What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2023-03-30 compared with 2022-03-30 · 550 added, 555 removed, 79 unchanged (93% of the section changed)

17 unchanged sentences

statements as a result of a number of factors, including those set forth under the risk factors and business sections in this Form 10-K.

Impact of COVID-19

on Our Operations, Financial Condition, Liquidity and Results of Operations

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.

The occurrence of COVID-19

pandemic had negative impact on our operations.

Impact of COVID-19 on Our Operations, Financial

Condition, Liquidity and Results of Operations

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.

The occurrence of COVID-19 pandemic had negative

impact on our operations.

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.

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

and universities.

In addition, we are unsure if the COVID-19 pandemic will impact future clinical trials.

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 year of 2022.

We have limited cash

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 concern.

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

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.

Our general development

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

However, we are uncertain if the COVID-19

pandemic will impact future operations at our laboratory, or our ability to collaborate with other laboratories and universities.

we are unsure if the COVID-19 pandemic will impact future clinical trials.

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.

We have limited cash 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 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

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

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.

The Company is a clinical-stage biotechnology

company dedicated to developing and delivering innovative, transformative cellular therapeutics, precision diagnostics, and clinical laboratory

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 research and development 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.

Avalon’s upstream innovative research includes:

● 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, transposon-based, multi-target CAR-T, CAR-NK and other immune effector cell therapeutic modalities with Arbele Limited.

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.

● 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.

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 bio-manufacturing of clinical-grade

cellular products involved in our clinical programs in immune effector cell therapy and ACTEX-based regenerative therapeutics.

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 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

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

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 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.

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

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

Yen Michael S.

Hsu 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.

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.

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.

● 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

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

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

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

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.

In addition, the Company

owns commercial real estate that houses its headquarters in Freehold, New Jersey and provides outsourced and customized international

healthcare services to the rapidly changing health care industry primarily focused in the People’s Republic of China.

These 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

consolidated financial statements, the Company had a working capital deficit of $3,078,616 as of December 31, 2021 and has incurred recurring

net losses and generated negative cash flow from operating activities of $9,090,499 and $5,024,479 for the year ended December 31, 2021,

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.

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

uncontrollable event such as the COVID-19 pandemic had negatively impact on the Company’s operations.

Our general development operations

have continued during the COVID-19 pandemic and we have not had significant disruption.

However, we are uncertain if the COVID-19 pandemic

will impact future operations at our laboratory, or our ability to collaborate with other laboratories and universities.

we are unsure if the COVID-19 pandemic will impact future clinical trials.

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 year of 2022.

The accompanying consolidated

financial statements do not include any adjustments related to the recoverability or classification of asset-carrying amounts or the amounts

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

Accounting Policies

Our discussion and analysis

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

accordance with accounting principles generally accepted in the United States.

The preparation of these 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.

We base our estimates

on historical experience and on various other assumptions that we believed to be reasonable under the circumstances, the results of which

form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

Any future changes to these estimates and assumptions could cause a material change to our reported amounts of revenues, expenses, assets

and liabilities.

Actual results may differ from these estimates under different assumptions or conditions.

The Company is a clinical-stage biotechnology

company dedicated to developing and delivering innovative, transformative cellular therapeutics, precision diagnostics, and clinical laboratory

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 research and development 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.

In addition, the Company owns commercial real

estate that houses its headquarters in Freehold, New Jersey.

These 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 consolidated financial statements,

the Company had working capital deficit of $1,206,279 at December 31, 2022 and had incurred recurring net losses and generated negative

cash flow from operating activities of $11,930,847 and $7,037,224 for the year ended December 31, 2022, respectively.

The Company has

a limited operating history and its continued growth is dependent upon the generating rental revenue from its income-producing real estate

property in New Jersey and obtaining additional financing to fund future obligations and pay liabilities arising from normal business

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.

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 uncontrollable event such

as the COVID-19 pandemic had negatively impact on the Company’s operations.

Our general development operations have continued during

the COVID-19 pandemic and we have not had significant disruption.

However, we are uncertain if the COVID-19 pandemic will impact future

operations at our laboratory, or our ability to collaborate with other laboratories and universities.

In addition, we are unsure if the

COVID-19 pandemic will impact future clinical trials.

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.

The accompanying consolidated financial statements

do not include any adjustments related to the recoverability or classification of asset-carrying amounts or the amounts and classification

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

Critical Accounting Policies

Use of Estimates

The preparation of the consolidated financial statements in conformity

with accounting principles generally accepted in the United States of America (“U.S.

GAAP”) requires management to make estimates

and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the

date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

Changes in these estimates

and assumptions may have a material impact on the consolidated financial statements and accompanying notes.

Making estimates requires

management to exercise significant judgment.

It is at least reasonably possible that the estimate of the effect of a condition, situation

or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate,

could change in the near term due to one or more future confirming events.

Accordingly, the actual results could differ significantly

from those estimates.

Significant estimates during the years ended December 31, 2022 and 2021 include 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, valuation of stock-based compensation, and assumptions used to determine fair value of warrants

and embedded conversion features of convertible note payable.

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 entitled in exchange for those goods or services.

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

The Company recognizes 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 entitled in exchange for those goods or services.

The following

five steps are applied to achieve that core principle:

Identify the contract with the customer

3 unchanged sentences

Recognize revenue when the company satisfies a performance obligation

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:

● The 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

● The 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

the ASC 606 does not apply to rental contracts, which are within the scope of other revenue recognition accounting standards.

