What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-14 compared with 2022-08-05 · 416 added, 375 removed, 283 unchanged (74% of the section changed)

MANAGEMENT’S DISCUSSION AND

ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our

financial condition and results of operations for the three and six months ended June 30, 2022 and 2021 should be read in conjunction

with our condensed consolidated financial statements and related notes to those condensed consolidated financial statements that are

included elsewhere in this report.

Our discussion includes forward-looking statements based upon current expectations that involve risks

and uncertainties, such as our plans, objectives, expectations and intentions.

Actual results and the timing of events could differ materially

from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under the Risk

Factors, Special Note Regarding Forward-Looking Statements and Business sections in our Form 10-K as filed with the Securities and Exchange

Commission on March 30, 2022.

We use words such as “anticipate,” “estimate,” “plan,” “project,”

“continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,”

“will,” “should,” “could,” and similar expressions to identify forward-looking statements.

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following

discussion and analysis of our financial condition and results of operations for the three and nine months ended September 30, 2022 and

2021 should be read in conjunction with our condensed consolidated financial statements and related notes to those condensed consolidated

financial statements that are included elsewhere in this report.

Our discussion includes forward-looking statements based upon current

expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions.

Actual results and the

timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors,

including those set forth under the Risk Factors, Special Note Regarding Forward-Looking Statements and Business sections in our Form

10-K as filed with the Securities and Exchange Commission on March 30, 2022.

We use words such as “anticipate,” “estimate,”

“plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,”

“intend,” “may,” “will,” “should,” “could,” and similar expressions to identify

forward-looking statements.

Impact of COVID-19

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Although the COVID-19

vaccines have generally been introduced to the public, the ultimate impact of the COVID-19 pandemic on our operations is unknown and

will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the

COVID-19 outbreak, new information which may emerge concerning the severity of the COVID-19 pandemic, a significant increase in new and

variant strains of COVID-19 cases, availability and effectiveness of COVID-19 vaccines and therapeutics, the level of acceptance of the

vaccine by the general population and any additional preventative and protective actions that governments, or us, may determine are needed.

vaccines have generally been introduced to the public, the ultimate impact of the COVID-19 pandemic on our operations is unknown and will

depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the COVID-19

outbreak, new information which may emerge concerning the severity of the COVID-19 pandemic, a significant increase in new and variant

strains of COVID-19 cases, availability and effectiveness of COVID-19 vaccines and therapeutics, the level of acceptance of the vaccine

by the general population and any additional preventative and protective actions that governments, or us, may determine are needed.

The occurrence of COVID-19

pandemic had negative impact on our operations.

Some of the universities and laboratories with which we collaborate were temporarily

Some of the universities and laboratories with which we collaborate were temporarily closed.

Our general development operations have continued during the COVID-19 pandemic and we have not had significant disruption.

we are uncertain if the COVID-19 pandemic will impact future operations at our laboratory, or our ability to collaborate with other laboratories

are uncertain if the COVID-19 pandemic will impact future operations at our laboratory, or our ability to collaborate with other laboratories

and universities.

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available to fund planned operations and although we have other sources of capital described below under “Liquidity and Capital

Resources,” management continues to pursue various financing alternatives to fund our operations so we can continue as a going

Resources,” management continues to pursue various financing alternatives to fund our operations so we can continue as a going concern.

However, the COVID-19 pandemic has created significant economic uncertainty and volatility in the credit and capital markets.

Management plans to secure the necessary financing through the issue of new equity and/or the entering into of strategic partnership

arrangements but the ultimate impact of the COVID-19 pandemic on our ability to raise additional capital is unknown and will depend on

future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the COVID-19 outbreak

and new information which may emerge concerning the severity of the COVID-19 pandemic.

We may not be able to raise sufficient additional

capital and may tailor our operations based on the amount of funding we are able to raise in the future.

Nevertheless, there is no assurance

that these initiatives will be successful.

Further, there is no assurance that capital available to us in any future financing will be

on acceptable terms.

plans to secure the necessary financing through the issue of new equity and/or the entering into of strategic partnership arrangements

but the ultimate impact of the COVID-19 pandemic on our ability to raise additional capital is unknown and will depend on future developments,

which are highly uncertain and cannot be predicted with confidence, including the duration of the COVID-19 outbreak and new information

which may emerge concerning the severity of the COVID-19 pandemic.

We may not be able to raise sufficient additional capital and may tailor

our operations based on the amount of funding we are able to raise in the future.

Nevertheless, there is no assurance that these initiatives

will be successful.

Further, there is no assurance that capital available to us in any future financing will be on acceptable terms.

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 companion diagnostics.

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

Through its subsidiary structure with unique integration of vertical segments 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 regenerative therapeutics.

Avalon achieves

and fosters seamless integration of unique verticals to bridge and accelerate innovative research, bio-process development, clinical programs

and product commercialization.

immune effector cell therapy, exosome technology, as well as cell therapy related companion diagnostics.

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 regenerative 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 :

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, mRNA-based immune effector cell therapeutic modalities with Arbele Limited.

midstream bio-processing and bio-production facility is co-developed at the University of Pittsburgh Medical Center (UPMC) with state-of-the-art

● Development

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, mRNA-based immune effector cell therapeutic modalities with Arbele Limited.

Avalon’s midstream

bio-processing and bio-production facility is co-developed at the University of Pittsburgh Medical Center (UPMC) with state-of-the-art

infrastructure and standardization accredited with cGMP, FACT, aaBB, CLIA and CAP, as well as stringent QC/QA facility for standardized

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regenerative therapeutics.

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 1,200 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 and indication 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 multiplex FLASH-CAR™ platform can be used to create personalized ("autologous') 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 a dual-target (anti-CD19/CD22) CAR-T which has completed pre-clinical research stage, and currently at IND-enabling process development stage at UPMC (Dr.

Yen-Michael Hsu as Principal Investigator) to generate clinical-grade cell-therapy products for subsequent clinical studies.

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.

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.

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.

Our major clinical programs include:

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 1,200 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 and indication

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

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 multiplex FLASH-CAR™ platform can be used to create

personalized (“autologous’) 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 a dual-target (anti-CD19/CD22) CAR-T which has completed pre-clinical research

stage, and currently at IND-enabling process development stage at UPMC (Dr.

