What changed in this filing

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Item 1. Financial Statements

2023-08-14 compared with 2023-05-22 · 873 added, 530 removed, 550 unchanged (72% of the section changed)

5 unchanged sentences

Rent receivable

expense and other current assets

Current Assets

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

Prepaid expense and other current assets

Total Current Assets

NON-CURRENT ASSETS:

Operating lease right-of-use assets, net

Property and equipment, net

Investment in real estate, net

Equity method investments, net

Advances for equity interest purchase

Other non-current assets

Total Non-current Assets

LIABILITIES AND EQUITY

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:

lease obligation - noncurrent portion

litigation settlement - noncurrent portion

Note payable,

payable - related party

Accrued professional fees

Accrued research and development fees

Accrued payroll liability and compensation

Accrued litigation settlement

Accrued liabilities and other payables

Accrued liabilities and other payables - related parties

Operating lease obligation

Equity method investment payable

Derivative liability

Convertible note payable, net

Total Current Liabilities

NON-CURRENT LIABILITIES:

and Contingencies (Note 13)

Operating lease obligation - noncurrent portion

Accrued litigation settlement - noncurrent portion

Note payable, net

Loan payable - related party

Total Non-current Liabilities

Total Liabilities

Commitments and Contingencies (Note 15)

Preferred stock, $ 0.0001 par value;

10,000,000 shares authorized;

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

Series A Convertible Preferred Stock, 9,000 shares issued and outstanding at June 30, 2023 and December 31, 2022.

Liquidation preference $ 9 million at June 30, 2023 and December 31, 2022

Series B Convertible Preferred Stock, 11,000 and 0 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively.

Liquidation preference $ 11 million at June 30, 2023

Common stock, $ 0.0001 par value;

490,000,000 shares authorized;

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

10,499,907 shares issued and 10,447,907 shares outstanding at June 30, 2023;

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

paid-in capital

Additional paid-in capital

common stock held in treasury, at cost;

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

52,000 shares at June 30, 2023 and December 31, 2022

Accumulated deficit

( 68,389,948 )

( 63,062,721 )

other comprehensive loss

GloboCare Corp.

Statutory reserve

Accumulated other comprehensive loss

Total Avalon GloboCare Corp.

stockholders’ equity

Non-controlling

Liabilities and Equity

See accompanying notes to the condensed consolidated

financial statements.

Non-controlling interest

Total Liabilities and Equity

accompanying notes to the condensed consolidated financial statements.

AVALON GLOBOCARE CORP.

3 unchanged sentences

For the Three Months

Ended March 31,

Ended June 30,

For the Six Months

Ended June 30,

RENTAL REVENUE

1 unchanged sentence

OPERATING INCOME

INCOME FROM EQUITY METHOD INVESTMENT - LAB SERVICES MSO

OTHER OPERATING EXPENSES:

3 unchanged sentences

Research and development expenses

Litigation settlement

Other general and administrative expenses

3 unchanged sentences

( 2,843,571 )

( 4,482,121 )

( 4,970,513 )

OTHER (EXPENSE) INCOME

Interest expense

Interest expense - amortization of debt discount and debt issuance cost

Interest expense - other

Interest expense - related party

Income (loss) from equity method investments

Loss from equity method investment - Epicon

Change in fair value of derivative liability

Impairment of equity method investment - Epicon

Other (expense) income

5 unchanged sentences

( 4,099,012 )

$ ( 2,543,313 )

$ ( 2,028,474 )

$ ( 5,327,227 )

$ ( 4,099,012 )

NET LOSS ATTRIBUTABLE TO NON-CONTROLLING INTEREST

3 unchanged sentences

$ ( 2,028,474 )

$ ( 5,327,227 )

$ ( 4,099,012 )

COMPREHENSIVE LOSS:

1 unchanged sentence

$ ( 2,028,474 )

OTHER COMPREHENSIVE INCOME

Unrealized foreign currency translation gain

$ ( 5,327,227 )

$ ( 4,099,012 )

OTHER COMPREHENSIVE LOSS

Unrealized foreign currency translation loss

COMPREHENSIVE LOSS

1 unchanged sentence

( 2,071,977 )

( 5,334,568 )

( 4,140,494 )

COMPREHENSIVE LOSS ATTRIBUTABLE TO NON-CONTROLLING INTEREST

3 unchanged sentences

$ ( 2,071,977 )

$ ( 5,334,568 )

$ ( 4,140,494 )

NET LOSS PER COMMON SHARE ATTRIBUTABLE TO AVALON GLOBOCARE CORP.

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CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN

For the Three Months Ended March 31, 2023

Avalon GloboCare Corp.

For the Three and Six Months Ended June 30, 2023

GloboCare Corp.