Rental income from operating

leases is recognized on a straight-line basis under the guidance of ASC 842.

Lease payments under tenant leases are recognized on a straight-line

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 consolidated balance sheets.

We do not offer promotional

payments, customer coupons, rebates or other cash redemption offers to our customers.

We are governed by the

income tax laws of China and the United States.

Income taxes are accounted for pursuant to ASC 740 “Accounting for Income Taxes,”

which is an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future

tax consequences of events that have been recognized in our financial statements or tax returns.

The charge for taxes is based on the

results for the period as adjusted for items, which are non-assessable or disallowed.

It is calculated using tax rates that have been

enacted or substantively enacted by the balance sheet date.

Deferred tax is accounted

for using the balance sheet liability method in respect of temporary differences arising from differences between the carrying amount

of assets and liabilities in the financial statements and the corresponding tax basis used in the computation of assessable tax profit.

In principle, deferred tax liabilities are recognized for all taxable temporary differences, and deferred tax assets are recognized to

the extent that it is probably that taxable profit will be available against which deductible temporary differences can be utilized.

Deferred tax is calculated

using tax rates that are expected to apply to the period when the asset is realized or the liability is settled.

Deferred tax is charged

or credited in the income statement, except when it is related to items credited or charged directly to equity, in which case the deferred

tax is changed to equity.

Deferred tax assets and liabilities are offset when they related to income taxes levied by the same taxation

authority and we intend to settle its current tax assets and liabilities on a net basis.

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:

● The 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).

● The 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.

The Company has determined that the ASC 606 does

not apply to rental contracts, which are within the scope of other revenue recognition accounting standards.

Rental income from operating leases is recognized

on a straight-line basis under the guidance of ASC 842.

Lease payments under tenant leases are recognized on a straight-line 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 consolidated balance sheets.

The Company does not offer promotional payments,

customer coupons, rebates or other cash redemption offers to its customers.

We are governed by the income tax laws of China

and the United States.

Income taxes are accounted for pursuant to ASC 740 “Accounting for Income Taxes,” which is an asset

and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of

events that have been recognized in our financial statements or tax returns.

The charge for taxes is based on the results for the period

as adjusted for items, which are non-assessable or disallowed.

It is calculated using tax rates that have been enacted or substantively

enacted by the balance sheet date.

Deferred tax is accounted for using the balance

sheet liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities

in the financial statements and the corresponding tax basis used in the computation of assessable tax profit.

In principle, deferred tax

liabilities are recognized for all taxable temporary differences, and deferred tax assets are recognized to the extent that it is probably

that taxable profit will be available against which deductible temporary differences can be utilized.

Deferred tax is calculated using tax rates that

are expected to apply to the period when the asset is realized or the liability is settled.

Deferred tax is charged or credited in the

income statement, except when it is related to items credited or charged directly to equity, in which case the deferred tax is changed

Deferred tax assets and liabilities are offset when they related to income taxes levied by the same taxation authority and

we intend to settle its current tax assets and liabilities on a net basis.

Recent Accounting Standards

4 unchanged sentences

Years Ended December 31, 2022 and 2021

For the year ended December

31, 2021, we had real property rental revenue of $1,203,560, as compared to $1,206,854 for the year ended December 31, 2020, a decrease

of $3,294, or 0.3%.

We expect that our revenue from real property rent will remain in its current level with minimal increase in the near

For the year ended December

31, 2021, we had medical related consulting services revenue from related party of $187,412, as compared to $170,908 for the year ended

December 31, 2020, an increase of $16,504, or 9.7%.

In 2021, we strengthened our efforts in expanding our services to various medical

related fields.

Therefore, our medical related consulting services revenue increased.

We expect our revenue from medical related consulting

services will remain at or near the current level for the near future.

For the year ended December 31, 2022, we had real

property rental revenue of $1,202,169, as compared to $1,203,560 for the year ended December 31, 2021, a decrease of $1,391, or 0.1%.

We expect that our revenue from real property rent will remain in its current level with minimal increase in the near future.

For the year ended December 31, 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 were no orders for our medical related consulting services from third party in 2022.

Due to the winding down of the medical related

consulting services segment in 2022, the Company decided to cease all operations of this segment and no longer has any material revenues

or expenses in this segment.

For the year ended December 31, 2021, we had medical related consulting services revenue from related party

Costs and Expenses

Real property operating

expenses consist of property management fees, property insurance, real estate taxes, depreciation, repairs and maintenance fees, utilities

and other expenses related to our rental properties.

For the year ended December

31, 2021, our real property operating expenses amounted to $829,287, as compared to $851,754 for the year ended December 31, 2020, a decrease

of $22,467, or 2.6%.

The decrease was mainly due to a decrease in repairs and maintenance fees of approximately $16,000 and a decrease

in other miscellaneous items of approximately $6,000.

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.

For the year ended December

31, 2021, costs of medical related consulting services amounted to $147,167, as compared to $135,805 for the year ended December 31, 2020,

an increase of $11,362, or 8.4%.

The increase was primarily attributable to increase in medical related consulting services revenue.

Real Property Operating

Our real property operating

income for the year ended December 31, 2021 was $374,273, representing an increase of $19,173, or 5.4%, as compared to $355,100 for the

year ended December 31, 2020.

The increase was mainly attributable to the decrease in real property operating expenses as described above.

We expect our real property operating income will remain in its current level with minimal increase in the near future.