Yen-Michael Hsu as Principal Investigator) to generate clinical-grade

cell-therapy products for subsequent clinical studies.

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.

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.

Going Concern

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 companion diagnostics.

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 vertical segments from innovative R&D to automated

immune effector cell therapy, exosome technology, as well as cell therapy related companion diagnostics.

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

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These condensed

consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates,

among other things, the realization of assets and the satisfaction of liabilities in the normal course of business.

As reflected in the

accompanying condensed consolidated financial statements, the Company had a working capital deficit of $5,557,470 as of June 30, 2022

and has incurred recurring net losses and generated negative cash flow from operating activities of $4,099,012 and $2,686,722 for the

six months ended June 30, 2022, respectively.

The Company has a limited operating history and its continued growth is dependent upon

the continuation of providing medical related consulting services to its only few clients who are related parties and generating rental

revenue from its income-producing real estate property in New Jersey;

hence generating revenues, and obtaining additional financing to

fund future obligations and pay liabilities arising from normal business operations.

In addition, the current cash balance cannot be

projected to cover the operating expenses for the next twelve months from the release date of this report.

These matters raise substantial

doubt about the Company’s ability to continue as a going concern.

The ability of the Company to continue as a going concern is

dependent on the Company’s ability to raise additional capital, implement its business plan, and generate significant revenues.

There are no assurances that the Company will be successful in its efforts to generate significant revenues, maintain sufficient cash

balance or report profitable operations or to continue as a going concern.

The Company plans on raising capital through the sale of equity

to implement its business plan.

However, there is no assurance these plans will be realized and that any additional financings will be

available to the Company on satisfactory terms and conditions, if any.

consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates, among

other things, the realization of assets and the satisfaction of liabilities in the normal course of business.

As reflected in the accompanying

condensed consolidated financial statements, the Company has incurred recurring net losses and generated negative cash flow from operating

activities of $9,513,166 and $5,072,932 for the nine months ended September 30, 2022, respectively.

The Company has a limited operating

history and its continued growth is dependent upon the continuation of providing medical related consulting services to its only few clients

who are related parties and generating rental revenue from its income-producing real estate property in New Jersey;

hence generating revenues,

and obtaining additional financing to fund future obligations and pay liabilities arising from normal business operations.

the current cash balance cannot be projected to cover the operating expenses for the next twelve months from the release date of this

These matters raise substantial doubt about the Company’s ability to continue as a going concern.

The ability of the Company

to continue as a going concern is dependent on the Company’s ability to raise additional capital, implement its business plan, and

generate significant revenues.

There are no assurances that the Company will be successful in its efforts to generate significant revenues,

maintain sufficient cash balance or report profitable operations or to continue as a going concern.

The Company plans on raising capital

through the sale of equity to implement its business plan.

However, there is no assurance these plans will be realized and that any additional

financings will be available to the Company on satisfactory terms and conditions, if any.

The occurrence of an

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Given the dynamic nature of these circumstances, the duration

of business disruption and reduced traffic, the related financial effect cannot be reasonably estimated at this time but is expected

to adversely impact the Company’s business for the rest of 2022.

of business disruption and reduced traffic, the related financial effect cannot be reasonably estimated at this time but is expected to

adversely impact the Company’s business for the rest of 2022.

The accompanying condensed

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or the amounts and classification of liabilities that may result should the Company be unable to continue as a going concern.

Critical Accounting

Accounting Policies

Use of Estimates

Our discussion and analysis of our financial

condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance

with accounting principles generally accepted in the United States.

The preparation of these condensed consolidated financial statements

requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related

disclosure of contingent assets and liabilities.

We continually evaluate our estimates, including those related to the useful life of

property and equipment and investment in real estate, assumptions used in assessing impairment of long-term assets, valuation of deferred

tax assets and the associated valuation allowances, and valuation of stock-based compensation, and assumptions used to determine fair

value of warrants and embedded conversion features of convertible note payable.

Our discussion and analysis

of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared

in accordance with accounting principles generally accepted in the United States.

The preparation of these condensed consolidated financial

statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses,

and related disclosure of contingent assets and liabilities.

We continually evaluate our estimates, including those related to the useful

life of property and equipment and investment in real estate, assumptions used in assessing impairment of long-term assets, valuation

of deferred tax assets and the associated valuation allowances, and valuation of stock-based compensation, and assumptions used to determine

fair value of warrants and embedded conversion features of convertible note payable.

We base our estimates

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Revenue Recognition

We recognize revenue

under Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”).

The core principle of the revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services

to customers in an amount that reflects the consideration to which the company expects to be enti tled

in exchange for those goods or services.

recognize revenue under Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC

The core principle of the revenue standard is that a company should recognize revenue to depict the transfer of promised

goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for

those goods or services.

The following five steps are applied to achieve that core principle:

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Recognize revenue when the company satisfies a performance obligation

order to id entify the performance obligations in a contract with a customer, a company must assess the promised goods or services

in the contract and identify each promised goods or service that is distinct.

A performance obligation meets ASC 606’s defin ition

of a “distinct” goods or service (or bundle of goods or services) if both of the following criteria are met:

customer can benefit from the goods or service either on its own or together with other resources

that are readily available to the customer (i.e., the goods or service is capable of being

entity’s promise to transfer the goods or service to the customer is separately identifiable

from other promises in the contract (i.e., the promise to transfer the goods or service is

distinct within the context of the contract).

a goods or service is not distinct, the goods or service is combined with other promised goods or services until a bundle of goods

or services is identified that is distinct.

The transaction price is the amount of consideration

to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer, excluding amounts collected

on behalf of third parties (for example, some sales taxes).

The consideration promised in a contract with a customer may include fixed

amounts, variable amounts, or both.

Variable consideration is included in the transaction price only to the extent that it is probable

that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable

consideration is subsequently resolved.

The transaction price is allocated to each performance

obligation on a relative standalone selling price basis.

The transaction price allocated to each performance obligation is recognized

when that performance obligation is satisfied, at a point in time or over time as appropriate.

The Company’s

revenues are derived from providing medial related consulting services for its’ related parties.

Revenues related to its service

offerings are recognized at a point in time when service is rendered.

Any payments received in advance of the performance of services

are recorded as deferred revenue until such time as the services are performed.