Stockholders’ Equity

Series A Preferred Stock

Series B Preferred Stock

Treasury Stock

Accumulated Other

Comprehensive

Balance, January 1, 2023

Non-controlling

January 1, 2023

$ ( 522,500 )

1 unchanged sentence

$ ( 213,137 )

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

of Series B Convertible Preferred Stock for equity method investment

of common stock for services

currency translation adjustment

loss for the three months ended March 31, 2023

( 2,783,914 )

Balance, March 31, 2023

March 31, 2023

( 65,846,635 )

correct shares issued for adjustments for 1:10 reverse split

of common stock for services

of common stock as convertible note payable commitment fee

currency translation adjustment

loss for the three months ended June 30, 2023

( 2,543,313 )

See accompanying notes to the condensed consolidated

financial statements.

June 30, 2023

$ ( 522,500 )

$ ( 68,389,948 )

$ ( 220,478 )

See accompanying notes to the condensed consolidated financial statements.

AVALON GLOBOCARE CORP.

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN

For the Three Months Ended March 31, 2022

Avalon GloboCare Corp.

For the Three and Six Months Ended June 30, 2022

GloboCare Corp.

Stockholders’ Equity

Preferred Stock

Treasury Stock

Comprehensive

Balance, January 1, 2022

Non-controlling

January 1, 2022

$ ( 522,500 )

1 unchanged sentence

$ ( 165,266 )

Sale of common stock, net

Stock-based compensation

Foreign currency translation adjustment

Net loss for the three months ended March 31, 2022

of common stock, net

currency translation adjustment

loss for the three months ended March 31, 2022

( 2,070,538 )

Balance, March 31, 2022

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

( 2,028,474 )

See accompanying notes to the condensed consolidated

financial statements.

June 30, 2022

$ ( 522,500 )

$ ( 55,230,886 )

$ ( 206,748 )

See accompanying notes to the condensed consolidated financial statements.

AVALON GLOBOCARE CORP.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Three Months

Ended March 31,

CONDENSED CONSOLIDATED STATEMENTS OF

For the Six Months Ended

CASH FLOWS FROM OPERATING ACTIVITIES:

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(Income) loss from equity method investments

Amortization of debt issuance costs

Impairment of equity method investment

Amortization of debt issuance costs and debt discount

Change in fair market value of derivative liability

Changes in operating assets and liabilities:

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Prepaid expense and other assets

Accounts payable

Accrued liabilities and other payables

3 unchanged sentences

( 4,359,759 )

( 2,686,722 )

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchase of property and equipment

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

Payments of convertible debt issuance costs

Proceeds from issuance of balloon promissory note

Payments of balloon promissory note issuance costs

Proceeds from equity offering

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EFFECT OF EXCHANGE RATE ON CASH

NET DECREASE IN CASH

NET (DECREASE) INCREASE IN CASH

( 1,337,719 )

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Common stock issued for accrued liabilities

Deferred financing costs in accrued liabilities

Reclassification of advances for equity interest purchase to equity method investment

1 unchanged sentence

Accrued purchase price related to equity method investment

See accompanying notes to the condensed

consolidated financial statements.

Warrants issued as convertible note payable finder’s fee

Warrants issued with convertible note payable recorded as debt discount

Bifurcated embedded conversion feature recorded as derivative liability and debt discount

Common stock issued as convertible note payable commitment fee

Deferred financing costs in accrued liabilities

See accompanying notes to

the condensed consolidated financial statements.

AVALON GLOBOCARE CORP.

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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.

2017, Avalon RT 9 purchased a real property located in Township of Freehold, County of Monmouth, State of New Jersey, having a street

address of 4400 Route 9 South, Freehold, NJ 07728.

Company is a commercial stage company dedicated to developing and delivering innovative, transformative, precision diagnostics and clinical

laboratory services.

The Company is establishing a leading role in the innovation of diagnostic testing, utilizing proprietary technology

to deliver precise, genetics-driven results.

The Company also provides laboratory services, offering 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

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

On May 5, 2017, Avalon RT 9 purchased a real property located in Township of Freehold, County of Monmouth, State of New Jersey, having

a street address of 4400 Route 9 South, Freehold, NJ 07728.

This property was purchased to serve as the Company’s world-wide headquarters

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

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 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.

June 30, 2023, the occupancy rate of the building is 86.3 %.

July 18, 2018, the Company formed a wholly owned subsidiary, Avactis Biosciences Inc.

(“Avactis”), a Nevada corporation,

which will focus on accelerating commercial activities related to cellular therapies 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.

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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.

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.

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60% held by ALBT

No current activities to report

No current activities to report, dormant

Biosciences Inc.

1 unchanged sentence

60% held by ALBT

Integrate and optimize global scientific and clinical resources to further advance cellular therapies, including regenerative medicine with stem/progenitor cells as well as cellular immunotherapy including CAR-T, CAR-NK, TCR-T and others to treat certain cancers

Patent holding company

Nanjing Biosciences Ltd.

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100% held by ALBT

Promotes standardization related to exosome industry

No activity, dormant

Laboratory Services, Inc.

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100% held by ALBT

Purchases a membership interest

Laboratory holding company with a 40% membership interest in Lab Services MSO

2 – BASIS OF PRESENTATION AND GOING CONCERN CONDITION

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

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).