Gross Profit from

Medical Related Consulting Services and Gross Margin

Gross profit from medical related consulting services

for the year ended December 31, 2021 was $40,245, as compared to $35,103 for the year ended December 31, 2020, a change of $5,142, or

Gross margin increased to 21.5% for the year ended

December 31, 2021 from gross margin of 20.5% for the year ended December 31, 2020.

The different medical related consulting services agreement

in the year ended December 31, 2021 had an effect of improving gross margin as compared to the year ended December 31 2020.

that our gross margin from medical related consulting services segment will remain at its current level.

Real property operating expenses consist of property

management fees, property insurance, real estate taxes, depreciation, repairs and maintenance fees, utilities and other expenses related

to our rental properties.

For the year ended December 31, 2022, our real

property operating expenses amounted to $929,441, as compared to $829,287 for the year ended December 31, 2021, an increase of $100,154,

The increase was mainly due to an increase in building cleaning fees of approximately $15,000, an increase in property

management fees of approximately $21,000, an increase in repairs and maintenance fee of approximately $32,000, an increase in utilities

of approximately $30,000, and an increase in other miscellaneous items of approximately $2,000.

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 year ended December 31, 2022 since there was no demand for our consulting

service from our related parties and there were no orders for our medical related consulting services from third party in 2022.

year ended December 31, 2021, costs of medical related consulting services amounted to $147,167.

Real Property Operating Income

Our real property operating income for the year

ended December 31, 2022 was $272,728, representing a decrease of $101,545, or 27.1%, as compared to $374,273 for the year ended December

The decrease was primarily attributable to the increase in real property operating expenses as described above.

We expect our

real property operating income will remain in its current 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 year ended December 31, 2022.

Our gross profit from medical related consulting services for the year

ended December 31, 2021 was $40,245, with a gross margin of 21.5%.

Other Operating Expenses

the years ended December 31, 2021 and 2020, other operating expenses consisted of the following:

For the years ended December 31, 2022 and 2021,

other operating expenses consisted of the following:

Years Ended December 31,

Advertising and marketing

Professional fees

1 unchanged sentence

Research and development

Advertising expenses

Travel and entertainment

Litigation settlement

Directors and officers liability insurance premium

Travel and entertainment

Rent and related utilities

Other general and administrative

● Professional fees primarily consisted of accounting fees,

audit fees, legal service fees, consulting fees, investor relations service charges and other fees.

During the year ended December 31,

2021, in connection with the Purchase Agreement signed on June 13, 2021, we incurred Sen Lang BVI acquisition related costs of approximately

$1,375,000 which were included in professional fees and the intended acquisition was terminated on January 1, 2022.

For the year ended

December 31, 2021, professional fees decreased by $1,606,313, or 24.5%, as compared to the year ended December 31, 2020.

was primarily attributable to a decrease in consulting fees of approximately $2,027,000 mainly due to the decrease in use of consulting

service providers, and a decrease in investor relations service fees of approximately $441,000 mainly due to the decrease in use of investor

relations service providers, offset by an increase in legal service fees of approximately $653,000 mainly due to increased legal service

related to our potential acquisition, an increase in valuation fee for our potential acquisition of $180,000, and an increase in other

miscellaneous items of approximately $29,000.

We expect that our professional fees will decrease in the near future.

● For the year ended December

31, 2021, compensation and related benefits decreased by $2,113,872, or 50.9%, as compared to the year ended December 31, 2020.

The significant

decrease was primarily attributable to a decrease in stock-based compensation of approximately $2,125,000 which reflected the value of

options granted and vested to our management, offset by an increase in management’s compensation and related benefits of approximately

We expect that our compensation and related benefits will remain in its current level with minimal increase in the near future.

● For the year ended December

31, 2021, research and development expenses increased by $141,154, or 16.0%, as compared to the year ended December 31, 2020.

was mainly attributable to we increased research and development projects in year 2021.

We expect that our research and development expenses

will continue to increase in the near future .

● For the year ended December

31, 2021, advertising expenses increased by $34,213 or 11.6% as compared to the year ended December 31, 2020.

The increase was primarily

due to increased advertising activities.

We expect that our advertising expenses will remain in its current level with minimal increase

in the near future.

● For the year ended December

31, 2021, travel and entertainment expense decreased by $18,817, or 10.7%, as compared to the year ended December 31, 2020.

was mainly due to decreased business travel activities and decreased entertainment expenditure resulting from COVID-19.

● For the year ended December

31, 2021, Directors and Officers Liability Insurance premium increased by $91,337, or 33.1%, as compared to the year ended December 31,

The increase was mainly due to different insurance provider with different premium.

● For the year ended December 31, 2021,

rent and related utilities expenses decreased by $13,823, or 15.0%, as compared to the year ended December 31, 2020.

The decrease was

mainly due to the decreased monthly rent in Avalon Shanghai’s office.

● Other general and administrative

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

For the year ended December 31, 2021,

other general and administrative expenses decreased by $109,753, or 26.6%, as compared to the year ended December 31, 2020.

was primarily attributable to a decrease in bad debt expense of approximately $47,000, a decrease in depreciation expense of approximately

$50,000, and a decrease in other miscellaneous items of approximately $12,000 .

● For the year ended December 31, 2022, advertising

and marketing expenses increased by $996,748 or 303.4% as compared to the year ended December 31, 2021.

The increase was primarily due

to increased advertising activities to enhance the visibility and marketability of our company and to improve brand recognition and awareness.

