What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-22 compared with 2022-11-14 · 426 added, 609 removed, 90 unchanged (92% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Harbor Statement under the Private Securities Litigation Reform Act of 1995:

This Quarterly Report on Form 10-Q contains

forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 under Section 27A

of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange

Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, anticipations,

assumptions, estimates, intentions and future performance, and involve known and unknown risks, uncertainties and other factors, which

may be beyond our control, and which may cause our actual results, performance or achievements to be materially different from future

results, performance or achievements expressed or implied by such forward-looking statements.

All statements other than statements of

historical fact are statements that could be forward-looking statements.

You can identify these forward-looking statements through our

use of words such as “may,” “will,” “can,” “anticipate,” “assume,” “should,”

“indicate,” “would,” “believe,” “contemplate,” “expect,” “seek,”

“estimate,” “continue,” “plan,” “point to,” “project,” “predict,”

“could,” “intend,” “target,” “potential” and other similar words and expressions of the

Accordingly, factors that may affect our results include, but are not limited to:

● Avalon our dependence on product candidates that are still

in an early development stage;

ability to successfully complete research and further development, including preclinical and clinical studies;

anticipated timing for preclinical development, regulatory submissions, commencement and completion of clinical trials and product approvals;

ability to negotiate strategic partnerships, where appropriate, for our product candidates;

ability to manage multiple clinical trials for a variety of product candidates at different stages of development;

cost, timing, scope and results of ongoing preclinical and clinical testing;

expectations of the attributes of our product and development candidates, including pharmaceutical properties, efficacy, safety and dosing

cost, timing and uncertainty of obtaining regulatory approvals for our product candidates;

availability, cost, delivery and quality of clinical management services provided by our clinical research organization partners;

availability, cost, delivery and quality of clinical and commercial-grade materials produced by our own manufacturing facility or supplied

by contract manufacturers, suppliers and partners;

ability to commercialize our product candidates and the growth of the markets for those product candidates;

ability to develop and commercialize products before competitors that are superior to the alternatives developed by such competitors;

ability to develop technological capabilities, including identification of novel and clinically important targets, exploiting our existing

technology platforms to develop new product candidates and expand our focus to broader markets for our existing targeted therapeutics;

ability to raise sufficient capital to fund our preclinical and clinical studies and to meet our long-term liquidity needs, on terms

acceptable to us, or at all.

If we are unable to raise the funds necessary to meet our long-term liquidity needs, we may have to delay

or discontinue the development of one or more programs, discontinue or delay ongoing or anticipated clinical trials, discontinue or delay

our commercial manufacturing efforts, discontinue or delay our efforts to expand into additional indications for our product candidates,

license out programs earlier than expected, raise funds at significant discount or on other unfavorable terms, if at all, or sell all

or part of our business;

ability to protect our intellectual property rights and our ability to avoid intellectual property litigation, which can be costly and

divert management time and attention;

ability to develop and commercialize products without infringing the intellectual property rights of third parties;

competition from commercial clinical testing companies, IDNs, physicians and others;

pricing pressure from customers, including payers and patients, and changing relationships with customers, payers, suppliers or strategic

of changes in payment mix, including increased patient financial responsibility and any shift from fee-for-service to discounted, capitated

or bundled fee arrangements;

adverse actions by government, including healthcare reform that focuses on reducing healthcare costs but does not recognize the value and importance to healthcare of clinical testing or innovative solutions, unilateral reduction of fee schedules payable to us, unilateral recoupment of amounts allegedly owed and competitive bidding;

impact of increased prior authorization programs;

adverse results from pending or future government investigations, lawsuits or private actions.

These include, in particular, monetary damages, loss or suspension of licenses or criminal penalties;

impact of the COVID-19 pandemic on our business or on the economy generally, and

decline i n economic conditions, including the impact of an inflationary environment.

All forward-looking statements are expressly qualified

in their entirety by this cautionary notice.

You are cautioned not to place undue reliance on any forward-looking statements, which speak

only as of the date of this report or the date of the document incorporated by reference into this report.

We have no obligation, and

expressly disclaim any obligation, to update, revise or correct any of the forward-looking statements, whether as a result of new information,

future events or otherwise.

We have expressed our expectations, beliefs and projections in good faith, and we believe they have a reasonable

However, we cannot assure you that our expectations, beliefs or projections will result or be achieved or accomplished.

