What changed in this filing

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Item 1. Financial Statements

2023-05-22 compared with 2022-11-14 · 731 added, 1220 removed, 349 unchanged (85% of the section changed)

3 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

September 30,

CURRENT ASSETS:

Rent receivable

Rent receivable - related party

Deferred financing costs, net

Other current assets

Total Current Assets

expense and other current assets

Current Assets

NON-CURRENT ASSETS:

Operating lease right-of-use assets, net

Property and equipment, net

Investment in real estate, net

Equity method investment

Other non-current assets

Total Non-current Assets

lease right-of-use assets, net

and equipment, net

in real estate, net

method investments

for equity interest purchase

non-current assets

Non-current Assets

LIABILITIES AND EQUITY

CURRENT LIABILITIES:

Accounts payable

Accrued professional fees

Accrued research and development fees

Accrued payroll liability and directors’ compensation

Accrued settlement of lawsuit

Accrued liabilities and other payables

Accrued liabilities and other payables - related parties

Operating lease obligation

Note payable - related party

Total Current Liabilities

professional fees

research and development fees

payroll liability and directors’ compensation

litigation settlement

liabilities and other payables

liabilities and other payables - related parties

lease obligation

method investment payable

Current Liabilities

NON-CURRENT LIABILITIES:

Operating lease obligation - noncurrent portion

Accrued settlement of lawsuit - noncurrent portion

Note payable, net

Loan payable - related party

Total Non-current Liabilities

Total Liabilities

Commitments and Contingencies (Note 16)

lease obligation - noncurrent portion

litigation settlement - noncurrent portion

Note payable,

payable - related party

Non-current Liabilities

and Contingencies (Note 13)

Preferred stock, $ 0.0001 par value;

10,000,000 shares authorized;

no shares issued and outstanding at September 30, 2022 and December 31, 2021

Series A Convertible Preferred Stock, 9,000 shares issued and outstanding at March 31, 2023 and December 31, 2022.

Liquidation preference $ 9 million at March 31, 2023 and December 31, 2022

Series B Convertible Preferred Stock, 11,000 and 0 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively.

Liquidation preference $ 11 million at March 31, 2023

Common stock, $ 0.0001 par value;

490,000,000 shares authorized;

99,735,208 shares issued and 99,215,208 shares outstanding at September 30, 2022;

10,216,307 shares issued and 10,164,307 shares outstanding at March 31, 2023;

10,013,576 shares issued and 9,961,576 shares outstanding at December 31, 2022

Common stock to be issued

Additional paid-in capital

paid-in capital

common stock held in treasury, at cost;

520,000 shares at September 30, 2022 and December 31, 2021

Accumulated deficit

52,000 shares at March 31, 2023 and December 31, 2022

( 65,846,635 )

( 63,062,721 )

Statutory reserve

Accumulated other comprehensive loss - foreign currency translation adjustment

Total Avalon GloboCare Corp.

other comprehensive loss

GloboCare Corp.

stockholders’ equity

Non-controlling interest

Total Liabilities and Equity

See accompanying notes to the condensed consolidated financial statements.

Non-controlling

Liabilities and Equity

See accompanying notes to the condensed consolidated

financial statements.

AVALON GLOBOCARE CORP.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF

OPERATIONS AND COMPREHENSIVE LOSS

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

Real property rental

Medical related consulting services - related party

Total Revenues

COSTS AND EXPENSES

Real property operating expenses

Medical related consulting services - related party

Total Costs and Expenses

Real property operating income

Gross profit from medical related consulting services

Total Gross Profit

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE LOSS

For the Three Months

Ended March 31,

RENTAL REVENUE

OPERATING EXPENSES

OPERATING INCOME

OTHER OPERATING EXPENSES:

Advertising and marketing

Advertising and marketing expenses

Professional fees

1 unchanged sentence

Research and development expenses

Litigation settlement

Other general and administrative

Other general and administrative expenses

Total Other Operating Expenses

2 unchanged sentences

( 2,126,942 )

( 6,559,612 )

( 6,570,839 )

OTHER (EXPENSE) INCOME

Interest expense - amortization of debt discount and debt issuance cost

( 3,248,597 )

( 3,303,282 )

Interest expense - other

Interest expense

Interest expense - related party

Conversion inducement expense

Loss from equity method investment

Change in fair value of derivative liability

Total Other Expense, net

( 3,825,055 )

( 2,953,554 )

Income (loss) from equity method investments

Other (expense) income

Total Other (Expense) Income, net

LOSS BEFORE INCOME TAXES

3 unchanged sentences

$ ( 2,070,538 )

$ ( 5,414,154 )

$ ( 2,024,219 )

$ ( 9,513,166 )

$ ( 6,756,247 )

NET LOSS ATTRIBUTABLE TO NON-CONTROLLING INTEREST

3 unchanged sentences

$ ( 2,070,538 )

$ ( 9,513,166 )

$ ( 6,756,247 )

COMPREHENSIVE LOSS:

1 unchanged sentence

$ ( 2,070,538 )

$ ( 9,513,166 )

$ ( 6,756,247 )

OTHER COMPREHENSIVE (LOSS) INCOME

Unrealized foreign currency translation (loss) gain

OTHER COMPREHENSIVE INCOME

Unrealized foreign currency translation gain

COMPREHENSIVE LOSS

1 unchanged sentence

( 2,068,517 )

( 9,591,681 )

( 6,742,898 )

COMPREHENSIVE LOSS ATTRIBUTABLE TO NON-CONTROLLING INTEREST

3 unchanged sentences

$ ( 2,068,517 )

$ ( 9,591,681 )

$ ( 6,742,898 )

NET LOSS PER COMMON SHARE ATTRIBUTABLE TO AVALON GLOBOCARE CORP.

8 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN

For the Three and Nine Months Ended September 30,

GloboCare Corp.

For the Three Months Ended March 31, 2023

Avalon GloboCare Corp.

Stockholders’ Equity

Series A Preferred Stock

Series B Preferred Stock

Treasury Stock

Accumulated Other

Comprehensive

Non-controlling

January 1, 2022

$ ( 522,500 )

$ ( 51,131,874 )

$ ( 165,266 )

of common stock, net

currency translation adjustment

loss for the three months ended March 31, 2022

( 2,070,538 )

March 31, 2022

( 53,202,412 )

issued with convertible debt offering

of common stock for services

currency translation adjustment

loss for the three months ended June 30, 2022

Balance, January 1, 2023

$ ( 522,500 )

$ ( 63,062,721 )

June 30, 2022

$ ( 213,137 )

of convertible note payable and accrued interest into common stock

Reclassification

of derivative liability to equity

of common stock for settlement of loan payable and accrued interest - related party

of common stock - related party

of common stock

currency translation adjustment

loss for the three months ended September 30, 2022

Issuance of Series B Convertible Preferred Stock for equity method investment

Issuance of common stock for services

Stock-based compensation

Foreign currency translation adjustment

Net loss for the three months ended March 31, 2023

( 2,783,914 )

September 30, 2022

Balance, March 31, 2023

$ ( 522,500 )

5 unchanged sentences

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF

CHANGES IN EQUITY

For the Three and Nine Months Ended September

GloboCare Corp.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN

For the Three Months Ended March 31, 2022

Avalon GloboCare Corp.

Stockholders’ Equity

Preferred Stock

Treasury Stock

Comprehensive

Non-controlling

January 1, 2021

$ ( 522,500 )

$ ( 42,041,375 )

$ ( 190,510 )

of common stock, net

of common stock for services

currency translation adjustment

loss for the three months ended March 31, 2021

( 2,367,118 )

March 31, 2021

( 44,408,493 )

of common stock for settlement of accrued professional fees

of common stock for services

currency translation adjustment

loss for the three months ended June 30, 2021

Balance, January 1, 2022

$ ( 522,500 )

$ ( 51,131,874 )

June 30, 2021

$ ( 165,266 )

of common stock, net

of common stock for services

currency translation adjustment

loss for the three months ended September 30, 2021

Sale of common stock, net

Stock-based compensation

Foreign currency translation adjustment

Net loss for the three months ended March 31, 2022

( 2,070,538 )

September 30, 2021

Balance, March 31, 2022

$ ( 522,500 )

1 unchanged sentence

$ ( 163,245 )

See accompanying notes to the condensed consolidated financial

See accompanying notes to the condensed consolidated

financial statements.