We expect that our advertising expenses will remain in its current 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

For the year ended December 31, 2022, professional fees decreased by $2,037,044, or 41.2%, as compared to the year ended

December 31, 2021, which was primarily attributable to a decrease in consulting fees of approximately $1,648,000 mainly due to the

decrease in use of consulting service providers, a decrease in legal service fees of approximately $262,000 mainly due to the

decrease in use of legal service providers related to the acquisition of a British Virgin Island company 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 $53,000.

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

minimal increase in the near future.

● For the year ended December 31, 2022, compensation

and related benefits decreased by $179,090, or 8.8%, as compared to the year ended December 31, 2021, which was primarily attributable

to the decrease in stock-based compensation which reflected the value of options granted and vested to our management.

We expect that

our compensation and related benefits will remain in its current level with minimal increase in the near future.

● For the year ended December 31, 2022, research

and development expenses decreased by $293,681, or 28.7%, as compared to the year ended December 31, 2021.

The decrease was mainly attributable

to decreased research and development projects in year 2022.

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

level with minimal decrease in the near future.

● For the year ended December 31, 2022, litigation

settlement increased by $1,350,000, or 100.0%, as compared to the year ended December 31, 2021.

The increase was due to a settlement signed

in June 2022 related to Research Institute litigation.

● For the year ended December 31, 2022, Directors

and Officers Liability Insurance premium increased by $47,392, or 12.9%, as compared to the year ended December 31, 2021.

was mainly due to different insurance provider with different premium.

● For the year ended December 31, 2022, travel

and entertainment expense increased by $6,730, or 4.3%, as compared to the year ended December 31, 2021.

The increase was mainly due to

increased business travel activities in year 2022.

● For the year ended December 31, 2022, rent and

related utilities expenses decreased by $1,195, or 1.5%, as compared to the year ended December 31, 2021.

● Other general and administrative expenses mainly

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

For the year ended December 31, 2022, other general and

administrative expenses decreased by $72,585, or 23.9%, as compared to the year ended December 31, 2021.

The decrease was mainly attributable

to a decrease in depreciation of approximately $19,000, which was primarily due to certain office equipment and furniture had reached

the end of depreciation period and no further depreciation is required for these fixed assets in year 2022, a decrease in office supplies

of approximately $13,000, and a decrease in other miscellaneous items of approximately $40,000 due to our efforts at stricter controls

on corporate expenditure.

Loss from Operations

As a result of the foregoing,

for year ended December 31, 2021, loss from operations amounted to $8,833,830, as compared to $12,454,019 for the year ended December

31, 2020, a decrease of $3,620,189, or 29.1%.

Other Income (Expense)

(expense) mainly includes interest expense and loss from equity method investment.

Other expense,

net, totaled $256,669 for the year ended December 31, 2021, as compared to $225,419 for the year ended December 31, 2020, an increase

of $31,250, or 13.9%, which was primarily attributable to an increase in interest expense of approximately $32,000, and an increase in

loss from equity method investment of approximately $9,000, offset by a decrease in other miscellaneous expense of approximately $9,000.

We did not have any income

taxes expense for the years ended December 31, 2021 and 2020 since we incurred losses in these periods.

As a result of the factors

described above, our net loss was $9,090,499 for the year ended December 31, 2021, as compared to $12,679,438 for the year ended December

31, 2020, a decrease of $3,588,939 or 28.3%.

Net Loss Attributable

to Avalon GloboCare Corp.

As a result of the foregoing, for the year ended

December 31, 2022, loss from operations amounted to $8,792,895, as compared to $8,833,830 for the year ended December 31, 2021, a decrease

of $40,935 or 0.5%.

Other (Expense) Income

Other (expense) income 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 $3,137,952 for the year ended December

31, 2022, as compared to $256,669 for the year ended December 31, 2021, an increase of $2,881,283, or 1,122.6%, which was primarily attributable

to an increase in third party interest expense of approximately $3,496,000 mainly driven by the amortization of debt discount and debt

issuance cost of approximately $3,311,000 and the increased interest expense of approximately $186,000 from third party debts in year

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 $219,000, mainly driven by reagent sale in year 2022, a decrease in interest expense – related party of

approximately $121,000 due to the decrease in outstanding borrowing in year 2022, and a decrease in loss from equity method investment

of approximately $19,000.

We did not have any income taxes expense for the

years ended December 31, 2022 and 2021 since we incurred losses in these periods.

As a result of the factors described above, our net loss was $11,930,847

for the year ended December 31, 2022, as compared to $9,090,499 for the year ended December 31, 2021, an increase of $2,840,348 or 31.2%.

Net Loss Attributable to Avalon GloboCare

Common Shareholders

net loss attributable to Avalon GloboCare Corp.

common shareholders was $9,090,499 or $0.11 per share (basic and diluted) for the year

ended December 31, 2021, as compared with $12,679,438, or $0.16 per share (basic and diluted) for the year ended December 31, 2020, a

change of $3,588,939 or 28.3%.

Foreign Currency

Translation Adjustment

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 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 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 gain of $25,244 and $67,237 for the years ended

December 31, 2021 and 2020, respectively.

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

Comprehensive Loss

of our foreign currency translation adjustment, we had comprehensive loss of $9,065,255 and $12,612,201 for the years ended December 31,

The net loss attributable to Avalon GloboCare Corp.

common shareholders

was $11,930,847 or $1.28 per share (basic and diluted) for the year ended December 31, 2022, as compared with $9,090,499 or $1.07 per

share (basic and diluted) for the year ended December 31, 2021, an increase of $2,840,348 or 31.2%.

