Change Agents Corporation. 10-K

ITEM 9A. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures We maintain disclosure controls and procedures that are designed to ensure that material information required to be disclosed in our periodic reports filed under the Securities Exchange Act of 1934, as amended, or 1934 Act, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and to ensure that such information is accumulated and communicated to our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) as appropriate, to allow timely decisions regarding required disclosure. We carried out an evaluation, under the supervision and with the participation of our management, including the principal executive officer and the principal financial officer (principal financial officer), of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13(a)-15(e) under the 1934 Act, as of the end of the period covered by this report. Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. During evaluation of disclosure controls and procedures as of December 31, 2022 conducted as part of our annual audit and preparation of our annual financial statements, our management, including our CEO and CFO, conducted an evaluation of the effectiveness of the design and operations of our disclosure controls and procedures and concluded that our disclosure controls and procedures were not effective due to the reasons set forth below. Management’s Report on Internal Control over Financial Reporting Management is responsible for the preparation and fair presentation of the financial statements included in this annual report. The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America and reflect management’s judgment and estimates concerning effects of events and transactions that are accounted for or disclosed. Management is also responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting includes those policies and procedures that pertain to our ability to record, process, summarize and report reliable data. Management recognizes that there are inherent limitations in the effectiveness of any internal control over financial reporting, including the possibility of human error and the circumvention or overriding of internal control. Accordingly, even effective internal control over financial reporting can provide only reasonable assurance with respect to financial statement presentation. Further, because of changes in conditions, the effectiveness of internal control over financial reporting may vary over time. 65 Management regularly assesses controls and did so most recently for our financial reporting as of December 31, 2022. This assessment was based on criteria for effective internal control over financial reporting described in the Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission. Based on this assessment, management has concluded that our internal control over financial reporting was not effective as of December 31, 2022, due to the lack of segregation of duties resulting from our small size and testing of the operating effectiveness of the controls. As a result of our Lab Services transaction in February 2023, we intend to retain additional accounting staff and support to enhance our controls and procedures and, in February 2023, we retained a third party with relevant expertise to support us and assist us in enhancing our internal controls and procedures. In light of the material weaknesses described above, we performed additional analyses and procedures in order to conclude that our consolidated financial statements for the year ended December 31, 2022 included in this Annual Report on Form 10-K were fairly stated in accordance with US GAAP. Accordingly, management believes that despite our material weakness, our consolidated financial statements for the year ended December 31, 2022 are fairly stated, in all material respects, in accordance with US GAAP. Changes in Internal Control over Financial Reporting There were no changes in our internal control over financial reporting, as such term is defined in Rules 13a-15(f) under the Exchange Act, during the quarter ended December 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Attestation Report of the Registered Public Accounting Firm This Annual Report on Form 10-K does not include an attestation report by our independent registered public accounting firm, regarding internal control over financial reporting. As a smaller reporting company, our internal control over financial reporting was not subject to audit by our independent registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit us to provide only management’s report. ITEM 9B. OTHER INFORMATION None. ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS. Not applicable. 66 PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Directors and Executive Officers Below are the names of and certain information regarding our executive officers and directors as of the date hereof: Name Age Position Wenzhao Lu 65 Chairman of the Board of Directors David Jin, MD, PhD 55 Chief Executive Officer, President and Director Meng Li 45 Chief Operating Officer and Secretary Luisa Ingargiola 55 Chief Financial Officer Steven A. Sanders 77 Director Lourdes Felix 55 Director Wilbert J. Tauzin II 79 Director William B. Stilley, III 55 Director Tevi Troy 55 Director Officers are elected annually by the Board of Directors (subject to the terms of any employment agreement), at our annual meeting, to hold such officer until an officer’s successor has been duly appointed and qualified, unless an officer sooner dies, resigns or is removed by the Board. The principal occupation and business experience during at least the past five years for our executive officers and directors is as follows: Wenzhao Lu, Chairman of the Board of Directors Mr. Wenzhao Lu has served as our Chairman of the Board since October 10, 2016. He is a seasoned healthcare entrepreneur with extensive operational knowledge and experience in US & Asia. He has served as Chairman of the Board for the Daopei Medical Group, or DPMG, since 2010 to December, 2021. Under his leadership, DPMG is operating three top-ranked private hospitals (located in Beijing and Hebei), specialty hematology laboratories, as well as a hematology research institute, with more than 100 partnering and collaborating hospitals in China. DPMG was founded by Professor Daopei Lu, a renowned hematologist pioneering in hematopoietic stem cell transplant and member of the Academy of Engineering in China. Mr. Wenzhao Lu received a Bachelor of Arts from Temple University Tyler School of Arts in 1988 and subsequently worked as senior Art Director at Ogilvy & Mather Advertising Company. Prior to joining DPMG, Mr. Lu served as Chief Operating Officer for BioTime Asia Limited, which is a subsidiary of BioTime, Inc. (NYSE American: BTX) in 2009. Mr. Lu is qualified to serve as a director because of his extensive operational knowledge of, and executive level management experience in, the healthcare industry. 67 David Jin, Chief Executive Officer, President and Director Dr. David Jin, MD, PhD, has served as our Chief Executive Officer, President and a member of the Board of Directors since September 14, 2016. From 2009 to 2017, Dr. Jin has served as the Chief Medical Officer of BioTime, Inc. (NYSE American: BTX), a clinical stage regenerative medicine company with a focus on pluripotent stem cell technology. Dr. Jin also acts as a senior translational clinician-scientist at the Howard Hughes Medical Institute and the Ansary Stem Cell Center at Weill Cornell Medical College of Cornell University. Prior to his current endeavors, Dr. Jin was Chief Consultant/Advisor for various biotech/pharmaceutical companies regarding hematology, oncology, immunotherapy and stem cell-based technology development. Dr. Jin has been Principle Investigator in more than 15 pre-clinical and clinical trials, as well as author/co-author of over 80 peer-reviewed scientific abstracts, articles, reviews, and book chapters. Dr. Jin studied medicine at SUNY Downstate College of Medicine in Brooklyn, New York. He received his clinical training and subsequent faculty tenure at the New York-Presbyterian Hospital (the teaching hospital for both Cornell and Columbia Universities) in the areas of internal medicine, hematology, and clinical oncology. Dr. Jin was honored as Top Chief Medical Officer by ExecRank in 2012, as well as recognized by Leading Physicians of the World in 2015. Dr. Jin is qualified to serve as a director because of his role with us, and his extensive operational knowledge of, and executive level management experience in, the healthcare industry. Meng Li, Chief Operating Officer and Secretary Ms. Meng Li has served as our Chief Operating Officer and Secretary since October 10, 2016 and served as a member of the Board of Directors from October 10, 2016 to July 9, 2018 and from April 5, 2019 through December 30, 2022. Ms. Li has over 15 years of executive experience in international marketing, branding, communications, and media investment consultancy. Ms. Li served as Managing Director at Maxus/GroupM (a WPP Group company) where she was responsible for business P&L and corporate management from 2006 to 2015. Prior to joining Maxus/Group M, Ms. Li worked for Zenith Media (a Publicis Group company) from 2000 to 2006 as Senior Manager. Ms. Li received a Bachelor of Arts in International Economic Law from Dalian Maritime University in China. Luisa Ingargiola, Chief Financial Officer Luisa Ingargiola has served as our Chief Financial Officer since February 21, 2017. Ms Ingargiola has significant experience serving as Chief Financial Officer or Audit Chair for multiple NASDAQ and NYSE companies. She currently serves as Director and Audit Chair for several public companies including ElectraMeccanica (NASDAQ:SOLO), Dragonfly Energy (DFLI) andVision Marine (VMAR). From 2007 through 2016, Ms. Ingargiola served as the Chief Financial Officer and then Director at MagneGas Corporation (Nasdaq: MNGA. Prior to 2007, Ms. Ingargiola held various roles as Budget Director and Investment Analyst in several private companies. Ms. Ingargiola graduated in 1989 from Boston University with a Bachelor’s degree in Business Administration and a concentration in Finance. In 1996, she received her MBA in Health Administration from the University of South Florida. Ms. Ingargiola is qualified to serve as a Chief Financial Officer because of her extensive knowledge corporate governance, regulatory requirements, executive leadership and knowledge of, and experience in, financing and M&A transactions. Steven A. Sanders, Director Steven A. Sanders has served as a member of the Board of Directors since July 30, 2018. Since January 2017, Mr. Sanders has been Of Counsel to the law firm of Ortoli Rosenstadt LLP. From July 2007 until January 2017, Mr. Sanders was a Senior Partner of Ortoli Rosenstadt LLP. From January 1, 2004 until June 30, 2007, he was Of Counsel to the law firm of Rubin, Bailin, Ortoli, LLP. From January 1, 2001 to December 31, 2003, he was Counsel to the law firm of Spitzer & Feldman PC. Mr. Sanders also serves as a Director of Helijet International, Inc. and Electrameccanica Vehicles Corp. (NASDAQ:SOLO). Additionally, he has been a director at the American Academy of Dramatic Arts since October 2013 and has been a director of the Bay Street Theater since February 2015. Mr. Sanders received his JD from Cornell University and his BBA from The City College of New York. Mr. Sanders is qualified to serve as a director because of his corporate, securities and international law experience, including working with companies in the life sciences industry. 68 Lourdes Felix, Director Ms. Felix has served as a member of the Board of the Directors since January 9, 2023. Ms. Felix is an entrepreneur and corporate finance executive with 30 years of combined experience in capital markets, public accounting and in the private sector. She presently serves as Chief Executive Officer, Chief Financial Officer, and Director of BioCorRx Inc, a company focused on addiction treatment solutions and related disorders. She has been with BioCorRx since October 2012. Ms. Felix is one of the founders and President of BioCorRx Pharmaceuticals Inc., a majority owned subsidiary of BioCorRx Inc. Prior to joining BioCorRx, her experience was in the private sector and public accounting. She has expertise in finance, accounting, company-wide operations, budgeting, and internal control principles including GAAP, SEC, and SOX Compliance. She has thorough knowledge of federal and state regulations and has successfully managed and produced SEC regulatory filings. She also has extensive experience in developing and managing financial operations. Lourdes holds a Bachelor of Science degree in Accounting from the University of Phoenix. She continued her education and is an MBA candidate at D’Amore-McKim School of Business, Northeastern University. Ms. Felix is qualified to serve as a director because of her extensive investment and executive level management experience. Wilbert J. Tauzin II, Director Wilbert J. Tauzin II has served as a member of the Board of Directors since November 1, 2017. From December 2010 until March 1, 2014, Congressman Tauzin served as Special Legislative Counsel to Alston & Bird LLP. From December 2004 to June 2010, Congressman Tauzin was President and Chief Executive Officer of the Pharmaceutical Research and Manufacturers of America, a trade group that serves as one of the pharmaceutical industry’s top lobbying groups. He served 12.5 terms in the U.S. House of Representatives, representing Louisiana’s 3rd Congressional District. From January 2001 through February 2004, Congressman Tauzin served as Chairman of the House Committee on Energy and Commerce. He also served as a senior member of the House Resources Committee and Deputy Majority Whip. Prior to serving as a member of Congress, Congressman Tauzin was a member of the Louisiana State Legislature, where he served as Chairman of the House Natural Resources Committee and Chief Administration Floor Leader. He served as Lead Independent Director of LHC Group, a publicly traded provider of quality home health care, from 2005 to 2021 and retains the role of Lead Independent Emeritus today. The Congressman also served on the Board of Entergy, a Fortune 500 company. In addition, the Congressman chartered a Louisiana State Savings and Loan Association and Chaired its first Board. He received a Bachelor of Arts Degree from Nicholls State University and a Juris Doctor degree from Louisiana State University. Congressman Tauzin is qualified to serve as a director because of his extensive knowledge of the pharmaceutical industry and his experience as a director of several publicly-traded and privately-held companies. William B. Stilley, III, Director William B. Stilley has served as a member of the Board of Directors since July 5, 2018. Mr. Stilley has been the chief executive officer of Purnovate, Inc., a subsidiary of Adial Pharmaceuticals, Inc. (Adial) since January 2021, was chief executive officer of Adial from December 2010 until August 2022, and continues as a member of Adial’s board of directors, which he joined in December 2010. From August 2008 until December 2010, he was the vice president, business development and strategic projects at Clinical Data, Inc. (NASDQ: CLDA). In September 2021, Mr. Stilley was appointed to serve as a member of the board of directors of Sysorex, Inc., where he serves as chair of the audit committee. From February 2002, Mr. Stilley was the COO and CFO of Adenosine Therapeutics, LLC until certain assets of Adenosine Therapeutics were acquired by Clinical Data, Inc. in August 2008. Mr. Stilley has advised both public and private companies on financing and M&A transactions, has been the interim CFO of a public company, the interim Chief Business Officer and then Advisor for Diffusion Pharmaceuticals from September 2015 through March 2018, and the COO and CFO of a number of private companies. Before entering the business community, Mr. Stilley served as Captain in the U.S. Marine Corps. Mr. Stilley has an MBA with honors from the Darden School of Business and a B.S. in Commerce/Marketing from the McIntire School of Commerce at the University of Virginia. He currently serves on the Advisory Board of Virginia BIO, the statewide biotechnology organization. Mr. Stilley is qualified to serve as a director because of his extensive knowledge of the biotechnology industry, significant executive leadership and operational experience, and knowledge of, and experience in, financing and M&A transactions. 69 Tevi Troy, Director Tevi Troy has served as a member of the Board of Directors since June 4, 2018. Mr. Troy is a former Deputy Secretary of the U.S. Department of Health and Human Services. Dr. Troy is a Senior Fellow at the Bipartisan Policy Center in Washington. He has previously been the founder and CEO of the American Health Policy Institute and a Senior Fellow at Hudson Institute. On August 3, 2007, Dr. Troy was unanimously confirmed by the U.S. Senate as the Deputy Secretary of HHS. As Deputy Secretary, Dr. Troy was the chief operating officer of the largest civilian department in the federal government, with a budget of $716 billion and over 67,000 employees. Dr. Troy has extensive White House experience, having served in several high-level positions over a five-year period, culminating in his service as Deputy Assistant and then Acting Assistant to the President for Domestic Policy. Dr. Troy has held high-level positions on Capitol Hill as well. From 1998 to 2000, Dr. Troy served as the Policy Director for Senator John Ashcroft. From 1996 to 1998, Dr. Troy was Senior Domestic Policy Adviser and later Domestic Policy Director for the House Policy Committee, chaired by Christopher Cox. In addition to his senior level government work and health care expertise, Dr. Troy is also a best-selling presidential historian and the author of five books, including, most recently, “Fight House: Rivalries in the White House from Truman to Trump,” which the Wall Street Journal listed as one of the top political books of 2020. Dr. Troy’s many other affiliations include: contributing editor for Washingtonian magazine; member of the publication committee of National Affairs; member of the Board of Fellows of the Jewish Policy Center; a Senior Fellow at the Potomac Institute; and a member of the Bipartisan Commission on Biodefense. Dr. Troy has a B.S. in Industrial and Labor Relations from Cornell University and an M.A and Ph.D. in American Civilization from the University of Texas at Austin. Dr. Troy is qualified to serve as a director because of his extensive knowledge of the healthcare industry and his significant leadership experience. Board Composition Our business and affairs are organized under the direction of our board of directors, which currently consists of nine members. The primary responsibility of our board of directors is to provide oversight, strategic guidance, counseling, and direction to our management team. Our board of directors meets on a regular basis and additionally as required. A majority of the authorized number of directors constitutes a quorum of the Board of Directors for the transaction of business. The directors must be present at the meeting to constitute a quorum. However, any action required or permitted to be taken by the Board of Directors may be taken without a meeting if all members of the Board of Directors individually or collectively consent in writing to the action. Director Independence Our board of directors currently consists of seven members. Our board of directors has determined that William B. Stilley, III, Steven A. Sanders, Tevi Troy, and Lourdes Felix, qualify as independent directors in accordance with the Nasdaq Capital Market (“Nasdaq”) listing requirements. As required under Nasdaq rules and regulations, our independent directors meet in regularly scheduled executive sessions at which only independent directors are present. Family Relationships There are no family relationships among our directors or executive officers. Board Leadership Structure and Role in Risk Oversight Our Board of Directors, or the Board, is primarily responsible for overseeing our risk management processes on behalf of our company. The Board receives and reviews periodic reports from management, auditors, legal counsel, and others, as considered appropriate regarding our company’s assessment of risks. In addition, the Board focuses on the most significant risks facing our company and our company’s general risk management strategy, and also ensures that risks undertaken by our company are consistent with the board’s appetite for risk. While the Board oversees our company’s risk management, management is responsible for day-to-day risk management processes. We believe this division of responsibilities is the most effective approach for addressing the risks facing our company and that our board leadership structure supports this approach. 70 Board Committees Establishment of Board Committees and Adoption of Charters In November 2018, the Company established a Nominating and Corporate Governance Committee, a Compensation Committee and an Audit Committee (collectively, the “Committees”) and approved and adopted charters to govern each of the Committees. In connection with the establishment of the Nominating and Corporate Governance Committee, Compensation Committee and Audit Committee, the Board of Directors of the Company appointed members to each such committee. Currently, all three committees are comprised of at least three (3) directors meeting the requirements set forth in each applicable charter. The membership of these three standing committees of the Board of Directors of the Company is as follows: Nominating and Corporate Governance Committee Compensation Committee Audit Committee Steven Sanders (Chairman) Lourdes Felix (Chairwoman) William Stilley (Chairman) Tevi Troy Steven Sanders Tevi Troy William Stilley Tevi Troy Steve Sanders Nominating and Corporate Governance Committee Our board of directors has determined that each of the members of the Nominating and Governance Committee (the “Governance Committee”) are “independent directors” as defined by Nasdaq. The Governance Committee is generally responsible for recommending to our full board of directors’ policies, procedures, and practices designed to help ensure that our corporate governance policies, procedures, and practices continue to assist the board of directors and our management in effectively and efficiently promoting the best interests of our stockholders. The Governance Committee is also responsible for selecting and recommending for approval by our board of directors and our stockholders a slate of director nominees for election at each of our annual meetings of stockholders, and otherwise for determining the board committee members and chairmen, subject to board of directors ratification, as well as recommending to the board director nominees to fill vacancies or new positions on the board of directors or its committees that may occur or be created from time to time, all in accordance with our bylaws and applicable law. The Governance Committee’s principal functions include: ● developing and maintaining our corporate governance policy guidelines; ● developing and maintaining our codes of conduct and ethics; ● overseeing the interpretation and enforcement of our Code of Conduct and our Code of Ethics for Chief Executive Officer and Senior Financial and Accounting Officers; ● evaluating the performance of our board of directors, its committees, and committee chairmen and our directors; and ● selecting and recommending a slate of director nominees for election at each of our annual meetings of the stockholders and recommending to the board director nominees to fill vacancies or new positions on the board of directors or its committees that may occur from time to time. During 2022, the Nominating and Corporate Governance Committee did not meet. The Governance Committee is governed by a written charter approved by our board of directors. A copy of the Governance Committee’s charter is posted on the Company’s website at www.avalon-globocare.com in the “Investors” section of the website. In identifying potential independent board of directors’ candidates with significant senior-level professional experience, the Governance Committee solicits candidates from the board of directors, senior management and others and may engage a search firm in the process. The Governance Committee reviews and narrows the list of candidates and interviews potential nominees. The final candidate is also introduced and interviewed by the board of directors and the lead director if one has been appointed. In general, in considering whether to recommend any particular candidate for inclusion in our board of directors’ slate of recommended director nominees, the Governance Committee will apply the criteria set forth in our corporate governance guidelines. These criteria include the candidate’s integrity, business acumen, commitment to understanding our business and industry, experience, conflicts of interest and the ability to act in the interests of our stockholders. Further, specific consideration is given to, among other things, diversity of background and experience that a candidate would bring to our board of directors. The Governance Committee does not assign specific weights to particular criteria and no particular criterion is a prerequisite for each prospective nominee. We believe that the backgrounds and qualifications of our directors, considered as a group, should provide a composite mix of experience, knowledge and abilities that will allow our board of directors to fulfill its responsibilities. Stockholders may recommend individuals to the Governance Committee for consideration as potential director candidates by submitting their names, together with appropriate biographical information and background materials to our Governance Committee. Assuming that appropriate biographical and background material has been provided on a timely basis, the Governance Committee will evaluate stockholder recommended candidates by following substantially the same process, and applying substantially the same criteria, as it follows for candidates submitted by others. 