are actively engaging in this revolutionary trend and

positioning to take a leading role in immune effector cell therapies in the immuno-oncology domain, particularly related to the development

of Chimeric Antigen Receptor (CAR) T cell and CAR-NK cell therapies against hematologic malignancies.

CAR-T cell therapy is considered

as a “living drug” which involves isolation of a patient’s peripheral T cells and re-engineering these T cells with

CAR molecules equipped with a weapon attacking a specific target on tumor cells.

Our leading candidate is “AVA-001”, an anti-CD19

CAR-T which has successfully completed first-in-human clinical trial for relapsed/refractory (R/R) B-cell lymphoblastic leukemia (B-ALL);

we are in the process of expanding patient recruitment to include R/R non-Hodgkin’s lymphoma.

We are also developing a RNA-based

“FASH-CAR TM ” cell therapy platform, which may potentially reduce manufacturing time and cost.

The lead candidate,

“AVA-011”, has completed pre-clinical laboratory studies and currently undergoing IND-enabling process development stage

to generate cGMP-grade AVA-011 CAR-T cells for upcoming clinical trials.

● Regenerative

Avalon Clinical-grade Tissue-specific Exosome (“ACTEX™”) is a technology platform to generate clinical-grade

exosomes from stem/progenitor cells, with potential regenerative applications in skin care and orthopedic joint repair.

Protein Design:

Novel therapeutic and diagnostic targets development utilizing QTY-code protein design technology with Massachusetts

Institute of Technology (MIT) including using the QTY code protein design technology for development of a hemofiltration device to treat

Cytokine Storm (aka Cytokine Release Syndrome).

QTY-code can be applied to generate water-soluble, antibody-like molecular variants of

native membrane-bound receptors, which may expand the repertoire of therapeutic targets in CAR-T cell therapies.

based Vaccine Development:

Strategic partnership with the University of Natural Resources and Life Sciences (BOKU) in Vienna, Austria

to develop an S-layer based vaccine that can be administered by an intranasal or oral route against SARS-CoV-2 (the novel coronavirus

that causes COVID-19), Influenza A/B and other respiratory pathogens.

RT 9 Properties, LLC

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.

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

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.

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;

integrating experts, medical institutions and other resources in the United States in support of scientific research;

providing technical education and training;

assisting in publication of academic papers.

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,

Through our majority-owned subsidiary, Genexosome Technologies,

Inc., or Genexosome, during certain periods of 2019, marketed and sold our proprietary exosome isolation systems.

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

scientific research consulting services;

experts, medical institutions and other resources in the United States in support of scientific research;

technical education and training;

in publication of academic papers.

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 and are seeking laboratory or medical device acquisitions.

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.

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;

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.

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;

vendors and services firms;

healthcare information technology firms;

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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

non-profit think-tanks, and database companies, also may offer research, consulting, tools, and education services to health care and

education organizations.

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

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.

is centrally located and maintains high occupancy.

There are other commercial properties in the vicinity that offer similar amenities.

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.

RT 9 Properties LLC

executive commercial building in Freehold, New Jersey is located on a major highway and is one of the largest buildings in the surrounding

It is centrally located and maintains high occupancy.

There are other commercial properties in the vicinity that offer similar

However, premier executive offices are limited and as such we expect to continue to maintain high occupancy in the near term.

Genexosome Technologies,

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.

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

Government Regulation

The healthcare industry

in the PRC and U.S.

of March 30, 2022, we employed six employees, five of which are full time employees.

None of our employees are represented by a collective

bargaining arrangement.

healthcare industry in the PRC and U.S.

is highly regulated and subject to changing political, legislative, regulatory, and other influences.

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.

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’

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

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.

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.

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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.

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

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.

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.

PRC subsidiary, Avalon Shanghai, provides outsourced and customized healthcare services to the rapidly changing health care industry.

Currently, our PRC subsidiary, Beijing Genexosome, is dormant.

These subsidiaries have obtained their respective business licenses, which

permit each of them to operate its business in the PRC.

No other special permission is required for our PRC subsidiaries to conduct their

respective current business under applicable PRC regulations and laws.

Additionally, the operation of Avalon and its PRC subsidiaries

are not covered by permissions requirements of the China Securities Regulatory Commission (CSRC) or the Cyberspace Administration of

Avalon is the issuer of the common stock listed on Nasdaq and is a Delaware operating and holding company, no approval or permission

is required under current applicable PRC laws and regulations for any future issuances of Avalon securities to non-PRC investors.