The following

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

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

financial statements that are included elsewhere in this report.

Our discussion includes forward-looking statements based upon current

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

Actual results and the

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

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

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

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

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

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

forward-looking statements.

Impact of COVID-19

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

Although the COVID-19

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

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

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

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

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

The occurrence of COVID-19

pandemic had negative impact on our operations.

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

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

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

and universities.

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

Given the dynamic nature of

these circumstances, the duration of business disruption and reduced traffic, the related financial effect cannot be reasonably estimated

at this time but is expected to adversely impact the Company’s business for the rest of 2022.

We have limited cash

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

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

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

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

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

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

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

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

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

Nevertheless, there is no assurance that these initiatives

will be successful.

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

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

immune effector cell therapy, exosome technology, as well as 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

discussion and analysis of our financial condition and results of operations for the three months ended March 31, 2023 and 2022 should

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

statements that are included elsewhere in this report.

The Company is a clinical-stage biotechnology

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

Through its subsidiary structure with unique integration of verticals from innovative research and development to automated

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

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

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

programs and product commercialization.

(including CAR-T/NK).

It has also embarked on a laboratory rollup strategy, for which its first acquisition to acquire 40% membership

interest in Lab Services MSO closed in February 2023.

Avalon achieves and fosters seamless integration

of unique verticals to bridge and accelerate innovative research, bio-process development, clinical programs and product commercialization.

Avalon’s upstream innovative research includes:

● Development

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

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

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

● Co-development

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

Avalon’s midstream

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

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

bio-manufacturing of clinical-grade cellular products involved in our clinical programs in immune effector cell therapy and ACTEX-based

regenerative therapeutics.

Avalon’s downstream

medical team and facility consists of top-rated affiliated hospital network and experts specialized in hematology, oncology, cellular

immunotherapy, hematopoietic stem/progenitor cell transplant, as well as regenerative therapeutics.

Co-development of next generation, mRNA-based immune effector cell therapeutic modalities with Arbele Limited which at this time is focused on advancing intellectual property in this area through joint patent development.

Avalon’s midstream bio-processing and bio-production

facility is co-developed at the University of Pittsburgh Medical Center (UPMC) with state-of-the-art infrastructure and standardization

accredited with cGMP, FACT, aaBB, CLIA and CAP, as well as stringent QC/QA facility for standardized bio-manufacturing of clinical-grade

cellular products involved in our clinical programs in immune effector cell therapy.

Avalon’s downstream medical team and facility

consists of top-rated affiliated hospital network and experts specialized in hematology, oncology, cellular immunotherapy, hematopoietic

stem/progenitor cell transplant.

Our major clinical programs include:

12 unchanged sentences

(90% complete remission rate) and minimal adverse side effects.

Avalon is currently expanding the patient recruitment and indication

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

Avalon is currently considering the next steps for this CAR-T candidate.

and FLASH-CAR™:

2 unchanged sentences

The multiplex FLASH-CAR™ platform can be used to create

personalized (“autologous’) cell therapy from a patient’s own cells, as well as “off-the-shelf” cell therapy from

a universal donor.

personalized (“autologous”) cell therapy from a patient’s own cells, as well as “off-the-shelf” cell therapy

from a universal donor.

Our leading candidate, AVA-011, is a dual-target (anti-CD19/CD22) CAR-T which has completed pre-clinical research

2 unchanged sentences

cell-therapy products for subsequent clinical studies.

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

co-developed by Avalon GloboCare and the University of Pittsburgh Medical Center.

The Company formed a strategic partnership with HydroPeptide,

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

cosmeceutical and orthopedic products.

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

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

Avalon’s AVA-Trap™ therapeutic program plans to enter animal model testing followed by expedited clinical studies with the

4 unchanged sentences

receptors have been successfully designed and tested to show binding affinity to the respective cytokines.

We currently are focused on

bringing forward the intellectual property associated with this program while we determine next steps, if any, on a clinical program.

Avalon has embarked on a laboratory

rollup strategy focused on forming joint ventures and acquiring laboratories that are accretive to our clinical strategy.

We have identified

several laboratories to further this effort.

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 and its subsidiaries.