Foreign Currency Translation Adjustment

Our reporting currency is the U.S.

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

dollar 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 $47,871 and a foreign currency translation gain of $ 25,244 for the years ended December 31, 2022

and 2021, respectively.

Liquidity and Capital

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

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.

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 uncontrollable event such as the COVID-19 pandemic is likely to negatively affect the Company’s operations.

Efforts to contain

the spread of the coronavirus have intensified, including social distancing, travel bans and quarantine, and these are likely

to negatively impact our tenants, employees and consultants.

These, in turn, will not only impact our operations, financial condition

and demand for our medical related consulting services but our overall ability to react timely to mitigate the impact of this event.

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 our business for the year of 2022.

is the ability of a company to generate funds to support its current and future operations, satisfy its obligations and otherwise operate

on an ongoing basis.

At December 31, 2021 and 2020, we had cash balance of approximately $808,000 and $727,000, respectively.

funds are kept in financial institutions located as follows:

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

Comprehensive Loss

As a result of our foreign currency translation adjustment, we had

comprehensive loss of $11,978,718 and $9,065,255 for the years ended December 31, 2022 and 2021, respectively.

Liquidity and Capital Resources

The Company has a limited operating history and

its continued growth is dependent upon generating rental revenue from its income-producing real estate property in New Jersey 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.

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 uncontrollable event such

as the COVID-19 pandemic is likely to negatively affect the Company’s operations.

Efforts to contain the spread of the coronavirus

have intensified, including social distancing, travel bans and quarantine, and these are likely to negatively impact our tenants, employees

and consultants.

These, in turn, will not only impact our operations, financial condition and demand for our medical related consulting

services but our overall ability to react timely to mitigate the impact of this event.

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.

Liquidity is the ability of a company to generate

funds to support its current and future operations, satisfy its obligations and otherwise operate on an ongoing basis.

At December 31,

2022 and 2021, we had cash balance of approximately $1,991,000 and $808,000, respectively.

These funds are kept in financial institutions

located as follows:

December 31, 2022

1 unchanged sentence

United States

Under applicable PRC

regulations, foreign invested enterprises, or FIEs, in China may pay dividends only out of their accumulated profits, if any, determined

in accordance with PRC accounting standards and regulations.

In addition, a foreign invested enterprise in China is required to set aside

at least 10% of its after-tax profit based on PRC accounting standards each year to its general reserves until the cumulative amount of

such reserves reach 50% of its registered capital.

Under applicable PRC regulations, foreign invested

enterprises, or FIEs, in China may pay dividends only out of their accumulated profits, if any, determined in accordance with PRC accounting

standards and regulations.

In addition, a foreign invested enterprise in China is required to set aside at least 10% of its after-tax

profit based on PRC accounting standards each year to its general reserves until the cumulative amount of such reserves reach 50% of its

registered capital.

These reserves are not distributable as cash dividends.

In addition, a portion

of our businesses and assets are denominated in RMB, which is not freely convertible into foreign currencies.

All foreign exchange transactions

take place either through the People’s Bank of China or other banks authorized to buy and sell foreign currencies at the exchange

rates quoted by the People’s Bank of China.

Approval of foreign currency payments by the People’s Bank of China or other regulatory

institutions requires submitting a payment application form together with suppliers’ invoices, shipping documents and signed contracts.

These currency exchange control procedures imposed by the PRC government authorities may restrict the ability of our PRC subsidiary to

transfer its net assets to the Parent Company through loans, advances or cash dividends.

The current PRC Enterprise

Income Tax (“EIT”) Law and its implementing rules generally provide that a 10% withholding tax applies to China-sourced income

derived by non-resident enterprises for PRC enterprise income tax purposes unless the jurisdiction of incorporation of such enterprises’

shareholder has a tax treaty with China that provides for a different withholding arrangement.

The following

table sets forth a summary of changes in our working capital from December 31, 2020 to December 31, 2021 :

In addition, a small portion of our assets are

denominated in RMB, which is not freely convertible into foreign currencies.

All foreign exchange transactions take place either through

the People’s Bank of China or other banks authorized to buy and sell foreign currencies at the exchange rates quoted by the People’s

Bank of China.

Approval of foreign currency payments by the People’s Bank of China or other regulatory institutions requires submitting

a payment application form together with suppliers’ invoices, shipping documents and signed contracts.

These currency exchange control

procedures imposed by the PRC government authorities may restrict the ability of our PRC subsidiary to transfer its net assets to the

Parent Company through loans, advances or cash dividends.

The current PRC Enterprise Income Tax (“EIT”)

Law and its implementing rules generally provide that a 10% withholding tax applies to China-sourced income derived by non-resident enterprises

for PRC enterprise income tax purposes unless the jurisdiction of incorporation of such enterprises’ shareholder has a tax treaty

with China that provides for a different withholding arrangement.

The following table sets forth a summary of changes

in our working capital deficit from December 31, 2021 to December 31, 2022:

Working capital deficit:

4 unchanged sentences

$ (3,078,616 )

$ (1,772,560 )

Our working capital deficit

increased by $1,772,560 to $3,078,616 at December 31, 2021 from $1,306,056 at December 31, 2020.

The increase in working capital

deficit was primarily attributable to a decrease in prepaid expenses and other current assets of approximately $101,000, an increase in

accrued professional fees of approximately $669,000, mainly due to an increase in professional services providers, an increase in accrued

research and development fees of approximately $415,000, an increase in accrued payroll liability and directors’ compensation of

approximately $153,000, an increase in accrued liabilities and other payables – related parties of approximately $200,000, and an

increase in note payable – related party of $390,000, offset by an increase in prepaid professional fees of approximately $108,000.