AVALON GLOBOCARE CORP.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF

For the Nine Months

Ended September 30,

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Three Months

Ended March 31,

CASH FLOWS FROM OPERATING ACTIVITIES:

2 unchanged sentences

Adjustments to reconcile net loss to net cash used in operating activities:

Bad debt provision

Change in straight-line rent receivable

Amortization of right-of-use asset

Amortization of operating lease right-of-use asset

Stock-based compensation and service expense

Loss on equity method investment

Amortization of debt discount

(Income) loss from equity method investments

Amortization of debt issuance costs

Conversion inducement expense

Change in fair market value of derivative liability

Changes in operating assets and liabilities:

Rent receivable

Rent receivable - related party

Security deposit

Deferred leasing costs

Accounts payable

Prepaid expense and other assets

Accrued liabilities and other payables

3 unchanged sentences

( 1,834,810 )

( 3,307,520 )

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchase of property and equipment

Improvement of commercial real estate

Additional investment in equity method investment

NET CASH USED IN INVESTING ACTIVITIES

CASH FLOWS FROM FINANCING ACTIVITIES

Repayments of note payable - related party

Proceeds from loan payable - related party

Repayments of loan payable - related party

Proceeds from issuance of convertible debt and warrants

Proceeds from issuance of balloon promissory note

Payments of debt issuance costs

Proceeds from equity offering

2 unchanged sentences

EFFECT OF EXCHANGE RATE ON CASH

NET INCREASE (DECREASE) IN CASH

NET DECREASE IN CASH

( 1,103,879 )

CASH - beginning of period

6 unchanged sentences

Deferred financing costs in accrued liabilities

Accrued professional fees relieved for shares issued

Warrants issued with convertible note payable recorded as debt discount

Bifurcated embedded conversion feature recorded as derivative liability and debt discount

Conversion of convertible note payable and accrued interest into common stock

Reclassification of derivative liability to equity

Related party loan and accrued interest settled in shares

See accompanying notes to the condensed consolidated financial

Reclassification of advances for equity interest purchase to equity method investment

Series B Convertible Preferred Stock issued related to equity method investment

Accrued purchase price related to equity method investment

See accompanying notes to the condensed

consolidated financial statements.

AVALON GLOBOCARE CORP.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – ORGANIZATION

AND NATURE OF OPERATIONS

Avalon GloboCare

1 – ORGANIZATION AND NATURE OF OPERATIONS

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”).

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

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”)

was incorporated on April 29, 2016 and is engaged in medical related consulting services for customers.

is a clinical-stage, vertically integrated, leading CellTech bio-developer dedicated to advancing and empowering innovative, transformative

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

The Company also provides strategic

advisory and outsourcing services to facilitate and enhance its clients’ growth and development, as well as competitiveness in healthcare

and CellTech industry markets.

Through its subsidiary structure with unique integration of verticals from innovative R&D to automated

bioproduction and accelerated clinical development, the Company is establishing a leading role in the fields of cellular immunotherapy

(including CAR-T/NK), exosome technology (ACTEX™), and regenerative therapeutics.

23, 2017, the Company incorporated Avalon (BVI) Ltd., a British Virgin Island company.

There was no activity for the subsidiary since

its incorporation through September 30, 2022.

Avalon (BVI) Ltd.

is dormant and is in process of being dissolved.

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, had limited assets and was engaged in medical related consulting services for customers.

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.

is a clinical-stage biotechnology company dedicated to developing and delivering innovative, transformative cellular therapeutics, precision

diagnostics, and clinical laboratory services.

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).

7, 2017, the Company formed Avalon RT 9 Properties, LLC (“Avalon RT 9”), a New Jersey limited liability company.

6 unchanged sentences

Avalon RT 9’s business consists of the ownership and operation of the income-producing real estate property in New Jersey.

September 30, 2022, the occupancy rate of the building is 87.0 %.

31, 2017, the Company formed Genexosome Technologies Inc.

(“Genexosome”) in Nevada.

Genexosome was engaged in developing proprietary

diagnostic and therapeutic products using exosomes.

Genexosome owns 100 % of the capital stock of Beijing Jieteng (Genexosome) Biotech

Co., Ltd., a corporation incorporated in the People’s Republic of China on August 7, 2015 (“Beijing Genexosome”) which

was dissolved in June 2022, and the Company holds 60 % of Genexosome and Dr.

Yu Zhou holds 40 % of Genexosome.

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.

Zhou was terminated as Co-CEO of Genexosome on August 14, 2019.

Since the fourth quarter

of 2019, the non-controlling interest has remained inactive.

March 31, 2023, the occupancy rate of the building is 82.7 %.

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 %

13, 2019, the Company formed a wholly owned subsidiary, International Exosome Association LLC, a Delaware company.

There was no activity

for the subsidiary since its incorporation through September 30, 2022.

will focus on accelerating commercial activities related to cellular therapies 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.

October 14, 2022, the Company formed a wholly owned subsidiary, Avalon Laboratory Services, Inc.

(“Avalon Lab”), a Delaware

On February 9, 2023, Avalon Lab purchased forty percent ( 40 %) of all the issued and outstanding equity interests of Laboratory

Services MSO, LLC, a private limited company formed under the laws of the State of Delaware on September 6, 2019 (“Lab Services

MSO”) and its subsidiaries.

Lab Services MSO ,

through its two subsidiaries, Laboratory Services, LLC (“Lab Services LLC”) and Laboratory Services DME, LLC (“Lab

Services DME”), is engaged in providing laboratory testing services.

AVALON GLOBOCARE CORP.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – ORGANIZATION

AND NATURE OF OPERATIONS (continued)

Details of the Company’s subsidiaries which

are included in these condensed consolidated financial statements as of September 30, 2022 are as follows:

Name of Subsidiary

Place and date of Incorporation

Percentage of Ownership

Principal Activities

Avalon Healthcare System, Inc.

100% held by ALBT

Provides medical related consulting services and developing Avalon Cell and Avalon Rehab in United States of America (“USA”)

Avalon (BVI) Ltd.

(“Avalon BVI”)

British Virgin Island

January 23, 2017

1 – ORGANIZATION AND NATURE OF OPERATIONS (continued)

accompanying condensed consolidated financial statements reflect the activities of ALBT and each of the following entities:

of Subsidiary

Incorporation

Healthcare System, Inc.

100% held by ALBT

is in process of being dissolved

Avalon RT 9 Properties LLC

(“Avalon RT 9”)

Developing Avalon Cell and Avalon Rehab in United States of America (“USA”)

RT 9 Properties LLC

February 7, 2017

1 unchanged sentence

Owns and operates an income-producing real property and holds and manages the corporate headquarters

Avalon (Shanghai) Healthcare Technology Co.,

(“Avalon Shanghai”)

(Shanghai) Healthcare Technology Co., Ltd.

April 29, 2016

100% held by AHS

Ceased operations

Genexosome Technologies Inc.

Ceased operations and is not considered an operating entity

Technologies Inc.

(“Genexosome”)

1 unchanged sentence

60% held by ALBT

Avactis Biosciences Inc.

No current activities to report

Biosciences Inc.

July 18, 2018

1 unchanged sentence

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”)

Owns a patent

International Exosome Association LLC

Nanjing Biosciences Ltd.

100% held by Avactis

Owns a patent and is not considered an operating entity

International

Exosome Association LLC

June 13, 2019

1 unchanged sentence

Promotes standardization related to exosome industry

Laboratory Services, Inc.

October 14, 2022

100% held by ALBT

Purchases a membership interest

2 – BASIS OF PRESENTATION AND GOING CONCERN CONDITION

Basis of Presentation

These interim

condensed consolidated financial statements of the Company and its subsidiaries are unaudited.

In the opinion of management, all adjustments

(consisting of normal recurring accruals) and disclosures necessary for a fair presentation of these interim condensed consolidated financial

statements have been included.

The results reported in the condensed consolidated financial statements for any interim periods are not

necessarily indicative of the results that may be reported for the entire year.

The accompanying condensed consolidated financial statements

have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission and do not include all information

and footnotes necessary for a complete presentation of financial statements in conformity with accounting principles generally accepted

in the United States (“U.S.