Lab Services MSO , through its two subsidiaries, Laboratory

Services, LLC and Laboratory Services DME, LLC, is engaged in providing laboratory testing services.

Lab Services MSO is focused on delivering high

quality services related to toxicology and wellness testing and 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.

The panels that Lab Services MSO tests for are thyroid panel, comprehensive metabolic panel, kidney profile, liver function tests, and

other individual tests.

Through Lab Services MSO, we use fast, accurate, and efficient equipment to provide practitioners with the tools

to quickly determine if a patient is following their designated treatment plan.

In most instances, we are able to provide a practitioner

with qualitative drug class results the same day the sample is received.

We provide an extensive chemistry test menu that gives physicians

the information to better treat their patients and maintain their overall wellness and have developed a premier reputation for customer

service and fast turnaround times in the industry.

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

The Company is a clinical-stage biotechnology

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

Through its subsidiary structure with unique integration of verticals from innovative research and development to automated

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

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

In addition, the Company

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

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

These condensed

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

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

As reflected in the accompanying

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

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

The Company has a limited operating

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

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

hence generating revenues,

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

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

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

The ability of the Company

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

generate significant revenues.

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

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

The Company plans on raising capital

through the sale of equity to implement its business plan.

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

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

The occurrence of an

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.

(including CAR-T/NK).

In 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.

As reflected in the accompanying condensed consolidated

financial statements, the Company had 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.

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.

Accounting Policies

Use of Estimates

Our discussion and analysis

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

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

The preparation of these condensed consolidated financial

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

and related disclosure of contingent assets and liabilities.

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

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

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

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

We base our estimates

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

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

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

and liabilities.

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

Revenue Recognition

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

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

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

those goods or services.

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

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 obligation

In order to identify the performance obligations

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

service that is distinct.

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

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

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

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

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

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

If a goods or service is not distinct, the goods

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

The transaction

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

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

The consideration promised in a

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

Variable consideration is included in the transaction price

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

the uncertainty associated with the variable consideration is subsequently resolved.

The transaction price

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

The transaction price allocated to each performance

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

The Company’s revenues

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

Revenues related to its service offerings

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

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

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

We have determined that

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 condensed consolidated balance sheets.

We do not offer promotional

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

We are governed by the

income tax laws of China and the United States.

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

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

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

The charge for taxes is based on the

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

It is calculated using tax rates that have been

enacted or substantively enacted by the balance sheet date.

Deferred tax is accounted

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

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

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

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

Deferred tax is calculated

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

Deferred tax is charged

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

tax is changed to equity.

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

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

The preparation of the condensed consolidated

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

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

Changes in these estimates and assumptions may have a material impact on the consolidated financial statements and accompanying

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 assets acquired and liabilities assumed in the purchase of 40% of Lab Services MSO.

Real Property Rental

The Company has determined that the ASC 606 does

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

Rental income from operating leases is recognized

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

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

the term of the related leases.

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

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

The Company does not offer promotional payments,

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

We are governed by the income tax laws of China

and the United States.

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

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

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

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

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

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

enacted by the balance sheet date.

Deferred tax is accounted for using the balance

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

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

In principle, deferred tax

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

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

Deferred tax is calculated using tax rates that

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

Deferred tax is charged or credited in the

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

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

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

Recent Accounting Standards

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

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

For details of applicable new accounting standards,

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

RESULTS OF OPERATIONS

Comparison of Results of Operations for the

Three and Nine Months Ended September 30, 2022 and 2021

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

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

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

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

The decrease was primarily

attributable to one tenant moved out in 2022.

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

level with minimal increase in the near future.

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

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

party in these periods.

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

related party of $131,305.

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

in the near future.

Costs and Expenses

Three Months Ended March 31, 2023 and 2022

Real Property Rental

For the three months ended March 31, 2023, we

had real property rental revenue of $296,165, as compared to $297,631 for the three months ended March 31, 2022, a decrease of $1,466,

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

Real Property Operating

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

and other expenses related to our rental properties.

For the three months

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

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

The increase was mainly due to an increase

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

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

items of approximately $4,000.

For the nine months ended

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

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

The increase was mainly due to an increase in building

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

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

of approximately $7,000.

Costs of medical related

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

other overhead costs.

There were no comparative

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

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

services from third party in these periods.

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

services amounted to $102,442.

Real property operating expenses consist of property

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

to our rental properties.