In order to identify the performance obligations

in a contract with a customer, a company must assess the promised goods or services in the contract and identify each promised goods or

service that is distinct.

A performance obligation meets ASC 606’s definition of a “distinct” goods or service (or bundle

of goods or services) if both of the following criteria are met:

customer can benefit from the goods or service either on its own or together with other resources that are readily available to the customer

(i.e., the goods or service is capable of being distinct).

entity’s promise to transfer the goods or service to the customer is separately identifiable from other promises in the contract

(i.e., the promise to transfer the goods or service is distinct within the context of the contract).

If a goods or service is not distinct, the goods

or service is combined with other promised goods or services until a bundle of goods or services is identified that is distinct.

The transaction

price is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services

to a customer, excluding amounts collected on behalf of third parties (for example, some sales taxes).

The consideration promised in a

contract with a customer may include fixed amounts, variable amounts, or both.

Variable consideration is included in the transaction price

only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when

the uncertainty associated with the variable consideration is subsequently resolved.

The transaction price

is allocated to each performance obligation on a relative standalone selling price basis.

The transaction price allocated to each performance

obligation is recognized when that performance obligation is satisfied, at a point in time or over time as appropriate.

The Company’s revenues

are derived from providing medial related consulting services for its’ related parties.

Revenues related to its service offerings

are recognized at a point in time when service is rendered.

Any payments received in advance of the performance of services are recorded

as deferred revenue until such time as the services are performed.

We have determined that

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basis over the term of the related leases.

The cumulative difference between lease revenue recognized under the straight-line method

and contractual lease payments are included in rent receivable on the condensed consolidated balance sheets.

The cumulative difference between lease revenue recognized under the straight-line method and

contractual lease payments are included in rent receivable on the condensed consolidated balance sheets.

We do not offer promotional

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Recent Accounting Standards

For details of applicable new accounting standards,

please, refer to Recent Accounting Standards in Note 3 of our condensed consolidated financial statements

accompanying this report.

For details of applicable new accounting standards, please, refer to Recent Accounting Standards in

Note 3 of our condensed consolidated financial statements accompanying this report.

RESULTS OF OPERATIONS

Comparison of Results of Operations for the

Three and Six Months Ended June 30, 2022 and 2021

For the three months

ended June 30, 2022, we had real property rental revenue of $290,821, as compared to $280,232 for the three months ended June 30, 2021,

an increase of $10,589, or 3.8%.

For the six months ended June 30, 2022, we had real property rental revenue of $588,452, as compared

to $570,006 for the six months ended June 30, 2021, an increase of $18,446, or 3.2%.

The slight increase was primarily attributable to

the increase of tenants in the first half of 2022.

Three and Nine Months Ended September 30, 2022 and 2021

the three months ended September 30, 2022, we had real property rental revenue of $317,390, as compared to $355,459 for the three months

ended September 30, 2021, a decrease of $38,069, or 10.7%.

For the nine months ended September 30, 2022, we had real property rental revenue

of $905,842, as compared to $925,465 for the nine months ended September 30, 2021, a decrease of $19,623, or 2.1%.

The decrease was primarily

attributable to one tenant moved out in 2022.

We expect that our revenue from real property rent will remain in its current quarterly

level with minimal increase in the near future.

the three and nine months ended September 30, 2022, we did not have any medical related consulting services revenue since there was no

demand for our consulting service from our related parties and there was no order for our medical related consulting services from third

party in these periods.

For the three and nine months ended September 30, 2021, we had medical related consulting services revenue from

related party of $131,305.

Currently, we are negotiating with our potential customers and expect to enter consulting services agreement

in the near future.

Costs and Expenses

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For the three months

ended June 30, 2022, our real property operating expenses amounted to $211,703, as compared to $205,147 for the three months ended June

30, 2021, an increase of $6,556, or 3.2%.

For the six months ended

June 30, 2022, our real property operating expenses amounted to $430,151, as compared to $422,041 for the six months ended June 30, 2021,

ended September 30, 2022, our real property operating expenses amounted to $247,152, as compared to $215,622 for the three months ended

September 30, 2021, an increase of $31,530, or 14.6%.

The increase was mainly due to an increase

in building cleaning fees of approximately $5,000, an increase in property management fees of approximately $9,000, an increase in repairs

and maintenance fees of approximately $5,000, an increase in utilities of approximately $9,000, and an increase in other miscellaneous

items of approximately $4,000.

For the nine months ended

September 30, 2022, our real property operating expenses amounted to $677,303, as compared to $637,663 for the nine months ended September

30, 2021, an increase of $39,640, or 6.2%.

The increase was mainly due to an increase in building

cleaning fees of approximately $11,000, an increase in property management fees of approximately $12,000, an increase in air conditioner

maintenance fee of approximately $6,000, an increase in utilities of approximately $4,000, and an increase in other miscellaneous items

of approximately $7,000.

Costs of medical related

consulting services include the cost of labor and related benefits, travel expenses related to medical related consulting services, and

other overhead costs.

There were no comparative

revenue and related costs of revenue from our medical related consulting services for the three and nine months ended September 30, 2022

since there was no demand for our consulting service from our related parties and there was no order for our medical related consulting

services from third party in these periods.

For the three and nine months ended September 30, 2021, costs of medical related consulting

services amounted to $102,442.

Real Property Operating Income

Our real property operating income for the three

months ended June 30, 2022 was $79,118, representing an increase of $4,033, or 5.4%, as compared to $75,085 for the three months ended

June 30, 2021.

Our real property operating income for the six months ended June 30, 2022 was $158,301, representing an increase of $10,336,

or 7.0%, as compared to $147,965 for the six months ended June 30, 2021.

The increase was mainly attributable to the increase in real

property rental revenue as described above.

We expect our real property operating income will remain in its current quarterly level with

minimal increase in the near future.

Our real property operating

income for the three months ended September 30, 2022 was $70,238, representing a decrease of $69,599, or 49.8%, as compared to $139,837

for the three months ended September 30, 2021.

Our real property operating income for the nine months ended September 30, 2022 was $228,539,

representing a decrease of $59,263, or 20.6%, as compared to $287,802 for the nine months ended September 30, 2021.

The decrease was attributable

to a decrease in real property rental revenue and an increase in real property operating expenses as described above.

We expect our real

property operating income will remain in its current quarterly level with minimal increase in the near future.