Because the exchange

rate conversion is different for the consolidated balance sheets and the consolidated statements of cash flows, the changes in assets

and liabilities reflected on the consolidated statements of cash flows are not necessarily identical with the comparable changes reflected

on the consolidated balance sheets.

Flows for the Year Ended December 31, 2021 Compared to the Year Ended December 31, 2020

following summarizes the key components of our cash flows for the years ended December 31, 2021 and 2020:

Our working capital deficit decreased by $1,872,337

to $1,206,279 at December 31, 2022 from $3,078,616 at December 31, 2021.

The decrease in working capital deficit was primarily attributable

to an increase in cash of approximately $1,183,000 mainly due to the issuance of convertible debt and balloon promissory note in year

2022, a decrease in accrued professional fees of approximately $208,000 which was mainly due to payments made to our professional service

providers in the year ended December 31, 2022, a decrease in accrued research and development fees of approximately $90,000 resulting

from payments made to research and development service providers in the year ended December 31, 2022, a decrease in accrued payroll liability

and directors’ compensation of approximately $83,000, 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

year ended December 31, 2022, a decrease in operating lease obligation of approximately $140,000, a decrease in note payable – related

party of $390,000 due to repayment made to this related party in the year ended December 31, 2022, offset by a decrease in other current

assets of approximately $200,000, which was mainly attributable to the decrease in prepaid professional fee of approximately $93,000,

which were recognized as expense over the related service period in year 2022, and the decrease in recoverable VAT of approximately $20,000

and the decrease in other miscellaneous items of approximately $87,000, and an increase in accrued settlement of lawsuit of $450,000 due

to a settlement signed in June 2022.

Because the exchange rate conversion is different

for the consolidated balance sheets and the consolidated statements of cash flows, the changes in assets and liabilities reflected on

the consolidated statements of cash flows are not necessarily identical with the comparable changes reflected on the consolidated balance

Cash Flows for the Year Ended December 31,

2022 Compared to the Year Ended December 31, 2021

The following summarizes the key components of

our cash flows for the years ended December 31, 2022 and 2021:

Years Ended December 31,

4 unchanged sentences

Net cash provided by financing activities

Effect of exchange rate on cash

Net increase (decrease) in cash

Net cash flow used in

operating activities for the year ended December 31, 2021 was $5,024,479, which primarily reflected our consolidated net loss of approximately

$9,090,000, and the changes in operating assets and liabilities, primarily consisting of a decrease in operating lease obligation of approximately

$121,000, offset by an increase accrued liabilities and other payables of approximately $1,331,000, and an increase in accrued liabilities

and other payables – related parties of approximately $200,000, and the non-cash items adjustment primarily consisting of depreciation

of approximately $312,000, amortization of right-of-use asset of approximately $127,000, and stock-based compensation and service expense

of approximately $2,110,000.

Effect of exchange rate on cash and restricted cash

Net increase in cash and restricted cash

Net cash flow used in operating activities for the year ended December

31, 2022 was $7,037,224, which primarily reflected our consolidated net loss of approximately $11,931,000, 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 a decrease in operating lease obligation of approximately $142,000, offset by an increase in accrued liabilities

and other payables of approximately $331,000, 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 $331,000, amortization of right-of-use

asset of approximately $136,000, stock-based compensation and service expense of approximately $1,107,000, 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 year ended December 31, 2021 was $5,024,479, which primarily reflected our consolidated net loss of approximately $9,090,000, and

the changes in operating assets and liabilities, primarily consisting of an increase in prepaid expenses and other current assets of approximately

$207,000, a decrease in accrued liabilities and other payables of approximately $846,000, offset by a decrease in accounts receivable

– related party of approximately $217,000, an increase in accrued liabilities and other payables – related parties of approximately

$119,000, and the non-cash items adjustment primarily consisting of depreciation of approximately $315,000, and stock-based compensation

and service expense of approximately $5,494,000.

our cash used in operating activities to increase due to the following :

● the development and

commercialization of new products;

● 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.

cash flow used in investing activities was $68,135 for the year ended December 31, 2021 as compared to $169,185 for the year ended

December 31, 2020.

the changes in operating assets and liabilities, primarily consisting of a decrease in operating lease obligation of approximately $121,000,

offset by an increase accrued liabilities and other payables of approximately $1,331,000, which was mainly attributable the increase in

accrued professional fees of approximately $669,000 due to increased professional service providers, the increase in accrued research

and development fees of approximately $415,000 which was primarily attributable to we increased research and development projects in 2021,

and the increase in accrued payroll liability and directors’ compensation of approximately $153,000, and an increase in accrued

liabilities and other payables – related parties of approximately $200,000 resulting from the increase in accrued interest for related

party borrowings, and the non-cash items adjustment primarily consisting of depreciation of approximately $312,000, amortization of right-of-use

asset of approximately $127,000, and stock-based compensation and service expense of approximately $2,110,000.

We expect our cash used in operating activities

to increase due to the following:

● the development and commercialization of new

● 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.

Net cash flow used in investing activities was

$5,053,748 for the year ended December 31, 2022 as compared to $68,135 for the year ended December 31, 2021.