71 Audit Committee We have a separately-designated standing Audit Committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Our board of directors has determined that the members are all “independent directors” as defined by the rules of Nasdaq applicable to members of an audit committee and Rule 10A-3(b)(i) under the Exchange Act. In addition, Mr. Stilley is an “audit committee financial expert” as defined in Item 407(d)(5) of Regulation S-K and demonstrates “financial sophistication” as defined by the rules of The NASDAQ Stock Market, Inc. The Audit Committee is appointed by our board of directors to assist our board of directors in monitoring (1) the integrity of our financial statements, (2) our compliance with legal and regulatory requirements, and (3) the independence and performance of our internal and external auditors. The Audit Committee’s principal functions include: ● reviewing our annual audited financial statements with management and our independent auditors, including major issues regarding accounting and auditing principles and practices and financial reporting that could significantly affect our financial statements; ● reviewing our quarterly financial statements with management and our independent auditor prior to the filing of our Quarterly Reports on Form 10-Q, including the results of the independent auditors’ reviews of the quarterly financial statements; ● recommending to the board of directors the appointment of, and continued evaluation of the performance of, our independent auditor; ● approving the fees to be paid to our independent auditor for audit services and approving the retention of our independent auditor for non-audit services and all fees for such services; ● reviewing periodic reports from our independent auditor regarding our auditor’s independence, including discussion of such reports with the auditor; ● reviewing the adequacy of our overall control environment, including internal financial controls and disclosure controls and procedures; and ● reviewing with our management and legal counsel legal matters that may have a material impact on our financial statements or our compliance policies and any material reports or inquiries received from regulators or governmental agencies. During the year ended December 31, 2022, the audit committee met four times. A copy of the Audit Committee’s charter is posted on the Company’s website at www.avalon-globocare.com in the “Investors” section of the website. Meetings may be held from time to time to consider matters for which approval of our Board of Directors is desirable or is required by law. Compensation Committee Our compensation committee consists of Lourdes Felix, Steven Sanders and Tevi Troy. Our board of directors has determined that each of the members are an “independent director” as defined by the Nasdaq rules applicable to members of a compensation committee. The Compensation Committee is responsible for establishing the compensation of our senior management, including salaries, bonuses, termination arrangements, and other executive officer benefits as well as director compensation. The Compensation Committee also administers our equity incentive plans. During the year ended December 31, 2022, the Compensation Committee did not meet. The Compensation Committee is governed by a written charter approved by the board of directors. A copy of the Compensation Committee’s charter is posted on the Company’s website at www.avalon-globocare.com in the “Investors” section of the website. The Compensation Committee works with the Chairman of the Board and Chief Executive Officer and reviews and approves compensation decisions regarding senior management including compensation levels and equity incentive awards. The Compensation Committee also approves employment and compensation agreements with our key personnel and directors. The Compensation Committee has the power and authority to conduct or authorize studies, retain independent consultants, accountants or others, and obtain unrestricted access to management, our internal auditors, human resources and accounting employees and all information relevant to its responsibilities. The responsibilities of the Compensation Committee, as stated in its charter, include the following: ● review and approve the Company’s compensation guidelines and structure; ● review and approve on an annual basis the corporate goals and objectives with respect to compensation for the Chief Executive Officer; 72 ● review and approve on an annual basis the evaluation process and compensation structure for the Company’s other officers, including salary, bonus, incentive and equity compensation; and ● periodically review and make recommendations to the Board of Directors regarding the compensation of non-management directors. The Compensation Committee is responsible for developing the executive compensation philosophy and reviewing and recommending to the Board of Directors for approval all compensation policies and compensation programs for the executive team. Compensation Committee Interlocks and Insider Participation None of our executive officers currently serves, or in the past year has served, as a member of the board of directors or compensation committee of any entity that has one or more executive officers on our board of directors or compensation committee. Code of Ethics We have a code of ethics that applies to all of our employees, including our principal executive officer, principal financial officer and principal accounting officer, and the Board. A copy of this code is available in our employee handbook and under the “About Us – Code of Conduct” section of our website at www.avalon-globocare.com. In addition, we intend to post on our website all disclosures that are required by law or the listing standards of our applicable trading market concerning any amendments to, or waivers from, any provision of the code. The reference to our website address does not constitute incorporation by reference of the information contained at or available through our website, and you should not consider it to be a part of this report. Indemnification of Directors and Officers Our directors and executive officers are indemnified as provided by the Delaware law and our Bylaws. These provisions state that our directors may cause us to indemnify a director or former director against all costs, charges and expenses, including an amount paid to settle an action or satisfy a judgment, actually and reasonably incurred by him or her as a result of him or her acting as a director. The indemnification of costs can include an amount paid to settle an action or satisfy a judgment. Such indemnification is at the discretion of our board of directors and is subject to the Securities and Exchange Commission’s policy regarding indemnification. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers or persons controlling us pursuant to the foregoing provisions, or otherwise. We have been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. Delinquent Section 16(a) Reports Section 16(a) of the Exchange Act requires the Company’s executive officers, directors, and persons who beneficially own more than ten percent of a registered class of the Company’s equity securities, to file with the SEC initial reports of ownership and reports of changes in ownership of the Company’s common stock. Such officers, directors, and persons are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms that they file with the SEC. To our knowledge, based solely on review of the copies of such reports and amendments to such reports with respect to the year ended December 31, 2022 filed with the SEC, all required Section 16 reports under the Exchange Act for our directors, executive officers, principal accounting officer and beneficial owners of greater than 10% of our common stock were filed on a timely basis during the year ended December 31, 2022. 73 ITEM 11. EXECUTIVE COMPENSATION Executive Officers’ Compensation The following table sets forth information concerning all cash and non-cash compensation awarded to, earned by or paid to our Chief Executive Officer, Chief Financial Officer and Chief Operation Officer during the last two (2) years. No other executive officer received compensation in excess of $100,000 during the fiscal year ended December 31, 2022. Summary Annual Compensation Table Name and Principal Position Fiscal Year Salary Stock Award Option Awards Non-Equity Incentive Plan Compensation Change in Pension Value and Non- Qualified Deferred Compensation Earnings All Other Compensation Total ($) ($) ($) ($) ($) ($) ($) Dr. David Jin 2022 360,000 - - - - - 360,000 CEO 2021 360,000 - - - - - 360,000 Luisa Ingargiola 2022 350,000 - - - - - 350,000 CFO 2021 350,000 - - - - - 350,000 Meng Li 2022 340,000 - - - - - 340,000 COO 2021 340,000 - - - - - 340,000 Employment Agreements David Jin On December 1, 2016, the Company entered into an Executive Employment Agreement with David Jin, the Company’s CEO and President. Pursuant to the agreement, Mr. Jin was employed as President and Chief Executive Officer of the Company which agreement had a term initially through November 30, 2017 unless earlier terminated pursuant to the terms of the agreement. On February 20, 2020, the Company entered into a Letter Agreement with Dr. Jin pursuant to which the term of Dr. Jin’s Executive Employment Agreement was extended an additional three years. During the term of the agreement, Mr. Jin is entitled to a base salary and will be eligible for a discretionary performance bonus, equity awards and to participate in employee benefits plans as the Company may institute from time to time at the discretion of the Company’s Board of Directors. On January 3, 2019, the Company entered into a Letter Agreement with Dr. Jin, pursuant to which his annual base salary set forth in his employment agreement was increased to $360,000 effective January 1, 2019. Pursuant to the agreement, Mr. Jin may be terminated for “cause” as defined and Mr. Jin may resign for “good reason” as defined. In the event Mr. Jin is terminated without cause or resigns for good reason, the Company will be required to pay Mr. Jin all accrued salary and bonuses, reimbursement for all business expenses and Mr. Jin’s salary for one year. In the event Mr. Jin is terminated with cause, resigns without good reason, dies or is disabled, the Company will be required to pay Mr. Jin all accrued salary and bonuses and reimbursement for all business expenses. Under the agreement Mr. Jin is subject to confidentiality, non-compete and non-solicitation restrictions. 74 Meng Li On January 11, 2017, Avalon Shanghai entered into an Executive Employment Agreement with Meng Li, the Company’s COO and Secretary. Pursuant to the agreement, Ms. Li was employed as Chief Operating Officer and President of Avalon Shanghai initially through November 30, 2019, unless earlier terminated pursuant to the terms of the agreement. On February 20, 2020, the Company entered into a Letter Agreement with Meng Li pursuant to which the term of Ms. Li’s Executive Employment Agreement entered between the Company’ subsidiary and Ms. Li dated January 11, 2017 was extended an additional three years. During the term of the agreement, Ms. Li is be entitled to a base salary and will be eligible for a discretionary performance bonus, equity awards and to participate in employee benefits plans as the Avalon Shanghai may institute from time to time at the discretion of its Board of Directors. On January 3, 2019, the Company entered into a Letter Agreement with Ms. Li, pursuant to which her annual base salary set forth in her employment agreement was increased to $340,000 effective January 1, 2019. Pursuant to the agreement, Ms. Li may be terminated for “cause” as defined and Ms. Li may resign for “good reason” as defined. In the event Ms. Li is terminated without cause or resigns for good reason, Avalon Shanghai will be required to pay Ms. Li all accrued salary and bonuses, reimbursement for all business expenses and Ms. Li’s salary for one year. In the event Ms. Li is terminated with cause, resigns without good reason, dies or is disabled, Avalon Shanghai will be required to pay Ms. Li all accrued salary and bonuses and reimbursement for all business expenses. Under the agreement Ms. Li is subject to confidentiality, non-compete and non-solicitation restrictions. Luisa Ingargiola On February 21, 2017, Ms. Ingargiola and the Company entered into an Executive Retention Agreement effective February 9, 2017 pursuant to which Ms. Ingargiola agreed to serve as Chief Financial Officer in consideration of an annual salary. On January 3, 2019, the Company entered into a Letter Agreement with Ms. Ingargiola, pursuant to which her annual base salary set forth in her employment agreement was increased to $350,000 effective January 1, 2019. The employment of Ms. Ingargiola is at will and may be terminated at any time, with or without formal cause. Pursuant to the terms of executive retention agreement with Ms. Ingargiola, the Company has agreed to provide specified severance and bonus amounts and to accelerate the vesting on their equity awards upon termination upon a change of control or an involuntary termination, as each term is defined in the agreements. In the event of a termination upon a change of control, Ms. Ingargiola is entitled to receive an amount equal to 12 months of her base salary and the target bonus then in effect for the executive officer for the year in which such termination occurs, such bonus payment to be pro-rated to reflect the full number of months the executive remained in the Company’s employ. In addition, the vesting on any stock option held by the executive officer will be accelerated in full. At the election of the executive officer, the Company will also continue to provide health related employee insurance coverage for twelve months, at the Company’s expense. 75 In the event of an involuntary termination, Ms. Ingargiola is entitled to receive an amount equal to six months of her base salary and the target bonus then in effect for the executive officer for the six months in which such termination occurs, such bonus payment to be pro-rated to reflect the full number of months the executive remained in the Company’s employ. Such payment will be increased to 12 months upon the one-year anniversary of the retention agreement. In addition, the vesting on any stock option held by the executive officer will be accelerated in full. At the election of the executive officer, the Company will also continue to provide health related employee insurance coverage for twelve months, at the Company’s expense. Option Exercises and Stock Vested There were no options exercised by our executive officers or stock vested to our executive officers during the year ended December 31, 2022. Outstanding Equity Awards The following table sets forth information with respect to the outstanding equity awards of our principal executive officers and principal financial officer during 2022, and each person who served as an executive officer of the Company as of December 31, 2022: Outstanding Equity Awards Option Awards Stock Awards Name and principal position Number of securities underlying unexercised options Exercisable (#) Number of securities underlying unexercised options Unexercisable (#) Equity incentive plan awards: Number of securities underlying unexercised options (#) Options exercise price ($) Option expiration Date Number of shares or units of stock that have not vested (#) Market value of shares or units of stock that have not vested ($) Equity incentive plan awards: Number of unearned shares, units or other rights that have not vested (#) Equity incentive plan awards: Market or payout value of unearned shares, units or other rights that have not vested ($) Luisa Ingargiola, CFO 240,000 - 240,000 5.0 2/8/2027 - - - - 15.2 2/18/2030 David Jin, CEO 55,000 - 55,000 20.0 1/2/2024 - - - - 15.2 2/18/2030 Meng Li, COO 45,000 - 45,000 20.0 1/2/2024 - - - - 15.2 2/18/2030 76 No Pension Benefits The Company does not maintain any plan that provides for payments or other benefits to its executive officers at, following or in connection with retirement and including, without limitation, any tax-qualified defined benefit plans or supplemental executive retirement plans. No Nonqualified Deferred Compensation The Company does not maintain any defined contribution or other plan that provides for the deferral of compensation on a basis that is not tax-qualified. Director Compensation Name Fees Earned or Paid in Cash $ Stock Awards $ Option Awards $ Non-equity Incentive Plan Compensation $ Change in Pension Value and Non- Qualified Deferred Compensation Earnings $ All Other Compensation $ Total $ Yue (Charles) Li (1) 60,000 - 31,667 - - - 91,667 Yancen Lu (2) 70,000 - 31,667 - - - 101,667 Wilbert Tauzin (3) - - 94,890 - - - 94,890 Wenzhao Lu 100,000 - - - - - 100,000 David Jin - - - - - - - Meng Li (4) - - - - - - - Steven Sanders (5) 70,000 - 55,274 - - - 125,274 Tevi Troy (6) 60,000 - 55,274 - - - 115,274 William Stilley (7) 70,000 - 55,274 - - - 125,274 (1) Mr. Li’s 2022 compensation consisted of cash of $60,000 and 8,000 options vested and valued at $31,667. Mr. Li resigned as a director on December 30, 2022. (2) Mr. Lu’s 2022 compensation consisted of cash of $70,000 and 8,000 options vested and valued at $31,667. Mr. Lu resigned as a director on December 30, 2022. (3) Mr. Tauzin’s 2022 compensation consisted of 200,000 options vested and valued at $94,890. (4) Ms. Li resigned as a director on December 30, 2022. (5) Mr. Sanders’s 2022 compensation consisted of cash of $70,000 and 8,000 options vested and valued at $55,274. (6) Mr. Troy’s 2022 compensation consisted of cash of $60,000 and 8,000 options vested and valued at $55,274. (7) Mr. Stilley’s 2022 compensation consisted of cash of $70,000 and 8,000 options vested and valued at $55,274. 77 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. In accordance with SEC rules, shares of our common stock which may be acquired upon exercise of stock options or warrants which are currently exercisable or which become exercisable within 60 days of the date of the applicable table below are deemed beneficially owned by the holders of such options and warrants and are deemed outstanding for the purpose of computing the percentage of ownership of such person, but are not treated as outstanding for the purpose of computing the percentage of ownership of any other person. Subject to community property laws, where applicable, the persons or entities named in the tables below have sole voting and investment power with respect to all shares of our common stock indicated as beneficially owned by them. The following table sets forth certain information, as of March 29, 2023 with respect to the beneficial ownership of the outstanding common stock by (i) any holder of more than five (5%) percent; (ii) each of our executive officers and directors; and (iii) our directors and executive officers as a group. The numbers below reflect a 1:10 reverse stock split implemented on January 5, 2023. Except as otherwise indicated, each of the stockholders listed below has sole voting and investment power over the shares beneficially owned. Name of Beneficial Owner (1) Common Stock Beneficially Owned Percentage of Common Stock (2) Wenzhao Lu* (3) 3,733,788 33.6 % David Jin, MD, PhD* (4) 1,600,000 14.4 % Meng Li* (5) 560,000 5.0 % Luisa Ingargiola* (6) 240,000 2.2 % Steven A. Sanders* (7) 33,000 ** Wilbert J. Tauzin II* (8) 65,000 ** William B. Stilley III* (9) 33,000 ** Tevi Troy* (10) 33,000 ** Lourdes Felix* (11) 3,803 ** All officers and directors as a group (9 persons) 6,301,591 56.8 % Shareholder owning 5% or more: FSUNSHINE TRADING PTE LTD 573,646 5.2 % * Officer and/or director of our company. ** Less than 1.0%. (1) Except as otherwise indicated, the address of each beneficial owner is c/o Avalon GloboCare Corp., 4400 Route 9 South, Suite 3100, Freehold, New Jersey 07728. (2) Applicable percentage ownership is based on 10,164,307 shares of common stock outstanding as of March 29, 2023, together with securities exercisable or convertible into shares of common stock within 60 days of March 29, 2023 for each stockholder. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Shares of common stock that are currently exercisable or exercisable within 60 days of March 29, 2023 are deemed to be beneficially owned by the person holding such securities for the purpose of computing the percentage of ownership of such person, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person. (3) Wenzhao Lu holds (i) 3,583,788 shares of common stock and (ii) 150,000 vested options to acquire 150,000 shares of common stock of our company. (4) David Jin holds (i) 1,545,000 shares of common stock and (ii) 55,000 vested options to acquire 55,000 shares of common stock of our company. 78 (5) Meng Li holds (i) 515,000 shares of common stock and (ii) 45,000 vested options to acquire 45,000 shares of common stock of our company. (6) Represents 240,000 vested options to acquire 240,000 shares of common stock of our company. (7) Represents stock option to acquire 33,000 shares of common stock of our company, which included 2,000 shares to be vested within 60 days. (8) Represents stock option to acquire 65,000 shares of common stock of our company, which included 1,000 shares to be vested within 60 days. (9) Represents stock option to acquire33,000 shares of common stock of our company, which included 2,000 shares to be vested within 60 days. (10) Represents stock option to acquire 33,000 shares of common stock of our company, which included 2,000 shares to be vested within 60 days. (11) Represents stock option to acquire 3,803 shares of common stock of our company. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE Rental Revenue from Related Party and Rent Receivable – Related Party The Company leases space of its commercial real property located in New Jersey to a company, D.P. Capital Investments LLC, which is controlled by Wenzhao Lu, the Company’s largest shareholder and chairman of the Board of Directors. The term of the related party lease agreement is five years commencing on May 1, 2021 and will expire on April 30, 2026. For the years ended December 31, 2022 and 2021, the related party rental revenue amounted to $50,400 and $33,600, respectively, and has been included in real property rental on the accompanying consolidated statements of operations and comprehensive loss. The related party rent receivable totaled $74,100 and $33,600, respectively, and no allowance for doubtful accounts was deemed to be required on rent receivable – related party at December 31, 2022 and 2021. Medical Related Consulting Services Revenue from Related Party During the years ended December 31, 2022 and 2021, medical related consulting services revenue from related party was as follows: Years Ended December 31, 2022 2021 Medical related consulting services provided to: Hebei Daopei * $ - $ 187,412 $ - $ 187,412 * Hebei Daopei is a subsidiary of an entity whose chairman is Wenzhao Lu, the largest shareholder of the Company. Services Provided by Related Party From time to time, Wilbert Tauzin, a director of the Company, and his son provide consulting services to the Company. As compensation for professional services provided, the Company recognized consulting expenses of $144,064 and $216,169 for the years ended December 31, 2022 and 2021, respectively, which have been included in professional fees on the accompanying consolidated statements of operations and comprehensive loss. 79 Accrued Liabilities and Other Payables – Related Parties In 2017, the Company acquired Beijing Genexosome for a cash payment of $450,000. As of December 31, 2022 and 2021, the unpaid acquisition consideration of $100,000, was payable to Dr. Yu Zhou, former director and former co-chief executive officer and 40% owner of Genexosome, and has been included in accrued liabilities and other payables – related parties on the accompanying consolidated balance sheets. As of December 31, 2022 and 2021, $0 and $368,433 of accrued and unpaid interest related to borrowings from Wenzhao Lu, the Company’s largest shareholder and chairman of the Board of Directors, respectively, have been included in accrued liabilities and other payables – related parties on the accompanying consolidated balance sheets. Borrowings from Related Party Promissory Note On March 18, 2019, the Company issued Wenzhao Lu, the Company’s largest shareholder and Chairman of the Board of Directors, a Promissory Note in the principal amount of $1,000,000 (“Promissory Note”) in consideration of cash in the amount of $1,000,000. The Promissory Note accrues interest at the rate of 5% per annum and matures March 19, 2022. In March 2022, the Company and Wenzhao Lu entered into a Loan Extension and Modification Agreement (the “Extension”) to extend the maturity date to March 19, 2024.The Company repaid principal of $410,000, $200,000 and $390,000 in the third quarter of 2019, second quarter of 2020 and second quarter of 2022, respectively. As of December 31, 2022 and 2021, the outstanding principal balance was $0 and $390,000, respectively. Line of Credit On August 29, 2019, the Company entered into a Line of Credit Agreement (the “Line of Credit Agreement”) providing the Company with a $20 million line of credit (the “Line of Credit”) from Wenzhao Lu (the “Lender”), the largest shareholder and Chairman of the Board of Directors of the Company. The Line of Credit allows the Company to request loans thereunder and to use the proceeds of such loans for working capital and operating expense purposes until the facility matures on December 31, 2024. The loans are unsecured and are not convertible into equity of the Company. Loans drawn under the Line of Credit bears interest at an annual rate of 5% and each individual loan will be payable three years from the date of issuance. The Company has a right to draw down on the line of credit and not at the discretion of the related party Lender. The Company may, at its option, prepay any borrowings under the Line of Credit, in whole or in part at any time prior to maturity, without premium or penalty. The Line of Credit Agreement includes customary events of default. If any such event of default occurs, the Lender may declare all outstanding loans under the Line of Credit to be due and payable immediately. In the years ended December 31, 2022 and 2021, activity recorded for the Line of Credit is summarized in the following table: Outstanding principal under the Line of Credit at January 1, 2021 $ 3,200,000 Draw down from Line of Credit 2,550,262 Settlement of Line of Credit in shares (3,000,000 ) Outstanding principal under the Line of Credit at December 31, 2021 2,750,262 Draw down from Line of Credit 100,000 Repayment of Line of Credit (410,000 ) Settlement of Line of Credit in shares (2,440,262 ) Outstanding principal under the Line of Credit at December 31, 2022 $ - For the years ended December 31, 2022 and 2021, the interest expense related to above borrowings amounted to $79,898 and $200,477, respectively, and has been reflected as interest expense – related party on the accompanying consolidated statements of operations and comprehensive loss. 80 As of December 31, 2022 and 2021, the related accrued and unpaid interest for above borrowings was $0 and $368,433, respectively, and has been included in accrued liabilities and other payables – related parties on the accompanying consolidated balance sheets. Common Shares Sold to Related Party for Cash On August 5, 2022, the Company sold 44,872 shares of its common stock at a purchase price of $7.8 per share, the fair market value on transaction date, to Wenzhao Lu pursuant to a subscription agreement. The Company received proceeds of $350,000 . Series A Convertible Preferred Stock Sold to Related Party for Cash On December 14, 2022, the Company entered into a Securities Purchase Agreement with Wenzhao Lu, the Company’s Chairman of the Board, pursuant to which the Company sold to Mr. Lu 4,000 shares of its Series A Preferred Stock, stated value $1,000, for the gross proceeds of $4,000,000. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES Marcum LLP served as our independent auditors for the years ended December 31, 2022 and 2021. Aggregate fees billed to the Company for professional services rendered by Marcum LLP during the last two years were as follows: Years Ended December 31, 2022 2021 Audit Fees $ 196,473 $ 223,229 Audit Related Fees - - Tax Fees - - All Other Fees - - Totals $ 196,473 $ 223,229 AUDIT FEES. Consists of fees billed for professional services rendered for the audit of our annual consolidated financial statements, review of the Form 10-K, and review of the interim consolidated financial statements included in quarterly reports, and services that are normally provided by our independent auditors in connection with statutory and regulatory filings or engagements, including registration statements. AUDIT-RELATED FEES. Consists of fees billed for assurance and related services that are reasonably related to the performance of the audit and or review of our consolidated financial statements and are not reported under “Audit Fees”, such as audits and reviews in connection with acquisitions. TAX FEES. Consists of fees billed for professional services for tax compliance, tax advice and tax planning. ALL OTHER FEES. Consists of fees for products and services other than the services reported above. There were no management consulting services provided in 2022 or 2021. POLICY ON AUDIT COMMITTEE PRE-APPROVAL OF AUDIT AND PERMISSIBLE NON-AUDIT SERVICES OF INDEPENDENT AUDITORS The current policy of the directors, acting as the audit committee, is to approve the appointment of the principal auditing firm and any permissible audit-related services. The audit and audit related fees include fees for the annual audit of the financial statements and review of financial statements included in Form 10-Q filings. Fees charged by the auditor were approved by the Board with engagement letters signed by the audit committee chairman. The Audit Committee is responsible for the pre-approval of audit and permitted non-audit services to be performed by the Company’s independent auditor. The Audit Committee will, on an annual basis, consider and, if appropriate, approve the provision of audit and non-audit services by the auditor. Thereafter, the Audit Committee will, as necessary, consider and, if appropriate, approve the provision of additional audit and non-audit services by the auditor which are not encompassed by the Audit Committee’s annual pre-approval and are not prohibited by law. The Audit Committee has delegated to the Chair of the Audit Committee the authority to pre-approve, on a case-by-case basis, non-audit services to be performed by the auditor. The Audit Committee has approved all audit and permitted non-audit services performed by the auditor for the year ended December 31, 2022. 81 PART IV ITEM 15. EXHIBITS Exhibit Number Description 1.1 Open Market Sale Agreement SM , dated as of December 13, 2019, by and between Avalon GloboCare Corp. and Jefferies LLC. (incorporated by reference to Exhibit 1.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on December 13, 2019) 2.1 Membership Interest Purchase Agreement, dated November 7, 2022, by and among the Registrant, Laboratory Services MSO, LLC, SCBC Holdings LLC, Avalon Laboratory Services, Inc., The Zoe Family Trust, Bryan Cox and Sarah Cox (incorporated by reference to Exhibit 2.1 of the Registrant’s Current Report on Form 8-K filed on November 8, 2022). 2.2 Amended and Restated Membership Interest Purchase Agreement, dated February 9, 2023 by and among the Registrant, Laboratory Services MSO, LLC, SCBC Holdings LLC, Avalon Laboratory Services, Inc., the Zoe Family Trust, Bryan Cox and Sarah Cox (incorporated by reference to Exhibit 2.1 of the Registrant’s Current Report on Form 8-K filed on February 13, 2023). 3.1 Amended and Restated Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 of the Current Report on Form 8-K/A filed with the Securities and Exchange Commission on April 26, 2018) 3.2 Certificate of Amendment to the Amended and Restated Certificate of Incorporation, as amended, of Avalon GloboCare Corp. (incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K filed on January 4, 2023). 3.3 Amended and Restated Bylaws of the Registrant (incorporated by reference to Exhibit 3.2 of the Current Report on Form 8-K/A filed with the Securities and Exchange Commission on April 26, 2018) 3.4 Certificate of Designation of Preferences, Rights and Limitations of the Series A Convertible Preferred Stock (incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K filed on November 8, 2022). 3.5 Certificate of Designation of Preferences, Rights and Limitations of the Series A Convertible Preferred Stock (incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K filed on February 13, 2023). 4.1 Form of Subscription Agreement by and between Avalon GloboCare Corp. and the December 2016 Accredited Investors (incorporated by reference to Exhibit 4.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on December 21, 2016) 4.2 † Stock Option issued to Luisa Ingargiola dated February 21, 2017 (incorporated by reference to Exhibit 4.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on February 21, 2017) 4.3 Form of Subscription Agreement by and between Avalon GloboCare Corp. and the March 2017 Accredited Investor (incorporated by reference to Exhibit 4.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on March 7, 2017) 4.4 Share Subscription Agreement between Avalon GloboCare Corp., Avalon (Shanghai) Healthcare Technology Co., Ltd., Beijing DOING Biomedical Technology Co., Ltd. and Daron Liang (incorporated by reference to Exhibit 4.2 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on March 7, 2017) 82 4.5 Warranty Agreement by and between Lu Wenzhao and Beijing DOING Biomedical Technology Co., Ltd., dated February 27, 2017 (incorporated by reference to Exhibit 4.3 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on March 7, 2017) 4.6 Form of Subscription Agreement between Avalon GloboCare Corp. and the October 2017 Accredited Investors (incorporated by reference to Exhibit 4.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on October 26, 2017) 4.7 Form of Warrant to Boustead Securities, LLC in connection with the private placements (incorporated by reference to Exhibit 4.8 of the Registration Statement on Form S-1/A filed with the Securities and Exchange Commission on July 27, 2018) 4.8 Form of Warrant (April 2019) (incorporated by reference to Exhibit 4.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on April 26, 2019) 4.9* Description of Securities Registered under Section 12 of the Securities Exchange Act of 1934 4.10 Form of Subscription Agreement by and between Avalon GloboCare Corp. and Wenzhao “Daniel” Lu dated August 5, 2022 (incorporated by reference to Exhibit 4.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on August 8, 2022). 4.11 Form of Subscription Agreement by and between Avalon GloboCare Corp. and Emma Li Xu Qingbo dated August 5, 2022 (incorporated by reference to Exhibit 4.2 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on August 8, 2022). 10.1 Share Exchange Agreement dated as of October 19, 2016 by and among Avalon Healthcare System, Inc., the shareholders of Avalon Healthcare System, Inc. and Avalon GloboCare Corp. (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on October 19, 2016) 10.2 † Executive Employment Agreement, effective December 1, 2016, by and between Avalon GloboCare Corp. and David Jin (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on December 2, 2016) 10.3 Agreement of Sale by and between Freehold Craig Road Partnership and Avalon GloboCare Corp., dated December 22, 2016 (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on December 23, 2016) 10.4 † Executive Employment Agreement by and between Avalon (Shanghai) Healthcare Technology Ltd. and Meng Li, dated January 11, 2017 (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on January 11, 2017) 10.5 † Executive Retention Agreement by and between Avalon GloboCare Corp. and Luisa Ingargiola, dated February 21, 2017 (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on February 21, 2017) 10.6 † Indemnification Agreement by and between Avalon GloboCare Corp. and Luisa Ingargiola, dated February 21, 2017 (incorporated by reference to Exhibit 10.2 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on February 21, 2017) 83 10.7 † Director Agreement by and between Avalon GloboCare Corp. and Steven P. Sukel dated April 28, 2017 (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on April 28, 2017) 10.8 † Director Agreement by and between Avalon GloboCare Corp. and Yancen Lu dated April 28, 2017 (incorporated by reference to Exhibit 10.2 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on April 28, 2017) 10.9 Consultation Service Contract between Daopei Investment Management (Shanghai) Co., Ltd. and Avalon HealthCare System Inc. dated April 1, 2016 (English translation) (incorporated by reference to Exhibit 10.8 of Amendment No. 1 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on July 7, 2017) 10.10 Consultation Service Contract between Hebei Yanda Ludaopei Hospital Co., Ltd and Avalon HealthCare System Inc. dated April 1, 2016 (English translation) (incorporated by reference to Exhibit 10.9 of Amendment No. 1 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on July 7, 2017) 10.11 Consultation Service Contract between Nanshan Memorial Stem Cell Biotechnology Co., Ltd. and Avalon HealthCare System Inc. dated April 1, 2016 (English translation) (incorporated by reference to Exhibit 10.10 of Amendment No. 1 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on July 7, 2017) 10.12 Loan Agreement between Lotus Capital Overseas Limited and Avalon (Shanghai) Healthcare Technology Co., Ltd. dated April 19, 2017 (English translation) (incorporated by reference to Exhibit 10.12 of the Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on August 14, 2017) 10.13 Securities Purchase Agreement between Avalon GloboCare Corp. and Genexosome Technologies Inc. dated October 25, 2017 (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on October 26, 2017) 10.14 Asset Purchase Agreement between Genexosome Technologies Inc. and Yu Zhou dated October 25, 2017 (incorporated by reference to Exhibit 10.2 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on October 26, 2017) 10.15 Stock Purchase Agreement between Genexosome Technologies Inc., Beijing Jieteng (Genexosome) Biotech Co. Ltd. and Yu Zhou dated October 25, 2017 (incorporated by reference to Exhibit 10.3 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on October 26, 2017) 10.16 † Executive Retention Agreement between Genexosome Technologies Inc. and Yu Zhou dated October 25, 2017 (incorporated by reference to Exhibit 10.4 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on October 26, 2017) 10.17 Invention Assignment, Confidentiality, Non-Compete and Non-Solicit Agreement between Genexosome Technologies Inc. and Yu Zhou dated October 25, 2017 (incorporated by reference to Exhibit 10.5 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on October 26, 2017) 10.18 † Director Agreement by and between Avalon GloboCare Corp. and Wilbert J. Tauzin II dated November 1, 2017 (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on November 7, 2017) 10.19 Agreement between Avalon GloboCare Corp. and Tauzin Consultants, LLC dated November 1, 2017 (incorporated by reference to Exhibit 10.2 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on November 7, 2017) 84 10.20 † Letter Agreement by and between Avalon GloboCare Corp. and David Jin dated April 3, 2018 (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on April 4, 2018) 10.21 † Letter Agreement by and between Avalon GloboCare Corp. and Meng Li dated April 3, 2018 (incorporated by reference to Exhibit 10.2 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on April 4, 2018) 10.22 Advisory Service Contract between Ludaopei Hematology Research Institute Co., Ltd. and Avalon (Shanghai) Healthcare Technology Co., Ltd. dated April 1, 2018 (English translation) (incorporated by reference to that Form S-1 Registration Statement filed with the Securities and Exchange Commission on April 19, 2018) 10.23 Form of Subscription Agreement by and between Avalon GloboCare Corp. and the April 2018 Accredited Investors (incorporated by reference to Exhibit 4.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on April 18, 2018) 10.24 Supplementary Agreement Related to Share Subscription by and between Avalon GloboCare Corp., Avalon (Shanghai) Healthcare Technology Co., Ltd., Beijing DOING Biomedical Technology Co., Ltd. and Daron Liang dated April 23, 2018 (English translation) (incorporated by reference to Exhibit 4.2 of the Current Report on Form 8-K/A filed with the Securities and Exchange Commission on April 26, 2018) 10.25 Loan Extension Agreement between Lotus Capital Overseas Limited and Avalon (Shanghai) Healthcare Technology Co., Ltd. dated May 3, 2018 (English translation) (incorporated by reference to Exhibit 10.18 of the Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 11, 2018) 10.26 † Director Agreement by and between Avalon GloboCare Corp. and Tevi Troy dated June 4, 2018 (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on June 6, 2018) 10.27 Joint Venture Agreement by and between Avalon (Shanghai) Healthcare Technology Co., Ltd. and Jiangsu Unicorn Biological Technology Co., Ltd. dated May 29, 2018 (English translation) (incorporated by reference to Exhibit 99.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on June 6, 2018) 10.28 † Director Agreement by and between Avalon GloboCare Corp. and William Stilley, III dated July 5, 2018 (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 10, 2018) 10.29 † Director Agreement by and between Avalon GloboCare Corp. and Steven A. Sanders dated July 30, 2018 (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 31, 2018) 10.30 Loan Extension Agreement between Lotus Capital Overseas Limited and Avalon (Shanghai) Healthcare Technology Co., Ltd. dated August 3, 2018 (English translation) (incorporated by reference to Exhibit 10.30 of the Registration Statement on Form S-1/A filed with the Securities and Exchange Commission on August 7, 2018) 10.31 Strategic Partnership Agreement between Avalon GloboCare Corp. and Weill Cornell Medical College of Cornell University dated August 6, 2018 (incorporated by reference to Exhibit 10.31 of the Registration Statement on Form S-1/A filed with the Securities and Exchange Commission on August 7, 2018) 85 10.32 Equity Joint Venture Agreement by and between Avactis Biosciences, Inc., a wholly-owned subsidiary of Avalon GloboCare Corp., and Arbele Limited for the establishment of AVAR (China) BioTherapeutics Ltd. dated October 23, 2018 (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on October 29, 2018) 10.33 Letter Agreement by and between Avalon GloboCare Corp. and David Jin dated January 3, 2019 (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on January 4, 2019) 10.34 Letter Agreement by and between Avalon GloboCare Corp. and Luisa Ingargiola dated January 3, 2019 (incorporated by reference to Exhibit 10.2 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on January 4, 2019) 10.35 Letter Agreement by and between Avalon (Shanghai) Healthcare Technology Co. Ltd. and Meng Li dated January 3, 2019 (incorporated by reference to Exhibit 10.3 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on January 4, 2019) 10.36 Promissory Note issued to Daniel Lu dated Mach 18, 2019 (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on March 22, 2019) 10.37† Director Agreement by and between Avalon GloboCare Corp. and Meng Li dated April 5, 2019 (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on April 8, 2019) 10.38† Director Agreement by and between Avalon GloboCare Corp. and Yue “Charles” Li dated April 5, 2019 (incorporated by reference to Exhibit 10.2 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on April 8, 2019) 10.39 Form of Securities Purchase Agreement dated April 25, 2019 (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on April 26, 2019) 10.40 Revolving Line of Credit Agreement dated as of August 29, 2019 between Avalon GloboCare Corp. and Wenzhao “Daniel” Lu dated August 29, 2019 (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on September 3, 2019) 10.41 Form of Warrant Redemption and Cancellation Agreement (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on October 21, 2019) 10.42 Letter Agreement by and between Avalon GloboCare Corp. and David Jin dated February 20, 2020 (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on February 24, 2020) 10.43 Letter Agreement by and between Avalon GloboCare Corp. and Meng Li dated February 20, 2020 (incorporated by reference to Exhibit 10.2 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on February 24, 2020) 10.44 Letter Agreement by and between Avalon GloboCare Corp. and Luisa Ingargiola dated February 20, 2020 (incorporated by reference to Exhibit 10.3 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on February 24, 2020) 10.45 Debt Settlement Agreement and Release between Avalon GloboCare Corp. and Wenzhao “Daniel” Lu (incorporated by reference to Exhibit 10.2 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on December 22, 2021) 86 10.46 Corporate Research Agreement between Avalon GloboCare Corp. and the University of Pittsburgh of the Commonwealth System of Higher Education dated July 8, 2021 (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 14, 2021) 10.47 Form of Securities Purchase Agreement dated March 28, 2022 (incorporated by reference to Exhibit 10.47 of the Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 30, 2022). 10.48 Form of Convertible Note – March 2022 (incorporated by reference to Exhibit 10.48 of the Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 30, 2022). 10.49 Loan Extension and Modification Agreement between Avalon GloboCare Corp. and Wenzhao Lu dated March 28, 2022 (incorporated by reference to Exhibit 10.49 of the Form 10-K filed with the Securities and Exchange Commission on March 30, 2022). 10.50* Consulting Agreement, dated February 9, 2023, by and between Laboratory Services MSO, LLC and Sarah Cox. 10.51 Form of Warrant – March 2022 (incorporated by reference to Exhibit 10.3 of the Form 8-K filed with the Securities and Exchange Commission on April 29, 2022). 10.52 Amendment No. 1 to the Equity Joint Venture Agreement entered between Avalon GloboCare Corp., Avactis Biosciences Inc., Arbele Limited and Arbele Biotherapeutics Limited dated April 6, 2022 (incorporated by reference to Exhibit 10.53 of the Form 10-Q filed with the Securities and Exchange Commission on May 11, 2022). 10.53 Letter Agreement between Avalon GloboCare Corp. and Fsunshine Trading PTE. Ltd. dated June 8, 2022 (incorporated by reference to Exhibit 10.4 of the Form 8-K filed with the Securities and Exchange Commission on June 8, 2022). 10.54 Debt Settlement Agreement and Release between Avalon GloboCare Corp. and Wenzhao “Daniel” Lu dated July 25, 2022 (incorporated by reference to Exhibit 10.2 of the Form 8-K filed with the Securities and Exchange Commission on July 27, 2022). 10.55 Conversion Agreement between Avalon GloboCare Corp. and Fsunshine Trading PTE. Ltd. Dated July 25, 2022 (incorporated by reference to Exhibit 10.3 of the Form 8-K filed with the Securities and Exchange Commission on July 27, 2022). 10.56 Form of Balloon Promissory Note issued to S&P Principal LLC (incorporated by reference to Exhibit 10.1 of the Form 8-K filed with the Securities and Exchange Commission on September 8, 2022). 10.57 Form of Mortgage and Security Agreement (incorporated by reference to Exhibit 10.2 of the Form 8-K filed with the Securities and Exchange Commission on September 8, 2022). 10.58 Form of Guaranty (incorporated by reference to Exhibit 10.3 of the Form 8-K filed with the Securities and Exchange Commission on September 8, 2022). 10.59 Form of Securities Purchase Agreement for the purchase of Series A Convertible Preferred Stock (incorporated by reference to Exhibit 10.1 of the Form 8-K filed with the Securities and Exchange Commission on November 8, 2022). 21.1 List of Subsidiaries (incorporated by reference to Exhibit 21.1 of the Registration Statement on Form S-1/A filed with the Securities and Exchange Commission on July 20, 2018) 87 23.1* Consent of Independent Registered Accounting Firm 31.1* Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2* Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1** Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2** Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 101.INS* Inline XBRL Instance Document. 101.SCH* Inline XBRL Taxonomy Extension Schema Document. 101.CAL* Inline XBRL Taxonomy Extension Calculation Linkbase Document. 101.DEF* Inline XBRL Taxonomy Extension Definition Linkbase Document. 101.LAB* Inline XBRL Taxonomy Extension Label Linkbase Document. 101.PRE* Inline XBRL Taxonomy Extension Presentation Linkbase Document. 104* Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). * Filed herewith ** This certification will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or the Exchange Act, or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent specifically incorporated by reference into such filing. † Management contract or compensatory plan or arrangement. ITEM 16. FORM 10-K SUMMARY. None. 88 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. AVALON GLOBOCARE CORP. Dated: March 30, 2023 By: /s/ David K. Jin Name: David K. Jin Title: Chief Executive Officer, President and Director (Principal Executive Officer) Dated: March 30, 2023 By: /s/ Luisa Ingargiola Name: Luisa Ingargiola Title: Chief Financial Officer (Principal Financial and Accounting Officer) In accordance with the Exchange Act, this report has been signed below by the following persons on March 30, 2023, on behalf of the registrant and in the capacities indicated. Signature Title /s/ David K. Jin Chief Executive Officer, President and Director David K. Jin (Principal Executive Officer) /s/ Luisa Ingargolia Chief Financial Officer Luisa Ingargolia (Principal Financial and Accounting Officer) /s/ Wenzhao Lu Chairman of the Board of Directors Wenzhao Lu /s/ Meng Li Chief Operating Officer and Secretary Meng Li /s/ Steven A. Sanders Director Steven A. Sanders /s/ Lourdes Felix Director Lourdes Felix /s/ Wilbert J. Tauzin II Director Wilbert J. Tauzin II /s/ William B. Stilley III Director William B. Stilley III /s/ Tevi Troy Director Tevi Troy 89 AVALON GLOBOCARE CORP. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2022 and 2021 CONTENTS Report of Independent Registered Public Accounting Firm (PCAOB No. 688 ) F-2 Consolidated Financial Statements: Consolidated Balance Sheets - As of December 31, 2022 and 2021 F-3 Consolidated Statements of Operations and Comprehensive Loss - For the Years Ended December 31, 2022 and 2021 F-4 Consolidated Statements of Changes in Equity - For the Years Ended December 31, 2022 and 2021 F-5 Consolidated Statements of Cash Flows – For the Years Ended December 31, 2022 and 2021 F-6 Notes to Consolidated Financial Statements F-7 F- 1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and Board of Directors of Avalon GloboCare Corp. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheet of Avalon GloboCare Corp. (the “Company”) as of December 31, 2022 and 2021, and the related consolidated statements of operations and comprehensive loss , changes in equity and cash flows for each of the two years in the period ended December 31, 2022, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America. Explanatory Paragraph – Going Concern The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 2 the Company has a significant working capital deficiency, has incurred significant losses and needs to raise additional funds to meet its obligations and sustain its operations. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters. /s/ Marcum llp Marcum llp We have served as the Company’s auditor since 2019. New York , NY March 30, 2023 F- 2 AVALON GLOBOCARE CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 2022 2021 ASSETS CURRENT ASSETS: Cash $ 1,990,910 $ 807,538 Rent receivable 60,526 33,618 Rent receivable - related party 74,100 33,600 Other current assets 247,990 448,286 Total Current Assets 2,373,526 1,323,042 NON-CURRENT ASSETS: Operating lease right-of-use assets, net 10,885 145,303 Property and equipment, net 138,294 361,547 Investment in real estate, net 7,360,087 7,528,770 Equity method investment 485,008 515,632 Advances for equity interest purchase 8,999,722 - Other non-current assets 384,383 367,922 Total Non-current Assets 17,378,379 8,919,174 Total Assets $ 19,751,905 $ 10,242,216 LIABILITIES AND EQUITY CURRENT LIABILITIES: Accrued professional fees $ 1,673,411 $ 1,881,349 Accrued research and development fees 838,001 928,111 Accrued payroll liability and directors’ compensation 223,722 307,043 Accrued litigation settlement 450,000 - Accrued liabilities and other payables 283,234 275,320 Accrued liabilities and other payables - related parties 100,000 468,433 Operating lease obligation 11,437 151,402 Note payable - related party - 390,000 Total Current Liabilities 3,579,805 4,401,658 NON-CURRENT LIABILITIES: Operating lease obligation - noncurrent portion - 5,901 Accrued litigation settlement - noncurrent portion 450,000 - Note payable, net 4,563,152 - Loan payable - related party - 2,750,262 Total Non-current Liabilities 5,013,152 2,756,163 Total Liabilities 8,592,957 7,157,821 Commitments and Contingencies (Note 20) EQUITY: Preferred stock, $0.0001 par value; 10,000,000 shares authorized; Series A Convertible Preferred Stock, $ 0.0001 par value; 9,000 and 0 shares issued and outstanding at December 31, 2022 and 2021, respectively. Liquidation preference $ 9 million at December 31, 2022 9,000,000 - Series B Convertible Preferred Stock, $ 0.0001 par value; 0 shares issued and outstanding at December 31, 2022 and 2021 - - Common stock, $ 0.0001 par value; 490,000,000 shares authorized; 10,013,576 shares issued and 9,961,576 shares outstanding at December 31, 2022; 8,897,518 shares issued and 8,845,518 shares outstanding at December 31, 2021 1,005 8,898 Additional paid-in capital 65,949,723 54,888,559 Less: common stock held in treasury, at cost; 52,000 shares at December 31, 2022 and 2021 ( 522,500 ) ( 522,500 ) Accumulated deficit ( 63,062,721 ) ( 51,131,874 ) Statutory reserve 6,578 6,578 Accumulated other comprehensive loss - foreign currency translation adjustment ( 213,137 ) ( 165,266 ) Total Avalon GloboCare Corp. stockholders’ equity 11,158,948 3,084,395 Non-controlling interest - - Total Equity 11,158,948 3,084,395 Total Liabilities and Equity $ 19,751,905 $ 10,242,216 See accompanying notes to the consolidated financial statements. F- 3 AVALON GLOBOCARE CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS For the Years Ended December 31, 2022 2021 REVENUES Real property rental $ 1,202,169 $ 1,203,560 Medical related consulting services - related party - 187,412 Total Revenues 1,202,169 1,390,972 COSTS AND EXPENSES Real property operating expenses 929,441 829,287 Medical related consulting services - related party - 147,167 Total Costs and Expenses 929,441 976,454 GROSS PROFIT Real property operating income 272,728 374,273 Gross profit from medical related consulting services - 40,245 Total Gross Profit 272,728 414,518 OTHER OPERATING EXPENSES: Advertising and marketing 1,325,313 328,565 Professional fees 2,909,652 4,946,696 Compensation and related benefits 1,863,188 2,042,278 Research and development expenses 731,328 1,025,009 Litigation settlement 1,350,000 - Other general and administrative 886,142 905,800 Total Other Operating Expenses 9,065,623 9,248,348 LOSS FROM OPERATIONS ( 8,792,895 ) ( 8,833,830 ) OTHER (EXPENSE) INCOME Interest expense- amortization of debt discount and debt issuance cost ( 3,310,684 ) - Interest expense- other ( 185,751 ) - Interest expense - related party ( 79,898 ) ( 200,477 ) Conversion inducement expense ( 344,264 ) - Loss from equity method investment ( 41,863 ) ( 60,463 ) Change in fair value of derivative liability 600,749 - Other income 223,759 4,271 Total Other Expense, net ( 3,137,952 ) ( 256,669 ) LOSS BEFORE INCOME TAXES ( 11,930,847 ) ( 9,090,499 ) INCOME TAXES - - NET LOSS $ ( 11,930,847 ) $ ( 9,090,499 ) LESS: NET LOSS ATTRIBUTABLE TO NON-CONTROLLING INTEREST - - NET LOSS ATTRIBUTABLE TO AVALON GLOBOCARE CORP. COMMON SHAREHOLDERS $ ( 11,930,847 ) $ ( 9,090,499 ) COMPREHENSIVE LOSS: NET LOSS ATTRIBUTABLE TO AVALON GLOBOCARE CORP. COMMON SHAREHOLDERS $ ( 11,930,847 ) $ ( 9,090,499 ) OTHER COMPREHENSIVE (LOSS) INCOME Unrealized foreign currency translation (loss) gain ( 47,871 ) 25,244 COMPREHENSIVE LOSS ( 11,978,718 ) ( 9,065,255 ) LESS: COMPREHENSIVE LOSS ATTRIBUTABLE TO NON-CONTROLLING INTEREST - - COMPREHENSIVE LOSS ATTRIBUTABLE TO AVALON GLOBOCARE CORP. COMMON SHAREHOLDERS $ ( 11,978,718 ) $ ( 9,065,255 ) NET LOSS PER COMMON SHARE ATTRIBUTABLE TO AVALON GLOBOCARE CORP. COMMON SHAREHOLDERS: Basic and diluted $ ( 1.28 ) $ ( 1.07 ) WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: Basic and diluted 9,328,609 8,491,103 See accompanying notes to the consolidated financial statements. F- 4 AVALON GLOBOCARE CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY For the Years Ended December 31, 2022 and 2021 Avalon GloboCare Corp. Stockholders’ Equity Series A Preferred Stock Common Stock Treasury Stock Accumulated Number of Number of Additional Paid-in Number of Accumulated Statutory Other Comprehensive Non- controlling Total Shares Amount Shares Amount Capital Shares Amount Deficit Reserve Loss Interest Equity Balance, January 1, 2021 - $ - 8,279,530 $ 828 $ 46,863,898 ( 52,000 ) $ ( 522,500 ) $ ( 42,041,375 ) $ 6,578 $ ( 190,510 ) $ - $ 4,116,919 Sale of common stock, net - - 220,684 22 2,553,387 - - - - - - 2,553,409 Issuance of common stock for settlement of accrued professional fees - - 16,736 2 202,498 - - - - - - 202,500 Issuance of common stock for settlement of loan payable - related party - - 240,000 24 2,999,976 - - - - - - 3,000,000 Issuance of common stock for services - - 140,568 14 1,507,474 - - - - - - 1,507,488 Stock-based compensation - - - - 769,334 - - - - - - 769,334 Foreign currency translation adjustment - - - - - - - - - 25,244 - 25,244 Net loss for the year - - - - - - - ( 9,090,499 ) - - - ( 9,090,499 ) Balance, December 31, 2021 - - 8,897,518 890 54,896,567 ( 52,000 ) ( 522,500 ) ( 51,131,874 ) 6,578 ( 165,266 ) - 3,084,395 Sale of common stock, net - - 49,115 5 362,323 - - - - - - 362,328 Warrants issued with convertible debt offering - - - - 498,509 - - - - - - 498,509 Conversion of convertible note payable and accrued interest into common stock - - 573,645 57 4,072,901 - - - - - - 4,072,958 Reclassification of derivative liability to equity - - - - 2,181,820 - - - - - - 2,181,820 Issuance of common stock for settlement of loan payable and accrued interest - related party - - 444,399 44 2,888,549 - - - - - - 2,888,593 Sale of common stock - related party - - 44,872 5 349,995 - - - - - - 350,000 Sale of Series A Convertible Preferred Stock 9,000 9,000,000 - - - - - - - - - 9,000,000 Issuance of common stock for services - - 40,896 4 340,946 - - - - - - 340,950 Stock-based compensation - - - - 358,113 - - - - - - 358,113 Shares issued for adjustments for 1:10 reverse split - - ( 36,869 ) - - - - - - - - - Foreign currency translation adjustment - - - - - - - - - ( 47,871 ) - ( 47,871 ) Net loss for the year - - - - - - - ( 11,930,847 ) - - - ( 11,930,847 ) Balance, December 31, 2022 9,000 $ 9,000,000 10,013,576 $ 1,005 $ 65,949,723 ( 52,000 ) $ ( 522,500 ) $ ( 63,062,721 ) $ 6,578 $ ( 213,137 ) $ - $ 11,158,948 See accompanying notes to the consolidated financial statements. F- 5 AVALON GLOBOCARE CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31, 2022 2021 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ ( 11,930,847 ) $ ( 9,090,499 ) Adjustments to reconcile net loss to net cash used in operating activities: Bad debt provision 2,295 8,091 Depreciation 330,723 311,761 Change in straight-line rent receivable ( 6,821 ) ( 51,246 ) Amortization of right-of-use asset 135,557 127,020 Stock-based compensation and service expense 1,106,634 2,110,169 Loss on equity method investment 41,863 60,463 Loss on impairment of equipment held for sale 22,285 - Amortization of debt discount 3,281,078 - Amortization of debt issuance costs 29,606 - Conversion inducement expense 344,264 - Change in fair market value of derivative liability ( 600,749 ) - Changes in operating assets and liabilities: Rent receivable ( 3,265 ) ( 168 ) Rent receivable - related party ( 40,500 ) ( 33,600 ) Security deposit ( 416 ) 6,847 Deferred leasing costs 27,298 21,203 Other assets ( 45,996 ) 95,133 Accrued liabilities and other payables 331,425 1,330,890 Accrued liabilities and other payables - related parties 79,898 200,477 Operating lease obligation ( 141,556 ) ( 121,020 ) NET CASH USED IN OPERATING ACTIVITIES ( 7,037,224 ) ( 5,024,479 ) CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment ( 1,749 ) ( 17,502 ) Improvement of commercial real estate - ( 10,332 ) Additional investment in equity method investment ( 51,999 ) ( 40,301 ) Payments for equity interest purchase ( 8,999,722 ) - NET CASH USED IN INVESTING ACTIVITIES ( 9,053,470 ) ( 68,135 ) CASH FLOWS FROM FINANCING ACTIVITIES Repayments of note payable - related party ( 390,000 ) - Proceeds from loan payable - related party 100,000 2,550,262 Repayments of loan payable - related party ( 410,000 ) - Proceeds from issuance of convertible debt and warrants 3,718,943 - Proceeds from issuance of balloon promissory note 4,800,000 - Payments of debt issuance costs ( 266,454 ) - Proceeds from equity offering 735,567 2,860,304 Disbursements for equity offering costs ( 24,067 ) ( 240,434 ) Proceeds from issuance of convertible preferred stock 9,000,000 - NET CASH PROVIDED BY FINANCING ACTIVITIES 17,263,989 5,170,132 EFFECT OF EXCHANGE RATE ON CASH 10,077 3,443 NET INCREASE IN CASH 1,183,372 80,961 CASH - beginning of year 807,538 726,577 CASH - end of year $ 1,990,910 $ 807,538 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for: Interest $ 176,000 $ - NON-CASH INVESTING AND FINANCING ACTIVITIES: Common stock issued for future services $ - $ 155,700 Common stock issued for accrued liabilities $ 30,000 $ 276,032 Deferred financing costs in accrued liabilities $ - $ 57,599 Accrued professional fees relieved for shares issued $ - $ 202,500 Warrants issued with convertible note payable recorded as debt discount $ 498,509 $ - Bifurcated embedded conversion feature recorded as derivative liability and debt discount $ 2,782,569 $ - Conversion of convertible note payable and accrued interest into common stock $ 4,072,958 $ - Reclassification of derivative liability to equity $ 2,181,820 $ - Related party loan and accrued interest settled in shares $ 2,888,593 $ 3,000,000 See accompanying notes to the consolidated financial statements. F- 6 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 – ORGANIZATION AND NATURE OF OPERATIONS Avalon GloboCare Corp. (the “Company” or “ALBT”) is a Delaware corporation. The Company was incorporated under the laws of the State of Delaware on July 28, 2014. On October 19, 2016, the Company entered into and closed a Share Exchange Agreement with the shareholders of Avalon Healthcare System, Inc., a Delaware corporation (“AHS”), each of which were accredited investors (“AHS Shareholders”) pursuant to which we acquired 100 % of the outstanding securities of AHS in exchange for 50,000,000 shares of the Company’s common stock (the “AHS Acquisition”). AHS was incorporated on May 18, 2015 under the laws of the State of Delaware. For accounting purposes, AHS was the surviving entity. The transaction was accounted for as a recapitalization of AHS pursuant to which AHS was treated as the accounting acquirer, surviving and continuing entity although the Company is the legal acquirer. The Company did not recognize goodwill or any intangible assets in connection with this transaction. Accordingly, the Company’s historical financial statements are those of AHS and its wholly-owned subsidiary, Avalon (Shanghai) Healthcare Technology Co., Ltd. (“Avalon Shanghai”) immediately following the consummation of this reverse merger transaction. AHS owns 100 % of the capital stock of Avalon Shanghai, which is a wholly foreign-owned enterprise organized under the laws of the People’s Republic of China (“PRC”). Avalon Shanghai was incorporated on April 29, 2016 and was engaged in medical related consulting services for customers. Due to the winding down of the medical related consulting services in 2022, the Company decided to cease all operations of Avalon Shanghai and no longer has any material revenues or expenses in Avalon Shanghai. As a result, Avalon Shanghai is no longer an operating entity. The Company is a clinical-stage biotechnology company dedicated to developing and delivering innovative, transformative cellular therapeutics, precision diagnostics, and clinical laboratory services. 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. On January 23, 2017, the Company incorporated Avalon (BVI) Ltd., a British Virgin Island company. There was no activity for the subsidiary since its incorporation through December 31, 2022. Avalon (BVI) Ltd. is dormant and is in process of being dissolved. On February 7, 2017, the Company formed Avalon RT 9 Properties, LLC (“Avalon RT 9”), a New Jersey limited liability company. On May 5, 2017, Avalon RT 9 purchased a real property located in Township of Freehold, County of Monmouth, State of New Jersey, having a street address of 4400 Route 9 South, Freehold, NJ 07728. This property was purchased to serve as the Company’s world-wide headquarters for all corporate administration and operations. In addition, the property generates rental income. Avalon RT 9 owns this office building. Avalon RT 9’s business consists of the ownership and operation of the income-producing real estate property in New Jersey. As of December 31, 2022, the occupancy rate of the building is 82.7 %. On July 18, 2018, the Company formed a wholly owned subsidiary, Avactis Biosciences Inc. (“Avactis”), a Nevada corporation, which will focus on accelerating commercial activities related to cellular therapies, including regenerative medicine with stem/progenitor cells as well as cellular immunotherapy including CAR-T, CAR-NK, TCR-T and others. The subsidiary is designed to integrate and optimize our global scientific and clinical resources to further advance the use of cellular therapies to treat certain cancers. Commencing on April 6, 2022, the Company owns 60 % of Avactis and Arbele Biotherapeutics Limited (“Arbele Biotherapeutics”) owns 40 % of Avactis. Avactis owns 100 % of the capital stock of Avactis Nanjing Biosciences Ltd., a company incorporated in the People’s Republic of China on May 8, 2020 (“Avactis Nanjing”), which only owns a patent and is not considered an operating entity. In order to purchase a membership interest, on October 14, 2022, the Company formed a wholly owned subsidiary, Avalon Laboratory Services, Inc., a Delaware company. F- 7 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 – ORGANIZATION AND NATURE OF OPERATIONS (continued) Details of the Company’s subsidiaries which are included in these consolidated financial statements as of December 31, 2022 are as follows: Name of Subsidiary Place and date of Incorporation Percentage of Ownership Principal Activities Avalon Healthcare System, Inc. (“AHS”) Delaware May 18, 2015 100% held by ALBT Developing Avalon Cell and Avalon Rehab in United States of America (“USA”) Avalon (BVI) Ltd. (“Avalon BVI”) British Virgin Island January 23, 2017 100% held by ALBT Dormant, is in process of being dissolved Avalon RT 9 Properties LLC (“Avalon RT 9”) New Jersey February 7, 2017 100% held by ALBT Owns and operates an income-producing real property and holds and manages the corporate headquarters Avalon (Shanghai) Healthcare Technology Co., Ltd. (“Avalon Shanghai”) PRC April 29, 2016 100% held by AHS Ceased operations and is not considered an operating entity Genexosome Technologies Inc. (“Genexosome”) Nevada July 31, 2017 60% held by ALBT Dormant Avactis Biosciences Inc. (“Avactis”) Nevada July 18, 2018 60% held by ALBT Integrate and optimize global scientific and clinical resources to further advance cellular therapies, including regenerative medicine with stem/progenitor cells as well as cellular immunotherapy including CAR-T, CAR-NK, TCR-T and others to treat certain cancers Avactis Nanjing Biosciences Ltd. (“Avactis Nanjing”) PRC May 8, 2020 100% held by Avactis Owns a patent and is not considered an operating entity International Exosome Association LLC (“Exosome”) Delaware June 13, 2019 100% held by ALBT Promotes standardization related to exosome industry Avalon Laboratory Services, Inc. Delaware October 14, 2022 100% held by ALBT Purchases a membership interest NOTE 2 – BASIS OF PRESENTATION AND GOING CONCERN CONDITION Basis of Presentation The accompanying consolidated financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and with the rules and regulations of the U.S. Securities and Exchange Commission for financial information. The Company’s consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. F- 8 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 – BASIS OF PRESENTATION AND GOING CONCERN CONDITION (continued) Going Concern The Company is a clinical-stage biotechnology company dedicated to developing and delivering innovative, transformative cellular therapeutics, precision diagnostics, and clinical laboratory services. 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 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. These matters raise substantial doubt about the Company’s ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company’s ability to raise additional capital, implement its business plan, and generate significant revenues. There are no assurances that the Company will be successful in its efforts to generate significant revenues, maintain sufficient cash balance or report profitable operations or to continue as a going concern. The Company plans on raising capital through the sale of equity to implement its business plan. However, there is no assurance these plans will be realized and that any additional financings will be available to the Company on satisfactory terms and conditions, if any. The occurrence of an 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. NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Use of Estimates The preparation of the consolidated financial statements in conformity with 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. F- 9 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Fair Value of Financial Instruments and Fair Value Measurements The Company adopted the guidance of Accounting Standards Codification (“ASC”) 820 for fair value measurements which clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows : ● Level 1-Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date. ● Level 2-Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data. ● Level 3-Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information. The fair value of the Company’s assets and liabilities, which qualify as financial instruments under ASC Topic 820, “Fair Value Measurement,” approximates the carrying amounts represented in the accompanying consolidated financial statements, primarily du e to their short-term nature. Assets and liabilities measured at fair value on a recurring basis. Certain assets and liabilities are measured at fair value on a recurring basis. These assets and liabilities are measured at fair value on an ongoing basis. These assets and liabilities include derivative liability. Derivative liability. Derivative liability is carried at fair value and measured on an ongoing basis. The Company did not have any derivative liability during the year ended December 31, 2021. The table below reflects the activity of derivative liability measured at fair value for the year ended December 31, 2022: Significant Unobservable Inputs (Level 3) Balance of derivative liability as of January 1, 2022 $ - Initial fair value of derivative liability attributable to embedded conversion feature of convertible note payable 2,782,569 Gain from change in the fair value of derivative liability ( 600,749 ) Reclassification of derivative liability to equity ( 2,181,820 ) Balance of derivative liability as of December 31, 2022 $ - ASC 825-10 “Financial Instruments”, allows entities to voluntarily choose to measure certain financial assets and liabilities at fair value (fair value option). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable, unless a new election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that instrument should be reported in earnings at each subsequent reporting date. The Company did not elect to apply the fair value option to any outstanding instruments. Cash and Cash Equivalents At December 31, 2022 and 2021, the Company’s cash balances by geographic area were as follows: Country: December 31, 2022 December 31, 2021 United States $ 1,806,083 90.7 % $ 767,605 95.1 % China 184,827 9.3 % 39,933 4.9 % Total cash $ 1,990,910 100.0 % $ 807,538 100.0 % For purposes of the consolidated statements of cash flows, the Company considers all highly liquid instruments with a maturity of three months or less when purchased and money market accounts to be cash equivalents. The Company had no cash equivalents at December 31, 2022 and 2021. F- 10 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Advances for Equity Interest Purchase In the fourth quarter of 2022, the Company sold 9,000 shares of its Series A Preferred Stock, stated value $ 1,000 , for the gross proceeds of $ 9,000,000 (the “Private Placement”), which funds were recorded as advances for equity interest purchase at December 31, 2022 and were used to pay the cash purchase price for the purchased interests of Laboratory Services MSO, LLC in February 2023. As of December 31, 2022 and 2021, advances for equity interest purchase amounted to $ 8,999,722 and $0 , respectively. Credit Risk and Uncertainties A portion of the Company’s cash is maintained with state-owned banks within the PRC. Balances at state-owned banks within the PRC are covered by insurance up to RMB 500,000 (approximately $72,000) per bank. Any balance over RMB 500,000 per bank in PRC will not be covered. At December 31, 2022, cash balances held in the PRC are RMB 1,274,920 (approximately $ 185,000 ), of which, RMB 722,573 (approximately $ 105,000 ) was not covered by such limited insurance. The Company has not experienced any losses in such accounts and believes it is not exposed to any risks on its cash in bank accounts. The Company maintains a portion of its cash in bank and financial institution deposits within U.S. that at times may exceed federally-insured limits of $ 250,000 . The Company manages this credit risk by concentrating its cash balances in high quality financial institutions and by periodically evaluating the credit quality of the primary financial institutions holding such deposits. The Company has not experienced any losses in such bank accounts and believes it is not exposed to any risks on its cash in bank accounts. At December 31, 2022, the Company’s cash and restricted cash balances in United States bank accounts had approximately $ 4,952,000 in excess of the federally-insured limits. Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of trade accounts receivable. A portion of the Company’s sales are credit sales which is to the customer whose ability to pay is dependent upon the industry economics prevailing in these areas; however, concentrations of credit risk with respect to trade accounts receivable is limited due to short-term payment terms. The Company also performs ongoing credit evaluations of its customers to help further reduce credit risk. Rent Receivable and Allowance for Doubtful Accounts Rent receivable is presented net of an allowance for doubtful accounts. Rent receivable balance consists of base rents, tenant reimbursements and receivables arising from straight-lining of rents represent amounts accrued and unpaid from tenants in accordance with the terms of the respective leases, subject to the Company’s revenue recognition policy. An allowance for the uncollectible portion of rent receivable is determined based upon an analysis of the tenant’s payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates and economic conditions in Freehold, New Jersey in which the property is located. Management believes that the rent receivable is fully collectable. Therefore, no material allowance for doubtful accounts is deemed to be required on its rent receivable at December 31, 2022 and 2021. Deferred financing costs Deferred financing costs consist of legal, accounting and other costs that are directly related to the Company’s open market sale equity financing and will be charged to stockholders’ equity upon the completion of the equity offering. As of December 31, 2022 and 2021, deferred financing costs amounted to $ 174,107 and $ 213,279 , of which $ 34,821 and $ 138 ,631were included in other current assets and $ 139,286 and $ 74,648 were included in other non-current assets, respectively. Debt Issuance Costs Debt issuance costs are those costs that have been incurred in connection with the issuance of balloon promissory note payable in 2022 and are offset against note payable in the consolidated balance sheets. Such costs are being amortized to interest expense over the term of the underlying debt using the straight-line method, as the difference between that and the effective interest method are immaterial. As of December 31, 2022, debt issuance costs amounted to $ 236,848 . F- 11 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Deferred leasing costs Costs incurred to obtain tenant leases are amortized using the straight-line method over the term of the related lease agreement. Such costs include lease incentives and leasing commissions. If the lease is terminated early, the remaining unamortized deferred leasing cost is written off. Property and Equipment Property and equipment are carried at cost and are depreciated on a straight-line basis over the estimated useful lives of the assets. The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in income in the period of disposition. The Company examines the possibility of decreases in the value of fixed assets when events or changes in circumstances reflect the fact that their recorded value may not be recoverable. Investment In Real Estate and Depreciation Investment in real estate is carried at cost less accumulated depreciation and consists of building and improvement. The Company depreciates real estate building and improvement on a straight-line basis over estimated useful life. Expenditures for ordinary repair and maintenance costs are charged to expense as incurred. Expenditure for improvements, renovations, and replacements of real estate asset is capitalized and depreciated over its estimated useful life if the expenditure qualifies as betterment. Impairment of Long-lived Assets In accordance with ASC Topic 360, the Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable, or at least annually. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value. The Company did not record any impairment charge for the years ended December 31, 2022 and 2021. Investment in Unconsolidated Company – Epicon Biosciences Co., Ltd. The Company uses the equity method of accounting for its investment in, and earning or loss of, company that it does not control but over which it does exert significant influence. The Company considers whether the fair value of its equity method investment has declined below its carrying value whenever adverse events or changes in circumstances indicate that recorded value may not be recoverable. If the Company considers any decline to be other than temporary (based on various factors, including historical financial results and the overall health of the investee), then a write-down would be recorded to estimated fair value. See Note 7 for discussion of equity method investment. Deferred Rental Income Deferred rental income represents rental income collected but not earned as of the reporting date. The Company defers the revenue related to lease payments received from tenants in advance of their due dates. As of December 31, 2022 and 2021, deferred rental income totaled $ 27,685 and $ 8,638 , respectively, which were included in accrued liabilities and other payables on the accompanying consolidated balance sheets . F- 12 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Revenue Recognition 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: ● Step 1: Identify the contract with the customer ● Step 2: Identify the performance obligations in the contract ● Step 3: Determine the transaction price ● Step 4: Allocate the transaction price to the performance obligations in the contract ● Step 5: 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 defi nition 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. F- 13 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Office Lease When a lease contains “rent holidays”, the Company records rental expense on a straight-line basis over the term of the lease. The Company begins recording rent expense on the lease possession date. Real Property Operating 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 the Company’s rental properties. Medical Related Consulting Services Costs Costs of medical related consulting services include the cost of labor and related benefits, travel expenses related to consulting services, and other overhead costs. Research and Development Expenditures for research and product development costs are expensed as incurred. The Company incurred research and development expense of $ 731,328 and $ 1,025,009 in the years ended December 31, 2022 and 2021, respectively . Advertising and Marketing Costs All costs related to advertising and marketing are expensed as incurred. For the years ended December 31, 2022 and 2021, advertising and marketing costs amounted to $ 1,325,313 and $ 328,565 , respectively . Stock-based Compensation The Company accounts for its stock-based compensation awards in accordance with Accounting Standards Codification (“ASC”) Topic 718, Compensation—Stock Compensation (“ASC 718”). ASC 718 requires all stock-based payments to employees and non-employees including grants of stock options, to be recognized as expense in the statements of operations based on their grant date fair values. The Company estimates the grant date fair value of each option award using the Black-Scholes option-pricing model. The Company periodically issues common stock and common stock options to consultants for various services. Costs of these transactions are measured at the fair value of the service received or the fair value of the equity instruments issued, whichever is more reliably measurable. The value of the common stock is measured at the earlier of (i) the date at which a firm commitment for performance by the counterparty to earn the equity instruments is reached or (ii) the date at which the counterparty’s performance is complete. Income Taxes The Company is governed by the income tax laws of China and the United States. The Company accounts for income taxes using the asset/liability method prescribed by ASC 740, “Income Taxes.” Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the period in which the differences are expected to reverse. The Company records a valuation allowance to offset deferred tax assets if, based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is recognized as income or loss in the period that includes the enactment date. The Company follows the accounting guidance for uncertainty in income taxes using the provisions of ASC 740 “Income Taxes”. Using that guidance, the benefit for tax positions taken can only be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. As of December 31, 2022 and 2021, the Company had no significant uncertain tax positions which would require either recognition of a liability or disclosure in the financial statements. For United States entities, tax year that remains subject to examination is the years ended December 31, 2022, 2021, 2020 and 2019. For China entities, income tax returns for the tax years ended December 31, 2018 through December 31, 2022 remain open for statutory examination by PRC tax authorities. The Company recognizes interest and penalties related to significant uncertain income tax positions in income tax expense. However, no such interest and penalties were recorded as of December 31, 2022 and 2021. F- 14 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Foreign Currency Translation The reporting currency of the Company is the U.S. dollar. The functional currency of the 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”). For the subsidiaries whose functional currency is the RMB, result of operations and cash flows are translated at average exchange rates during the period, assets and liabilities are translated at the unified exchange rate at the end of the period, and equity is translated at historical exchange rates. As a result, amounts relating to assets and liabilities reported on the statements of cash flows may not necessarily agree with the changes in the corresponding balances on the balance sheets. Translation adjustments resulting from the process of translating the local currency financial statements into U.S. dollars are included in determining comprehensive income/loss. Transactions denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing on the transaction dates. Assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing at the balance sheet date with any transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred. All of the Company’s revenue transactions are transacted in the functional currency of the operating subsidiaries. The Company does not enter into any material transaction in foreign currencies. Transaction gains or losses have not had, and are not expected to have, a material effect on the results of operations of the Company. Asset and liability accounts at December 31, 2022 and 2021 were translated at 6.8979 RMB and 6.3559 RMB to $1.00, respectively, which were the exchange rates on the balance sheet dates. Equity accounts were stated at their historical rates. The average translation rates applied to the statements of operations for the years ended December 31, 2022 and 2021 were 6.7309 RMB and 6.4515 RMB to $1.00, respectively. Cash flows from the Company’s operations are calculated based upon the local currencies using the average translation rate. Comprehensive Loss Comprehensive loss is comprised of net loss and all changes to the statements of equity, except those due to investments by stockholders, changes in paid-in capital and distributions to stockholders. For the Company, comprehensive loss for the years ended December 31, 2022 and 2021 consisted of net loss and unrealized (loss) gain from foreign currency translation adjustment. Per Share Data ASC Topic 260 “Earnings per Share,” requires presentation of both basic and diluted earnings per share (“EPS”) with a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. Basic EPS excludes dilution. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. Basic net loss per share is computed by dividing net loss available to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share is computed by dividing net loss by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during each period. For the years ended December 31, 2022 and 2021, potentially dilutive common shares consist of the common shares issuable upon the conversion of Series A convertible preferred stock (using the if-converted method) and exercise of common stock options and warrants (using the treasury stock method). Common stock equivalents are not included in the calculation of diluted net loss per share if their effect would be anti-dilutive. In a period in which the Company has a net loss, all potentially dilutive securities are excluded from the computation of diluted shares outstanding as they would have had an anti-dilutive impact. F- 15 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Per Share Data (continued) The following table summarizes the securities that were excluded from the diluted per share calculation because the effect of including these potential shares was antidilutive: Years Ended December 31, 2022 2021 Options to purchase common stock 858,500 800,000 Warrants to purchase common stock 123,964 - Convertible note (*) 572,145 - Series A convertible preferred stock (**) 900,000 - Potentially dilutive securities 2,454,609 800,000 (*) Assumed the convertible note was converted into shares of common stock of the Company at a conversion price of $ 6.5 per share. (**) Assumed the Series A convertible preferred stock was converted into shares of common stock of the Company at a conversion price of $ 10.0 per share. Non-controlling Interest As of December 31, 2022, Dr. Yu Zhou, former director and former Co-Chief Executive Officer of Genexosome, who owns 40 % of the equity interests of Genexosome, which is not under the Company’s control. Since the fourth quarter of 2019, the non-controlling interest has remained inactive. Segment Reporting The Company uses “the management approach” in determining reportable operating segments. The management approach considers the internal organization and reporting used by the Company’s chief operating decision maker for making operating decisions and assessing performance as the source for determining the Company’s reportable segments. The Company’s chief operating decision maker is the Chief Executive Officer (“CEO”) and president of the Company, who reviews operating results to make decisions about allocating resources and assessing performance for the entire Company. During the years ended December 31, 2022 and 2021, the Company operated in two reportable business segments - (1) the real property operating segment, and (2) the medical related consulting services segment. These reportable segments offer different services and products, have different types of revenue, and are managed separately as each requires different operating strategies and management expertise. 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. As a result, commencing from the first quarter of 2023, the Company’s chief operating decision maker no longer reviews medical related consulting services operating results. F- 16 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Related Parties Parties are considered to be related to the Company if the parties, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal with if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. The Company discloses all significant related party transactions. Reclassification Certain prior period amounts have been reclassified to conform to the current period presentation. These reclassifications have no effect on the previously reported financial position, results of operations and cash flows. Fiscal Year End The Company has adopted a fiscal year end of December 31st. Reverse Stock Split The Company effected a one-for-ten reverse stock split of its outstanding shares of common stock on January 5, 2023. The reverse split did not change the number of authorized shares of common stock or par value. All references in these consolidated financial statements to shares, share prices, exercise prices, and other per share information in all periods have been adjusted, on a retroactive basis, to reflect the reverse stock split. Recent Accounting Standards In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20 ) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity. This ASU (1) simplifies the accounting for convertible debt instruments and convertible preferred stock by removing the existing guidance in ASC 470-20, Debt: Debt with Conversion and Other Options , that requires entities to account for beneficial conversion features and cash conversion features in equity, separately from the host convertible debt or preferred stock; (2) revises the scope exception from derivative accounting in ASC 815-40 for freestanding financial instruments and embedded features that are both indexed to the issuer’s own stock and classified in stockholders’ equity, by removing certain criteria required for equity classification; and (3) revises the guidance in ASC 260, Earnings Per Share , to require entities to calculate diluted earnings per share (EPS) for convertible instruments by using the if-converted method. In addition, entities must presume share settlement for purposes of calculating diluted EPS when an instrument may be settled in cash or shares. ASU 2020-06 is effective for public business entities for fiscal years beginning after December 15, 2021 (or December 15, 2023 for companies who meet the SEC definition of Smaller Reporting Companies), and interim periods within those fiscal years. The guidance is to be adopted through either a fully retrospective or modified retrospective method of transition. However, early adoption is permitted as early as fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The Company adopted the new standard on January 1, 2022, which adoption required the Company to bifurcate the embedded conversion feature from the convertible note it issued during the second quarter of 2022. In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (“Topic 326”). The ASU introduces a new accounting model, the Current Expected Credit Losses model (“CECL”), which requires earlier recognition of credit losses and additional disclosures related to credit risk. The CECL model utilizes a lifetime expected credit loss measurement objective for the recognition of credit losses at the time the financial asset is originated or acquired. ASU 2016-13 is effective for annual period beginning after December 15, 2022, including interim reporting periods within those annual reporting periods. The Company expects that the adoption will not have a material impact on the Company’s consolidated financial statements. Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its consolidated financial condition, results of operations, cash flows or disclosures. F- 17 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 4 – OTHER CURRENT AND NON-CURRENT ASSETS At December 31, 2022 and 2021, other current and non-current assets consisted of the following: December 31, 2022 December 31, 2021 Prepaid directors and officers liability insurance premium $ 29,301 $ 49,656 Prepaid professional fees 93,817 186,609 Deferred financing costs, net 174,107 213,279 Recoverable VAT 3,531 23,655 Deferred leasing costs 113,916 141,214 Security deposit 19,084 20,271 Equipment held for sale 20,489 - Long-term straight-line rent receivable 144,094 163,211 Others 34,034 18,313 Total $ 632,373 $ 816,208 Current portion $ 247,990 $ 448,286 Non-current portion 384,383 367,922 Total $ 632,373 $ 816,208 NOTE 5 – PROPERTY AND EQUIPMENT At December 31, 2022 and 2021, property and equipment consisted of the following: Useful life December 31, 2022 December 31, 2021 Laboratory equipment 5 Years $ 374,183 $ 579,508 Office equipment and furniture 3 – 10 Years 35,145 34,092 409,328 613,600 Less: accumulated depreciation ( 271,034 ) ( 252,053 ) $ 138,294 $ 361,547 For the years ended December 31, 2022 and 2021, depreciation expense of property and equipment amounted to $ 162,040 and $ 144,513 , respectively, of which, $ 2,987 and $ 3,276 was included in real property operating expenses, $ 825 and $ 19,914 was included in other operating expenses, and $ 158,228 and $ 121,323 was included in research and development expense, respectively. NOTE 6 – INVESTMENT IN REAL ESTATE At December 31, 2022 and 2021, investment in real estate consisted of the following: Useful life December 31, 2022 December 31, 2021 Commercial real property building 39 Years $ 7,708,571 $ 7,708,571 Improvement 12 Years 529,372 529,372 8,237,943 8,237,943 Less: accumulated depreciation ( 877,856 ) ( 709,173 ) $ 7,360,087 $ 7,528,770 For the years ended December 31, 2022 and 2021, depreciation expense of this commercial real property amounted to $ 168,683 and $ 167,248 , which was included in real property operating expenses. F- 18 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 7 – EQUITY METHOD INVESTMENT As of December 31, 2022 and 2021, the equity method investment amounted to $ 485,008 and $ 515,632 , respectively. The investment represents the Company’s subsidiary, Avalon Shanghai’s interest in Epicon Biotech Co., Ltd. (“Epicon”). Epicon was incorporated on August 14, 2018 in PRC. Avalon Shanghai and the other unrelated company, Jiangsu Unicorn Biological Technology Co., Ltd. (“Unicorn”), accounted for 40 % and 60 % of the total ownership, respectively. Epicon is focused on cell preparation, third party testing, biological sample repository for commercial and scientific research purposes and the clinical transformation of scientific achievements. The Company treats the equity investment in the consolidated financial statements under the equity method. Under the equity method, the investment is initially recorded at cost, adjusted for any excess of the Company’s share of the incorporated-date fair values of the investee’s identifiable net assets over the cost of the investment (if any). Thereafter, the investment is adjusted for the post incorporation change in the Company’s share of the investee’s net assets and any impairment loss relating to the investment. For the years ended December 31, 2022 and 2021, the Company’s share of Epicon’s net loss was $ 41,863 and $ 60,463 , respectively, which was included in loss from equity method investment in the accompanying consolidated statements of operations and comprehensive loss. In the years ended December 31, 2022 and 2021, activity recorded for the Company’s equity method investment in Epicon is summarized in the following table: Equity investment carrying amount at January 1, 2021 $ 521,758 Payment made for equity method investment 40,301 Epicon’s net loss attributable to the Company ( 60,463 ) Foreign currency fluctuation 14,036 Equity investment carrying amount at December 31, 2021 515,632 Payment made for equity method investment 51,999 Epicon’s net loss attributable to the Company ( 41,863 ) Foreign currency fluctuation ( 40,760 ) Equity investment carrying amount at December 31, 2022 $ 485,008 The tables below present the summarized financial information, as provided to the Company by the investee, for the unconsolidated company: December 31, 2022 December 31, 2021 Current assets $ 1,051 $ 5,479 Noncurrent assets 143,984 216,864 Current liabilities 43,723 56,626 Equity 101,312 165,717 For the Years Ended December 31, 2022 2021 Net revenue $ - $ - Gross profit - - Loss from operation 104,688 151,158 Net loss 104,657 151,158 F- 19 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 8 – ACCRUED LIABILITIES AND OTHER PAYABLES At December 31, 2022 and 2021, accrued liabilities and other payables consisted of the following: December 31, 2022 December 31, 2021 Accrued tenants’ improvement reimbursement $ 43,500 $ 43,500 Tenants’ security deposit 73,733 73,733 Accrued business expense reimbursement 52,437 68,172 Accrued utilities 15,631 14,372 Deferred rental income 27,685 8,638 Accrued real property cleaning service fee 23,564 6,600 Accrued equity offering costs - 40,000 Taxes payable 7,337 14,459 Others 39,347 5,846 Total $ 283,234 $ 275,320 NOTE 9 – CONVERTIBLE NOTE PAYABLE On March 28, 2022, the Company entered into Securities Purchase Agreement with an accredited investor, which was amended on June 8, 2022, providing for the sale by the Company to the investor of a Convertible Note in the amount of $ 3,718,943 (“2022 Convertible Note”). In addition to the 2022 Convertible Note, the investor also received a Stock Purchase Warrant (“2022 Warrant”) to acquire an aggregate of 123,964 shares of common stock. The 2022 Warrant is exercisable for five years at an exercise price of $ 12.5 . The financing closed with respect to: ● $ 2,669,522 of the financing on April 15, 2022, ● $ 659,581 of the financing on April 29, 2022, ● $ 199,840 of the financing on May 18, 2022, and ● $ 190,000 of the financing on May 25, 2022. As a result of each of the closings, the Company issued the investor a 2022 Convertible Note in the principal amount of $ 2,669,522 and a 2022 Warrant to acquire 88,984 shares of common stock dated April 15, 2022, a 2022 Convertible Note in the principal amount of $ 659,581 and a 2022 Warrant to acquire 21,986 shares of common stock dated April 29, 2022, a 2022 Convertible Note in the principal amount of $ 199,840 and a 2022 Warrant to acquire 6,661 shares of common stock dated May 18, 2022, and a 2022 Convertible Note in the principal amount of $ 190,000 and a 2022 Warrant to acquire 6,333 shares of common stock dated May 25, 2022. The 2022 Convertible Note bears interest at 1 % per annum payable at maturity and matures ten years from issuance. The investor may elect to convert all or part of the 2022 Convertible Note, plus accrued interest, at any time into shares of common stock of the Company at a conversion price equal to 95 % of the