Company is a commercial stage company dedicated to developing and delivering innovative, transformative, precision diagnostics and clinical

laboratory services.

The Company is establishing a leading role in the innovation of diagnostic testing, utilizing proprietary technology

to deliver precise, genetics-driven results.

The Company also provides laboratory services, offering 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

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

5 unchanged sentences

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.

$ 4,542,000 at June 30, 2023 and had incurred recurring net losses and generated negative cash flow from operating activities of

approximately $ 5,327,000 and $ 4,360,000 for the six months ended June 30, 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.

its income-producing real estate property in New Jersey and income from equity method investment through its forty percent ( 40 %) interest

in Lab Services MSO 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.

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

business plan, and generate significant revenues.

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

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

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

However, there is no assurance these plans will be

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

accompanying condensed consolidated financial statements do not include any adjustments related to the recoverability or classification

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3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Significant Accounting

Accounting Policies

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

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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.

estimates during the three and six months ended June 30, 2023 and 2022 include the valuation of deferred tax assets and the associated

valuation allowances, the valuation of stock-based compensation, the assumptions used to determine fair value of warrants and embedded

conversion features of convertible note payable, and the fair value of the consideration given in the purchase of 40 % of Lab Services

AVALON GLOBOCARE CORP.

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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.

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.

fair value of the Company’s assets and liabilities, which qualify as financial instruments under ASC Topic 820, “Fair Value

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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

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 six months ended June 30, 2023:

Balance of derivative liability as of January 1, 2023

Initial fair value of derivative liability attributable to warrants issuance with fund raise

Gain from change in the fair value of derivative liability

Balance of derivative liability as of June 30, 2023

825-10 “Financial Instruments”, allows entities to voluntarily choose to measure certain financial assets and liabilities

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and Cash Equivalents

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

March 31, 2023

June 30, 2023 and December 31, 2022, the Company’s cash balances by geographic area were as follows:

June 30, 2023

December 31, 2022

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of three months or less when purchased and money market accounts to be cash equivalents.

The Company had no cash equivalents at March

The Company had no cash equivalents at June

30, 2023 and December 31, 2022.

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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

At June 30, 2023, cash balances held in the PRC are RMB 731,059 (approximately $ 101,000 ), of which, RMB 97,666 (approximately

$ 13,000 ) was not covered by such limited insurance.

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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

At June 30, 2023, the Company’s

cash balances in United States bank accounts had approximately $ 54,000 in excess of the federally-insured limits.

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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.

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

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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.

Impairment of equity method investment

amounted to $ 464,406 for the six months ended June 30, 2023.

See Note 5 for discussion of equity method investments.

Property Rental Revenue

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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).

For the three and six months

ended June 30, 2023 and 2022, potentially dilutive common shares consist of the common shares issuable upon the conversion of convertible

preferred stock and convertible note (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

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.

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

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:

Three Months Ended June 30,

Six Months Ended June 30,

Options to purchase common stock

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Series B convertible preferred stock (**)

Convertible note (***)

Potentially dilutive securities

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

(***) Assumed

the convertible note was converted into shares of common stock of the Company at a conversion price of $ 4.50 and $ 0.75 per share for

the 2023 and 2022 periods, respectively.

Company uses “the management approach” in determining reportable operating segments.

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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

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.

the three and six months ended June 30, 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.

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.

February 9, 2023, the Company purchased 40 % of Lab Services MSO.

Commencing from the purchase date, February 9, 2023, the Company is

active in the management of Lab Services MSO.

During the three and six months ended June 30, 2023, the Company operated in two reportable

business segments:

(1) the real property operating segment, and (2) laboratory testing services segment (which commenced with the purchase

date, February 9, 2023) since Lab Services MSO’s operating results are regularly reviewed by the Company’s chief operating

decision maker to determine the resources to be allocated to the segment and assess its performance.

The Company regularly reviews the

operating results and performance of Lab Services MSO, for which the Company accounts for under the equity method.

AVALON GLOBOCARE CORP.

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3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Reclassification

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.

Company effected a one-for-ten reverse stock split of its outstanding shares of common stock on January 5, 2023.

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

The ASU introduces

a new accounting model, the Current Expected Credit Losses model (“CECL”), which requires earlier recognition of credit losses

and additional disclosures related to credit risk.

The CECL model utilizes a lifetime expected credit loss measurement objective for

the recognition of credit losses at the time the financial asset is originated or acquired.

ASU 2016-13 is effective for annual period

beginning after December 15, 2022, including interim reporting periods within those annual reporting periods.

The adoption of this new

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

The ASU introduces a new accounting

model, the Current Expected Credit Losses model (“CECL”), which requires earlier recognition of credit losses and additional

disclosures related to credit risk.

The CECL model utilizes a lifetime expected credit loss measurement objective for the recognition

of credit losses at the time the financial asset is originated or acquired.