For the three months ended March 31, 2023, our

real property operating expenses amounted to $248,445, as compared to $218,448 for the three months ended March 31, 2022, an increase

of $29,997, or 13.7%.

The increase was mainly due to an increase in property management fees of approximately $9,000, an increase

in repairs and maintenance fee of approximately $16,000, an increase in utilities of approximately $5,000.

Real Property Operating Income

Our real property operating

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

for the three months ended September 30, 2021.

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

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

The decrease was attributable

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

We expect our real

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

Gross Profit from

Medical Related Consulting Services and Gross Margin

We did not generate any

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

Our gross profit from medical

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

Our real property operating income for the three

months ended March 31, 2023 was $47,720, representing a decrease of $31,463 or 39.7%, as compared to $79,183 for the three months ended

March 31, 2022.

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

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

Other Operating Expenses

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

the three months ended March 31, 2023 and 2022, other operating expenses consisted of the following:

Three Months Ended

September 30,

Nine Months Ended

September 30,

Advertising and marketing expenses

2 unchanged sentences

Research and development

Litigation settlement

Directors and officers liability insurance premium

Travel and entertainment

Directors and officers liability insurance

Rent and related utilities

Other general and administrative

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

ended September 30, 2021.

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

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

The increase was primarily due to increased advertising activities.

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

the three months ended March 31, 2023, advertising and marketing expenses increased by $164,947

or 31.3% as compared to the three months ended March 31, 2022.

The increase was primarily

due to increased advertising activities to enhance the visibility and marketability of our

company and to improve brand recognition and awareness.

We expect that our advertising and

marketing expenses will remain in its current level with minimal increase in the near future.

● Professional

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

service fees and other fees.

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

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

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

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

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

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

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

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

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

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

miscellaneous items of approximately $45,000.

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

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

investor relations service charges and other fees.

For the three months ended March 31, 2023,

professional fees increased by $404,931, or 49.3%, as compared to the three months ended

March 31, 2022, which was primarily attributable to an increase in consulting fees of approximately

$278,000 mainly due to the increase in use of consulting service providers related to our

purchase of 40% of Lab Services MSO, and an increase in accounting fees of approximately

$218,000 mainly due to the increased accounting services related to our purchase of 40% of

Lab Services MSO, offset by a decrease in other miscellaneous items of approximately $91,000.

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

the three months ended March 31, 2023, compensation and related benefits decreased by $71,490,

or 13.7%, as compared to the three months ended March 31, 2022, which

was primarily attributable to the decrease in stock-based compensation which reflected the

value of options granted and vested to our management.

We expect that our compensation and

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

the three months ended March 31, 2023, research and development expenses decreased by $24,334,

or 20.9%, as compared to the three months ended March 31, 2022.

The decrease was mainly attributable

to we decreased research and development projects in the first quarter of 2023.

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

increase in the near future.

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

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

approximately $54,000.

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

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

and related benefits of approximately $29,000.

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

level with minimal increase in the near future.

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

ended September 30, 2021.

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

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

The decrease was mainly attributable to we decreased research and

development projects in 2022 periods.

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

with minimal decrease in the near future.

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

For the nine months ended September

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

was due to a settlement signed in June 2022.

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

the three months ended September 30, 2021.

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

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

The increase was mainly due to different

insurance provider with different premium.

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

ended September 30, 2021.

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

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

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

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

ended September 30, 2021.

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

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

● Other general

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

For the three months

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

September 30, 2021.

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

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

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

the three months ended March 31, 2023, travel and entertainment expense increased by $24,094,

or 62.9%, as compared to the three months ended March 31, 2022.

The increase was mainly due

to increased business travel activities in the first quarter of 2023.

the three months ended March 31, 2023, Directors and Officers Liability Insurance premium

increased by $217, or 0.2%, as compared to the three months ended March 31, 2022.

the three months ended March 31, 2023, rent and related utilities expenses decreased by $3,268,

or 15.9%, as compared to the three months ended March 31, 2022.

The decrease was attributable

to decreased rental rate in the first quarter of 2023.

general and administrative expenses mainly consisted

of NASDAQ listing fee, office supplies, miscellaneous taxes ,

and other miscellaneous items.

For the three months ended March 31, 2023, other general and

administrative expenses increased by $10,734, or 19.2%, as compared to the three months ended

March 31, 2022.