Nevertheless,

according to the Opinions of the General Office of the CPC Central Committee and the General Office of the State Council on Strictly

Cracking Down on Illegal Securities Activities in accordance with the Law (“Opinions”), the PRC intends to establish and

improve the system of extraterritorial application of the PRC securities laws.

Although the details of the extraterritorial application

of the PRC securities laws are still scarce as of the date of this report, PRC laws, regulations and/or their interpretations may change

in the future, such that they have may an extraterritorial effect, whereby Avalon may be required to obtain such approval or permission

under PRC laws and regulations.

In such event, Avalon may face the risk that these future regulatory actions by the PRC government could

significantly limit or completely hinder Avalon’s ability to offer future securities to investors.

Under this scenario, Avalon’s

ability to raise capital and thereby execute its business plan would be significantly limited or completely hindered, which would likely

result in a material change in Avalon’s operations and the value of Avalon’s common stock, including that it could cause

the value of such securities to significantly decline or become worthless.

In addition, Avalon faces the risk that Avalon may not currently

ascertain, and therefore may not actually have, all requisite permissions to offer securities, which would likely result in a material

change in Avalon’s operations and/or value of Avalon’s common stock, including that it could cause the value of such securities

to significantly decline or become worthless.

Flow of Economic Benefits from PRC Subsidiaries

payment and amount of any future dividend of Avalon’s PRC subsidiaries to Avalon will be restricted by PRC laws and regulations

regarding dividends and PRC foreign exchange regulations.

PRC laws require that dividends be paid only out of the profit for the year

calculated according to PRC accounting principles, which differ in certain respects from the generally accepted accounting principles

in other jurisdictions, including accounting principles generally accepted in the United States of America, or US GAAP, and international

financial reporting standards as issued by the International Accounting Standards Board, or IFRS.

PRC laws also require foreign-invested

enterprises to set aside at least 10% of their after-tax profits as the statutory common reserve fund until the cumulative amount of

the statutory common reserve fund reaches 50% or more of such enterprises’ registered capital, if any, to fund its statutory common

reserves, which are not available for distribution as cash dividends.

Furthermore, under applicable PRC laws and regulations, arrangements

and transactions among related parties may be subject to audit or challenge by the PRC tax authorities within ten years after the taxable

year when the transactions are conducted.

to the PRC Enterprise Income Tax Law, a withholding tax rate of 10% currently applies to dividends paid by a PRC resident enterprise

to a foreign enterprise investor, unless any such foreign investor’s jurisdiction of incorporation has a tax treaty with China

that provides for preferential tax treatment.

Furthermore, the Announcement of State Taxation Administration on Promulgation of the Administrative

Measures on Non-Resident Taxpayers Enjoying Treaty Benefits, issued on October 14, 2019 by the PRC State Taxation Administration, which

became effective from January 1, 2020, requires non-resident enterprises to determine whether they are qualified to enjoy the preferential

tax treatment under the tax treaties and make appropriate filings with the competent tax authorities.

In addition, based on the Notice

on Issues concerning Beneficial Owner in Tax Treaties, or Circular 9, issued on February 3, 2018 by the PRC State Taxation Administration,

which became effective from April 1, 2018, when determining the applicant’s “beneficial owner” status regarding tax

treatments in connection with dividends, interests or royalties in the tax treaties, several factors, including, without limitation,

whether the applicant is obligated to pay more than 50% of the applicant’s income for twelve months to residents in a third country

or region, whether the business operated by the applicant constitutes the actual business activities, and whether the counterparty country

or region to the tax treaties does not levy any tax or grant tax exemption on relevant incomes or levy tax at an extremely low rate,

will be taken into account, and it will be analyzed according to the actual circumstances of the specific cases.

There are also other

conditions for enjoying the reduced withholding tax rate according to other relevant tax rules and regulations.

Therefore, Avalon currently

believes that dividends from its PRC subsidiaries to Avalon, if any, shall be subject to a withholding tax rate of 10%, unless a reduced

rate under a tax treaty is applicable.

Avalon reported net losses and had negative net cash flows from operations in 2021.

No net income

will be generated from Avalon’s PRC subsidiaries’ operations in the foreseeable future and therefore no dividends or distributions

will be paid by such subsidiaries to Avalon and its stockholders in the foreseeable future.

However, if such subsidiaries do make distributions

of cash or property to Avalon, absent a distribution by Avalon to the U.S.

holders of Avalon common stock, there would be no flow-through

of such income to the U.S.

holders of Avalon common stock for U.S.

federal income tax purposes.

of the date of this report, no transfers, dividends or distributions from our PRC subsidiaries to Avalon have been made to date.

on Foreign Exchange and Avalon’s Ability to Transfer Cash Across Borders

PRC government imposes controls on the convertibility of RMB into foreign currencies and, in certain cases, the remittance of currency

out of China.