ASU 2016-13 is effective for annual period beginning after

December 15, 2022, including interim reporting periods within those annual reporting periods.

The 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):

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4 – PREPAID EXPENSE AND OTHER CURRENT ASSETS

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

June 30, 2023 and December 31, 2022, prepaid expense and other current assets consisted of the following:

Prepaid professional fees

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 – EQUITY METHOD INVESTMENTS

5 – EQUITY METHOD INVESTMENTS

in Epicon Biotech Co., Ltd.

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

of June 30, 2023 and December 31, 2022, the equity method investment in Epicon Biotech Co., Ltd.

(“Epicon”) amounted to $ 0 and

1 unchanged sentence

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.

was incorporated on August 14, 2018 in PRC.

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

(“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.

Under the equity method, the

investment is initially recorded at cost, adjusted for any excess of the Company’s share of the incorporated-date fair values of

the investee’s identifiable net assets over the cost of the investment (if any).

Thereafter, the investment is adjusted for the

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

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

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

following table:

third party testing, biological sample repository for commercial and scientific research purposes and the clinical transformation of

scientific achievements.

The Company is not involved in the management of Epicon.

Therefore, it is a passive investment.

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

Under the equity method,

the investment is initially recorded at cost, adjusted for any excess of the Company’s share of the incorporated-date fair values

of the investee’s identifiable net assets over the cost of the investment (if any).

Thereafter, the investment is adjusted for

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

the three months ended June 30, 2023 and 2022, the Company’s share of Epicon’s net loss was $ 9,110 and $ 11,882 , respectively,

which was included in other (expense) income – loss from equity method investment – Epicon in the accompanying condensed

consolidated statements of operations and comprehensive loss.

For the six months ended June 30, 2023 and 2022, the Company’s share

of Epicon’s net loss was $ 18,564 and $ 24,798 , respectively, which was included in other (expense) income – loss from equity

method investment – Epicon in the accompanying condensed consolidated statements of operations and comprehensive loss.

the six months ended June 30, 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

Epicon’s net loss attributable to the Company

Impairment of investment in Epicon

Foreign currency fluctuation

Equity investment carrying amount at March 31, 2023

Equity investment carrying amount at June 30, 2023

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

2 unchanged sentences

Current liabilities

For the Three Months Ended March 31,

For the Three Months Ended

For the Six Months Ended

Loss from operation

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.

In June 2023, the Company

assessed its equity method investment in Epicon for any impairment and concluded that there were indicators of impairment as of June

The impairment is due to the Company’s conclusion that it will be unable to recover the carrying amount of the investment

due to the investee’s series of operating losses and the joint venture partner unable to obtain fund to commence operations.

Company calculated that the estimated undiscounted cash flows were less than the carrying amount related to the equity method investment.

The Company has recognized an impairment loss of $ 464,406 related to the equity method investment for the three and six months ended

June 30, 2023, which reduced the investment value to zero.

AVALON GLOBOCARE CORP.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 – EQUITY METHOD INVESTMENTS

in Laboratory Services MSO, LLC (continued)

5 – EQUITY METHOD INVESTMENTS (continued)

in Epicon Biotech Co., Ltd.

the equity method, if there is a commitment for the Company to fund the losses of its equity method investees, the Company would continue

to record its share of losses resulting in a negative equity method investment, which would be presented as a liability on the condensed

consolidated balance sheets.

Commitments may be explicit and may include formal guarantees, legal obligations, or arrangements by contract.

Implicit commitments may arise from reputational expectations, intercompany relationships, statements by the Company of its intention

to provide support, a history of providing financial support or other facts and circumstances.

When the Company has no commitment to

fund the losses of its equity method investees, the carrying value of its equity method investments will not be reduced below zero.

Company had no commitment to fund additional losses of its equity method investments during the three months ended June 30, 2023.

in Laboratory Services MSO, LLC

February 9, 2023 (the “Closing Date”), the Company entered into and closed an Amended and Restated Membership Interest Purchase

Agreement (the “Amended MIPA”), by and among Avalon Laboratory Services, Inc., a wholly-owned subsidiary of the Company (the

“Buyer”), SCBC Holdings LLC (the “Seller”), the Zoe Family Trust, Bryan Cox and Sarah Cox as individuals (each

an “Owner” and collectively, the “Owners”), and Laboratory Services MSO, LLC.

to the terms and conditions set forth in the Amended MIPA, Buyer acquired from the Seller, forty percent ( 40 %) of all the issued and

1 unchanged sentence

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 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:

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.

The Series B 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 10 – 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 the Company’s common stock on December

31, 2023, rounded down to the nearest whole share (collectively, the “Earnout Payments”).

At both February 9, 2023 and June

30, 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.

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

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

As of June 30,

2023, the equity method investment in Lab Services MSO amounted to $ 21,355,134 .

accordance 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.

Under 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).