The increase was mainly attributable to an increase in franchise tax of approximately

$21,000, offset by a decrease in other miscellaneous items of approximately $10,000 due to

our efforts at stricter controls on corporate expenditure.

Loss from Operations

As a result of the foregoing,

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

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

As a result of the foregoing,

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

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

for the three months ended March 31, 2023, loss from operations amounted to $2,664,236, as compared to $2,126,942 for the three months

ended March 31, 2022, a decrease of $537,294 or 25.3%.

Other (Expense)

Other (expense) income

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

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

Other expense, net, totaled

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

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

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

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

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

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

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

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

Other expense, net, totaled

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

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

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

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

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

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

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

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

investment of approximately $14,000.

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

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

As a result of the factors

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

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

As a result of the factors

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

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

Other (expense) income mainly includes third party

and related party interest expense, income (loss) from equity method investments, and other miscellaneous (expense) income.

Other expense, net, totaled $119,678 for the three

months ended March 31, 2023, as compared to other income, net, of $56,404 for the three months ended March 31, 2022, a decrease of $176,082,

or 312.2%, which was primarily attributable to an increase in interest expense of approximately $116,000 mainly driven by the amortization

of debt discount and the increase in outstanding borrowings in the first quarter of 2023, and a decrease in other miscellaneous income

of approximately $110,000, offset by a decrease in loss from equity method investment of approximately $50,000.

have any income taxes expense for the three months ended March 31, 2023 and 2022 since we incurred losses in these periods.

As a result of the factors described above, our

net loss was $2,783,914 for the three months ended March 31, 2023, as compared to $2,070,538 for the three months ended March 31, 2022,

an increase of $713,376 or 34.5%.

Net Loss Attributable to Avalon GloboCare

Common Shareholders

The net loss attributable

to Avalon GloboCare Corp.

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

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

of $3,389,935 or 167.5%.

The net loss attributable

to Avalon GloboCare Corp.

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

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

of $2,756,919 or 40.8%.

The net loss attributable to Avalon GloboCare

common shareholders was $2,783,914 or $0.28 per share (basic and diluted) for the three months ended March 31, 2023, as compared

with $2,070,538 or $0.23 per share (basic and diluted) for the three months ended March 31, 2022, an increase of $713,376 or 34.5%.

Foreign Currency Translation Adjustment

Our reporting currency

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

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

The financial statement of our subsidiary

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

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

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

Net gains and losses resulting

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

As a result of foreign currency translations, which are

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

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

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

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

September 30, 2022 and 2021, respectively.

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

Our reporting currency is the U.S.

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

dollar and the functional currency

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

The financial statement of our subsidiary whose functional currency is

the RMB are translated to U.S.

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

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

Net gains and losses resulting from foreign exchange transactions

are included in the results of operations.

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

a foreign currency translation gain of $3,670 and $2,021 for the three months ended March 31, 2023 and 2022, respectively.

This non-cash

gain had the effect of decreasing our reported comprehensive loss.

Comprehensive Loss

As a result of our foreign

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

and 2021, respectively.

As a result of our foreign

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

2021, respectively.

As a result of our foreign currency translation

adjustment, we had comprehensive loss of $2,780,244 and $2,068,517 for the three months ended March 31, 2023 and 2022, respectively.

Liquidity and Capital Resources

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;

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

The 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

6 unchanged sentences

The Company plans on raising

capital through the sale of equity to implement its business plan.

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

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

The occurrence of an

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

Efforts to contain the

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

negatively impact our tenants, employees and consultants.

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

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

the dynamic nature of these circumstances, the duration of business disruption and reduced traffic, the related financial effect cannot

be reasonably estimated at this time but is expected to adversely impact our business for the rest of 2022.

Liquidity is the ability

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

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

funds are kept in financial institutions located as follows:

September 30, 2022

capital through the sale of equity or debt 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.

Liquidity is the ability of a company to generate

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

At March 31, 2023

and December 31, 2022, we had cash balance of approximately $887,000 and $1,991,000, respectively.

These funds are kept in financial institutions

located as follows:

March 31, 2023

December 31, 2022

United States

Under applicable PRC

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

in accordance with PRC accounting standards and regulations.

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

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

such reserves reach 50% of its registered capital.