Under existing PRC foreign exchange regulations, payments of current account items, such as profit distributions and trade

and service-related foreign exchange transactions, can be made in foreign currencies without prior approval from the State Administration

of Foreign Exchange, or SAFE, by complying with certain procedural requirements.

However, approval from or registration with appropriate

governmental authorities is required where RMB is to be converted into foreign currency and remitted out of China to pay capital expenses.

As a result, SAFE approval may need to be obtained to use cash generated from the operations of Avalon’s PRC subsidiaries.

failure to comply with applicable foreign exchange regulations may subject us to administrative fines.

Foreign Companies Accountable Act Compliance

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.

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.

the audit reports of Avalon are prepared by U.S.

auditors that are subject to inspection by the PCAOB, the PCAOB is currently unable

to conduct inspections over the audit work of Avalon’s independent registered public accounting firms with respect to Avalon’s

operations in mainland China without the approval of certain Chinese authorities.

Also, there is no guarantee that future audit reports

will be prepared by auditors that are completely inspected by the PCAOB and, as such, future investors may be deprived of such inspections,

which could result in limitations or restrictions to Avalon’s access of the U.S.

capital markets.

of certain other firms that the PCAOB has conducted outside of China have identified deficiencies in those firms’ audit procedures

and quality control procedures, which may be addressed as part of the inspection process to improve future audit quality.

PCAOB is currently unable to inspect an auditor’s audit work related to a company’s operations in China where such documentation

of the audit work is located in China.

As a result, Avalon’s investors may be deprived of the benefits of the PCAOB’s oversight

of auditors that are located in China through such inspections.

March 24, 2021, the SEC adopted interim final rules relating to the implementation of certain disclosure and documentation requirements

of the HFCA Act.

Avalon will be required to comply with these rules if the SEC identifies us as having a “non-inspection”

year under a process to be subsequently established by the SEC.

The SEC is assessing how to implement other requirements of the HFCA

Act, including the listing and trading prohibition requirements described above.

June 22, 2021, the U.S.

Senate passed a bill which, if passed by the U.S.

House of Representatives and signed into law, would reduce

the number of consecutive non-inspection years required for triggering the prohibitions under the HFCA Act from three years to two, which

would shorten the timeframe before Avalon’s share may be delisted and before the trading in Avalon’s shares is prohibited.

November 5, 2021, the SEC approved Rule 6100 adopted by the PCAOB to determine its inability to inspect or investigate registered firms

completely under the HFCA Act.

This rule establishes the framework for the PCAOB to make these required determinations.

The trading in

Avalon’s securities may be prohibited under the HFCA Act if the PCAOB subsequently determines Avalon’s audit work is performed

by auditors that the PCAOB is unable to inspect or investigate completely pursuant to Rule 6100, and as a result, U.S.

national securities

exchanges, such as Nasdaq, may determine to delist Avalon’s securities.

Such a delisting would likely cause the value of such securities

to significantly decline or become worthless.

SEC may propose additional regulatory or legislative requirements or guidance that could impact us if our auditor is not subject to PCAOB

For example, on August 6, 2020, the President’s Working Group on Financial Markets, or the PWG, issued the Report on

Protecting United States Investors from Significant Risks from Chinese Companies to the then President of the United States.

recommended the SEC implement five recommendations to address companies from jurisdictions that do not provide the PCAOB with sufficient

access to fulfil its statutory mandate.

Some of the concepts of these recommendations were implemented with the enactment of the HFCA

However, some of the recommendations were more stringent than the HFCA Act.

For example, if a company was not subject to PCAOB inspection,

the report recommended that the transition period before a company would be delisted would end on January 1, 2022.

SEC has announced that the SEC staff is preparing a consolidated proposal for the rules regarding the implementation of the HFCA Act

and to address the recommendations in the PWG report.

It is unclear when the SEC will complete its rulemaking and when such rules will

become effective and what, if any, of the PWG recommendations will be adopted.

The implications of this possible regulation in addition

to the requirements of the HFCA Act are uncertain.

Although Avalon is currently not subject to the HFCA Act, any uncertainty of its applicability

to Avalon, for example if Avalon switched to using a PRC-based auditing firm, could cause the market price of Avalon’s securities

to be materially and adversely affected and could cause Avalon’s securities to be delisted or prohibited from being traded “over-the-counter”.