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.

the three months ended June 30, 2023 and the period from February 9, 2023 (date on investment) through June 30, 2023, the Company’s

share of Lab Services MSO’s net income was $ 308,395 and $ 355,134 , respectively, which was included in income from equity method

investment – Lab Services MSO in the accompanying condensed consolidated statements of operations and comprehensive loss.

the six months ended June 30, 2023, activity recorded for the Company’s equity method investment in Lab Services MSO

is summarized in the following table:

AVALON GLOBOCARE CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

5 – EQUITY METHOD INVESTMENTS (continued)

in Laboratory Services MSO, LLC (continued)

Equity investment carrying amount at January 1, 2023

1 unchanged sentence

Lab Services MSO’s net income attributable to the Company

Equity investment carrying amount at March 31, 2023

Equity investment carrying amount at June 30, 2023

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

3 unchanged sentences

Noncurrent liabilities

(Date of Investment)

Three Months Ended

Income from operation

AVALON GLOBOCARE CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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)

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

3 unchanged sentences

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 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

6 – CONVERTIBLE NOTE PAYABLE

May 23, 2023, the Company entered into securities purchase agreements (the “Securities Purchase Agreements”) with Mast Hill

(“Mast Hill”) for the issuance of 13.0 % senior secured promissory notes in the aggregate principal amount of $ 1,500,000

(collectively the “May 2023 Convertible Note”) convertible into shares of common stock, par value $ 0.0001 per share, of the

Company, as well as the issuance of 75,000 shares of common stock as a commitment fee and warrants for the purchase of 230,500 shares

of common stock of the Company.

The Company and its subsidiaries have entered into that certain security agreement (the “Security

Agreement”), creating a security interest in certain property of the Company and its subsidiaries to secure the prompt payment,

performance and discharge in full of all of the Company’s obligations under the May 2023 Convertible Note.

The transaction closed

on May 23, 2023 (the “Closing Date”).

Principal amount and interest under the May 2023 Convertible Note are convertible into

shares of common stock of the company at a conversion price of $ 4.50 per share unless the Company fails to make an amortization payment

(the “amortization payment”) when due, in which case the conversion price shall be the lower of $ 4.50 or the trading price

of the shares, subject to a floor of $ 1.50 .

AVALON GLOBOCARE CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

6 – CONVERTIBLE NOTE PAYABLE (continued)

Hill acquired the May 2023 Convertible Note with principal amount of $ 1,500,000 and paid the purchase price of $ 1,425,000 after an original

issue discount of $ 75,000 .

On the same Closing Date, the Company issued (i) a warrant to purchase 125,000 shares of common stock with

an exercise price of $4.50 exercisable until the five-year anniversary of the Closing Date, (ii) a warrant to purchase 105,500 shares

of common stock with an exercise price of $3.20 exercisable until the five-year anniversary of the Closing Date, which warrant shall

be cancelled and extinguished against payment of the May 2023 Convertible Note, and (iii) 75,000 shares of common stock as a commitment

fee for the purchase of the May 2023 Convertible Note, which were earned in full as of the Closing Date.

On the Closing Date, the Company

delivered such duly executed May 2023 Convertible Note, warrants and common stock to Mast Hill against delivery of such purchase price.

Company shall make the following amortization payments in cash to Mast Hill towards the repayment of the May 2023 Convertible Note, as

provided in the following table:

$150,000 plus accrued interest through November 23, 2023

$150,000 plus accrued interest through December 23, 2023

$200,000 plus accrued interest through January 23, 2024

$250,000 plus accrued interest through February 23, 2024

$250,000 plus accrued interest through March 23, 2024

$300,000 plus accrued interest through April 23, 2024

The entire remaining outstanding balance of the May 2023 Convertible Note

connection with the issuance of May 2023 Convertible Note, the Company incurred debt issuance costs of $ 175,162 (including the issuance

of 10,000 warrants as a finder’s fee) which is capitalized and will be amortized into interest expense over the term of the May

2023 Convertible Note.

upon the Company’s analysis of the criteria contained in ASC 815, the Company determined that all the warrants issued to Mast Hill

and a third party as a finder’s fee meet the definition of derivative liability, as the Company cannot avoid a net cash settlement

under certain circumstances.

Management determined the probability of fail to make an amortization payment when due to be remote and

as such the fair value of the 105,500 warrants with an exercise price of $ 3.20 exercisable until the five-year anniversary of the Closing

Date, which warrant shall be cancelled and extinguished against payment of the May 2023 Convertible Note, has been estimated to be zero.

Accordingly, the fair value of the 135,000 warrants with an exercise price of $ 4.50 exercisable until the five-year anniversary of the

Closing Date was classified as derivative liability on the Closing Date, May 23, 2023.

The fair values of the 135,000 warrants with an

exercise price of $ 4.50 exercisable until the five-year anniversary of the Closing Date issued on May 23, 2023 were computed using the

Black-Scholes option-pricing model with the following assumptions:

stock price of $ 1.96 , volatility of 88.80 %, risk-free rate of 3.76 %,

annual dividend yield of 0 % and expected life of 5 years.

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 allocated to the warrants are accounted for as derivative liability.