Under the applicable People’s Republic of

China (“PRC”) regulations, foreign invested enterprises, or FIEs, in China may pay dividends only out of their accumulated

profits, if any, determined in accordance with PRC accounting standards and regulations.

In addition, an FIE in China is required to set

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

of such reserves reach 50% of its registered capital.

These reserves are not distributable as cash dividends.

In addition, a portion

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

All foreign exchange transactions

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

rates quoted by the People’s Bank of China.

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

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

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

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

The current PRC Enterprise

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

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

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

The following table sets

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

September 30,

In addition, a small portion of our assets are

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

All foreign exchange transactions take place either through

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

Bank of China.

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

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

These currency exchange control

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

Parent Company through loans, advances or cash dividends.

The current PRC Enterprise Income Tax (“EIT”)

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

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

with China that provides for a different withholding arrangement.

The following table sets forth a summary of changes

in our working capital deficit from December 31, 2022 to March 31, 2023:

Working capital (deficit):

3 unchanged sentences

$ (3,785,090 )

Our working capital increased

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

The increase in

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

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

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

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

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

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

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

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

settlement signed in June 2022.

Because the exchange

rate conversion is different for the condensed consolidated balance sheets and the condensed consolidated statements of cash flows, the

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

the comparable changes reflected on the condensed consolidated balance sheets.

Cash Flows for the Nine Months Ended September

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

$ (1,206,279 )

$ (2,578,811 )

Our working capital deficit increased by $2,578,811

to $3,785,090 at March 31, 2023 from $1,206,279 at December 31, 2022.

The increase in working capital deficit was primarily attributable

to a decrease in cash of approximately $1,104,000, an increase in accrued professional fees of approximately $414,000 which was mainly

attributable to the increase in professional service related to our purchase of 40% of Lab Services MSO, an increase in operating lease

obligation of approximately $110,000, an increase in equity method investment payable of $1,000,000 resulting from the purchase of 40%

of Lab Services MSO incurred in February 2023, offset by an increase in prepaid expense and other current assets of approximately $123,000.

Because the exchange rate conversion is different

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

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

the condensed consolidated balance sheets.

Cash Flows for the Three Months Ended March

31, 2023 Compared to the Three Months Ended March 31, 2022

The following summarizes the key components of

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

Nine Months Ended

September 30,

our cash flows for the three months ended March 31, 2023 and 2022:

Three Months Ended

Net cash used in operating activities

$ (1,834,810 )

$ (3,307,520 )

Net cash used in investing activities

1 unchanged sentence

Effect of exchange rate on cash

Net increase (decrease) in cash

Net cash flow used in

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

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

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

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

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

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

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

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

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

Net cash flow used in

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

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

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

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

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

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

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

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

service expense of approximately $1,621,000.

We expect our cash

used in operating activities to increase due to the following:

● the development and commercialization of new products;

● an increase in professional staff and services;

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

within existing markets or enter new markets.

Net decrease in cash

$ (1,103,879 )

Net cash flow used in operating activities for

the three months ended March 31, 2023 was $1,834,810, which primarily reflected our consolidated net loss of approximately $2,784,000,

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

$87,000, offset by an increase in accrued liabilities and other payables of approximately $635,000 which was primarily attributable to

an increase in accrued professional fees of approximately $414,000 resulting from the increase in professional service related to our

purchase of 40% of Lab Services MSO and an increase in accrued research and development fees of approximately $62,000 and an increase

in other payables of approximately $159,000, and the non-cash items adjustment primarily consisting of depreciation of approximately $61,000,

and stock-based compensation and service expense of approximately $327,000.

Net cash flow used in

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

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

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

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

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

Net cash flow provided

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

September 30, 2021.

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

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

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

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

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

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

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

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

Our capital requirements

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

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

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

All funds received have

been expended in the furtherance of growing the business.

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

in our liquidity over the near to long term:

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

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

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

● addition of administrative personnel as the business grows;

● the cost of being a public company.

In the third quarter

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

The unsecured credit facility

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

As of September 30, 2022, the total principal

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

On December 13,

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

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

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

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

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

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

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

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

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

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

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

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

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

We filed a prospectus supplement to amend

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

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

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

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

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

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

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

We estimate that based

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

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

Other than funds received from

the sale of our equity and advances from our related party, and cash resource generating from our operations, we presently have no other

significant alternative source of working capital.