Gross Profit from

Medical Related Consulting Services and Gross Margin

We did not generate any

gross profit from medical related consulting services in the three and nine months ended September 30, 2022.

Our gross profit from medical

related consulting services for the three and nine months ended September 30, 2021 was $28,863, with a gross margin of 22.0%.

Other Operating Expenses

For the three and six

months ended June 30, 2022 and 2021, other operating expenses consisted of the following:

the three and nine months ended September 30, 2022 and 2021, other operating expenses consisted of the following:

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

Advertising and marketing expenses

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Other general and administrative

three months ended June 30, 2022, advertising and marketing expenses increased by $122,895

or 1,638.6% as compared to the three months ended June 30, 2021.

For the six months

ended June 30, 2022, advertising and marketing expenses increased by $640,878 or 3,926.2%

as compared to the six months ended June 30, 2021.

The increase was primarily due to increased

advertising activities.

We expect that our advertising expenses will remain in its current

quarterly level with minimal increase in the near future.

three months ended September 30, 2022, advertising and marketing expenses increased by $122,787 or 441.2% as compared to the three months

ended September 30, 2021.

For the nine months ended September 30, 2022, advertising and marketing expenses increased by $763,665

or 1,729.5% as compared to the nine months ended September 30, 2021.

The increase was primarily due to increased advertising activities.

We expect that our advertising expenses will remain in its current quarterly level with minimal increase in the near future.

● Professional

fees primarily consisted of accounting fees, audit fees, legal service fees, consulting fees,

investor relations service charges, valuation service fees and other fees.

For the three

months ended June 30, 2022, professional fees decreased by $920,632, or 67.8%, as compared

to the three months ended June 30, 2021, which was primarily attributable to a decrease in

consulting fees of approximately $410,000 mainly due to the decrease in use of consulting

service providers, a decrease in legal service fees of approximately $381,000 mainly due

to the decrease in use of legal service providers, a decrease in investor relations service

charges of $81,000 mainly due to the decrease in use of investor relations service providers,

and a decrease in valuation service fees of $90,000, offset by an increase in in other miscellaneous

items of approximately $41,000.

For the six months ended June 30, 2022, professional fees

decreased by $1,480,502, or 54.1%, as compared to the six months ended June 30, 2021, which

was primarily attributable to a decrease in consulting fees of approximately $886,000 mainly

due to the decrease in use of consulting service providers, a decrease in legal service fees

of approximately $492,000 mainly due to the decrease in use of legal service providers, and

a decrease in one time valuation service fees of $180,000, offset by an increase in other

fees primarily consisted of accounting fees, audit fees, legal service fees, consulting fees, investor relations service charges, valuation

service fees and other fees.

For the three months ended September 30, 2022, professional fees decreased by $593,145, or 48.5%, as compared

to the three months ended September 30, 2021, which was primarily attributable to a decrease in consulting fees of approximately $433,000

mainly due to the decrease in use of consulting service providers, a decrease in legal service fees of approximately $127,000 mainly

due to the decrease in use of legal service providers related to Sen Lang BVI acquisition which was terminated on January 1, 2022, and

a decrease in in other miscellaneous items of approximately $33,000.

For the nine months ended September 30, 2022, professional fees

decreased by $2,073,647, or 52.4%, as compared to the nine months ended September 30, 2021, which was primarily attributable to a decrease

in consulting fees of approximately $1,319,000 mainly due to the decrease in use of consulting service providers, a decrease in legal

service fees of approximately $619,000 mainly due to the decrease in use of legal service providers related to Sen Lang BVI acquisition

which was terminated on January 1, 2022, and a decrease in one time valuation service fees of $180,000, offset by an increase in other

miscellaneous items of approximately $45,000.

We expect that our professional fees will remain

in its current quarterly level with minimal increase in the near future.

three months ended June 30, 2022, compensation and related benefits decreased by $44,288,

or 8.1%, as compared to the three months ended June 30, 2021, which was primarily attributable

to a decrease in stock-based compensation of approximately $43,000 which reflected the value

of options granted and vested to our management and a decrease in management’s compensation

We expect that our professional fees will remain in its current quarterly level with minimal

increase in the near future.

three months ended September 30, 2022, compensation and related benefits increased by $53,771, or 12.4%, as compared to the three months

ended September 30, 2021, which was primarily attributable to the increase in management’s compensation and related benefits of

approximately $54,000.

For the nine months ended September 30, 2022, compensation and related benefits decreased by $29,478, or

1.9%, as compared to the nine months ended September 30, 2021, which was primarily attributable to a decrease in management’s compensation

and related benefits of approximately $29,000.

For the six months ended June 30, 2022,

compensation and related benefits decreased by $83,249, or 7.5%, as compared to the six months

ended June 30, 2021, which was primarily attributable to a decrease in stock-based compensation

of approximately $78,000 which reflected the value of options granted and vested to our management

and a decrease in management’s compensation and related benefits of approximately $5,000.

We expect that our compensation and related benefits will remain in its current quarterly

level with minimal decrease in the near future.

three months ended June 30, 2022, research and development expenses increased by $15,683,

or 6.6%, as compared to the three months ended June 30, 2021.

The increase was mainly attributable

to we increased research and development projects in the second quarter of 2022.

six months ended June 30, 2022, research and development expenses decreased by $80,821, or

17.9%, as compared to the six months ended June 30, 2021.

The decrease was mainly attributable

to we decreased research and development projects in the first half of 2022.

We expect that

our research and development expenses will remain in its current quarterly level with minimal

decrease in the near future.

● For the three months ended June 30, 2022, litigation settlement increased by

$1,350,000, or 100.0%, as compared to the three months ended June 30, 2021.

For the six months ended June 30, 2022, litigation settlement

increased by $1,350,000, or 100.0%, as compared to the six months ended June 30, 2021.

The increase was due to a settlement signed in

three months ended June 30, 2022, Directors and Officers Liability Insurance premium increased

by $22,443, or 27.7%, as compared to the three months ended June 30, 2021.

months ended June 30, 2022, Directors and Officers Liability Insurance premium increased

by $44,886, or 27.7%, as compared to the six months ended June 30, 2021.

The increase was

mainly due to different insurance provider with different premium.

three months ended June 30, 2022, travel and entertainment expense increased by $1,213, or

3.0%, as compared to the three months ended June 30, 2021.