The Company’s condensed consolidated financial statements include the accounts of

the Company and its subsidiaries.

All significant intercompany accounts and transactions have been eliminated in consolidation.

Certain information

and footnote disclosures normally included in the annual consolidated financial statements prepared in accordance with U.S.

been condensed or omitted.

These condensed consolidated financial statements should be read in conjunction with the Company’s audited

consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31,

2021 filed with the Securities and Exchange Commission on March 30, 2022.

of Presentation

interim condensed consolidated financial statements of the Company and its subsidiaries are unaudited.

In the opinion of management,

all adjustments (consisting of normal recurring accruals) and disclosures necessary for a fair presentation of these interim condensed

consolidated financial statements have been included.

The results reported in the condensed consolidated financial statements for any

interim periods are not necessarily indicative of the results that may be reported for the entire year.

The accompanying condensed consolidated

financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission and do

not include all information and footnotes necessary for a complete presentation of financial statements in conformity with accounting

principles generally accepted in the United States (“U.S.

The Company’s condensed consolidated financial statements

include the accounts of the Company and its subsidiaries.

All significant intercompany accounts and transactions have been eliminated

in consolidation.

information and footnote disclosures normally included in the annual consolidated financial statements prepared in accordance with U.S.

GAAP have been condensed or omitted.

These condensed consolidated financial statements should be read in conjunction with the Company’s

audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended

December 31, 2022 filed with the Securities and Exchange Commission on March 30, 2023.

AVALON GLOBOCARE CORP.

2 unchanged sentences

2 – BASIS OF PRESENTATION AND GOING CONCERN CONDITION (continued)

Going Concern

is a clinical-stage, vertically integrated, leading CellTech bio-developer dedicated to advancing and empowering innovative, transformative

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

The Company also provides strategic

advisory and outsourcing services to facilitate and enhance its clients’ growth and development, as well as competitiveness in healthcare

and CellTech industry markets.

Through its subsidiary structure with unique integration of verticals from innovative R&D to automated

bioproduction and accelerated clinical development, the Company is establishing a leading role in the fields of cellular immunotherapy

(including CAR-T/NK), exosome technology (ACTEX™), and regenerative therapeutics.

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

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

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

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

in the accompanying condensed consolidated financial statements, the Company has incurred recurring net losses and generated negative

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

The Company has a limited operating history and its continued growth is dependent upon the continuation of providing medical related consulting

services to its only few clients who are related parties and generating rental revenue from its income-producing real estate property

in New Jersey;

hence generating revenues, and obtaining additional financing to fund future obligations and pay liabilities arising from

normal business operations.

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

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,

The occurrence

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

Our general development

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

However, we are uncertain if the COVID-19

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

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

Given the dynamic nature of these circumstances, the duration

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

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

The accompanying

condensed 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 condensed 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.

Actual results could differ from these estimates.

Significant estimates

during the three and nine months ended September 30, 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.

is a clinical-stage biotechnology company dedicated to developing and delivering innovative, transformative cellular therapeutics, precision

diagnostics, and clinical laboratory services.

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).

addition, the Company owns commercial real estate that houses its headquarters in Freehold, New Jersey.

The Company also has income from

equity method investment through its forty percent ( 40 %) interest in Lab Services MSO.

These condensed consolidated financial statements

have been prepared assuming that the Company will continue as a going concern, which contemplates, among other things, the realization

of assets and the satisfaction of liabilities in the normal course of business.

reflected in the accompanying condensed consolidated financial statements, the Company had a working capital deficit of approximately

$ 3,785,000 at March 31, 2023 and had incurred recurring net losses and generated negative cash flow from operating activities of approximately

$ 2,784,000 and $ 1,835,000 for the three months ended March 31, 2023, respectively.

Company has a limited operating history and its continued growth is dependent upon the continuation of 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.

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.

accompanying condensed 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.

3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Significant Accounting

have been no changes to the Company’s significant accounting policies described in the Company’s 2022 Annual Report on Form

10-K filed with the SEC that have had a material impact on the Company’s financial condition, and operating results.

preparation of the condensed 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 condensed 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 three months ended

March 31, 2023 and 2022 include the valuation of deferred tax assets and the associated valuation allowances, the valuation of stock-based

compensation, and the fair value of the consideration given in the purchase of 40 % of Lab Services MSO.

AVALON GLOBOCARE CORP.

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NOTES TO CONDENSED 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 condensed consolidated financial statements, primarily due to their

short-term nature.

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 is carried at fair value and measured on an ongoing basis.

The table below reflects the activity

of derivative liability measured at fair value for the nine months ended September 30, 2022:

Balance of derivative liability as of January 1, 2022

Initial fair value of derivative liability attributable to embedded conversion feature of convertible note payable

Gain from change in the fair value of derivative liability

Reclassification of derivative liability to equity

Balance of derivative liability as of September 30, 2022

ASC 825-10 “Financial Instruments”,

allows entities to voluntarily choose to measure certain financial assets and liabilities at fair value (fair value option).

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 September 30, 2022

and December 31, 2021, the Company’s cash balances by geographic area were as follows:

September 30, 2022

3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Value of Financial Instruments and Fair Value Measurements

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:

1-Inputs are unadjusted quoted prices in active markets for identical assets or liabilities

available at the measurement date.

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.

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.

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 condensed consolidated financial statements, primarily

due to their short-term nature.

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

and Cash Equivalents

March 31, 2023 and December 31, 2022, the Company’s cash balances by geographic area were as follows:

March 31, 2023

December 31, 2022

United States

of the condensed 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 September 30, 2022 and

December 31, 2021.

purposes of the condensed 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 March

31, 2023 and December 31, 2022.

AVALON GLOBOCARE CORP.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Credit Risk and Uncertainties

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 $70,000) per bank.

Any balance over RMB 500,000 per bank in PRC will not be covered.

September 30, 2022, cash balances held in the PRC are RMB 2,559,525 (approximately $ 360,000 ), of which, RMB 2,034,731 (approximately

3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Risk and Uncertainties

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 $73,000) per bank.

Any balance over RMB 500,000 per bank in PRC will not be

At March 31, 2023, cash balances held in the PRC are RMB 680,408 (approximately $ 99,000 ), of which, RMB 149,955 (approximately

$ 22,000 ) was not covered by such limited insurance.

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exposed to any risks on its cash in bank accounts.

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 September 30, 2022, the Company’s

Company maintains a portion of its cash on deposits with bank and financial institution within the 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 March 31, 2023, the Company’s

cash balances in United States bank accounts had approximately $ 154,000 in excess of the federally-insured limits.

a portion of the Company’s operations are carried out in PRC.

Accordingly, the Company’s business, financial condition and

results of operations may be influenced by the political, economic and legal environment in the PRC, and by the general state of the PRC’s

The Company’s operations in PRC are subject to specific considerations and significant risks not typically associated with

companies in North America.

The Company’s results may be adversely affected by changes in governmental policies with respect to

laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among

other things.

instruments which potentially subject the Company to concentrations of credit risk consist principally of trade accounts receivable.

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.

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:

Identify the contract with the customer

Identify the performance obligations in the contract

Determine the transaction price

Allocate the transaction price to the performance

obligations in the contract

Recognize revenue when the company satisfies a performance

AVALON GLOBOCARE CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 – SUMMARY OF SIGNIFICANT

ACCOUNTING POLICIES (continued)

Revenue Recognition (continued)

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

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

A performance obligation meets ASC 606’s definition of a

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

● The customer can benefit from the goods or service either

on its own or together with other resources that are readily available to the customer (i.e., the goods or service is capable of being

● The entity’s promise to transfer the goods or service

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

distinct within the context of the contract).

If a goods or service is not distinct, the goods

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

The transaction price is the amount of consideration

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

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

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

amounts, variable amounts, or both.

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

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

consideration is subsequently resolved.

The transaction price is allocated to each performance

obligation on a relative standalone selling price basis.

The transaction price allocated to each performance obligation is recognized

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

The Company’s revenues are derived from

providing medial related consulting services for its’ related parties.

Revenues related to its service offerings are recognized

at a point in time when service is rendered.

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

revenue until such time as the services are performed.

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.