The remainder of the proceeds are allocated

to the debt instrument portion of the transaction.

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 liability in accordance with the provisions

of the convertible debt (see Note 7).

However, management determined the probability of fail to make an amortization payment when due

to be remote and as such the fair value of the embedded conversion feature has been estimated to be zero.

Company recorded a total debt discount of $ 349,654 related to the original issue discount, common shares issued and warrants issued to

Mast Hill, which will be amortized over the term of the May 2023 Convertible Note.

both the three and six months ended June 30, 2023, amortization of debt discount and debt issuance costs and interest expense related

to the May 2023 Convertible Note amounted to $ 44,715 and $ 20,836 , respectively, which have been included in interest expense –

amortization of debt discount and debt issuance cost and interest expense – other 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

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

of the Company, and his son provide consulting services to the Company.

As compensation for professional services provided, the Company

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 –

Related Parties

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

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

largest shareholder and chairman of the Board of Directors, respectively, have been included in accrued liabilities and other payables

– related parties on the accompanying condensed consolidated balance sheets.

AVALON GLOBOCARE CORP.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7 – DERIVATIVE LIABILITY

As stated in Note 6, May 2023 Convertible Note,

the Company determined that the convertible note payable contains an embedded derivative feature in the form of a conversion provision

which is adjustable based on future prices of the Company’s common stock.

In accordance with ASC 815-10-25, each derivative feature

is initially recorded at its fair value using the Black-Scholes option valuation method and then re-value at each reporting date, with

changes in the fair value reported in the statements of operations.

However, on May 23, 2023 and June 30, 2023, management determined

the probability of fail to make an amortization payment when due to be remote and as such the fair value of the embedded conversion feature

has been estimated to be zero.

May 23, 2023, the Company issued 240,500 warrants to Mast Hill and a third party as a finder’s fee (see Note 6).

Upon evaluation,

the warrants meet the definition of derivative liability under FASB ASC 815, as the Company cannot avoid a net cash settlement under

certain circumstances.

Management determined the probability of fail to make an amortization payment when due to be remote and

as such the fair value of the 105,500 warrants with an exercise price of $ 3.20 exercisable until the five-year anniversary of the Closing

Date, which warrant shall be cancelled and extinguished against payment of the May 2023 Convertible Note, has been estimated to be zero.

Accordingly, the fair value of the 135,000 warrants with an exercise price of $ 4.50 exercisable until the five-year anniversary of the

Closing Date was classified as derivative liability on the Closing Date, May 23, 2023.

May 23, 2023, the estimated fair values of the 135,000 warrants with an exercise price of $ 4.50 exercisable until the five-year

anniversary of the Closing Date issued were computed using the Black-Scholes option-pricing model with the following assumptions:

price of $ 1.96 , volatility of 88.80 %, risk-free rate of 3.76 %, annual dividend yield of 0 % and expected life of 5 years.

June 30, 2023, the estimated fair value of the 135,000 warrants with an exercise price of $ 4.50 exercisable until the five-year anniversary

of the Closing Date as derivative liability was $ 108,969 .

The estimated fair value of the warrants was computed as of June

30, 2023 using Black-Scholes option-pricing model, with the following assumptions:

stock price of $ 1.54 , volatility of 89.16 %, risk-free

rate of 4.13 %, annual dividend yield of 0 % and expected life of 4.9 years.

Increases 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 changes to the derivative liability resulted in a decrease of $ 41,721 in the derivative

liability and the corresponding increase in other income as a gain for the three and six months ended June 30, 2023.

NOTE 8 – NOTE PAYABLE, NET

On September 1, 2022, the Company issued a balloon

promissory note in the form of a mortgage on its headquarters to a third party company in the principal amount of $ 4,800,000 which

carries interest of 11.0 % per annum.

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 principal of $ 4,800,000

can be extended for an additional 36 months provided that the Company has not defaulted.

The Company may not prepay the principal of

$ 4,800,00 for a period of 12 months.

The principal of $ 4,800,000 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

May 2023, the Company borrowed $ 1,000,000 from the same lender.

The principal of $ 1,000,000 shall accrue interest at the annual rate

of 13.0 % and be paid in monthly installments of interest-only in the amount of $10,833 commencing in June 2023 and continuing through

October 2025 (at which point any unpaid balance of principal, interest and other charges shall be due and payable), and be secured by

a second-lien mortgage on certain real property and improvements located at 4400 Route 9, Freehold, Monmouth County.

payable as of June 30, 2023 and December 31, 2022 is as follows:

Principal amount

unamortized debt issuance costs

Note payable, net

For the three months ended June 30, 2023, amortization

of debt issuance costs and interest expense related to note payable amounted to $ 24,738 and $ 145,722 , respectively, which have been

included in interest expense on the accompanying condensed consolidated statements of operations and comprehensive loss.

months ended June 30, 2023, amortization of debt issuance costs and interest expense related to note payable amounted to $ 46,943 and

$ 277,722 , respectively, which have been included in interest expense on the accompanying condensed consolidated statements of operations

and comprehensive loss.