average of the highest three trading prices for the common stock during the 20-trading day period ending one trading day prior to the conversion date but in no event will the conversion price be lower than $ 0.75 per share. The investor agreed to restrict its ability to convert the 2022 Convertible Note and exercise the 2022 Warrant and receive shares of common stock such that the number of shares of common stock held by the investor after such conversion or exercise does not exceed 4.99 % of the then issued and outstanding shares of common stock. Further, the investor agreed to not sell or transfer any or all of the shares of common stock underlying the 2022 Convertible Note or the 2022 Warrant for a period of 90 days beginning on the closing date (the “Lock-Up Period”). Following the expiration of the Lock-Up Period, the investor has agreed to limit its sale or transfer of such shares of common stock to a maximum monthly amount equal to 20 % of the shares of common stock issuable upon conversion of the 2022 Convertible Note. The Company agreed to use its reasonable best efforts to file a registration statement on Form S-3 (or other appropriate form) providing for the resale by the investor of the shares of common stock underlying the 2022 Convertible Note and the 2022 Warrant. F- 20 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 9 – CONVERTIBLE NOTE PAYABLE (continued) Based upon the Company’s analysis of the criteria contained in ASC Topic 815-40, “Derivatives and Hedging - Contracts in an Entity’s Own Equity”, the Company determined that all the warrants issued to the investor with this private placement are classified as equity in additional paid in-capital. In accordance with ASC 470-20-25-2, proceeds from the sale of a debt instrument with stock purchase warrants are allocated to the two elements based on the relative fair values of the debt instrument without the warrants and of the warrants themselves at time of issuance. The portion of the proceeds so allocated to the warrants are accounted for as additional paid-in capital. The remainder of the proceeds are allocated to the debt instrument portion of the transaction. The fair values of the warrants issued to the investor with this private placement were computed using the Black-Scholes option-pricing model with the following assumptions: volatility of 111.94 %, risk-free rate of 2.71 % - 2.92 %, annual dividend yield of 0 % and expected life of 5 years. In accordance with ASC 480-10-25-14, the Company determined that the conversion provisions contain an embedded derivative feature and the Company valued the derivative feature separately, recording debt discount and derivative liabilities in accordance with the provisions of the convertible debt (see Note 10). The Company calculates the fair value of conversion option at the commitment dates using the Black-Scholes valuation model with the following assumptions: volatility of 95.97 %, risk-free rate of 2.75 % - 2.89 %, annual dividend yield of 0 % and expected life of 10 years. The warrants issued to the investor to purchase 123,964 shares of the Company’s common stock were treated as a discount on the convertible note payable and were valued at $ 498,509 and had been amortized over the term of the 2022 Convertible Note. Additionally, the fair value of embedded conversion option at commitment dates, which was valued at $ 2,782,569 , was recorded as a discount on the convertible note payable and had been amortized over the term of the 2022 Convertible Note. Hence, in connection with the issuance of the 2022 Convertible Note and 2022 Warrant, the Company recorded a total debt discount of $ 3,281,078 , which had been amortized over the term of the convertible note payable. On July 25, 2022, the Company and the investor entered into a Conversion Agreement (“Conversion Agreement”) pursuant to which the investor converted all of its Convertible Notes in the principal amount of $ 3,718,943 and unpaid interest of $ 9,751 into 573,645 shares of common stock of the Company at a per share price of $ 6.5 (see Note 14 - Common Shares Issued for Debt Conversion). The Company recorded a conversion inducement charge of $ 344,264 as a result of the Conversion Agreement, representing the value of common stock issued upon conversion in excess of the common stock issuable under the original terms of the 2022 Convertible Note. For the year ended December 31, 2022, amortization of debt discount and interest expense related to the 2022 Convertible Note amounted to $ 3,281,078 and $ 9,751 , which have been included in interest expense – amortization of debt discount and debt issuance cost and interest expense – other, respectively, on the accompanying consolidated statements of operations and comprehensive loss. NOTE 10 – DERIVATIVE LIABILITY As stated in Note 9, 2022 Convertible Note, the Company determined that the convertible note payable contained an embedded derivative feature in the form of a conversion provision which was adjustable based on future prices of the Company’s common stock. In accordance with ASC 815-10-25, each derivative feature was initially recorded at its fair value using the Black-Scholes option valuation method and then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. The estimated fair value of the derivative feature of convertible debt was $ 2,782,569 at commitment dates, which was calculated using the following assumptions: volatility of 95.97 %, risk-free rate of 2.75 % - 2.89 %, annual dividend yield of 0 % and expected life of 10 years. On July 25, 2022, the Company and the 2022 Convertible Note holder entered into a Conversion Agreement pursuant to which the investor converted all of its Convertible Notes into shares of common stock of the Company. The estimated fair value of the derivative feature of convertible debt was $ 2,181,820 on July 25, 2022, which was computed using the following assumptions: volatility of 95.53 %, risk-free rate of 2.81 %, annual dividend yield of 0 % and expected life of 9.7 – 9.8 years. F- 21 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 10 – DERIVATIVE LIABILITY (continued) Increases or decreases in fair value of the derivative liability is included as a component of total other (expenses) income in the accompanying consolidated statements of operations and comprehensive loss. The change to the derivative liability for the embedded conversion option resulted in a decrease of $ 600,749 in the derivative liability and the corresponding increase in other income as a gain for the year ended December 31, 2022. There was no derivative liability in the year ended December 31, 2021. NOTE 11 – NOTE PAYABLE, NET On September 1, 2022, the Company issued a balloon promissory note to a third party company in the principal amount of $ 4,800,000 which carries interest of 11.0 % per annum (the “2022 Note Payable”). Interest is due in monthly payments of $44,000 beginning November 1, 2022 and payable monthly thereafter until September 1, 2025 when the principal outstanding and all remaining interest is due. The 2022 Note Payable can be extended for an additional 36 months provided that the Company has not defaulted. The Company may not prepay the 2022 Note Payable for a period of 12 months. The 2022 Note Payable is secured by a first mortgage on the Company’s real property located in Township of Freehold, County of Monmouth, State of New Jersey, having a street address of 4400 Route 9 South, Freehold, NJ 07728. As of December 31, 2022, the carrying balance of the 2022 Note Payable was $ 4,563,152 and the remaining unamortized debt issuance costs balance was $ 236,848 . For the year ended December 31, 2022, amortization of debt issuance costs and interest expense related to the 2022 Note Payable amounted to $ 29,606 and $ 176,000 , which have been included in interest expense – amortization of debt discount and debt issuance cost and interest expense – other, respectively, on the accompanying consolidated statements of operations and comprehensive loss. NOTE 12 – RELATED PARTY TRANSACTIONS Rental Revenue from Related Party and Rent Receivable – Related Party The Company leases space of its commercial real property located in New Jersey to a company, D.P. Capital Investments LLC, which is controlled by Wenzhao Lu, the Company’s largest shareholder and chairman of the Board of Directors. The term of the related party lease agreement is five years commencing on May 1, 2021 and will expire on April 30, 2026. For the years ended December 31, 2022 and 2021, the related party rental revenue amounted to $ 50,400 and $ 33,600 , respectively, and has been included in real property rental on the accompanying consolidated statements of operations and comprehensive loss. The related party rent receivable totaled $ 74,100 and $ 33,600 , respectively, and no allowance for doubtful accounts was deemed to be required on rent receivable – related party at December 31, 2022 and 2021. Medical Related Consulting Services Revenue from Related Party During the years ended December 31, 2022 and 2021, medical related consulting services revenue from related party was as follows: Years Ended December 31, 2022 2021 Medical related consulting services provided to: Hebei Daopei * $ - $ 187,412 $ - $ 187,412 * Hebei Daopei is a subsidiary of an entity whose chairman is Wenzhao Lu, the largest shareholder of the Company. Services Provided by Related Party From time to time, Wilbert Tauzin, a director of the Company, and his son provide consulting services to the Company. As compensation for professional services provided, the Company recognized consulting expenses of $ 144,064 and $ 216,169 for the years ended December 31, 2022 and 2021, respectively, which have been included in professional fees on the accompanying consolidated statements of operations and comprehensive loss. F- 22 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 12 – RELATED PARTY TRANSACTIONS (continued) Accrued Liabilities and Other Payables – Related Parties In 2017, the Company acquired Beijing Genexosome for a cash payment of $ 450,000 . As of December 31, 2022 and 2021, the unpaid acquisition consideration of $ 100,000 , was payable to Dr. Yu Zhou, former director and former co-chief executive officer and 40 % owner of Genexosome, and has been included in accrued liabilities and other payables – related parties on the accompanying consolidated balance sheets. As of December 31, 2022 and 2021, $ 0 and $ 368,433 of accrued and unpaid interest related to borrowings from Wenzhao Lu, the Company’s largest shareholder and chairman of the Board of Directors, respectively, have been included in accrued liabilities and other payables – related parties on the accompanying consolidated balance sheets. Borrowings from Related Party Promissory Note On March 18, 2019, the Company issued Wenzhao Lu, the Company’s largest shareholder and Chairman of the Board of Directors, a Promissory Note in the principal amount of $ 1,000,000 (“Promissory Note”) in consideration of cash in the amount of $ 1,000,000 . The Promissory Note accrues interest at the rate of 5 % per annum and matures March 19, 2022. In March 2022, the Company and Wenzhao Lu entered into a Loan Extension and Modification Agreement (the “Extension”) to extend the maturity date to March 19, 2024 .The Company repaid principal of $ 410,000 , $ 200,000 and $ 390,000 in the third quarter of 2019, second quarter of 2020 and second quarter of 2022, respectively. As of December 31, 2022 and 2021, the outstanding principal balance was $ 0 and $ 390,000 , respectively. Line of Credit On August 29, 2019, the Company entered into a Line of Credit Agreement (the “Line of Credit Agreement”) providing the Company with a $ 20 million line of credit (the “Line of Credit”) from Wenzhao Lu (the “Lender”), the largest shareholder and Chairman of the Board of Directors of the Company. The Line of Credit allows the Company to request loans thereunder and to use the proceeds of such loans for working capital and operating expense purposes until the facility matures on December 31, 2024 . The loans are unsecured and are not convertible into equity of the Company. Loans drawn under the Line of Credit bears interest at an annual rate of 5 % and each individual loan will be payable three years from the date of issuance. The Company has a right to draw down on the line of credit and not at the discretion of the related party Lender. The Company may, at its option, prepay any borrowings under the Line of Credit, in whole or in part at any time prior to maturity, without premium or penalty. The Line of Credit Agreement includes customary events of default. If any such event of default occurs, the Lender may declare all outstanding loans under the Line of Credit to be due and payable immediately. In the years ended December 31, 2022 and 2021, activity recorded for the Line of Credit is summarized in the following table: Outstanding principal under the Line of Credit at January 1, 2021 $ 3,200,000 Draw down from Line of Credit 2,550,262 Settlement of Line of Credit in shares ( 3,000,000 ) Outstanding principal under the Line of Credit at December 31, 2021 2,750,262 Draw down from Line of Credit 100,000 Repayment of Line of Credit ( 410,000 ) Settlement of Line of Credit in shares ( 2,440,262 ) Outstanding principal under the Line of Credit at December 31, 2022 $ - For the years ended December 31, 2022 and 2021, the interest expense related to above borrowings amounted to $ 79,898 and $ 200,477 , respectively, and has been reflected as interest expense – related party on the accompanying consolidated statements of operations and comprehensive loss. As of December 31, 2022 and 2021, the related accrued and unpaid interest for above borrowings was $ 0 and $ 368,433 , respectively, and has been included in accrued liabilities and other payables – related parties on the accompanying consolidated balance sheets. F- 23 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 12 – RELATED PARTY TRANSACTIONS (continued) Common Shares Sold to Related Party for Cash On August 5, 2022, the Company sold 44,872 shares of its common stock at a purchase price of $ 7.8 per share, the fair market value on transaction date, to Wenzhao Lu pursuant to a subscription agreement. The Company received proceeds of $ 350,000 (See Note 14 – Common Shares Sold for Cash). Series A Convertible Preferred Stock Sold to Related Party for Cash On December 14, 2022, the Company entered into a Securities Purchase Agreement with Wenzhao Lu, the Company’s Chairman of the Board, pursuant to which the Company sold to Mr. Lu 4,000 shares of its Series A Preferred Stock, stated value $ 1,000 , for the gross proceeds of $ 4,000,000 (See Note 14 – Series A Convertible Preferred Stock Sold for Cash). NOTE 13 – INCOME TAXES The Company is governed by the Income Tax Law of the PRC and the U.S. Internal Revenue Code of 1986, as amended. Under the Income Tax Laws of PRC, Chinese companies are generally subject to an income tax at an effective rate of 25 % on income reported in the statutory financial statements after appropriate tax adjustments. The Company has a cumulative deficit from its foreign subsidiary of $ 2,356,797 as of December 31, 2022, which is included in the consolidated accumulated deficit. The Company’s loss before income taxes includes the following components: Years Ended December 31, 2022 2021 United States loss before income taxes $ ( 11,567,154 ) $ ( 8,504,426 ) China loss before income taxes ( 363,693 ) ( 586,073 ) Total loss before income taxes $ ( 11,930,847 ) $ ( 9,090,499 ) Components of income taxes expense (benefit) consisted of the following: Years Ended December 31, 2022 2021 Current: U.S. federal $ - $ - U.S. state and local - - China - - Total current income taxes expense $ - $ - Deferred: U.S. federal $ ( 1,729,700 ) $ ( 1,810,264 ) U.S. state and local ( 585,627 ) ( 612,904 ) China 209,806 ( 152,015 ) Total deferred income taxes (benefit) $ ( 2,105,521 ) $ ( 2,575,183 ) Change in valuation allowance 2,105,521 2,575,183 Total income taxes expense $ - $ - F- 24 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 13 – INCOME TAXES (continued) The table below summarizes the differences between the U.S. statutory rate and the Company’s effective tax rate for the years ended December 31, 2022 and 2021: Years Ended December 31, 2022 2021 U.S. federal rate 21.0 % 21.0 % U.S. state rate 5.6 % 6.7 % Permanent difference ( 3.8 )% 0.0 % Non-US rate differential 0.1 % 0.3 % True ups ( 5.3 )% 4.9 % U.S. valuation allowance ( 17.6 )% ( 32.9 )% Total provision for income taxes 0.0 % 0.0 % For the years ended December 31, 2022 and 2021, the Company did not incur any income taxes expense since it did not generate any taxable income in those periods. The Company’s foreign entities did not pay any income taxes during the years ended December 31, 2022 and 2021. The Company’s components of deferred taxes as of December 31, 2022 and 2021 were as follows: December 31, 2022 December 31, 2021 Deferred tax assets Stock-based compensation $ 3,499,969 $ 3,696,463 Disallowed business interest deduction - 103,567 R&D expenses 137,864 Accrued directors’ compensation 47,787 80,816 Accrued settlement 126,495 - Lease liability 1,687 23,156 Net operating loss carryforward 13,634,920 11,441,503 Total deferred tax assets, gross 17,448,722 15,345,505 Valuation allowance ( 17,329,708 ) ( 15,224,188 ) Total deferred tax assets, net $ 119,014 $ 121,317 Deferred tax liabilities Fixed assets and intangible assets book/tax basis difference ( 119,014 ) ( 101,534 ) Right-of-use assets - ( 19,783 ) Total deferred tax liabilities $ ( 119,014 ) $ ( 121,317 ) Net deferred tax assets $ - $ - As of December 31, 2022 and 2021, the Company’s both federal and state net operating loss carryforwards amounted to $ 46,969,776 and $ 38,420,422 , respectively. As of December 31, 2022, the Company has $44,482,221 of U.S. federal net operating loss carryovers that have no expiration date, and $2,487,555 of the federal net operating loss and state net operating loss carry-forwards begin to expire in 2034. As of December 31, 2022, the Company had net operating loss carryforwards in China of $ 1,726,863 that begin to expire in 2023. Additionally, as of December 31, 2022, $ 61,847 of the future utilization of the net operating loss carryforward to offset future taxable income is subject to special tax rules which may limit their usage under IRS Section 382 (Change of Ownership) and possibly the Separate Return Limitation Year (“SRLY”) rules. A full valuation allowance has been provided against the Company’s deferred tax assets at December 31, 2022 as the Company believes it is more likely than not that sufficient taxable income will not be generated to realize these temporary differences. The Company has been notified and assessed an IRS Section 6038 penalty of $ 10,000 for failure to file a foreign entity tax disclosure. The Company has appealed the penalty and awaits the Internal Revenue Service’s review of the appeal. There is no assurance such appeal will be successful. F- 25 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 13 – INCOME TAXES (continued) The Company has not been audited by any jurisdiction since its inception. The Company is open for audit by the U.S. Internal Revenue Service and U.S. state tax jurisdictions from 2019 to 2022, and open for audit by the Chinese Ministry of Finance from 2018 to 2022. There were no material uncertain tax positions as of December 31, 2022 and 2021. The Company recognizes interest and penalties related to unrecognized tax benefits as income tax expense, if any. The Company does not have any significant uncertain tax positions or events leading to uncertainty in a tax position. NOTE 14 – EQUITY Series A Convertible Preferred Stock As described in Note 20 - Amended and Restated Membership Interest Purchase Agreement, in conjunction with the transaction, on November 3, 2022 the Company filed a Certificate of Designation of Preferences, Rights and Limitations of the Series A Preferred Stock (the “Series A Certificate of Designation”), which became effective immediately with the Secretary of State of the State of Delaware. Pursuant to the Series A Certificate of Designation, the Company designated up to 15,000 shares of the Company’s previously undesignated preferred stock as Series A Preferred Stock. Each share of Series A Preferred Stock shall have a par value of $ 0.0001 per share and a stated value equal to $ 1,000 (the “Series A Stated Value”). The shares of Series A Preferred Stock have identical terms and include the terms as set forth below. Dividends. The Series A Holders are entitled to receive, and the Company shall pay, dividends on shares of Series A Preferred Stock equal (on an as-if-converted-to-common-stock basis, disregarding for such purpose any conversion limitations set forth in the Series A Certificate of Designations) to and in the same form as dividends actually paid on shares of the Company’s common stock when, as and if such dividends are paid on shares of the common stock. No other dividends shall be paid on shares of Series A Preferred Stock. The Company will not pay any dividends on its common stock unless the Company simultaneously complies with the terms set forth in the Series A Certificate of Designation. Liquidation. Upon any dissolution, liquidation or winding-up of the Company, whether voluntary or involuntary (a “Liquidation”), the Series A Holders will be entitled to receive out of the assets available for distribution to the stockholders, (i) after and subject to the payment in full of all amounts required to be distributed to the holders of another class or series of stock of the Company ranking on liquidation prior and in preference to the Series A Preferred Stock, (ii) ratably with any class or series of stock ranking on liquidation on parity with the Series A Preferred Stock and (iii) in preference and priority to the holders of the shares of the Company’s common stock, an amount equal to 100% of the Series A Stated Value, and no more, in proportion to the full and preferential amount that all shares of the Series A Preferred Stock are entitled to receive. The Company shall mail written notice of any Liquidation not less than twenty (20) days prior to the payment date stated therein, to each Series A Holder. Conversion. Each share of Series A Preferred Stock shall be convertible, at any time and from time to time from and after the later of (i) the date of the stockholder approval as described above, in accordance with the Nasdaq Stock Market Listing Rules, and (ii) the nine (9) month anniversary of the Closing (the “Initial Conversion Date”), at the option of the Series A Holder, into that number of shares of common stock (subject to the limitations set forth in Series A Certificate of Designations, determined by dividing the Stated Value of such share of Series A Preferred Stock by the Conversion Price (as defined below)). The Series A Holders may effect conversions by providing the Company with the form of conversion notice attached as Annex A to the Series A Certificate of Designation. The Series A Holders may convert such shares into shares of the Company’s common stock at a conversion price per share equal to the greater of (i) ten dollars ($ 10.0 ) and (ii) ninety percent ( 90 %) of the closing price of the Company’s common stock on Nasdaq on the day prior to receipt of a conversion notice (collectively, the “Conversion Price”), subject to adjustment for stock splits and similar matters. In addition, following the Initial Conversion Date, each Series A Holder agrees that it shall not be entitled to in any calendar month, sell a number of Series A Conversion Shares into the open market in an amount exceeding more than ten percent ( 10 %) of the number of Series A Conversion Shares issuable upon conversion of the Series A Preferred Stock then held by such Series A Holder. F- 26 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 14 – EQUITY (continued) Series A Convertible Preferred Stock (continued) Conversion Price Adjustment: Stock Dividends and Stock Splits. If the Company, at any time while the Series A Preferred Stock is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions payable in shares of common stock on shares of common stock or any other common stock equivalents (which, for avoidance of doubt, shall not include any shares of common stock issued by the Company upon conversion of, or payment of a dividend on, the Series A Preferred Stock), (ii) subdivides outstanding shares of common stock into a larger number of shares, (iii) combines (including by way of a reverse stock split) outstanding shares of common stock into a smaller number of shares, or (iv) issues, in the event of a reclassification of shares of the common stock, any shares of capital stock of the Company, then the conversion price of the Series A Preferred Stock shall be multiplied by a fraction of which the numerator shall be the number of shares of common stock (excluding any treasury shares of the Company) outstanding immediately before such event, and of which the denominator shall be the number of shares of common stock outstanding immediately after such event. Any of the foregoing adjustments shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification. Fundamental Transaction. If, at any time while the Series A Preferred Stock is outstanding, (i) the Company, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Company with or into another individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind (a “Person”), (ii) the Company (and all of its subsidiaries, taken