Per Share Data

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.

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.

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 three and nine months

ended September 30, 2022 and 2021, potentially dilutive common shares consist of the common shares issuable upon the conversion of convertible

note (using the if-converted method) and exercise of common stock options and warrants (using the treasury stock method).

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.

Company’s concentrations of credit risk with respect to its rent receivable is limited due to short-term payment terms.

also performs ongoing credit evaluations of its tenants to help further reduce credit risk.

in Unconsolidated Companies

The Company uses the equity method of accounting for its investments in, and earning or loss of, companies that it does not control but

over which it does exert significant influence.

The Company considers whether the fair values of its equity method investments have declined

below their carrying values whenever adverse events or changes in circumstances indicate that recorded values 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 5 for discussion of equity

method investments.

Property Rental Revenue

Company has determined that the ASC 606 does not apply to rental contracts, which are within the scope of other revenue recognition accounting

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 account receivable on the consolidated balance sheets.

Company does not offer promotional payments, customer coupons, rebates or other cash redemption offers to its customers.

and Contingencies

the normal course of business, the Company is subject to contingencies, such as legal proceedings and claims arising out of its business,

that cover a wide range of matters.

Liabilities for such contingencies are recorded when it is probable that a liability has been incurred

and the amount of the assessment can be reasonably estimated.

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

AVALON GLOBOCARE CORP.

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NOTES TO CONDENSED 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:

3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Share Data (continued)

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 three months ended

March 31, 2023 and 2022, potentially dilutive common shares consist of the common shares issuable upon the conversion of 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.

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.

following table summarizes the securities that were excluded from the diluted per share calculation because the effect of including these

potential shares was antidilutive:

Three Months Ended

September 30,

Nine Months Ended

September 30,

Stock options

Convertible note (*)

Options to purchase common stock

Warrants to purchase common stock

Series A convertible preferred stock (*)

Series B convertible preferred stock (**)

Potentially dilutive securities

(*) Assumed the c onvertible

note was converted into shares of common stock of the Company at a conversion price of $ 0.65 per share.

Financing Costs

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 September 30, 2022 and December

31, 2021, deferred financing costs amounted to $ 214,107 and $ 213,279 , of which $ 74,937 and $ 74,648 were included in other noncurrent

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 and are offset against note payable

in the condensed 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.

of September 30, 2022, debt issuance costs amounted to $ 244,250 .

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.

the three and nine months ended September 30, 2022 and 2021, the Company operates through two business segments:

real property operating

segment and medical related consulting services segment.

These reportable segments offer different types of services and products,

have different types of revenue, and are managed separately as each requires different operating strategies and management expertise.

the Series A convertible preferred stock was converted into shares of common stock of the Company at a conversion price of $ 10.0 per

the Series B convertible preferred stock was converted into shares of common stock of the Company at a conversion price of $ 3.78 per

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.

the three months ended March 31, 2022, 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.

the three months ended March 31, 2023, the Company operated in one reportable business segment:

the real property operating segment.

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.

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.

AVALON GLOBOCARE CORP.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 – SUMMARY OF SIGNIFICANT

ACCOUNTING POLICIES (continued)

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):

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

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.

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.

2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (“Topic 326”).

3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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 condensed 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.

Accounting Standards

June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (“Topic 326”).

The ASU introduces

1 unchanged sentence

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 condensed 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.

NOTE 4 – OTHER CURRENT AND

NON-CURRENT ASSETS

At September 30, 2022 and December 31, 2021,

other current and non-current assets consisted of the following:

September 30,

Prepaid directors and officers liability insurance premium

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 adoption of this new

guidance did not have any material impact on the Company’s condensed consolidated financial statements.

October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities

from Contracts with Customers, which amends the accounting related to contract assets and liabilities acquired in business combinations.

ASU 2021-08 requires that entities recognize and measure contract assets and contract liabilities acquired in a business combination

in accordance with ASC Topic 606, Revenue from Contracts with Customers.

ASU 2021-08 is effective for fiscal years beginning after December

15, 2022, including interim periods within those fiscal years, and should be applied prospectively to businesses combinations occurring

on or after the effective date of the amendment.

Early adoption is permitted, including adoption in an interim period.

The adoption of

this new guidance did not have any material impact on the Company’s condensed consolidated financial statements.

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.

4 – PREPAID EXPENSE AND OTHER CURRENT ASSETS

March 31, 2023 and December 31, 2022, prepaid expense and other current assets consisted of the following:

Prepaid professional fees

Recoverable VAT

Prepaid directors and officers liability insurance premium

Prepaid NASDAQ listing fee

Deferred financing costs

Deferred leasing costs

Security deposit

Prepaid NASDAQ listing fee

Prepaid property tax

Long-term straight-line rent receivable

Long-term deferred financing costs

Current portion

Non-current portion

AVALON GLOBOCARE CORP.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 – EQUITY METHOD INVESTMENT

As of September

30, 2022 and December 31, 2021, the equity method investment amounted to $ 478,362 and $ 515,632 , respectively.

The investment represents

the Company’s subsidiary, Avalon Shanghai’s interest in Epicon Biotech Co., Ltd.

Epicon was incorporated

on August 14, 2018 in PRC.

NOTE 5 – EQUITY METHOD INVESTMENTS

in Epicon Biotech Co., Ltd.

31, 2023 and December 31, 2022, the equity method investment in Epicon Biotech Co., Ltd.

(“Epicon”) amounted to $ 477,625 and

$ 485,008 , respectively.

The investment represents the Company’s subsidiary, Avalon Shanghai’s interest in Epicon.

incorporated on August 14, 2018 in PRC.

Avalon Shanghai and the other unrelated company, Jiangsu Unicorn Biological Technology Co., Ltd.

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.

(“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.

treats the equity investment in the condensed consolidated financial statements under the equity method.

4 unchanged sentences

post incorporation change in the Company’s share of the investee’s net assets and any impairment loss relating to the investment.

three months ended September 30, 2022 and 2021, the Company’s share of Epicon’s net loss was $ 9,011 and $ 14,203 , respectively,

three months ended March 31, 2023 and 2022, the Company’s share of Epicon’s net loss was $ 9,454 and $ 12,916 , respectively,

which was included in loss from equity method investment in the accompanying condensed consolidated statements of operations and comprehensive

For the nine months ended September 30, 2022 and 2021, the Company’s share of Epicon’s net loss was $ 33,809 and

$ 48,135 , respectively, which was included in loss from equity method investment in the accompanying condensed consolidated statements

of operations and comprehensive loss.

months ended September 30, 2022, activity recorded for the Company’s equity method investment in Epicon is summarized

in the following table:

months ended March 31, 2023, activity recorded for the Company’s equity method investment in Epicon is summarized in the

following table:

Equity investment carrying amount at January 1, 2023

Payment made for equity method investment

Epicon’s net loss attributable to the Company

Foreign currency fluctuation

Equity investment carrying amount at September 30, 2022

Equity investment carrying amount at March 31, 2023

tables below present the summarized financial information, as provided to the Company by the investee, for the unconsolidated company:

September 30,

Current assets

1 unchanged sentence

Current liabilities

Noncurrent liabilities

For the Three Months

Ended September 30,

For the Nine Months

Ended September 30,

For the Three Months Ended March 31,

Loss from operation

AVALON GLOBOCARE CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6 – ACCRUED

LIABILITIES AND OTHER PAYABLES

At September 30, 2022

and December 31, 2021, accrued liabilities and other payables consisted of the following:

September 30,

Accrued tenants’ improvement reimbursement

Tenants’ security deposit

Accrued business expense reimbursement

Accrued utilities

Deferred rental income

Accrued equity offering costs

Taxes payable

NOTE 7 – 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”).

to the 2022 Convertible Note, the investor also received a Stock Purchase Warrant (“2022 Warrant”) to acquire an aggregate

of 1,239,647 shares of common stock.

The 2022 Warrant is exercisable for five years at an exercise price of $ 1.25 .

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.

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 889,840 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 219,860 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 66,614 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 63,333 shares of common stock

dated May 25, 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

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

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

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.

in Laboratory Services MSO, LLC

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.

AVALON GLOBOCARE CORP.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7 – CONVERTIBLE NOTE PAYABLE

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.

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.