AVALON GLOBOCARE CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9 – RELATED PARTY TRANSACTIONS

Rental Revenue from Related Party and Rent

Receivable – Related Party

The Company leases space of its commercial

real property located in New Jersey to a company, D.P.

Capital Investments LLC, which is controlled by Wenzhao Lu, the Company’s

largest shareholder and chairman of the Board of Directors.

The term of the related party lease agreement is five years commencing on

May 1, 2021 and will expire on April 30, 2026.

For both the three months ended June 30, 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.

For both the six months ended June 30, 2023 and 2022, the related

party rental revenue amounted to $ 25,200 and has been included in real property rental on the accompanying condensed consolidated

statements of operations and comprehensive loss.

At June 30, 2023 and December 31, 2022, the related

party rent receivable totaled $ 49,300 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.

Services Provided by Related Parties

time to time, Wilbert Tauzin, a director of the Company, and his son provide consulting services to the Company.

As compensation

for professional services provided, the Company recognized consulting expenses of $ 22,185 and $ 36,460 for the three months

ended June 30, 2023 and 2022, 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 $ 48,642 and $ 87,598 for the six months ended June 30, 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 –

Related Parties

In 2017, the Company acquired Beijing Genexosome

for a cash payment of $ 450,000 .

As of June 30, 2023 and December 31, 2022, the unpaid acquisition consideration of $ 100,000 , was payable

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.

June 2023, Lab Services MSO paid shared expense on behalf of the Company.

As of June 30, 2023, the balance due to Lab Services

MSO amounted to $ 5,413 , which has been included in accrued liabilities and other payables – related parties on the

accompanying condensed consolidated balance sheets.

As of June 30, 2023 and December 31, 2022, $ 12,288 and

$ 0 of accrued and unpaid interest related to borrowings from Wenzhao Lu, the Company’s largest shareholder and chairman of

the Board of Directors, respectively, have been included in accrued liabilities and other payables – related parties on the accompanying

condensed consolidated balance sheets.

Borrowings from Related Party

Line of Credit

29, 2019, the Company entered into a Line of Credit Agreement (the “Line of Credit Agreement”) providing the Company with

a $ 20 million line of credit (the “Line of Credit”) from Wenzhao Lu (the “Lender”), the largest shareholder

and Chairman of the Board of Directors of the Company.

The Line of Credit allows the Company to request loans thereunder and to use the

proceeds of such loans for working capital and operating expense purposes until the facility matures on December 31, 2024 .

are unsecured and are not convertible into equity of the Company.

Loans drawn under the Line of Credit bears interest at an annual rate

of 5 % and each individual loan will be payable three years from the date of issuance.

The Company has a right to draw down on the

line of credit and not at the discretion of the related party Lender.

The Company may, at its option, prepay any borrowings under the

Line of Credit, in whole or in part at any time prior to maturity, without premium or penalty.

The Line of Credit Agreement includes customary

events of default.

If any such event of default occurs, the Lender may declare all outstanding loans under the Line of Credit to be due

and payable immediately.

In the three months ended March 31, 2023, activity

On August 29, 2019, the Company entered into

a Line of Credit Agreement (the “Line of Credit Agreement”) providing the Company with a $ 20 million line of credit

(the “Line of Credit”) from Wenzhao Lu (the “Lender”), the largest shareholder and Chairman of the Board of Directors

of the Company.

The Line of Credit allows the Company to request loans thereunder and to use the proceeds of such loans for working capital

and operating expense purposes until the facility matures on December 31, 2024 .

The loans are unsecured and are not convertible

into equity of the Company.

Loans drawn under the Line of Credit bears interest at an annual rate of 5 % and each individual loan

will be payable three years from the date of issuance.

The Company has a right to draw down on the line of credit and not at the discretion

of the related party Lender.

The Company may, at its option, prepay any borrowings under the Line of Credit, in whole or in part at any

time prior to maturity, without premium or penalty.

The Line of Credit Agreement includes customary events of default.

If any such event

of default occurs, the Lender may declare all outstanding loans under the Line of Credit to be due and payable immediately.

AVALON GLOBOCARE CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9 – RELATED PARTY TRANSACTIONS (continued)

Line of Credit (continued)

In the six months ended June 30, 2023, activity

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

1 unchanged sentence

Draw down from Line of Credit

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.

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.

Outstanding principal under the Line of Credit at June 30, 2023

For the three months ended June 30, 2023 and

2022, the interest expense related to related party borrowings amounted to $ 10,267 and $ 31,854 , respectively, and has been reflected

as interest expense – related party on the accompanying condensed consolidated statements of operations and comprehensive loss.

For the six months ended June 30, 2023 and 2022, the interest expense related to related party borrowings amounted to $ 12,288 and

$ 71,540 , respectively, and has been reflected as interest expense – related party on the accompanying condensed consolidated statements

of operations and comprehensive loss.