as a whole), directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of the Company’s common stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of fifty percent ( 50 %) or more of the outstanding common stock, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the common stock or any compulsory share exchange pursuant to which the common stock is effectively converted into or exchanged for other securities, cash or property, or (v) the Company, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person whereby such other Person acquires more than fifty percent ( 50 %) of the outstanding shares of common stock (not including any shares of common stock held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination) (each a “Fundamental Transaction”), then, the Series A Holder shall have the right to receive, for each conversion share that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction (without regard to any limitation set forth in the Series A Certificate of Designation on the conversion of the Series A Preferred Stock), the number of shares of common stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and/or any additional consideration (the “Alternate Consideration”) receivable as a result of such Fundamental Transaction by a holder of the number of shares of common stock for which the Series A Preferred Stock is convertible immediately prior to such Fundamental Transaction (without regard to the limitations set forth in the Series A Certificate of Designation on the conversion of the Series A Preferred Stock). For purposes of any such conversion, the determination of the Conversion Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of common stock in such Fundamental Transaction, and the Company shall apportion the Conversion Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of common stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Series A Holder shall be given the same choice as to the Alternate Consideration it receives upon such Fundamental Transaction. Voting Rights. The Series A Holders will have no voting rights, except as otherwise required by the Delaware General Corporation Law. Notwithstanding the foregoing, as long as any shares of Series A Preferred Stock are outstanding, the Company shall not, without the affirmative vote of the holders of a majority of the then outstanding shares of Series A Preferred Stock, voting as a separate class, (a) alter or change adversely the powers, preferences or rights given to the Series A Preferred Stock in the Series A Certificate of Designation, (b) increase the number of authorized shares of Series A Preferred Stock, (c) authorize or issue an additional class or series of capital stock that ranks senior to the Series A Preferred Stock with respect to the distribution of assets on liquidation or (d) enter into any agreement with respect to any of the foregoing. F- 27 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 14 – EQUITY (continued) Series A Convertible Preferred Stock (continued) Fractional Shares. No fractional shares or scrip representing fractional shares shall be issued upon the conversion of the Series A Preferred Stock. As to any fraction of a share of Company common stock which a Series A Holder would otherwise be entitled to upon such conversion, the Company will, at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Conversion Price or round up to the next whole share. Notwithstanding the foregoing, nothing shall prevent any Series A Holder from converting fractional shares of Series A Preferred Stock. Series B Convertible Preferred Stock As described in Note 20 - Amended and Restated Membership Interest Purchase Agreement, in conjunction with the transaction, on February 9, 2023, the Company filed a Certificate of Designation of Preferences, Rights and Limitations of the Series B Preferred Stock (the “Series B Certificate of Designation”), which became effective immediately with the Secretary of State of the State of Delaware. The Company designated up to 15,000 shares of the Company’s previously undesignated preferred stock as Series B Preferred Stock. Each share of Series B Preferred Stock shall have a par value of $ 0.0001 per share and a stated value equal to $ 1,000 (the “Series B Stated Value”). The shares of Series B Preferred Stock have identical terms and include the terms as set forth below. Dividends. The Series B Holders shall be entitled to receive, and the Company shall pay, dividends on shares of Series B Preferred Stock equal (on an as-if-converted-to-common-stock basis, disregarding for such purpose any conversion limitations set forth in the Series B Certificate of Designations) to and in the same form as dividends actually paid on shares of the Company’s common stock when, as and if such dividends are paid on shares of the common stock. No other dividends shall be paid on shares of Series B Preferred Stock. The Company will not pay any dividends on its common stock unless the Company simultaneously complies with the terms set forth in the Series B Certificate of Designation. Rank. The Series B Preferred Stock will rank subordinate to the shares of the Company’s Series A Preferred Stock. Liquidation. Upon any Liquidation, the Series B Holders will be entitled to receive out of the assets available for distribution to stockholders, (i) after and subject to the payment in full of all amounts required to be distributed to the holders of another class or series of stock of the Company ranking on liquidation prior and in preference to the Series B Preferred Stock, including the Series A Preferred Stock, (ii) ratably with any class or series of stock ranking on liquidation on parity with the Series B Preferred Stock and (iii) in preference and priority to the holders of the shares of common stock, an amount equal to one hundred percent ( 100 %) of the Series B Stated Value and no more, in proportion to the full and preferential amount that all shares of the Series B Preferred Stock are entitled to receive. The Company shall mail written notice of any such Liquidation not less than twenty (20) days prior to the payment date stated therein, to each Series B Holder. Conversion. Each share of Series B Preferred Stock shall be convertible, at any time and from time to time from and after the later of (i) the date of the stockholder approval and (ii) the one year anniversary of the Closing Date (the “Lock Up Period”), at the option of the Series B Holder thereof, into that number of shares of common stock (subject to the limitations set forth in Series B Certificate of Designation determined by dividing the Series B Stated Value of such share of Series B Preferred Stock by the conversion price of the Series B Preferred Stock). Series B Holders may effect conversions by providing the Company with the form of conversion notice attached as Annex A to the Series B Certificate of Designation. The Series B Preferred Stock will be convertible into shares of the Company’s common stock at a conversion price per share equal to $ 3.78 , subject to the adjustments set forth in the Series B Certificate of Designation. Notwithstanding the foregoing or the transactions contemplated by the Amended MIPA, until the consummation of the Lock Up Period, the Series B Holders shall not, directly or indirectly, sell, transfer or otherwise dispose of any Series B Preferred Stock issued upon conversion of the Series B Conversion Shares or pursuant to the Equity Earnout Payment (the “Restricted Securities”) without Company’s prior written consent; provided, however, the Series B Holders may sell, transfer or otherwise dispose of Restricted Securities to an Affiliate, as defined in the Amended MIPA, of a Series B Holder without Company’s prior written consent; provided, further, that such Series B Holder provide prompt written notice to Company of such transfer, including the name and contact information of the Affiliate transferee, and such Affiliate transferee agrees in writing to be bound by the terms of the transaction documents contemplated by the Amended MIPA to which the Series B Holder is a party (which agreement shall also be provided to Company with such notice). After the expiration of the Lock Up Period, the Series B Holder agrees that it and any of its Affiliate transferees shall not be entitled to in any calendar month, sell a number of shares of Company common stock into the open market in an amount exceeding more than ten percent ( 10 %) of the total number of shares of Company common stock issuable upon conversion of the Company common stock then held by the Seller and its Affiliates. F- 28 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 14 – EQUITY (continued) Series B Convertible Preferred Stock (continued) Conversion Price Adjustment: Stock Dividends and Stock Splits. If the Company, at any time while the Series B Preferred Stock is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions payable in shares of common stock on shares of common stock or any other common stock equivalents (which, for avoidance of doubt, shall not include any shares of common stock issued by the Company upon conversion of, or payment of a dividend on, the Series B Preferred Stock), (ii) subdivides outstanding shares of common stock into a larger number of shares, (iii) combines (including by way of a reverse stock split) outstanding shares of common stock into a smaller number of shares, or (iv) issues, in the event of a reclassification of shares of the common stock, any shares of capital stock of the Company, then the conversion price of the Series B Preferred Stock shall be multiplied by a fraction of which the numerator shall be the number of shares of common stock (excluding any treasury shares of the Company) outstanding immediately before such event, and of which the denominator shall be the number of shares of common stock outstanding immediately after such event. Any of the foregoing adjustments shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification. Fundamental Transaction. If, at any time while the Series B Preferred Stock is outstanding, (i) the Company, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company (and all of its subsidiaries, taken as a whole), directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of the Company’s common stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of fifty percent ( 50 %) or more of the outstanding common stock, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the common stock or any compulsory share exchange pursuant to which the common stock is effectively converted into or exchanged for other securities, cash or property, or (v) the Company, directly or indirectly, in one or more related transactions consummates a Fundamental Transaction, then, at the closing of such Fundamental Transaction, without any action on the part of the Series B Holder, the Series B Holder shall have the right to receive, for each conversion share that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction (without regard to any limitation in the Series B Certificate of Designation on the conversion of the Series B Preferred Stock), the number of shares of common stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and/or any Alternate Consideration receivable as a result of such Fundamental Transaction by a holder of the number of shares of common stock for which the Series B Preferred Stock is convertible immediately prior to such Fundamental Transaction (without regard to the limitations set forth in the Series B Certificate of Designation on the conversion of the Series B Preferred Stock). For purposes of any such conversion, the determination of the conversion price of the Series B Preferred Stock shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of common stock in such Fundamental Transaction, and the Company shall apportion the Conversion Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of common stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Series B Holder shall be given the same choice as to the Alternate Consideration it receives upon such Fundamental Transaction. Voting Rights . The Series B Holders will have no voting rights, except as otherwise required by the Delaware General Corporation Law. Notwithstanding the foregoing, in addition, as long as any shares of Series B Preferred Stock are outstanding, the Company shall not, without the affirmative vote of the holders of a majority of the then outstanding shares of the Series B Preferred Stock, voting as a separate class, (a) alter or change adversely the powers, preferences or rights given to the Series B Preferred Stock in the Series B Certificate of Designation, (b) increase the number of authorized shares of Series B Preferred Stock, (c) except with respect to the Series A Preferred Stock, authorize or issue an additional class or series of capital stock that ranks senior to the Series B Preferred Stock with respect to the distribution of assets on liquidation or (d) enter into any agreement with respect to any of the foregoing. F- 29 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 14 – EQUITY (continued) Series B Convertible Preferred Stock (continued) Fractional Shares. No fractional shares or scrip representing fractional shares shall be issued upon the conversion of the Series B Preferred Stock. As to any fraction of a share which a Series B Holder would otherwise be entitled to upon such conversion, the Company shall at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Conversion Price or round up to the next whole share. Notwithstanding the foregoing, nothing shall prevent any Series B Holder from converting fractional shares of Series B Preferred Stock. Series A Convertible Preferred Stock Sold for Cash During the year ended December 31, 2022, the Company sold an aggregate of 9,000 shares of Series A Preferred stock and received proceeds of $ 9,000,000 . Each share of Series A Preferred Stock shall be convertible, at any time and from time to time from and after the later of (i) the date of the stockholder approval, in accordance with the Nasdaq Stock Market Listing Rules, and (ii) the nine (9) month anniversary of the Closing (the “Initial Conversion Date”), at the option of the Series A Holder, into that number of shares of common stock (subject to the limitations set forth in Series A Certificate of Designations, determined by dividing the Stated Value of such share of Series A Preferred Stock by the Conversion Price). The Series A Holders may convert such shares into shares of the Company’s common stock at a conversion price per share equal to the greater of (i) ten dollars ($ 10.0 ) and (ii) ninety percent ( 90 %) of the closing price of the Company’s common stock on Nasdaq on the day prior to receipt of a conversion notice (collectively, the “Conversion Price”), subject to adjustment for stock splits and similar matters. The Company evaluated the features of the Series A Convertible Preferred Stock under ASC 480, and classified them as permanent equity because the Series A Convertible Preferred Stock is not mandatorily or contingently redeemable at the stockholder’s option and the liquidation preference that exists does not fall within the guidance of SEC Accounting Series Release No. 268 – Presentation in Financial Statements of “Redeemable Preferred Stocks” (“ASR 268”). Common Shares Sold for Cash On December 13, 2019, the Company entered into an Open Market Sale Agreement SM (the “Sales Agreement”) with Jefferies LLC, as sales agent (“Jefferies”), pursuant to which the Company may offer and sell, from time to time, through Jefferies, shares of its common stock. During the year ended December 31, 2022, Jefferies sold an aggregate of 17,064 shares of common stock at an average price of $ 7.9 per share to investors and the Company recorded net proceeds of $ 112,328 , net of commission and other offering costs of $ 23,239 . During the year ended December 31, 2021, Jefferies sold an aggregate of 220,684 shares of common stock at an average price of $ 13.0 per share to investors and the Company recorded net proceeds of $ 2,553,409 , net of commission and other offering costs of $ 306,895 . On August 5, 2022, the Company sold 44,872 shares of its common stock at a purchase price of $ 7.8 per share, the fair market value on transaction date, to Wenzhao Lu pursuant to a subscription agreement. The Company received proceeds of $ 350,000 (see Note 12 - Common Shares Sold to Related Party for Cash). On August 5, 2022, the Company sold 32,051 shares of its common stock at a purchase price of $ 7.8 per share to an investor pursuant to a subscription agreement. The Company received proceeds of $ 250,000 . Common Shares Issued for Services During the year ended December 31, 2022, the Company issued a total of 40,896 shares of its common stock for services rendered. These shares were valued at $ 340,950 , the fair market values on the grant dates using the reported closing share prices on the dates of grant, and the Company recorded stock-based compensation expense of $ 310,950 for the year ended December 31, 2022 and reduced accrued liabilities of $ 30,000 . During the year ended December 31, 2021, the Company issued a total of 140,568 shares of its common stock for services rendered and to be rendered. These shares were valued at $ 1,507,488 , the fair market values on the grant dates using the reported closing share prices on the dates of grant, and the Company recorded stock-based compensation expense of $ 1,075,756 for the year ended December 31, 2021 and reduced accrued liabilities of $ 276,032 and recorded prepaid expense of $ 155,700 as of December 31, 2021 which will be amortized over the rest of corresponding service periods. F- 30 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 14 – EQUITY (continued) Common Shares Issued for Settlement of Accrued Professional Fees In June 2021, the Company issued 16,736 shares of its common stock to settle accrued and unpaid professional fees of $ 202,500 . The 16,736 shares issued had a fair value of $ 202,500 . Common Shares Issued for Debt Conversion On July 25, 2022, the Company and 2022 Convertible Note holder entered into a Conversion Agreement pursuant to which the investor converted its Convertible Notes in the principal amount of $ 3,718,943 and unpaid interest of $ 9,751 into 573,645 shares of common stock of the Company at a per share price of $ 6.5 (see Note 9). The Company recorded a conversion inducement charge of $ 344,264 as a result of the Conversion Agreement, representing the value of common stock issued upon conversion in excess of the common stock issuable under the original terms of the 2022 Convertible Note. Common Shares Issued Pursuant to Related Party Debt Settlement Agreement and Release On July 25, 2022, the Company and Mr. Lu entered into and closed a Debt Settlement Agreement and Release pursuant to which the Company settled $2,440,262 debt owed under the Line of Credit and unpaid interest of $448,331 by issuance of 444,399 shares of common stock of the Company (see Note 12 - Borrowings from Related Party – Line of Credit ). The total amount of the debt settled of $2,888,593 exceeded the fair market value of the shares issued by $888,353 which was treated as a capital transaction due to Mr. Lu’s relationship with the Company. On December 21, 2021, the Company and Mr. Lu entered into and closed a Debt Settlement Agreement and Release pursuant to which The Company settled $ 3.0 million debt owed under the Line of Credit by issuance of the Company’s 240,000 shares of common stock (see Note 12 – Borrowings from Related Party – Line of Credit ). The 240,000 shares issued had a fair market value of $ 3 million. Options The following table summarizes the shares of the Company’s common stock issuable upon exercise of options outstanding at December 31, 2022: Options Outstanding Options Exercisable Range of Exercise Price Number Outstanding at December 31, 2022 Weighted Average Remaining Contractual Life (Years) Weighted Average Exercise Price Number Exercisable at December 31, 2022 Weighted Average Exercise Price $ 4.25 – 8.20 286,000 3.69 $ 5.48 266,000 $ 5.57 10.20 – 20.00 479,500 2.57 16.39 479,500 16.39 23.00 – 28.00 32,000 0.74 27.00 32,000 27.00 47.60 3,000 0.08 47.60 3,000 47.60 $ 4.25 – 47.60 800,500 2.89 $ 13.03 780,500 $ 13.26 F- 31 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 14 – EQUITY (continued) Options (continued) Stock option activities for the years ended December 31, 2022 and 2021 were as follows: Number of Options Weighted Average Exercise Price Outstanding at January 1, 2021 714,000 $ 14.75 Granted 86,000 10.81 Expired ( 27,500 ) ( 10.06 ) Outstanding at December 31, 2021 772,500 14.48 Granted 86,000 6.59 Expired ( 58,000 ) ( 22.79 ) Outstanding at December 31, 2022 800,500 $ 13.03 Options exercisable at December 31, 2022 780,500 $ 13.26 Options expected to vest 20,000 $ 4.29 The aggregate intrinsic value of stock options outstanding and stock options exercisable at December 31, 2022 was $ 59,000 and $ 40,634 , respectively. The fair values of options granted during the year ended December 31, 2022 were estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions: volatility of 74.8 % - 117.46 %, risk-free rate of 1.37 % - 4.48 %, annual dividend yield of 0 %, and expected life of 3 .00 - 5 .00 years. The aggregate fair value of the options granted during the year ended December 31, 2022 was $ 421,428 . The fair values of options granted during the year ended December 31, 2021 were estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions: volatility of 119.21 % - 128.42 %, risk-free rate of 0.33 % - 1.20 %, annual dividend yield of 0 %, and expected life of 3.00 - 5.00 years. The aggregate fair value of the options granted during the year ended December 31, 2021 was $ 726,952 . For the years ended December 31, 2022 and 2021, stock-based compensation expense associated with stock options granted amounted to $ 358,113 and $ 769,334 , of which, $ 234,856 and $ 544,785 was recorded as compensation and related benefits, $ 84,064 and $ 157,207 was recorded as professional fees, and $ 39,193 and $ 67,342 was recorded as research and development expenses, respectively. A summary of the status of the Company’s nonvested stock options granted as of December 31, 2022 and changes during the years ended December 31, 2022 and 2021 is presented below: Number of Options Weighted Average Exercise Price Nonvested at January 1, 2021 21,833 $ 11.76 Granted 86,000 10.81 Forfeited ( 1,500 ) ( 11.10 ) Vested ( 85,750 ) ( 11.14 ) Nonvested at December 31, 2021 20,583 10.39 Granted 86,000 6.59 Vested ( 86,583 ) ( 8.03 ) Nonvested at December 31, 2022 20,000 $ 4.29 F- 32 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 14 – EQUITY (continued) Warrants On March 28, 2022, the Company entered into Securities Purchase Agreement with an accredited investor, which was amended on June 8, 2022, providing for the sale by the Company to the investor of a Convertible Note in the amount of $ 3,718,943 (“2022 Convertible Note”). In addition to the 2022 Convertible Note, the investor also received a Stock Purchase Warrant (“2022 Warrant”) to acquire an aggregate of 123,964 shares of common stock. The 2022 Warrant is exercisable for five years at an exercise price of $ 12.5 . The fair values of the warrants issued to the investor with this private placement were computed using the Black-Scholes option-pricing model with the following assumptions: volatility of 111.94 %, risk-free rate of 2.71 % - 2.92 %, annual dividend yield of 0 % and expected life of 5 years. The warrants issued to the investor to purchase 123,964 shares of the Company’s common stock were treated as a discount on the convertible note payable and were valued at $ 498,509 and had been amortized over the term of the 2022 Convertible Note. There were no stock warrants issued, terminated/forfeited and exercised during the year ended December 31, 2021. Stock warrants activities during the year ended December 31, 2022 were as follows: Number of Warrants Exercise Price Outstanding at January 1, 2022 - $ - Issued 123,964 12.5 Expired/exercised - - Outstanding and exercisable at December 31, 2022 123,964 $ 12.5 The following table summarizes the shares of the Company’s common stock issuable upon exercise of warrants outstanding at December 31, 2022: Warrants Outstanding Warrants Exercisable Exercise Price Number Outstanding at December 31, 2022 Weighted Average Remaining Contractual Life (Years) Number Exercisable at December 31, 2022 Exercise Price $ 12.5 123,964 4.31 123,964 $ 12.5 The aggregate intrinsic value of both stock warrants outstanding and stock warrants exercisable at December 31, 2022 was $ 0 . NOTE 15 - STATUTORY RESERVE AND RESTRICTED NET ASSETS The Company’s PRC subsidiary, Avalon Shanghai, is restricted in its ability to transfer a portion of its net asset to the Company. The payment of dividends by entities organized in China is subject to limitations, procedures and formalities. Regulations in the PRC currently permit payment of dividends only out of accumulated profits as determined in accordance with accounting standards and regulations in China. The Company is required to make appropriations to certain reserve funds, comprising the statutory surplus reserve and the discretionary surplus reserve, based on after-tax net income determined in accordance with generally accepted accounting principles of the PRC (“PRC GAAP”). Appropriations to the statutory surplus reserve are required to be at least 10 % of the after-tax net income determined in accordance with PRC GAAP until the reserve is equal