During the year ended December

31, 2022, we made payments for purchase of property and equipment of approximately $2,000 and made additional investment in Epicon equity

method investment of approximately $52,000 and made payments for acquisition of 40% interest in Laboratory Services MSO, LLC of approximately

During the year ended December 31, 2021, we made payments for purchase of property and equipment of approximately $18,000

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approximately $40,000.

During the year ended December 31, 2020, we made payment for improvement of commercial real estate

of approximately $111,000 and made additional investment in equity method investment of approximately $58,000.

Net cash flow provided

by financing activities was $5,170,132 for the year ended December 31, 2021 as compared to $7,664,281 for the year ended December 31,

During the year ended December 31, 2021, we received proceeds from related party borrowings of approximately $2,550,000 and net

proceeds from equity offering of approximately $2,620,000 (net of cash paid for commission and other offering costs of approximately $240,000).

During the year ended December 31, 2020, we received proceeds from related party borrowings of $600,000 and net proceeds from equity offering

of approximately $7,264,000 (net of cash paid for commission and other offering costs of approximately $540,000), offset by repayments

made for note payable – related party of $200,000.

Our capital requirements

for the next twelve months primarily relate to working capital requirements, including salaries, fees related to third parties’

professional services, reduction of accrued liabilities, mergers, acquisitions and the development of business opportunities.

of cash will depend on numerous factors including our sales and other revenues, and our ability to control costs.

All funds received have

been expended in the furtherance of growing the business.

The following trends are reasonably likely to result in a material decrease

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;

● the use of capital for mergers, acquisitions and the development

of business opportunities;

● addition of administrative personnel as the business grows;

Net cash flow provided by financing activities

was $17,263,989 for the year ended December 31, 2022 as compared to $5,170,132 for the year ended December 31, 2021.

During the year ended

December 31, 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 approximately $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), and proceeds from issuance of Series A preferred stock of $9,000,000

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 year ended December 31, 2021, we received proceeds from related party borrowings

of approximately $2,550,000 and net proceeds from equity offering of approximately $2,620,000 (net of cash paid for commission and other

offering costs of approximately $240,000) to fund our working capital needs.

Our capital requirements for the next twelve months

primarily relate to working capital requirements, including salaries, fees related to third parties’ professional services, reduction

of accrued liabilities, mergers, acquisitions and the development of business opportunities.

These uses of cash will depend on numerous

factors including our revenues and our ability to control costs.

All funds received have been expended in the furtherance of growing the

The following trends are reasonably likely to result in a material decrease 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;

● the use of capital for mergers, acquisitions

and the development of business opportunities;

● addition of administrative personnel as the business

● the cost of being a public company.

In the third quarter

of 2019, we had secured a $20 million credit facility (Line of Credit) provided by our Chairman, Wenzhao Lu.

The unsecured credit facility

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

As of December 31, 2021, the total principal

amount outstanding under the Credit Line was $2.8 million and we have approximately $14.2 million remaining available under the Line

On December 13,

2019, we entered into an Open Market Sale Agreement SM (the “Sales Agreement”) with Jefferies LLC, as sales

agent (“Jefferies”), pursuant to which we may offer and sell, from time to time, through Jefferies, shares of our common stock,

par value $0.0001 per share, having an aggregate offering price of up to $20.0 million.

On April 6, 2020, the date on which we filed our

Annual Report on Form 10-K for the fiscal year ended December 31, 2019, our registration statement became subject to the

offering limits set forth in General Instruction I.B.6 of Form S-3.

As of April 6, 2020, the aggregate market value of our outstanding

common stock held by non-affiliates, or public float, was $39,564,237, based on 23,691,160 shares of our outstanding common

stock that were held by non-affiliates on such date and a price of $1.67 per share, which was the price at which our common

stock was last sold on The Nasdaq Capital Market on February 19, 2020 (a date within 60 days of the date hereof), calculated in accordance

with General Instruction I.B.6 of Form S-3.

We have not offered any securities pursuant to General Instruction I.B.6 of

Form S-3 in the 12 calendar months preceding the date of this prospectus supplement.

We filed a prospectus supplement to amend

and supplement the information in our prospectus and original prospectus supplement based on the amount of securities that we are eligible

to sell under General Instruction I.B.6 of Form S-3.

After giving effect to the $13,000,000 offering limit imposed by General

Instruction I.B.6 of Form S-3, we may offer and sell additional shares of our common stock having an aggregate offering

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 December 31, 2021, we sold a total of 6,258,846 shares of our common stock through Jefferies with an aggregate offering

price of $9,938,140 and we have approximately $5.0 million offering price remaining available under the Sales Agreement.

estimate that based on current plans and assumptions, that our available cash will be insufficient to satisfy our cash requirements under

our present operating expectations through cash available under our Credit Line and sales of equity through our Sales Agreement.

than funds received from the sale of our equity and advances from our related party, and cash resource generating from our operations,

we presently have no other significant alternative source of working capital.

We have used these funds to fund our operating expenses,

pay our obligations and grow our company.

We will need to raise significant additional capital to fund our operations and to provide working

capital for our ongoing operations and obligations.

Therefore, our future operation is dependent on our ability to secure additional financing.

Financing transactions may include the issuance of equity or debt securities, obtaining credit facilities, or other financing mechanisms.

In the third quarter of 2019, we had secured a

$20 million credit facility (Line of Credit) provided by our Chairman, Wenzhao Lu.

The unsecured credit facility bears interest at a rate

of 5% and provides for maturity on drawn loans 36 months after funding.

As of December 31, 2022, the total principal amount outstanding

under the Credit Line was $0 and we used approximately $5.9 million of the credit facility and have approximately $14.1 million remaining

available under the Line Credit.