NOTE 5 – EQUITY METHOD INVESTMENTS

in Laboratory Services MSO, LLC (continued)

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 Lab Services MSO (the “Purchased Interests”).

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 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.

Preferred Stock will be convertible into shares of Avalon’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

(See Note 8 – Series B Convertible Preferred Stock Issued for Equity Method Investment).

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 the Company’s common stock valued at $5,000,000, calculated using the

closing price of Avalon’s common stock on December 31, 2023, rounded down to the nearest whole share (collectively, the

“Earnout Payments”).

At February 9, 2023, the estimated earnout liability amounted to $0 since the minimum thresholds

as defined in the agreement are currently unlikely to be met.

The estimated earnout is a level 3 valuation which will be measured at the

end of reporting period.

MSO, through its two subsidiaries, Lab Services LLC and Lab Services DME, is engaged in providing laboratory testing services.

Lab and the other unrelated company, accounted for 40 % and 60 % of the total ownership, respectively.

As of March 31, 2023, the

equity method investment in Lab Services MSO amounted to $ 21,046,739 .

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 8).

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.

issued to the investor to purchase 1,239,647 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 5,736,452 shares of common stock

of the Company at a per share price of $0.65 (see Note 11 - 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.

three months ended September 30, 2022, amortization of debt discount and interest expense related to the 2022 Convertible Note amounted

to $3,226,393 and $2,547, respectively, both of which have been reflected as interest expense on the accompanying condensed consolidated

statements of operation and comprehensive loss.

For the nine months ended September 30, 2022, amortization of debt discount and interest

expense related to the 2022 Convertible Note amounted to $3,281,078 and $9,751, respectively, both of which have been reflected as

interest expense on the accompanying condensed consolidated statements of operation and comprehensive loss.

NOTE 8 – DERIVATIVE LIABILITY

in Note 7, 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:

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.

with ASC 810, the Company determined that Lab Services MSO does not qualify as a Variable Interest Entity, nor does it have a controlling

financial interest over the legal entity.

However, it determined it does have significant influence as a result of its board representation.

Therefore, the Company treats the equity investment in the condensed consolidated financial statements under the equity method.

the equity method, the investment is initially recorded at cost, adjusted for any excess of the Company’s share of the purchased-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 purchase change in the Company’s share of the investee’s net assets and any impairment loss relating to the investment.

period from February 9, 2023 (date on investment) through March 31, 2023, the Company’s share of Lab Services MSO’s net income

was $ 46,739 , which was included in income (loss) from equity method investments in the accompanying condensed consolidated statements

of operations and comprehensive loss.

months ended March 31, 2023, activity recorded for the Company’s equity method investment in Lab Services MSO is summarized

in the following table:

Equity investment carrying amount at January 1, 2023

Payment for equity method investment

Lab Services MSO’s net income attributable to the Company

Equity investment carrying amount at March 31, 2023

tables below present the summarized financial information, as provided to the Company by the investee, for the unconsolidated company:

Current assets

Noncurrent assets

Current liabilities

Noncurrent liabilities

(Date of Investment)

Income from operation

AVALON GLOBOCARE CORP.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 – DERIVATIVE LIABILITY

or decreases in fair value of the derivative liability is included as a component of total other (expenses) income in the accompanying

condensed consolidated statements of operations and comprehensive loss for the respective period.

The change to the derivative liability

for the embedded conversion option from July 1, 2022 through July 25, 2022 resulted in an increase of $ 168,520 in the derivative liability

and the corresponding increase in other expense as a loss for the three months ended September 30, 2022.

The change to the derivative

liability for the embedded conversion option from commitment dates through July 25, 2022 resulted in a decrease of $ 600,749 in the

derivative liability and the corresponding increase in other income as a gain for the nine months ended September 30, 2022.

was no derivative liability in the three and nine months ended September 30, 2021.

NOTE 5 – EQUITY METHOD INVESTMENTS

February 9, 2023, the Company entered into 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, SCBC Holdings LLC, the Zoe Family Trust, Bryan Cox and Sarah Cox as individuals, and Laboratory Services MSO.

in Laboratory Services MSO, LLC (continued)

According to the Amended MIPA, at any time during the period beginning

on February 9, 2023 and ending on the date nine (9) months after February 9, 2023, Avalon Laboratory Services, Inc., or its designated

affiliates under the Amended MIPA, may purchase from SCBC Holdings LLC 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.

NOTE 6 – 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 September 30, 2022,

the carrying balance of the 2022 Note Payable was $ 4,555,750 and the remaining unamortized debt issuance costs balance was $ 244,250 .

the three and nine months ended September 30, 2022, the interest expense related to the 2022 Note Payable (including amortization of debt

issuance costs of $ 22,204 ) totaled $ 66,204 .

the Company issued a balloon promissory note in the form of a mortgage on our headquarters 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.

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 March 31, 2023

and December 31, 2022, the carrying balance of the 2022 Note Payable was $ 4,585,356 and $ 4,563,152 and the remaining unamortized debt

issuance costs balance was $ 214,644 and $ 236,848 , respectively.

three months ended March 31, 2023, amortization of debt issuance costs and interest expense related to the 2022 Note Payable amounted

to $ 22,205 and $ 132,000 , respectively, which have been included in interest expense on the accompanying condensed consolidated statements

of operations and comprehensive loss.

NOTE 7 – RELATED PARTY TRANSACTIONS

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 both the three months ended September 30,

2022 and 2021, the related party rental revenue amounted to $ 12,600 and has been included in real property rental on the accompanying

condensed consolidated statements of operations and comprehensive loss.

For the nine months ended September 30, 2022 and 2021, the related

party rental revenue amounted to $ 37,800 and $ 21,000 , respectively, and has been included in real property rental on the accompanying

condensed consolidated statements of operations and comprehensive loss.

The related party rent receivable totaled $ 71,400 and

$ 33,600 , respectively, and no allowance for doubtful accounts was deemed to be required on rent receivable – related party

at September 30, 2022 and December 31, 2021.

Medical Related Consulting

Services Revenue from Related Party

During the three and nine months ended September

30, 2022 and 2021, medical related consulting services revenue from related party was as follows:

Three Months Ended

Nine Months Ended

September 30,

Medical related consulting services provided to:

Hebei Daopei *

* Hebei Daopei is subsidiary of an entity whose chairman is Wenzhao

Lu, the largest shareholder of the Company.

AVALON GLOBOCARE CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 – RELATED PARTY TRANSACTIONS

Provided by Related Party

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 three months ended March 31, 2023 and

2022, the related party rental revenue amounted to $ 12,600 and has been included in real property rental on the accompanying condensed

consolidated statements of operations and comprehensive loss.

The related party rent receivable totaled $ 61,700

and $ 74,100 , respectively, which has been included in rent receivable on the accompanying condensed consolidated balance sheets, and no

allowance for doubtful accounts was deemed to be required on the receivable at March 31, 2023 and December 31, 2022.

Provided by Related Parties

From time to time, Wilbert Tauzin, a director

1 unchanged sentence

As compensation for professional services provided, the Company

recognized consulting expenses of $ 29,121 and $ 52,596 for the three months ended September 30, 2022 and 2021, respectively,

which have been included in professional fees on the accompanying condensed consolidated statements of operations and comprehensive loss.

As compensation for professional services provided, the Company recognized consulting expenses of $ 116,719 and $ 164,546 for

the nine months ended September 30, 2022 and 2021, respectively, which have been included in professional fees on the accompanying condensed

consolidated statements of operations and comprehensive loss.

recognized consulting expenses of $ 26,457 and $ 51,138 for the three months ended March 31, 2023 and 2022, respectively, which have been

included in professional fees on the accompanying condensed consolidated statements of operations and comprehensive loss.

Accrued Liabilities and Other Payables –

1 unchanged sentence

2017, the Company acquired Beijing Genexosome for a cash payment of $ 450,000 .

As of September 30, 2022 and December 31, 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 condensed consolidated balance

As of September

31, 2023 and December 31, 2022, 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 condensed consolidated balance sheets.

31, 2023 and December 31, 2022, $ 2,021 and $ 0 of accrued and unpaid interest related to borrowings from Wenzhao Lu, the Company’s

1 unchanged sentence

– related parties on the accompanying condensed consolidated balance sheets.