For the six months ended

June 30, 2022, travel and entertainment expense increased by $7,343, or 10.2%, as compared

to the six months ended June 30, 2021.

The increase was mainly due to increased business

travel activities in the first half of 2022.

the three months ended June 30, 2022, rent and related utilities expenses increased by $995,

or 5.3%, as compared to the three months ended June 30, 2021.

For the six months ended June

30, 2022, rent and related utilities expenses decreased by $1,076, or 2.6%, as compared to

the six months ended June 30, 2021.

level with minimal increase in the near future.

three months ended September 30, 2022, research and development expenses decreased by $53,666, or 24.0%, as compared to the three months

ended September 30, 2021.

For the nine months ended September 30, 2022, research and development expenses decreased by $134,487,

or 19.9%, as compared to the nine months ended September 30, 2021.

The decrease was mainly attributable to we decreased research and

development projects in 2022 periods.

We expect that our research and development expenses will remain in its current quarterly level

with minimal decrease in the near future.

both the three months ended September 30, 2022 and 2021, we did not have any litigation settlement.

For the nine months ended September

30, 2022, litigation settlement increased by $1,350,000, or 100.0%, as compared to the nine months ended September 30, 2021.

was due to a settlement signed in June 2022.

three months ended September 30, 2022, Directors and Officers Liability Insurance premium increased by $2,288, or 2.3%, as compared to

the three months ended September 30, 2021.

For the nine months ended September 30, 2022, Directors and Officers Liability Insurance

premium increased by $47,174, or 17.9%, as compared to the nine months ended September 30, 2021.

The increase was mainly due to different

insurance provider with different premium.

three months ended September 30, 2022, travel and entertainment expense decreased by $7,984, or 16.4%, as compared to the three months

ended September 30, 2021.

For the nine months ended September 30, 2022, travel and entertainment expense decreased by $641, or 0.5%,

as compared to the nine months ended September 30, 2021.

The decrease was mainly due to decreased business travel activities in 2022

the three months ended September 30, 2022, rent and related utilities expenses increased by $451, or 2.4%, as compared to the three months

ended September 30, 2021.

For the nine months ended September 30, 2022, rent and related utilities expenses decreased by $625, or 1.0%,

as compared to the nine months ended September 30, 2021.

● Other general

and administrative expenses mainly consisted of NASDAQ listing fee, office supplies, and

other miscellaneous items.

For the three months ended June 30, 2022, other general and administrative

expenses decreased by $2,985, or 3.5%, as compared to the three months ended June 30, 2021.

For the six months ended June 30, 2022, other general and administrative expenses decreased

by $22,478, or13.9%, as compared to the six months ended June 30, 2021.

The decrease was

mainly due to our efforts at stricter controls on corporate expenditure.

and administrative expenses mainly consisted of NASDAQ listing fee, office supplies, and other miscellaneous items.

For the three months

ended September 30, 2022, other general and administrative expenses increased by $1,164, or 2.1%, as compared to the three months ended

September 30, 2021.

For the nine months ended September 30, 2022, other general and administrative expenses decreased by $21,314, or

9.8%, as compared to the nine months ended September 30, 2021.

The decrease was mainly due to our efforts at stricter controls on corporate

Loss from Operations

As a result of the foregoing,

for the three months ended June 30, 2022, loss from operations amounted to $2,843,571, as compared to $2,302,280 for the three months

ended June 30, 2021, an increase of $541,291 or 23.5%.

for the three months ended September 30, 2022, loss from operations amounted to $1,589,099, as compared to $1,964,971 for the three months

ended September 30, 2021, a decrease of $375,872 or 19.1%.

As a result of the foregoing,

for the six months ended June 30, 2022, loss from operations amounted to $4,970,513, as compared to $4,605,868 for the six months ended

June 30, 2021, an increase of $364,645 or 7.9%.

for the nine months ended September 30, 2022, loss from operations amounted to $6,559,612, as compared to $6,570,839 for the nine months

ended September 30, 2021, a decrease of $11,227 or 0.2%.

Other (Expense)

Other (expense) income

mainly includes interest expense, loss from equity method investment, change in fair value of derivative liability, and other miscellaneous income (expense).

Other income, net, totaled

$815,097 for the three months ended June 30, 2022, as compared to other expense, net, of $62,630 for the three months ended June 30,

2021, a change of $877,727, or 1,401.4%, which was primarily attributable to an increase in other miscellaneous income of approximately

$153,000 mainly driven by reagent sale in the second quarter of 2022, an increase in gain from change in fair value of derivative liability

of approximately $769,000, and a decrease in loss from equity method investment of approximately $4,000, offset by an increase in interest

expense of approximately $48,000 due to the increase in outstanding borrowings.

Other income, net, totaled

$871,501 for the six months ended June 30, 2022, as compared to other expense, net, of $126,160 for the six months ended June 30, 2021,

a change of $997,661, or 790.8%, which was primarily attributable to an increase in other miscellaneous income of approximately $261,000

mainly driven by reagent sale in the first half of 2022, an increase in gain from change in fair value of derivative liability of approximately

$769,000, and a decrease in loss from equity method investment of approximately $9,000, offset by an increase in interest expense of

approximately $42,000 due to the increase in outstanding borrowings.

We did not have any income taxes expense for

the three months ended June 30, 2022 and 2021 since we incurred losses in these periods.

We did not have any income taxes expense for

the six months ended June 30, 2022 and 2021 since we incurred losses in these periods.

of the factors described above, our net loss was $2,028,474 for the three months ended June 30, 2022, as compared to $2,364,910 for the

three months ended June 30, 2021, a decrease of $336,436 or 14.2%.

of the factors described above, our net loss was $4,099,012 for the six months ended June 30, 2022, as compared to $4,732,028 for the

six months ended June 30, 2021, a decrease of $633,016 or 13.4%.

mainly includes third party and related party interest expense, conversion inducement expense, loss from equity method investment,

change in fair value of derivative liability, and other miscellaneous income.