to 50 % of the entity’s registered capital. Appropriations to the discretionary surplus reserve are made at the discretion of the Board of Directors. The statutory reserve may be applied against prior year losses, if any, and may be used for general business expansion and production or increase in registered capital, but are not distributable as cash dividends. The Company did not make any appropriation to statutory reserve for Avalon Shanghai during the years ended December 31, 2022 and 2021 as it incurred net loss in the periods. As of December 31, 2022 and 2021, the restricted amount as determined pursuant to PRC statutory laws totaled $ 6,578 . Relevant PRC laws and regulations restrict the Company’s PRC subsidiary, Avalon Shanghai, from transferring a portion of its net assets, equivalent to their statutory reserves and their share capital, to the Company’s shareholders in the form of loans, advances or cash dividends. Only PRC entity’s accumulated profit may be distributed as dividend to the Company’s shareholders without the consent of a third party. As of December 31, 2022 and 2021, total restricted net assets amounted to $ 1,006,578 and $ 706,578 , respectively. F- 33 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 16 – NONCONTROLLING INTEREST As of December 31, 2022, Dr. Yu Zhou, former director and former co-chief executive officer of Genexosome, who owns 40 % of the equity interests of Genexosome, which is not under the Company’s control. During the years ended December 31, 2022 and 2021, the Company did not allocate any net loss and foreign currency translation adjustment to the noncontrolling interest holder due to its inability to satisfy these deficits. NOTE 17 – CONDENSED FINANCIAL INFORMATION OF THE PARENT COMPANY Pursuant to the requirements of Rule 12-04(a), 5-04(c) and 4-08(e)(3) of Regulation S-X, the condensed financial information of the parent company shall be filed when the restricted net assets of consolidated subsidiary exceed 25 percent of consolidated net assets as of the end of the most recently completed fiscal year. For purposes of this test, restricted net assets of consolidated subsidiary shall mean that amount of the Company’s proportionate share of net assets of consolidated subsidiary (after intercompany eliminations) which as of the end of the most recent fiscal year may not be transferred to the parent company by subsidiary in the form of loans, advances or cash dividends without the consent of a third party. The Company performed a test on the restricted net assets of consolidated subsidiary in accordance with such requirement and concluded that it was not applicable to the Company as the restricted net assets of the Company’s PRC subsidiary did not exceed 25 % of the consolidated net assets of the Company, therefore, the condensed financial statements for the parent company have not been required. NOTE 18 - CONCENTRATIONS Customers The following table sets forth information as to each customer that accounted for 10 % or more of the Company’s revenues for the years ended December 31, 2022 and 2021. Years Ended December 31, Customer 2022 2021 A (Hebei Daopei, a related party) * 13 % B 31 % 28 % C 19 % 16 % D 13 % 11 % * Less than 10 % Two customers, of which, one is a related party and the other is a third party, whose outstanding receivable accounted for 10 % or more of the Company’s total outstanding rent receivable and rent receivable – related party at December 31, 2022, accounted for 81.4 % of the Company’s total outstanding rent receivable and rent receivable – related party at December 31, 2022. Two customers, of which, one is a related party and the other is a third party, whose outstanding receivable accounted for 10 % or more of the Company’s total outstanding rent receivable and rent receivable – related party at December 31, 2021, accounted for 80.6 % of the Company’s total outstanding rent receivable and rent receivable – related party at December 31, 2021. Suppliers No supplier accounted for 10 % or more of the Company’s purchase during the years ended December 31, 2022 and 2021. F- 34 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 19 – SEGMENT INFORMATION For the year ended December 31, 2022 and 2021, the Company operated in two reportable business segments - (1) the real property operating segment, and (2) the medical related consulting services segment. The Company’s reportable segments are strategic business units that offer different services and products. They are managed separately based on the fundamental differences in their operations. 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. As a result, commencing from the first quarter of 2023, the Company’s chief operating decision maker no longer reviews medical related consulting services operating results. Information with respect to these reportable business segments for the years ended December 31, 2022 and 2021 was as follows: Years Ended December 31, 2022 2021 Revenues Real property operations $ 1,202,169 $ 1,203,560 Medical related consulting services - 187,412 Total 1,202,169 1,390,972 Costs and expenses Real property operations 929,441 829,287 Medical related consulting services - 147,167 Total 929,441 976,454 Gross profit Real property operations 272,728 374,273 Medical related consulting services - 40,245 Total 272,728 414,518 Other operating expenses Real property operations 352,032 381,266 Medical related consulting services 404,121 469,942 Corporate/Other 8,309,470 8,397,140 Total 9,065,623 9,248,348 Other (expense) income Interest expense Corporate/Other ( 3,576,333 ) ( 200,477 ) Total ( 3,576,333 ) ( 200,477 ) Other income (expense) Real property operations 15 115 Medical related consulting services 178,546 ( 61,494 ) Corporate/Other 259,820 5,187 Total 438,381 ( 56,192 ) Total other expense, net ( 3,137,952 ) ( 256,669 ) Net loss Real property operations 79,289 6,878 Medical related consulting services 225,575 491,191 Corporate/Other 11,625,983 8,592,430 Total $ 11,930,847 $ 9,090,499 F- 35 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 19 – SEGMENT INFORMATION (continued) Identifiable long-lived tangible assets at December 31, 2022 and 2021 December 31, 2022 December 31, 2021 Real property operations $ 7,367,360 $ 7,537,281 Medical related consulting services 408 742 Corporate/Other 130,613 352,294 Total $ 7,498,381 $ 7,890,317 Identifiable long-lived tangible assets at December 31, 2022 and 2021 December 31, 2022 December 31, 2021 United States $ 7,393,307 $ 7,583,880 China 105,074 306,437 Total $ 7,498,381 $ 7,890,317 NOTE 20 – COMMITMENTS AND CONTINCENGIES Litigation From time to time, the Company is subject to ordinary routine litigation incidental to its normal business operations. The Company is not currently a party to, and its property is not subject to, any material legal proceedings, except as set forth below. On October 25, 2017, Genexosome entered into and closed a Stock Purchase Agreement with Beijing Genexosome and Yu Zhou, MD, PhD, the sole shareholder of Beijing Genexosome, pursuant to which Genexosome acquired all of the issued and outstanding securities of Beijing Genexosome in consideration of a cash payment in the amount of $ 450,000 , of which $ 100,000 is still owed. Further, on October 25, 2017, Genexosome entered into and closed an Asset Purchase Agreement with Dr. Zhou, pursuant to which the Company acquired all assets, including all intellectual property and exosome separation systems, held by Dr. Zhou pertaining to the business of researching, developing and commercializing exosome technologies. In consideration of the assets, Genexosome paid Dr. Zhou $ 876,087 in cash, transferred 50,000 shares of common stock of the Company to Dr. Zhou and issued Dr. Zhou 400 shares of common stock of Genexosome. Further, the Company had not been able to realize the financial projections provided by Dr. Zhou at the time of the acquisition and has decided to impair the intangible asset associated with this acquisition to zero. Dr. Zhou was terminated as Co-CEO of Genexosome on August 14, 2019. Further, on October 28, 2019, Research Institute at Nationwide Children’s Hospital (“Research Institute”) filed a Complaint in the United States District Court for the Southern District of Ohio Eastern Division against Dr. Zhou, Li Chen, the Company and Genexosome with various claims against the Company and Genexosome. The criminal proceedings against Dr. Zhou and Li Chen have been concluded. The Company, Genexosome and the Research Institute entered into a Settlement Agreement dated June 7, 2022 (the “Settlement Date”) whereby the Company agreed to pay the Research Institute $ 450,000 on each of the sixty-day, one year and two-year anniversaries of the Settlement Date. In addition, the Company agreed to pay the Research Institute 30% of the Company’s initial pre-tax profit of $3,333,333, 20% of the Company’s second pre-tax profit of $3,333,333 and 10% of the Company’s third pre-tax profit of $3,333,333. The parties provided a mutual release as well. In August 2022, the Company paid $ 450,000 to Research Institute. As of December 31, 2022, the accrued litigation settlement amounted to $ 900,000 . The Company’s management determine the likelihood of payment for pre-tax profit is remote. Operating Leases Commitment The Company is a party to leases for office space. These lease agreements will expire through February 2025. Rent expense under all operating leases amounted to approximately $ 141,000 and $ 143,000 for the years ended December 31, 2022 and 2021, respectively. Supplemental cash flow information related to leases for the years ended December 31, 2022 and 2021 is as follows: Years Ended December 31, 2022 2021 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows paid for operating lease $ 150,577 $ 130,071 Right-of-use assets obtained in exchange for lease obligation: Operating lease $ - $ 133,879 F- 36 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 20 – COMMITMENTS AND CONTINCENGIES (continued) Operating Leases Commitment (continued) The following table summarizes the lease term and discount rate for the Company’s operating lease as of December 31, 2022: Operating Lease Weighted average remaining lease term (in years) 0.16 Weighted average discount rate 4.88 % The following table summarizes the maturity of lease liabilities under operating lease as of December 31, 2022: For the Year Ending December 31: Operating Lease 2023 $ 11,448 2024 and thereafter - Total lease payments 11,448 Amount of lease payments representing interest ( 11 ) Total present value of operating lease liabilities $ 11,437 Current portion $ 11437 Long-term portion - Total $ 11,437 Equity Investment Commitment On May 29, 2018, Avalon Shanghai entered into a Joint Venture Agreement with Jiangsu Unicorn Biological Technology Co., Ltd. (“Unicorn”), pursuant to which a company named Epicon Biotech Co., Ltd. (“Epicon”) was formed on August 14, 2018. Epicon is owned 60 % by Unicorn and 40 % by Avalon Shanghai. Within five years of execution of the Joint Venture Agreement, Unicorn shall invest cash into Epicon in an amount not less than RMB 8,000,000 (approximately $ 1.1 million) and the premises of the laboratories of Nanjing Hospital of Chinese Medicine for exclusive use by Epicon, and Avalon Shanghai shall invest cash into Epicon in an amount not less than RMB 10,000,000 (approximately $ 1.4 million). Epicon is focused on cell preparation, third party testing, biological sample repository for commercial and scientific research purposes and the clinical transformation of scientific achievements. As of December 31, 2022, Avalon Shanghai has contributed RMB 5,110,000 (approximately $ 0.7 million) that was included in equity method investment on the accompanying consolidated balance sheets. The Company intends to use its present working capital together with borrowings from related party and equity raises to fund the project cost. Joint Venture – Avactis Biosciences Inc. On July 18, 2018, the Company formed Avactis Biosciences Inc. (“Avactis”), a Nevada corporation, as a wholly owned subsidiary. On October 23, 2018, Avactis and Arbele Limited (“Arbele”) agreed to the establishment of AVAR BioTherapeutics (China) Co. Ltd. (“AVAR”), a Sino-foreign equity joint venture, pursuant to an Equity Joint Venture Agreement (the “AVAR Agreement”), which was to be owned 60 % by Avactis and 40 % by Arbele. On April 6, 2022, the Company, Acactis, Arbele and Arbele Biotherapeutics Limited (“Arbele Biotherapeutics”), a wholly owned subsidiary of Arbele, entered into an Amendment No. 1 to the Equity Joint Venture Agreement pursuant to which Arbele Biotherapeutics acquired 40 % of Avactis for the purpose of the Company and Arbele establishing a joint venture in the United States and the parties agreed that they would no longer pursue AVAR as a joint venture. Further, all rights and obligations under the AVAR Agreement were assigned by Avactis to Avalon and by Arbele to Arbele Biotherapeutics. Avactis established Avactis Nanjing Biosciences Ltd., a wholly owned foreign entity in the PRC. Further, the parties agreed that the Exclusive Patent License Agreement dated January 3, 2019 entered between Arbele, as licensor, and AVAR, as licensee (the “Arbele License Agreement”), was assigned to Avactis and Avalon and Arbele agreed to enter into a new Arbele License Agreement with Avactis on the same/similar terms as the Arbele License Agreement. Further, Dr. Anthony Chan was appointed to the Board of Directors of Avactis and as the Chief Scientific Officer of Avactis. Avactis purpose and business scope is to research, research, develop, produce, sell, distribute and generally commercialize CAR-T/CAR-NK/TCR-T/universal cellular immunotherapy globally. F- 37 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 20 – COMMITMENTS AND CONTINCENGIES (continued) Joint Venture – Avactis Biosciences Inc. (continued) The Company is required to contribute $ 10 million (or equivalent in RMB) in cash and/or services, which shall be contributed in tranches based on milestones to be determined jointly by Avactis and the Company in writing subject to the Company’s cash reserves. Within 30 days, Arbele Biotherapeutics shall make contribution of $ 6.66 million in the form of entering into a License Agreement with Avactis granting Avactis with an exclusive right and license in China to its technology and intellectual property pertaining to CAR-T/CAR-NK/TCR-T/universal cellular immunotherapy technology and any additional technology developed in the future with terms and conditions to be mutually agreed upon the Company and Avactis and services. As of the date hereof, the License Agreement has not been finalized. In addition, the Company is responsible for : ● Contributing registered capital of RMB 5,000,000 (approximately $ 0.7 million) for working capital purposes as required by local regulation, which is not required to be contributed immediately and will be contributed subject to the Company’s discretion; ● assist Avactis in setting up its business operations and obtaining all required permits and licenses from the Chinese government; ● assisting Avactis in recruiting, hiring and retaining personnel; ● providing Avactis with access to various hospital networks in China to assist in the testing and commercialization of the CAR-T/CAR-NK/TCR-T/universal cellular immunotherapy technology in China; ● assisting Avactis in managing the Good Manufacturing Practices (GMP) facility and clinic to be developed by Avactis; ● providing Avactis with advice pertaining to conducting clinicals in China; and ● Within 6 days of signing the AVAR Agreement, the Company is required to pay to Arbele Biotherapeutics $ 300,000 as a research and development fee with an additional two payments of $ 300,000 (for a total of $ 900,000 ) to be paid upon mutually agreed upon milestones. Under AVAR Agreement, as amended, Arbele Biotherapeutics shall be responsible for the following: ● Entering into a License Agreement with Avactis; and ● Providing Avactis with research and development expertise pertaining to clinical laboratory medicine when hired by Avactis. As of both December 31, 2022 and 2021, the Company paid the $ 900,000 to Arbele Biotherapeutics as research and development fee. Line of Credit Agreement On August 29, 2019, the Company entered into a Line of Credit Agreement (the “Line of Credit Agreement”) providing the Company with a $ 20 million line of credit (the “Line of Credit”) from Wenzhao Lu (the “Lender”), a significant shareholder and director of the Company. The Line of Credit allows the Company to request loans thereunder and to use the proceeds of such loans for working capital and operating expense purposes until the facility matures on December 31, 2024. The loans are unsecured and are not convertible into equity of the Company. Loans drawn under the Line of Credit bears interest at an annual rate of 5 % and each individual loan will be payable three years from the date of issuance. The Company has a right to draw down on the line of credit and not at the discretion of the related party Lender. The Company may, at its option, prepay any borrowings under the Line of Credit, in whole or in part at any time prior to maturity, without premium or penalty. The Line of Credit Agreement includes customary events of default. If any such event of default occurs, the Lender may declare all outstanding loans under the Line of Credit to be due and payable immediately. As of December 31, 2022, $ 0 was outstanding under the Line of Credit. F- 38 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 20 – COMMITMENTS AND CONTINCENGIES (continued) Amended and Restated Membership Interest Purchase Agreement On November 7, 2022, Avalon Laboratory Services, Inc. (the “Buyer”), a wholly-owned subsidiary of Avalon GloboCare Corp. (the “Company”), entered into a Membership Interest Purchase Agreement (the “MIPA”), by and among SCBC Holdings LLC (the “Seller”), the Zoe Family Trust, and Bryan Cox and Sarah Cox as individuals (each an “Owner” and collectively, the “Owners”), and Laboratory Services MSO, LLC (“Laboratory Services MSO”), pursuant to which, subject to the terms and conditions set forth in the MIPA, the Buyer will acquire from the Seller, sixty percent ( 60 %) of all the issued and outstanding equity interests of the Laboratory Services MSO (the “Purchased Interests”), free and clear of all liens (the “Transaction”). The consideration to be paid for the Purchased Interests consists of up to thirty-one million dollars ($31,000,000), of which (i) five million dollars ($5,000,000) was paid as a refundable prepayment at signing, (ii) ten million dollars ($10,000,000) will be paid in cash at the closing, (iii) fifteen million dollars ($15,000,000) will be paid pursuant to the issuance of 15,000 shares of the Company’s newly designated Series B Convertible Preferred Stock (the “Series B Preferred Stock”), stated value $1,000 (the “Series B Stated Value”), which Series B Preferred Stock will be convertible into shares of the Company’s common stock at a conversion price per share equal to $5.75 or an aggregate of 2,608,696 shares of the Company’s common stock, which are subject to the Lock Up Period and the restrictions on sale, and (iv) one million dollars ($1,000,000) will be paid on the first anniversary of the closing date (the “Anniversary Payment”). The Seller is also eligible to receive certain earnout payments upon achievement of certain operating results, which may be comprised of up to ten million dollars ($10,000,000) of which (x) five million dollars ($5,000,000) will be paid in cash and (y) five million dollars ($5,000,000) will be paid pursuant to the issuance of the number of shares of Company common stock valued at five million dollars ($5,000,000), calculated using the closing price of the Company’s common stock on December 31, 2023 (collectively, the “Earnout Payments”). On February 9, 2023 (the “Closing Date”), the Company entered into and closed an Amended and Restated Membership Interest Purchase Agreement (the “Amended MIPA”), by and among Avalon Laboratory Services, Inc., a wholly-owned subsidiary of the Company (the “Buyer”), SCBC Holdings LLC (the “Seller”), the Zoe Family Trust, Bryan Cox and Sarah Cox as individuals (each an “Owner” and collectively, the “Owners”), and Laboratory Services MSO, LLC (“Laboratory Services MSO”). The Amended MIPA amends and restates, in its entirety, that certain Membership Interest Purchase Agreement, dated November 7, 2023 (the “Original MIPA”). Pursuant to the terms and conditions set forth in the Amended MIPA, Buyer acquired from the Seller, forty percent (40%) of all the issued and outstanding equity interests of Laboratory Services MSO (the “Purchased Interests”), free and clear of all liens (the “Transaction”). The consideration paid by Buyer to Seller for the Purchased Interests consisted of $21,000,000, which comprised of (i) $9,000,000 in cash, (ii) $11,000,000 pursuant to the issuance of 11,000 shares of the Company’s newly designated Series B Convertible Preferred Stock (the “Series B Preferred Stock”), stated value $1,000 (the “Series B Stated Value”), and (iii) a $1,000,000 cash payment on February 9, 2024 (the “Anniversary Payment”). The Series B Preferred Stock will be convertible into shares of the Company’s common stock at a conversion price per share equal to $3.78 or an aggregate of 2,910,053 shares of the Company’s common stock and are subject to the Lock Up Period and the restrictions on sale . The Seller is also eligible, under the terms set forth in the Amended MIPA, to receive certain earnout payments upon achievement of certain operating results, which may be comprised of up to $10,000,000 of which (x) up to $5,000,000 will be paid in cash and (y) up to $5,000,000 will be paid pursuant to the issuance of the number of shares of Company common stock valued at $5,000,000, calculated using the closing price of the Company’s common stock on December 31, 2023, rounded down to the nearest whole share (collectively, the “Earnout Payments”). The Amended MIPA contains customary representations and warranties and covenants. The Anniversary Payment and the Earnout Payments will be available to compensate the Buyer for certain losses it may incur pursuant the indemnification provisions set forth in the Amended MIPA. In addition, at any time during the period beginning on the Closing Date and ending on the date nine (9) months after the Closing Date, the Buyer, or its designated affiliates under the Amended MIPA, may purchase from the Seller twenty percent ( 20 %) of the total issued and outstanding equity interests of Laboratory Services MSO for the purchase price of (i) $ 6,000,000 in cash and (ii) the issuance of an additional 4,000 shares of Series B Preferred Stock valued at $ 4,000,000 , in accordance with the terms and conditions set forth in the Amended MIPA. F- 39 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 21 – SUBSEQUENT EVENTS The Company evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that the financial statements were issued. Based upon this review, other than as described below, the Company did not identify any subsequent events that would have required adjustment or disclosure in the financial statements. Reverse Stock Split The Company effected a one-for-ten reverse stock split of its outstanding shares of common stock on January 5, 2023. The reverse split did not change the number of authorized shares of common stock or par value. All references in these consolidated financial statements to shares, share prices, exercise prices, and other per share information in all periods have been adjusted, on a retroactive basis, to reflect the reverse stock split. Second Amended and Restated Limited Liability Company Agreement In connection with the Closing of the Transaction, Laboratory Services MSO entered into a Second Amended and Restated Limited Liability Company Agreement, dated February 9, 2023 (the “Amended Operating Agreement”), by and among the Seller, the Zoe Family Trust, the Owners, and the members named therein. The terms of the Amended Operating Agreement, include, but are not limited to: (i) establishing Laboratory Services MSO as a multi-member entity as of the Closing Date of the Transaction; (ii) reaffirming the Buyer’s right to purchase an additional twenty percent ( 20 %) of the issued and outstanding units of Laboratory Services MSO, as described above; (iii) allocating the profits and losses of Laboratory Services MSO among the parties to the agreement; and (iv) providing for the management rights of the members. Common Shares Issued for Services In March 2023, the Company issued a total of 202,731 shares of its common stock for services rendered and to be rendered. These shares were valued at $ 463,375 , the fair market values on the grant dates using the reported closing share prices on the dates of grant. Line of Credit As disclosed elsewhere, the Company entered into a Line of Credit Agreement (the “Line of Credit Agreement”) providing the Company with a $ 20 million line of credit (the “Line of Credit”) from Wenzhao “Daniel” Lu (the “Lender”), a significant shareholder and director of the Company. Under the Line of Credit, the Company received a loan from the Lender of $ 750,000 in March 2023. Loans drawn under the Line of Credit bear interest at an annual rate of 5 % and each individual loan will be payable three years from the date of issuance. The Company may, at its option, prepay any borrowings under the Line of Credit, in whole or in part at any time prior to maturity, without premium or penalty. F-40