AVALON GLOBOCARE CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7 – RELATED PARTY TRANSACTIONS

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 September 30, 2022 and December 31, 2021, the

outstanding principal balance was $ 0 and $ 390,000 , respectively.

Line of Credit

15 unchanged sentences

and payable immediately.

On July 25, 2022, the Company and Mr.

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 4,443,990 shares of common stock of the Company (see Note 11 -

Common Shares Issued Pursuant to Related Party Debt Settlement Agreement and Release).

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.

AVALON GLOBOCARE CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 – RELATED PARTY TRANSACTIONS

months ended September 30, 2022, activity recorded for the Line of Credit is summarized in the following table:

Borrowings from Related Party (continued)

In the three months ended March 31, 2023, activity

recorded for the Line of Credit is summarized in the following table:

Outstanding principal under the Line of Credit at January 1, 2023

Draw down from Line of Credit

Repayment of Line of Credit

Settlement of Line of Credit in shares

( 2,440,262 )

Outstanding principal under the Line of Credit at September 30, 2022

three months ended September 30, 2022 and 2021, the interest expense related to above borrowings amounted to $ 8,358 and $ 50,248 ,

respectively, and has been included in interest expense – related party on the accompanying condensed consolidated statements of

Outstanding principal under the Line of Credit at March 31, 2023

three months ended March 31, 2023 and 2022, the interest expense related to related party borrowings amounted to $ 2,021 and $ 39,686 ,

respectively, and has been reflected as interest expense – related party on the accompanying condensed consolidated statements of

operations and comprehensive loss.

For the nine months ended September 30, 2022 and 2021, the interest expense related to above borrowings

amounted to $ 79,898 and $ 141,528 , respectively, and has been included in interest expense – related party on the accompanying

condensed consolidated statements of operations and comprehensive loss.

As of September

30, 2022 and December 31, 2021, the related accrued and unpaid interest for above borrowings was $ 0 and $ 368,433 , respectively, has

been included in accrued liabilities and other payables – related parties on the accompanying condensed consolidated balance sheets.

Common Shares Sold

to Related Party for Cash

On August 5, 2022, the Company sold 448,718 shares

of common stock at a purchase price of $ 0.78 per share to Wenzhao Lu pursuant to a subscription agreement.

The Company received proceeds

of $ 350,000 (see Note 11 - Common Shares Sold for Cash).

As of September 30, 2022, the shares have not been issued and have been

included in common stock to be issued at a value of $ 350,000 on the accompanying condensed consolidated balance sheets.

31, 2023 and December 31, 2022, the related accrued and unpaid interest for Line of Credit was $ 2,021 and $ 0 , respectively, and has been

included in accrued liabilities and other payables – related parties on the accompanying condensed consolidated balance sheets.

NOTE 8 – EQUITY

Common Shares Sold

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 nine months

ended September 30, 2022, Jefferies sold an aggregate of 170,640 shares of common stock at an average price of $ 0.79 per

share to investors and the Company recorded net proceeds of $ 112,328 , net of commission and other offering costs of $ 23,239 .

On August 5, 2022, the Company sold 448,718 shares

of common stock at a purchase price of $ 0.78 per share to Wenzhao Lu pursuant to a subscription agreement.

The Company received proceeds

of $ 350,000 (see Note 10 - Common Shares Sold to Related Party for Cash).

As of September 30, 2022, the shares have not been issued

and have been included in common stock to be issued at a value of $ 350,000 on the accompanying condensed consolidated balance sheets.

On August 5, 2022, the Company sold 320,513 shares

of common stock at a purchase price of $ 0.78 per share to an investor pursuant to a subscription agreement.

The Company received proceeds

of $ 250,000 .

As of September 30, 2022, the shares have not been issued and have been included in common stock to be issued at a value

of $ 250,000 on the accompanying condensed consolidated balance sheets.

Shares Issued for Services

During the nine months ended September 30, 2022,

the Company issued a total of 408,957 shares of its common stock for services rendered and to be 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 $ 291,270 for the nine months ended September 30, 2022 and reduced accrued liabilities

of $ 30,000 and recorded prepaid expense of $ 19,680 as of September 30, 2022 which will be amortized over the rest of corresponding

service periods.

A Convertible Preferred Stock

designated up to 15,000 shares of its previously undesignated preferred stock as Series A Preferred Stock.

Each share of Series

A Preferred Stock has a par value of $ 0.0001 per share and a stated value equal to $ 1,000 .

of March 31, 2023, 9,000 shares of Series A Preferred Stock were issued and outstanding.

The Series A Preferred Stock is convertible

into shares of the Company’s common stock at a conversion price per share equal to the greater of (i) ten dollars ($ 10.00 ), and

(ii) ninety percent ( 90 %) of the closing price of the Company’s common stock on the Nasdaq Stock Market (“Nasdaq”) on

the day prior to receipt of the conversion notice from the Series A Preferred stock-holder, subject to adjustment for stock splits and

similar matters.

Conversion of the Series A Preferred Stock is subject to restriction pursuant to the Nasdaq Stock Market Listing Rules.

Series B Convertible

Preferred Stock Issued for Equity Method Investment

The Company designated

up to 15,000 shares of its previously undesignated preferred stock as Series B Preferred Stock.

Each share of Series B Preferred Stock

has a par value of $ 0.0001 per share and a stated value equal to $ 1,000 .

9, 2023, the Company issued 11,000 shares of its Series B Convertible Preferred Stock as a part of consideration for the purchase of 40 %

of equity interest of Lab Services MSO.

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 (See Note – 5 - Investment in Laboratory Services MSO, LLC).

AVALON GLOBOCARE CORP.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11 – EQUITY

Shares Issued for Debt Conversion

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 5,736,452 shares of

common stock of the Company at a per share price of $ 0.65 (see Note 7).

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.

Shares Issued Pursuant to Related Party Debt Settlement Agreement and Release

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 4,443,990 shares of common

stock of the Company (see Note 10 - 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

Lu's relationship with the Company.

NOTE 8 – EQUITY (continued)

Common Shares Issued

During the three months ended March 31, 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, and the Company

recorded stock-based compensation expense of $ 243,928 for the three months ended March 31, 2023 and reduced accrued liabilities of

$ 164,871 and recorded prepaid expense of $ 54,576 as of March 31, 2023 which will be amortized over the rest of corresponding service periods.

The following table summarizes the shares of the

Company’s common stock issuable upon exercise of options outstanding at September 30, 2022:

Company’s common stock issuable upon exercise of options outstanding at March 31, 2023:

Options Outstanding

Options Exercisable

Exercise Price

Outstanding at

September 30,

Weighted Average

Average Remaining

Contractual Life

Exercisable at

September 30,

$ 3.25 – 8.20

10.20 – 20.00

23.00 – 28.00

$ 3.25 – 28.00

Stock option activities

for the nine months ended September 30, 2022 were as follows:

for the three months ended March 31, 2023 were as follows:

Outstanding at January 1, 2023

Expired/forfeited/exercised

Outstanding at September 30, 2022

Options exercisable at September 30, 2022

Outstanding at March 31, 2023

Options exercisable at March 31, 2023

Options expected to vest

The aggregate intrinsic value of stock options

outstanding and stock options exercisable at September 30, 2022 was $ 303,800 and $ 292,597 , respectively.

The aggregate intrinsic value of both stock options

outstanding and stock options exercisable at March 31, 2023 was $ 0 .

The fair values of options granted during the

nine months ended September 30, 2022 were estimated at the date of grant using the Black-Scholes option-pricing model with the following

volatility of 74.8 % - 117.46 %, risk-free rate of 1.37 % - 3.56 %, annual dividend yield of 0 %, and

expected life of 3 .00 - 5 .00 years.

The aggregate fair value of the options granted during the nine months ended

September 30, 2022 was $ 373,982 .

three months ended March 31, 2023 were estimated at the date of grant using the Black-Scholes option-pricing model with the following

volatility of 143.99 % - 145.73 %, risk-free rate of 3.58 % - 3.94 %, annual dividend yield of 0 %, and expected life of 5.00

The aggregate fair value of the options granted during the three months ended March 31, 2023 was $ 176,786 .