Other expense, net, totaled

$3,825,055 for the three months ended September 30, 2022, as compared to $59,248 for the three months ended September 30, 2021, an increase

of $3,765,807, or 6,356.0%, which was primarily attributable to an increase in third party interest expense of approximately $3,295,000

mainly driven by the amortization of convertible debt discount upon conversion of approximately $3,226,000 and the increased interest

expense of approximately $69,000 from third party debts in the third quarter of 2022, an increase in conversion inducement expense of

approximately $344,000 resulted from the reduction in the conversion price, an increase in loss from change in fair value of derivative

liability of approximately $169,000, and a decrease in other miscellaneous income of approximately $5,000, offset by a decrease in interest

expense – related party of approximately $42,000 due to the decrease in outstanding borrowing in the third quarter of 2022, and

a decrease in loss from equity method investment of approximately $5,000.

Other expense, net, totaled

$2,953,554 for the nine months ended September 30, 2022, as compared to $185,408 for the nine months ended September 30, 2021, an increase

of $2,768,146, or 1,493.0%, which was primarily attributable to an increase in third party interest expense of approximately $3,357,000

mainly driven by the amortization of convertible debt discount of approximately $3,281,000 and the increased interest expense of approximately

$76,000 from third party debts in the nine months ended September 30, 2022, and an increase in conversion inducement expense of approximately

$344,000 resulted from the reduction in the conversion price, offset by an increase in gain from change in fair value of derivative liability

of approximately $601,000, an increase in other miscellaneous income of approximately $256,000, mainly

driven by reagent sale in the nine months ended September 30, 2022, a decrease in interest expense – related party of approximately

$62,000 due to the decrease in outstanding borrowing in the nine months ended September 30, 2022, and a decrease in loss from equity method

investment of approximately $14,000.

have any income taxes expense for the three months ended September 30, 2022 and 2021 since we incurred losses in these periods.

have any income taxes expense for the nine months ended September 30, 2022 and 2021 since we incurred losses in these periods.

As a result of the factors

described above, our net loss was $5,414,154 for the three months ended September 30, 2022, as compared to $2,024,219 for the three months

ended September 30, 2021, an increase of $3,389,935 or 167.5%.

As a result of the factors

described above, our net loss was $9,513,166 for the nine months ended September 30, 2022, as compared to $6,756,247 for the nine months

ended September 30, 2021, an increase of $2,756,919 or 40.8%.

Net Loss Attributable to Avalon GloboCare

Common Shareholders

loss attributable to Avalon GloboCare Corp.

common shareholders was $2,028,474 or $0.02 per share (basic and diluted) for the three months

ended June 30, 2022, as compared with $2,364,910, or $0.03 per share (basic and diluted) for the three months ended June 30, 2021, a change

The net loss attributable

to Avalon GloboCare Corp.

common shareholders was $5,414,154 or $0.06 per share (basic and diluted) for the three months ended September

30, 2022, as compared with $2,024,219, or $0.02 per share (basic and diluted) for the three months ended September 30, 2021, an increase

of $3,389,935 or 167.5%.

loss attributable to Avalon GloboCare Corp.

common shareholders was $4,099,012 or $0.05 per share (basic and diluted) for the six months

ended June 30, 2022, as compared with $4,732,028, or $0.06 per share (basic and diluted) for the six months ended June 30, 2021, a change

The net loss attributable

to Avalon GloboCare Corp.

common shareholders was $9,513,166 or $0.10 per share (basic and diluted) for the nine months ended September

30, 2022, as compared with $6,756,247, or $0.08 per share (basic and diluted) for the nine months ended September 30, 2021, an increase

of $2,756,919 or 40.8%.

Foreign Currency Translation Adjustment

Our reporting

currency is the U.S.

The functional currency of our parent company, AHS, Avalon RT 9, Genexosome, Avactis, and Exosome, is the

dollar and the functional currency of Avalon Shanghai and Beijing Genexosome is the Chinese Renminbi (“RMB”).

The financial

statements of our subsidiaries whose functional currency is the RMB are translated to U.S.

dollars using period end rates of exchange

for assets and liabilities, average rate of exchange for revenues, costs, and expenses and cash flows, and at historical exchange rates

Net gains and losses resulting from foreign exchange transactions are included in the results of operations.

As a result of

foreign currency translations, which are a non-cash adjustment, we reported a foreign currency translation loss of $43,503 and a foreign

currency translation gain of $14,786 for the three months ended June 30, 2022 and 2021, respectively.

As a result of foreign currency

translations, which are a non-cash adjustment, we reported a foreign currency translation loss of $41,482 and a foreign currency translation

gain of $12,064 for the six months ended June 30, 2022 and 2021, respectively.

This non-cash loss/gain had the effect of increasing/decreasing

our reported comprehensive loss.

Our reporting currency

The functional currency of our parent company, AHS, Avalon RT 9, Genexosome, Avactis, and Exosome, is the U.S.

and the functional currency of Avalon Shanghai is the Chinese Renminbi (“RMB”).

The financial statement of our subsidiary

whose functional currency is the RMB are translated to U.S.

dollars using period end rate of exchange for assets and liabilities, average

rate of exchange for revenues, costs, and expenses and cash flows, and at historical exchange rate for equity.

Net gains and losses resulting

from foreign exchange transactions are included in the results of operations.

As a result of foreign currency translations, which are

a non-cash adjustment, we reported a foreign currency translation loss of $37,033 and a foreign currency translation gain of $1,285 for

the three months ended September 30, 2022 and 2021, respectively.

As a result of foreign currency translations, which are a non-cash adjustment,

we reported a foreign currency translation loss of $78,515 and a foreign currency translation gain of $13,349 for the nine months ended

September 30, 2022 and 2021, respectively.

This non-cash loss/gain had the effect of increasing/decreasing our reported comprehensive

Comprehensive Loss

As a result of our foreign

currency translation adjustment, we had comprehensive loss of $2,071,977 and $2,350,124 for the three months ended June 30, 2022 and 2021,

respectively.

currency translation adjustment, we had comprehensive loss of $5,451,187 and $2,022,934 for the three months ended September 30, 2022

and 2021, respectively.

As a result of our foreign

currency translation adjustment, we had comprehensive loss of $4,140,494 and $4,719,964 for the six months ended June 30, 2022 and 2021,

currency translation adjustment, we had comprehensive loss of $9,591,681 and $6,742,898 for the nine months ended September 30, 2022 and

2021, respectively.

26 unchanged sentences

of a company to generate funds to support its current and future operations, satisfy its obligations and otherwise operate on an ongoing

At June 30, 2022 and December 31, 2021, we had cash balance of approximately $1,180,000 and $808,000, respectively.