We have used these funds to fund our operating expenses, pay our obligations and grow

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

operations and obligations.

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

Financing transactions

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

However, the trading

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

equity and debt markets could make it more difficult to obtain financing through

the issuance of equity or debt securities.

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

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

Furthermore, if we issue

additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences

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

The inability to obtain additional capital may restrict our ability

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

If we are unable to obtain additional financing, we will

be required to cease our operations.

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

Contractual Obligations and Off-Balance Sheet

Contractual Obligations

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

Changes in our business needs, cancellation

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

We cannot provide certainty regarding the timing

and amounts of payments.

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

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

of operations, and cash flows.

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

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

Payments Due by Period

Contractual obligations:

Operating lease commitment

Acquisition consideration

Litigation settlement

Balloon promissory note (principal)

Epicon equity investment obligation

Avactis joint venture commitment

Off-balance Sheet Arrangements

We presently do not have off-balance sheet arrangements.

operating activities for the three months ended March 31, 2022 was $511,208, which primarily reflected our consolidated net loss of approximately

$2,071,000, offset by the changes in operating assets and liabilities, primarily consisting of an increase in accrued liabilities and

other payables of approximately $794,000 which was primarily attributable to an increase in accrued professional fees of approximately

$686,000 resulting from the increase in professional service providers and an increase in other miscellaneous items of approximately $108,000,

and the non-cash items adjustment primarily consisting of depreciation of approximately $85,000, and stock-based compensation and service

expense of approximately $606,000.

We expect our cash used in operating activities

to increase due to the following:

development and commercialization of new products;

increase in professional staff and services;

increase in public relations and/or sales promotions for existing and/or new brands as we expand within existing markets or enter new

cash flow used in investing activities was $20,185 for the three months ended March 31, 2023 as compared to $1,749 for the three

months ended March 31, 2022.

During the three months ended March 31, 2023 and 2022, we made payment for purchase of property and equipment

of approximately $20,000 and $2,000, respectively.

Net cash flow provided by financing activities

was $750,000 for the three months ended March 31, 2023 as compared to $231,500 for the three months ended March 31, 2022.

During the three

months ended March 31, 2023, we received proceeds from related party borrowings of $750,000.

During the three months ended March 31, 2022,

we received proceeds from related party borrowings of approximately $100,000 and net proceeds from equity offering of approximately $132,000

(net of cash paid for commission of approximately $4,000).

Our capital requirements primarily relate to working

capital requirements, including salaries, fees related to professional services, reduction of accrued liabilities, acquisitions and the

development of business opportunities.

These uses of cash will depend on numerous factors including our revenues and our ability to control

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

The following trends are reasonably likely to

result in a material decrease in our liquidity over the near to long term:

increase in working capital requirements to finance our current business, including ongoing research and development programs, clinical

studies, as well as commercial strategies;

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

of administrative personnel as the business grows;

cost of being a public company.

In the third quarter of 2019, we had secured a

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

The unsecured credit facility bears interest at a rate

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

As of March 31, 2023, the total principal amount outstanding under

the Credit Line was $750,000 and we used approximately $6.7 million of the credit facility and have approximately $13.3 million remaining

available under the Line Credit.

We estimate that based on current plans and assumptions,

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

provided by operations, and cash available under our Credit Line and sales of equity.

Under the Line of Credit, the Company received a

loan from the Lender of $100,000 in April 2023.

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

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

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

We will need to raise significant additional

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

Therefore, our future operation

is dependent on our ability to secure additional financing.

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

obtaining credit facilities, or other financing mechanisms.

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

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

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

that would force us to seek alternative financing.

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

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

common stock.

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

business operations.

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

To date, we have not

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

Foreign Currency Exchange Rate Risk

A portion of our operations

are in China.

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

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

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

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

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

In November of 2022, we decided to cease all operations

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

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

revenue generated from PRC operations in the foreseeable future.

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

a material effect on us.

For the three months ended March 31, 2023 and 2022, we had an unrealized foreign currency translation gain of

approximately $4,000 and $2,000, respectively, because of changes in the exchange rate.

The effect of inflation on our revenue and operating

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What changed 10-Q

Item 2. Management’s Discussion and Analysis