The fair values of options granted during the

three months ended March 31, 2022 were estimated at the date of grant using the Black-Scholes option-pricing model with the following

volatility of 117.46 %, risk-free rate of 1.37 % - 1.53 %, annual dividend yield of 0 %, and expected life

of 5 .00 years.

The aggregate fair value of the options granted during the three months ended March 31, 2022 was $ 315,145 .

AVALON GLOBOCARE CORP.

3 unchanged sentences

Options (continued)

The fair values of options granted during the

nine months ended September 30, 2021 were estimated at the date of grant using the Black-Scholes option-pricing model with the following

volatility of 121.52 % - 128.42 %, risk-free rate of 0.33 % - 0.80 %, annual dividend yield of 0 % and

expected life of 3.00 - 5.00 years.

The aggregate fair value of the options granted during the nine months ended

September 30, 2021 was $ 594,401 .

For the three months ended September 30, 2022

and 2021, stock-based compensation expense associated with stock options granted amounted to $ 110,442 and $ 188,859 , of which,

$ 87,300 and $ 134,833 was recorded as compensation and related benefits, $ 14,121 and $ 37,596 was recorded as professional

fees, and $ 9,021 and $ 16,430 was recorded as research and development expenses, respectively.

For the nine months ended September

30, 2022 and 2021, stock-based compensation expense associated with stock options granted amounted to $ 389,066 and $ 586,573 ,

of which, $ 285,384 and $ 410,732 was recorded as compensation and related benefits, $ 71,719 and $ 120,584 was recorded as

professional fees, and $ 31,963 and $ 55,257 was recorded as research and development expenses, respectively.

For the three months ended March 31, 2023 and

2022, stock-based compensation expense associated with stock options granted amounted to $ 68,262 and $ 152,323 , of which, $ 51,336 and $ 104,913

was recorded as compensation and related benefits, $ 11,457 and $ 36,138 was recorded as professional fees, and $ 5,469 and $ 11,272 was recorded

as research and development expenses, respectively.

A summary of the status of the Company’s

nonvested stock options granted as of September 30, 2022 and changes during the nine months ended September 30, 2022 is presented below:

nonvested stock options granted as of March 31, 2023 and changes during the three months ended March 31, 2023 is presented below:

Nonvested at January 1, 2023

Nonvested at September 30, 2022

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 1,239,647 shares

of common stock.

The 2022 Warrant is exercisable for five years at an exercise price of $ 1.25 .

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 1,239,647 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.

Stock warrant

activities for the nine months ended September 30, 2022 were as follows:

Outstanding at January 1, 2022

Expired/exercised

Outstanding and exercisable at September 30, 2022

AVALON GLOBOCARE CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11 – EQUITY

Nonvested at March 31, 2023

There was no stock warrant activity during the

three months ended March 31, 2023.

The following table summarizes the shares of the

Company’s common stock issuable upon exercise of warrants outstanding at September 30, 2022:

Warrants (continued)

Company’s common stock issuable upon exercise of warrants outstanding at March 31, 2023:

Warrants Outstanding

2 unchanged sentences

Outstanding at

September 30,

Weighted Average

Average Remaining

Contractual Life

Exercisable at

September 30,

The aggregate intrinsic value of both stock warrants

outstanding and stock warrants exercisable at September 30, 2022 was $ 0 .

outstanding and stock warrants exercisable at March 31, 2023 was $ 0 .

NOTE 9 - 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.

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.

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 three and nine months ended September 30,

2022 as it incurred net loss in the periods.

As of both September 30, 2022 and December 31, 2021, the restricted amount as determined

pursuant to PRC statutory laws totaled $ 6,578 .

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 September 30, 2022 and December 31, 2021, total restricted net assets amounted to $ 1,006,578 and $ 706,578 ,

respectively.

NOTE 13 – CONDENSED

FINANCIAL INFORMATION OF THE PARENT COMPANY

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.

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.

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.

did not make any appropriation to statutory reserve for Avalon Shanghai during the three months ended March 31, 2023 and 2022 as it incurred

net loss in the periods.

As of March 31, 2023 and December 31, 2022, 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

As of both March 31, 2023 and December 31, 2022, total restricted net assets amounted to $ 1,006,578 .

AVALON GLOBOCARE CORP.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

10 – 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

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 11 - CONCENTRATIONS

The following table sets forth information as

to each customer that accounted for 10 % or more of the Company’s revenues for the three and nine months ended September 30,

2022 and 2021.

The following

table sets forth information as to each customer that accounted for 10 % or more of the Company’s revenues for the three months ended

March 31, 2023 and 2022.

Three Months Ended

September 30,

Nine Months Ended

September 30,

A (Hebei Daopei, a related party)

* Less than 10 %

1 unchanged sentence

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 September 30, 2022, accounted for 82.3 % of the Company’s

total outstanding rent receivable and rent receivable – related party at September 30, 2022.

total outstanding rent receivable at March 31, 2023, accounted for 79.6 % of the Company’s total outstanding rent receivable at March

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.

accounted for 10 % or more of the Company’s purchase during the three and nine months ended September 30, 2022 and 2021.

One supplier,

whose outstanding payable accounted for 10 % or more of the Company’s total outstanding accounts payable at September 30, 2022,

accounted for 100.0 % of the Company’s total outstanding accounts payable at September 30, 2022.

total outstanding rent receivable at December 31, 2022, accounted for 81.4 % of the Company’s total outstanding rent receivable at

December 31, 2022.

accounted for 10 % or more of the Company’s purchase during the three months ended March 31, 2023 and 2022.

NOTE 12 – SEGMENT

For the three and nine months ended September

30, 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.

three months ended March 31, 2022, 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.

three months ended March 31, 2023, the Company operated in one reportable business segments:

the real property operating segment.

AVALON GLOBOCARE CORP.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 15 – SEGMENT INFORMATION

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.

Information with respect to these reportable business segments for the three and nine months ended September 30, 2022 and 2021 was as

Three Months Ended

September 30,

Nine Months Ended

September 30,

Real property operations

Medical related consulting services

Costs and expenses

Real property operations

Medical related consulting services

Real property operations

Medical related consulting services

Other operating expenses

Real property operations

Medical related consulting services

Corporate/Other

Other (expense) income

Interest expense

NOTE 12 – SEGMENT

INFORMATION (continued)

Information with respect to these reportable business

segments for the three months ended March 31, 2023 and 2022 was as follows:

Three Months Ended March 31, 2023

Real property rental

Corporate/Other

Real property rental revenue

Real property operating expenses

Real property operating income

Other operating expenses

( 2,598,245 )

( 2,711,956 )

Other (expense) income:

Interest expense

$ ( 2,717,927 )

$ ( 2,783,914 )

Other income (expense)

Real property operations

Three Months Ended March 31, 2022

Real property rental

Medical related consulting services

Corporate/Other

Total other expense, net

Real property rental revenue

Real property operating expenses

Real property operating income

Other operating expenses

( 2,011,957 )

( 2,206,125 )

Other (expense) income:

Interest expense

Net (loss) income

Real property operations

Medical related consulting services

Corporate/Other

$ ( 2,051,643 )

$ ( 2,070,538 )

( 9,410,529 )

( 6,406,119 )

$ ( 5,414,154 )

$ ( 2,024,219 )

$ ( 9,513,166 )

$ ( 6,756,247 )

Identifiable long-lived tangible assets at September 30, 2022 and December 31, 2021

September 30, 2022

December 31, 2021

Identifiable long-lived tangible assets at March 31, 2023 and December 31, 2022

Real property operations

1 unchanged sentence

Corporate/Other

Identifiable long-lived tangible assets at September 30, 2022 and December 31, 2021

September 30,

Identifiable long-lived tangible assets at March 31, 2023 and December 31, 2022

United States

4 unchanged sentences

AND CONTINGENCIES

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.

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 500,000 shares of common stock of the Company to

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

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.

Operating Leases Commitment

The Company is a party to leases for office space.

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 $ 107,000 and

$ 108,000 for the nine months ended September 30, 2022 and 2021, respectively.

Supplemental cash flow information related to leases

for the nine months ended September 30, 2022 and 2021 is as follows :

Nine Months Ended

September 30,

Rent expense under all

operating leases amounted to approximately $ 33,000 and $ 36,000 for the three months ended March 31, 2023 and 2022, respectively.