At September 30, 2022 and December 31, 2021, we had cash balance of approximately $3,938,000 and $808,000, respectively.

funds are kept in financial institutions located as follows:

June 30, 2022

September 30, 2022

December 31, 2021

21 unchanged sentences

The following table sets

forth a summary of changes in our working capital from December 31, 2021 to June 30, 2022:

forth a summary of changes in our working capital from December 31, 2021 to September 30, 2022:

September 30,

Working capital (deficit):

3 unchanged sentences

$ (3,078,616 )

$ (2,478,854 )

Our working capital

deficit increased by $2,478,854 to $5,557,470 at June 30, 2022 from $3,078,616 at December 31, 2021.

The increase in working

capital deficit was primarily attributable to an increase in accounts payable of approximately $376,000, an increase in accrued

settlement of lawsuit of $900,000 due to a settlement signed in June 2022, an increase in convertible note payable, net,

of approximately $493,000 resulting from the issuance of 2022 Convertible Note, and an increase in derivative liability of

approximately $2,013,000 which was related to our 2022 Convertible Note, offset by an increase in cash of approximately $373,000, a

decrease in accrued professional fees of approximately $396,000, which was mainly due to payments made to our professional service

providers in the first half of 2022, a decrease in accrued research and development fees of approximately $319,000 resulting from

payments made to research and development service provider in the six months ended June 30, 2022 , and a decrease in note payable

– related party of $390,000 due to repayment made to this related party in the first half of 2022.

Our working capital increased

by $4,200,032 to $1,121,416 at September 30, 2022 from working capital deficit of $3,078,616 at December 31, 2021.

The increase in

working capital was primarily attributable to an significant increase in cash of approximately $3,130,000 mainly due to the issuance of

convertible debt and balloon promissory note, a decrease in accrued professional fees of approximately $647,000 which was mainly due to

payments made to our professional service providers in the nine months ended September 30, 2022, a decrease in accrued research and development

fees of approximately $220,000 resulting from payments made to research and development service providers in the nine months ended September

30, 2022, a decrease in accrued liabilities and other payables – related parties of approximately $368,000 which was mainly attributable

to the accrued and unpaid related party interest was settled in shares in the nine months ended September 30, 2022, a decrease in operating

lease obligation of approximately $107,000, a decrease in note payable – related party of $390,000 due to repayment made to this

related party in the nine months ended September 30, 2022, offset by an increase in accrued settlement of lawsuit of $450,000 due to a

settlement signed in June 2022.

Because the exchange

2 unchanged sentences

the comparable changes reflected on the condensed consolidated balance sheets.

Cash Flows for the Six Months Ended June 30,

2022 Compared to the Six Months Ended June 30, 2021

Cash Flows for the Nine Months Ended September

30, 2022 Compared to the Nine Months Ended September 30, 2021

The following summarizes the key components of

our cash flows for the six months ended June 30, 2022 and 2021:

Six Months Ended

our cash flows for the nine months ended September 30, 2022 and 2021:

Nine Months Ended

September 30,

Net cash used in operating activities

5 unchanged sentences

Net increase (decrease) in cash

Net cash flow used

in operating activities for the six months ended June 30, 2022 was $2,686,722, which primarily reflected our consolidated net loss

of approximately $4,099,000, and the non-cash item adjustment consisting of change in fair market value of derivative liability of

approximately $769,000, and the changes in operating assets and liabilities, primarily consisting of a decrease in operating lease

obligation of approximately $80,000, offset by an increase in accounts payable of approximately $389,000, an increase in accrued

liabilities and other payables of approximately $675,000, which was mainly attributable the increase in accrued settlement of

lawsuit of $1,350,000 resulting from a settlement signed in June 2022 offset by the decrease in accrued professional fees

of approximately $396,000 due to payments made to our professional service providers in the first half of 2022 and the decrease in

accrued research and development fees of approximately $319,000 resulting from payments made to research and development service

provider in the six months ended June 30, 2022, and an increase in accrued liabilities and other payables – related parties of

approximately $72,000, and the non-cash items adjustment primarily consisting of depreciation of approximately $169,000,

Net cash flow used in

operating activities for the nine months ended September 30, 2022 was $5,072,932, which primarily reflected our consolidated net loss

of approximately $9,513,000, and the non-cash item adjustment consisting of change in fair market value of derivative liability of approximately

$601,000, and the changes in operating assets and liabilities, primarily consisting of an increase in other assets of approximately $66,000,

a decrease in operating lease obligation of approximately $108,000, offset by an increase in accounts payable of approximately $87,000,

an increase in accrued liabilities and other payables of approximately $63,000, an increase in accrued liabilities and other payables

– related parties of approximately $80,000, and the non-cash items adjustment primarily consisting of depreciation of approximately

$251,000, amortization of right-of-use asset of approximately $102,000, stock-based compensation and service expense of approximately

and amortization of debt discount of approximately $55,000.

cash flow used in operating activities for the six months ended June 30, 2021 was $2,593,548, which primarily reflected our consolidated

net loss of approximately $4,732,000, and the changes in operating assets and liabilities, primarily consisting of a decrease in operating

lease obligation of approximately $60,000, offset by an increase accrued liabilities and other payables of approximately $714,000, and

an increase in accrued liabilities and other payables – related parties of approximately $91,000, and the non-cash items adjustment

primarily consisting of depreciation of approximately $141,000, amortization of right-of-use asset of approximately $60,000, and stock-based

compensation and service expense of approximately $1,087,000.

$983,000, amortization of debt discount of approximately $3,281,000 mainly resulting from the conversion of convertible debt in July 2022,

and conversion inducement expense of approximately $344,000 resulted from the reduction in the conversion price.

Net cash flow used in

operating activities for the nine months ended September 30, 2021 was $3,307,520, which primarily reflected our consolidated net loss

of approximately $6,756,000, and the changes in operating assets and liabilities, primarily consisting of a decrease in operating lease

obligation of approximately $87,000, offset by an increase accrued liabilities and other payables of approximately $1,436,000, which was

mainly attributable the increase in accrued professional fees of approximately $994,000 due to increased professional service providers,

the increase in accrued research and development fees of approximately $227,000, and the increase in accrued payroll liability and directors’

compensation of approximately $147,000, and an increase in accrued liabilities and other payables – related parties of approximately

$142,000 resulting from the increase in accrued interest for related party borrowings, and the non-cash items adjustment primarily consisting

of depreciation of approximately $227,000, amortization of right-of-use asset of approximately $93,000, and stock-based compensation and

service expense of approximately $1,621,000.