If Avalon’s securities are unable to be listed on another securities exchange, such a delisting would substantially impair your

ability to sell or purchase Avalon’s securities when you wish to do so, and the risk and uncertainty associated with a potential

delisting would have a negative impact on the price of Avalon’s securities.

See “ Risk Factors— Trading in Avalon’s

securities may be restricted under the Holding Foreign Companies Accountable Act if the PCAOB determines that it cannot inspect or fully

investigate Avalon’s auditors, and as a result, U.S.

national securities exchanges, such as Nasdaq, may determine to delist Avalon’s

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

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.

Pharmaceutical

products such as ours may not be commercially marketed without prior approval from the FDA and comparable regulatory agencies in other

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 IND for human clinical testing, which must become effective before human clinical trials may begin;

adequate and well-controlled human clinical trials to establish the safety and efficacy of the drug for each indication;

submission to the FDA of an NDA or BLA;

satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the drug is produced to assess compliance with current good manufacturing practices, or cGMPs;

a potential FDA audit of the preclinical and clinical trial sites that generated the data in support of the NDA or BLA;

the ability to obtain clearance or approval of companion diagnostic tests, if required, on a timely basis, or at all;

FDA review and approval of the NDA or BLA.

Regulation by U.S.

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

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

laboratory tests, animal studies, and formulation studies;

to the FDA of an IND for human clinical testing, which must become effective before human clinical trials may begin;

and well-controlled human clinical trials to establish the safety and efficacy of the drug for each indication;

to the FDA of an NDA or BLA;

completion of an FDA inspection of the manufacturing facility or facilities at which the drug is produced to assess compliance with

current good manufacturing practices, or cGMPs;

potential FDA audit of the preclinical and clinical trial sites that generated the data in support of the NDA or BLA;

ability to obtain clearance or approval of companion diagnostic tests, if required, on a timely basis, or at all;

review and approval of the NDA or BLA.

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.

process of seeking these approvals, and the subsequent compliance with applicable laws and regulations, require expending substantial

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 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.

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;

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.

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.

clinical testing involves a three-phase process;

however, the phases may overlap or be combined:

Phase I clinical trials typically are conducted in a small number of volunteers or patients to assess the early tolerability and safety profile, and the pattern of drug absorption, distribution and metabolism;

Phase II clinical trials typically are conducted in a limited patient population with a specific disease in order to assess appropriate dosages and dose regimens, expand evidence of the safety profile and evaluate preliminary efficacy;

Phase III clinical trials typically are larger scale, multicenter, well-controlled trials conducted on patients with a specific disease to generate enough data to statistically evaluate the efficacy and safety of the product, to establish the overall benefit-risk relationship of the drug and to provide adequate information for the registration of the drug.

A therapeutic product candidate

being studied in clinical trials may be made available for treatment of individual patients, in certain circumstances.

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

I clinical trials typically are conducted in a small number of volunteers or patients to assess the early tolerability and safety

profile, and the pattern of drug absorption, distribution and metabolism;

II clinical trials typically are conducted in a limited patient population with a specific disease in order to assess appropriate

dosages and dose regimens, expand evidence of the safety profile and evaluate preliminary efficacy;

III clinical trials typically are larger scale, multicenter, well-controlled trials conducted on patients with a specific disease

to generate enough data to statistically evaluate the efficacy and safety of the product, to establish the overall benefit-risk relationship

of the drug and to provide adequate information for the registration of the drug.

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.

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.

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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

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.

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.

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.

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.

face similar inspections coordinated by foreign regulatory authorities.

of Clinical Trial Information

of certain clinical trials of FDA-regulated products are required to register and disclose certain clinical trial 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

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.

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

Development and Review Programs

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.

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

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.

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.

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, 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.

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.

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

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

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.

Medicine Advanced Therapies (RMAT) Designation

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

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);

(2) it is intended to treat, modify, reverse, or cure a serious or life-threatening disease or

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

or via post-approval monitoring

of all patients treated with such therapy prior to approval of the therapy.

Post-Approval

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

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;

If such post-approval requirements are not satisfied, the FDA may withdraw its approval of

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.

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.

Accordingly, manufacturers must continue to

expend time, money, and effort in the area of production and quality control to maintain cGMPs compliance.

Healthcare Fraud and Abuse Laws

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.

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,

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.

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

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

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

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.

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.

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.

A claim includes “any request or demand” for money or property presented to the U.S.

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.

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.

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.

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.

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

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

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.

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

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.

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

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

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

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.

Legislation and Regulations

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.

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.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business