Supplemental cash flow information related to leases for the three months ended March 31, 2023 and 2022 is as follows :

Three Months Ended March 31,

Cash paid for amounts included in the measurement of lease liabilities:

3 unchanged sentences

The following table summarizes the lease term

and discount rate for the Company’s operating lease as of September 30, 2022:

and discount rate for the Company’s operating lease as of March 31, 2023:

Operating Lease

Weighted average remaining lease term (in years)

Weighted average discount rate

AVALON GLOBOCARE CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 16 – COMMITMENTS

AND CONTINCENGIES (continued)

Operating Leases Commitment (continued)

The following table summarizes the maturity of lease liabilities under

operating lease as of September 30, 2022:

For the Twelve-month Period Ending September 30:

operating lease as of March 31, 2023:

For the Twelve-month Period Ending March 31:

Operating Lease

2026 and thereafter

3 unchanged sentences

Current portion

Equity Investment Commitment

Long-term portion

Investment Commitment

On May 29, 2018, Avalon

11 unchanged sentences

research purposes and the clinical transformation of scientific achievements.

As of September 30, 2022, Avalon Shanghai has contributed

RMB 5,110,000 (approximately $0.7 million) that was included in equity method investment on the accompanying condensed consolidated balance

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.

18, 2018, the Company formed Avactis Biosciences Inc.

(“Avactis”), a Nevada corporation, as a wholly owned subsidiary.

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

(“AVAR”), a Sino-foreign equity joint venture, pursuant to an Equity Joint Venture Agreement (the “AVAR Agreement”),

which 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.

Anthony Chan was appointed to the Board of Directors of Avactis and as the Chief Scientific Officer of

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 including in the PRC.

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.

As of March 31, 2023, Avalon Shanghai has contributed RMB

5,110,000 (approximately $ 0.7 million) that was included in equity method investment on the accompanying condensed consolidated balance

The Company intends to use its present working capital together with borrowings from related party and equity raises to fund the

project cost.

AVALON GLOBOCARE CORP.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 16 – COMMITMENTS AND CONTINCENGIES (continued)

NOTE 13 – COMMITMENTS AND CONTINGENCIES (continued)

Joint Venture – Avactis Biosciences Inc.

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;

Avactis in setting up its business operations and obtaining all required permits and licenses from the Chinese government;

Avactis in recruiting, hiring and retaining personnel;

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;

Avactis in managing the Good Manufacturing Practices (GMP) facility and clinic to be developed by Avactis;

Avactis with advice pertaining to conducting clinicals in China;

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;

Providing Avactis with research and development expertise pertaining to clinical laboratory medicine when hired by Avactis.

As of both September 30, 2022 and December 31,

2021, the Company paid the $ 900,000 to Arbele Biotherapeutics as research and development fee.

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.

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.

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.

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.

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

As of the date hereof, this company has been limited to a patent holding company and there no activity or planned contributions

Line of Credit Agreement

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.

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.

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

The Company has a right to draw down on the Line of Credit and not at the discretion of the related party Lender.

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

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 September

30, 2022, $ 0 was outstanding under the Line of Credit.

NOTE 17 – SUBSEQUENT

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

New Subsidiary

In October 2022, the Company formed a wholly owned

subsidiary, Avalon Laboratory Services, Inc., a Delaware company.

AVALON GLOBOCARE CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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 March 31, 2023, $ 750,000 was outstanding under

the Line of Credit.

Amended and Restated Membership Interest

Purchase Agreement

February 9, 2023, the Company entered into 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, SCBC Holdings LLC, the Zoe Family Trust, Bryan Cox and Sarah Cox as individuals, and Laboratory Services MSO.

According to the Amended

MIPA, at any time during the period beginning on February 9, 2023 and ending on the date nine (9) months after February 9, 2023, Avalon

Laboratory Services, Inc., or its designated affiliates under the Amended MIPA, may purchase from SCBC Holdings LLC 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 (See Note – 5 - Investment in Laboratory Services MSO, LLC) .

NOTE 14 – SUBSEQUENT

EVENTS (continued)

Cease all operations in the People’s

Republic of China

In November of 2022,

the Company decided to cease all operations in the People’s Republic of China with the exception of a small administrative office,

Avalon Shanghai.

The Company, through its Nevada Subsidiary Avactis Biosciences Inc., will continue to own Avactis Nanjing Biosciences

However, Avactis Nanjing Biosciences Ltd.

only owns a patent and is not considered an operating entity.

The Company does not expect

nor does it plan that there will be further revenue generated from PRC operations in the foreseeable future.

The impact of ceasing operations

will not have a material effect on the Company’s operations.

Membership Interest Purchase Agreement

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 $0.575 or an aggregate of 26,086,957 shares of the Company’s common stock, which are subject to the Lock

Up Period and the restrictions on sale set forth under Item 5.03 Amendments to Articles of Incorporation or Bylaws:

Change in Fiscal Year

- Series B Preferred Stock - Conversion, 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 ”).

Headquartered

in Costa Mesa California, Laboratory Services MSO provides a broad portfolio of diagnostic tests including drug testing, toxicology, and

a broad array of test services, from general bloodwork to anatomic pathology, and urine toxicology.

Specific capabilities include STAT

blood testing, qualitative drug screening, genetic testing, urinary testing, sexually transmitted disease testing and more.

Services MSO has developed a premier reputation for customer service and fast turnaround times in the industry.

Laboratory Services MSO

is the parent company of Laboratory Services, LLC, a Wyoming limited liability company and Laboratory Services DME, LLC, a Delaware limited

liability company.

of directors of the Company and the managing member of the Buyer have approved the MIPA and certain ancillary documents related to the

Purchased Interests of Laboratory Services MSO, as discussed above.

The 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 as a result

of any breach of the representations, warranties or covenants of the Seller and Laboratory Services MSO and for post-closing working capital

In connection

with the closing of the Transaction, Sarah Cox will become the Chief Operating Officer of the Company, replacing Meng Li, who will continue

to serve as a Chief Operating Officer of Avalon (Shanghai) Healthcare Technology Co., Ltd, a subsidiary of the Company.

In addition, Ms.

Cox will be appointed as a director of the Company and Ms.

Li will resign as a director of the Company.

Cox, age 46, has continuously

served as the Chief Executive Officer of Laboratory Services MSO for the past five years.

Cox co-founded Laboratory Services MSO in

Cox earned her undergraduate degree from the University of Deakin, in Australia where she studied business and received a degree

in financial planning.

At the closing of the Transaction, Ms.

Cox and the Company will enter into an employment agreement providing for

an annual salary of three hundred and fifty thousand dollars ($ 350,000 ) and other customary compensation.

of the Transaction is subject to customary conditions to closing, including completion of financing for the remainder of the cash purchase

The transaction is expected to close in 30 days, subject to a 90 day right of extension by the Company.

Private Placement

In conjunction

with the Transaction, on November 7, 2022, the Company conducted a private placement offering (the “ Private Placement ”)

of 5,000 shares of its newly designated Series A Convertible Preferred Stock (the “ Series A Preferred Stock ”), stated

value $ 1,000 , and entered into a securities purchase agreement (the “ Securities Purchase Agreement ”), with an accredited

investor named therein (the “ Investor ”), pursuant to which the Company sold to the Investor 5,000 shares of its Series

A Preferred Stock for gross proceeds of $ 5,000,000 .

The Series A Preferred Stock is convertible into shares of the Company’s common

stock at a conversion price per share equal to the greater of (i) one dollar ($ 1.00 ), and (ii) ninety percent ( 90 %) of the closing price

of the Company’s common stock on the Nasdaq Stock Market (“ Nasdaq ”) on the day prior to receipt of the conversion

notice from the Investor, subject to adjustment for stock splits and similar matters.

The Company intends to complete the financing for

the Transaction through the sale and issuance of an additional 10,000 shares of the Series A Preferred Stock.

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.

Line of Credit

As disclosed above,

the Company entered into the Line of Credit Agreement with Mr.

Lu, as the Lender and a significant shareholder and director of the Company,

providing the Company with the Line of Credit from the Lender.

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

Lender of $ 100,000 in April 2023.

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

What changed 10-Q

Item 1. Financial Statements