We expect our cash

2 unchanged sentences

● an increase in professional staff and services;

● an increase in public relations and/or sales promotions

for existing and/or new brands as we expand within existing markets or enter new markets.

● an increase in public relations and/or sales promotions for existing and/or new brands as we expand

within existing markets or enter new markets.

Net cash flow used in

investing activities was $55,757 for the six months ended June 30, 2022 as compared to $50,511 for the six months ended June 30,

During the six months ended June 30, 2022, we made payments for purchase of property and equipment of approximately $2,000 and made

additional investment in equity method investment of approximately $54,000.

During the six

months ended June 30, 2021, we made payment for improvement of commercial real estate of approximately $10,000 and made additional investment

in equity method investment of approximately $40,000.

investing activities was $54,743 for the nine months ended September 30, 2022 as compared to $67,960 for the nine months ended September

During the nine months ended September 30, 2022, we made payments for purchase of property and equipment of approximately $2,000

and made additional investment in equity method investment of approximately $53,000.

the nine months ended September 30, 2021, we made payments for purchase of property and equipment of approximately $17,000 and for improvement

of commercial real estate of approximately $10,000, and made additional investment in equity method investment of approximately $40,000 .

Net cash flow provided

by financing activities was $3,130,443 for the six months ended June 30, 2022 as compared to $2,600,151 for the six months ended June

During the six months ended June 30, 2022, we received proceeds from related party borrowings of approximately $100,000 and

net proceeds from equity offering of approximately $112,000 (net of cash paid for commission and other offering costs of approximately

$24,000) and proceeds from issuance of convertible debt and warrants of approximately $3,719,000 to fund our working capital needs, offset

by repayments made for note payable – related party of $390,000 and repayments made for loan

payable – related party of $410,000.

During the six months ended June 30, 2021, we received proceeds from related party borrowings

of approximately $193,000 and net proceeds from equity offering of approximately $2,407,000 (net of cash paid for commission of approximately

by financing activities was $8,263,989 for the nine months ended September 30, 2022 as compared to $3,178,336 for the nine months ended

September 30, 2021.

During the nine months ended September 30, 2022, we received proceeds from related party borrowings of $100,000, and

proceeds from issuance of convertible debt and warrants of approximately $3,719,000, and net proceeds from issuance of balloon promissory

note of $4,534,000 (net of cash paid for debt issuance costs of approximately $266,000), and net proceeds from equity offering of approximately

$712,000 (net of cash paid for commission and other offering costs of approximately $24,000) to fund our working capital needs, offset

by repayments made for note payable – related party of $390,000 and repayments made for loan payable – related party

During the nine months ended September 30, 2021, we received proceeds from related

party borrowings of approximately $763,000 and net proceeds from equity offering of approximately $2,415,000 (net of cash paid for commission

and other offering costs of approximately $104,000).

Our capital requirements

6 unchanged sentences

in our liquidity over the near to long term:

● an increase in working capital requirements to finance our

current business, including ongoing research and development programs, clinical studies, as well as commercial strategies;

use of capital for mergers, acquisitions and the development of business opportunities;

● an increase in working capital requirements to finance our current business, including ongoing research

and development programs, clinical studies, as well as commercial strategies;

● the use of capital for mergers, acquisitions and the development of business opportunities;

● addition of administrative personnel as the business grows;

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bears interest at a rate of 5% and provides for maturity on drawn loans 36 months after funding.

As of June 30, 2022, the total principal

amount outstanding under the Credit Line was $2.4 million and we have approximately $14.1 million remaining available under the Line

As of September 30, 2022, the total principal

amount outstanding under the Credit Line was $0 and we have approximately $14.1 million remaining available under the Line Credit.

On December 13,

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price of up to $13,000,000 from time to time through Jefferies acting as our sales agent in accordance with the terms of the sales

As of June 30, 2022, we sold a total of 6,429,486 shares of our common stock through Jefferies with an aggregate offering price

of $10,073,707 and we have approximately $4.9 million offering price remaining available under the Sales Agreement.

As of September 30, 2022, we sold a total of 6,429,486 shares of our common stock through Jefferies with an aggregate offering

price of $10,073,707 and we have approximately $4.9 million offering price remaining available under the Sales Agreement.

We estimate that based

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of operations, and cash flows.

The following tables summarize our contractual obligations as of June 30, 2022, and the effect these obligations

are expected to have on our liquidity and cash flows in future periods.

The following tables summarize our contractual obligations as of September 30, 2022, and the effect these

obligations are expected to have on our liquidity and cash flows in future periods.

Payments Due by Period

Contractual obligations:

Less than 1 year

Operating lease commitment

Acquisition consideration

Borrowings from related party (principal)

Accrued interest – related party

Convertible debt

Accrued interest for convertible debt

Litigation settlement

Balloon promissory note (principal)

Epicon equity investment obligation

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Foreign Currency Exchange Rate Risk

of our operations are in China.

Thus, a portion of our revenues and operating results may be impacted by exchange rate fluctuations between

RMB and US dollars.

For the three months ended June 30, 2022 and 2021, we had an unrealized foreign currency translation loss of approximately

$44,000 and an unrealized foreign currency translation gain of approximately $15,000, respectively, because of changes in the exchange

For the six months ended June 30, 2022 and 2021, we had an unrealized foreign currency translation loss of approximately $42,000

A portion of our operations

are in China.

Thus, a portion of our revenues and operating results may be impacted by exchange rate fluctuations between RMB and US dollars.

For the three months ended September 30, 2022 and 2021, we had an unrealized foreign currency translation loss of approximately $37,000

and an unrealized foreign currency translation gain of approximately $1,000, respectively, because of changes in the exchange rate.

the nine months ended September 30, 2022 and 2021, we had an unrealized foreign currency translation loss of approximately $79,000 and

an unrealized foreign currency translation gain of approximately $13,000, respectively, because of changes in the exchange rate.

The effect of inflation on our revenue and operating

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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-Q

Item 2. Management’s Discussion and Analysis