On December 13, 2019, we entered into an

Open Market Sale Agreement SM (the “Sales Agreement”) with Jefferies LLC, as sales agent (“Jefferies”),

pursuant to which we may offer and sell, from time to time, through Jefferies, shares of our common stock, par value $0.0001 per share,

having an aggregate offering price of up to $20.0 million.

On April 6, 2020, the date on which we filed our Annual Report on Form 10-K for

the fiscal year ended December 31, 2019, our registration statement became subject to the offering limits set forth in General Instruction

I.B.6 of Form S-3.

As of April 6, 2020, the aggregate market value of our outstanding common stock held by non-affiliates, or

public float, was $39,564,237, based on 2,369,116 shares of our outstanding common stock that were held by non-affiliates on

such date and a price of $16.7 per share, which was the price at which our common stock was last sold on The Nasdaq Capital Market on

February 19, 2020 (a date within 60 days of the date hereof), calculated in accordance with General Instruction I.B.6 of Form S-3.

have not offered any securities pursuant to General Instruction I.B.6 of Form S-3 in the 12 calendar months preceding the date

of this prospectus supplement.

We filed a prospectus supplement to amend and supplement the information in our prospectus and original

prospectus supplement based on the amount of securities that we are eligible to sell under General Instruction I.B.6 of Form S-3.

giving effect to the $13,000,000 offering limit imposed by General Instruction I.B.6 of Form S-3, we may offer and sell

additional shares of our common stock having an aggregate offering 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 agreement.

As of December 31, 2022, we sold a total of 642,949 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 on current plans and assumptions,

that our available cash will be insufficient to satisfy our cash requirements under our present operating expectations through cash available

under our Credit Line and sales of equity through our Sales Agreement.

Under the Line of Credit, the Company received a loan from the

Lender of $750,000 in March 2023.

Other than funds received from the sale of our equity and advances from our related party, and cash

resource generating from our operations, we presently have no other significant alternative source of working capital.

We have used these

funds to fund our operating expenses, pay our obligations and grow our company.

We will need to raise significant additional capital to

fund our operations and to provide working capital for our ongoing operations and obligations.

Therefore, our future operation is dependent

on our ability to secure additional financing.

Financing transactions may include the issuance of equity or debt securities, obtaining

credit facilities, or other financing mechanisms.

However, the trading price of our common stock and a downturn in the U.S.

equity and debt markets could make it more difficult to obtain

financing through the issuance of equity or debt securities.

Even if we are able to raise the funds required, it is possible that we could

incur unexpected costs and expenses or experience unexpected cash requirements that would force us to seek alternative financing.

if we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have

rights, preferences or privileges senior to those of existing holders of our common stock.

The inability to obtain additional capital

may restrict our ability to grow and may reduce our ability to continue to conduct business operations.

If we are unable to obtain additional

financing, we will be required to cease our operations.

To date, we have not considered this alternative, nor do we view it as a likely

Contractual Obligations and Off-Balance Sheet

Contractual Obligations

certain fixed contractual obligations and commitments that include future estimated payments.

Changes in our business needs, cancellation

provisions, and other factors may result in actual payments differing from the estimates.

We cannot provide certainty regarding the timing

and amounts of payments.

We have presented below a summary of the most significant assumptions used in our determination of amounts presented

in the tables, in order to assist in the review of this information within the context of our consolidated financial position, results

of operations, and cash flows.

The following tables summarize our contractual obligations as of December 31, 2021, 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

Epicon equity investment obligation

AVAR joint venture commitment

debt markets could make it more difficult to obtain financing through the issuance of equity or debt securities.

Even if we are able to

raise the funds required, it is possible that we could incur unexpected costs and expenses or experience unexpected cash requirements

that would force us to seek alternative financing.

Furthermore, if we issue additional equity or debt securities, stockholders may experience

additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our

common stock.

The inability to obtain additional capital may restrict our ability to grow and may reduce our ability to continue to conduct

business operations.

If we are unable to obtain additional financing, we will be required to cease our operations.

To date, we have not

considered this alternative, nor do we view it as a likely occurrence.

Off-balance Sheet Arrangements

do not have off-balance sheet arrangements.

We presently do not have off-balance sheet arrangements.

Foreign Currency Exchange Rate Risk

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 year ended December 31, 2021 and 2020, we had an unrealized foreign currency translation gain of approximately $25,000 and $67,000,

respectively, because of changes in the exchange rate.

of inflation on our revenue and operating results was not significant.

In November of 2022, we decided to cease all operations

in China with the exception of a small administrative office, Avalon Shanghai.

We do not expect nor do we plan that there will be further

revenue generated from PRC operations in the foreseeable future.

Thus, exchange rate fluctuations between RMB and US dollars do not have

a material effect on us.

For the years ended December 31, 2022 and 2021, we had an unrealized foreign currency translation loss of approximately

$48,000 and an unrealized foreign currency translation gain of approximately $25,000, respectively, because of changes in the exchange

The effect of inflation on our revenue and operating

results was not significant.

QUANTITATIVE AND QUALITATIVE DISCLOSURES

ABOUT MARKET RISK

As a smaller reporting company,

as defined in Rule 12b-2 of the Exchange Act, we are not required to provide the information required by this Item.

As a smaller reporting company, as defined in

Rule 12b-2 of the Exchange Act, we are not required to provide the information required by this Item.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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What changed 10-K

Item 7. Management’s Discussion and Analysis