As of June 30, 2023 and December 31, 2022, the

related accrued and unpaid interest for Line of Credit was $ 12,288 and $ 0 , respectively, and has been included in accrued liabilities

and other payables – related parties on the accompanying condensed consolidated balance sheets.

As of June 30, 2023,

the Company used approximately $ 6.8 million of the credit facility and has approximately $ 13.2 million remaining available under the

Line of Credit.

NOTE 10 – EQUITY

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 A Convertible Preferred Stock

The Company 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 .

As of June 30, 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).

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 .

On February 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

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).

Common Shares Issued

During the six months ended June 30, 2023, the

Company issued a total of 361,331 shares of its common stock for services rendered and to be rendered.

These shares were valued

at $ 999,656 , 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 $ 657,035 for the six months ended June 30, 2023 and reduced accrued liabilities of

$ 164,871 and recorded prepaid expense of $ 177,750 as of June 30, 2023 which will be amortized over the rest of corresponding

service periods.

AVALON GLOBOCARE CORP.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 – EQUITY (continued)

NOTE 10 – EQUITY

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 March 31, 2023:

as Convertible Note Payable Commitment Fee

On May 23, 2023, the Company issued 75,000 shares

of its common stock to Mast Hill as a commitment fee for the purchase of the May 2023 Convertible Note.

These shares were valued at $ 147,000 ,

the fair market value on the grant date using the reported closing share price on the date of grant, and the Company recorded it as debt

The following table summarizes the shares of

the Company’s common stock issuable upon exercise of options outstanding at June 30, 202 3:

Options Outstanding

Options Exercisable

Exercise Price

Outstanding at

Average Remaining

June 30, 2023

Contractual Life

Exercisable at

$ 3.25 – 8.20

10.20 – 20.00

June 30, 2023

10.20 – 20.00

1 unchanged sentence

Stock option activities

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

for the six months ended June 30, 2023 were as follows :

Outstanding at January 1, 2023

Outstanding at March 31, 2023

Options exercisable at March 31, 2023

Outstanding at June 30, 2023

Options exercisable at June 30, 2023

Options expected to vest

The aggregate intrinsic value of both stock options

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

outstanding and stock options exercisable at June 30, 2023 was $ 0 .

The fair values of options granted during the

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 .

six months ended June 30, 2023 were estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions:

volatility of 79.76 % - 96.37 %, risk-free rate of 3.58 % - 3.96 %, annual dividend yield of 0 %, and expected life

of 3.00 - 5.00 years.

The aggregate fair value of the options granted during the six months ended June 30, 2023 was $ 313,144 .

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

six months ended June 30, 2022 were estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions:

volatility of 74.8 % - 117.46 %, risk-free rate of 1.37 % - 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 three months ended March 31, 2022 was $ 315,145 .

The aggregate fair value of the options granted during the six months ended June 30, 2022

was $ 373,982 .

For the three months

ended June 30, 2023 and 2022, stock-based compensation expense associated with stock options granted amounted to $ 112,015 and $ 126,301 ,

of which, $ 38,191 and $ 93,171 was recorded as compensation and related benefits, $ 73,824 and $ 21,460 was recorded

as professional fees, and $ 0 and $ 11,670 was recorded as research and development expenses, respectively.

For the six months ended

June 30, 2023 and 2022, stock-based compensation expense associated with stock options granted amounted to $ 180,277 and $ 278,624 ,

of which, $ 89,527 and $ 198,084 was recorded as compensation and related benefits, $ 85,281 and $ 57,598 was recorded as

professional fees, and $ 5,469 and $ 22,942 was recorded as research and development expenses, respectively.

AVALON GLOBOCARE CORP.

3 unchanged sentences

Options (continued)

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 March 31, 2023 and changes during the three months ended March 31, 2023 is presented below:

A summary of the status

of the Company’s nonvested stock options granted as of June 30, 2023 and changes during the six months ended June 30, 2023 is presented

Number of Options

Weighted Average Exercise Price

Nonvested at January 1, 2023

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 March 31, 2023:

Nonvested at June 30, 2023

The following table summarizes the shares of

the Company’s common stock issuable upon exercise of warrants outstanding at June 30, 2023:

Warrants Outstanding

2 unchanged sentences

Outstanding at

Average Remaining

June 30, 2023

Contractual Life

Exercisable at

Stock warrant activities

for the six months ended June 30, 2023 were as follows:

Outstanding at January 1, 2023

Outstanding at June 30, 2023

Warrants exercisable at June 30, 2023

Warrants expected to vest

The aggregate intrinsic value of both stock warrants

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

outstanding and stock warrants exercisable at June 30, 2023 was $ 0 .

connection with the issuance of May 2023 Convertible Note (See Note 6), the Company issued (i) a warrant to purchase 125,000 shares

of common stock with an exercise price of $4.50 exercisable until the five-year anniversary of the Closing Date, and (ii) a warrant to

purchase 105,500 shares of common stock with an exercise price of $3.20 exercisable until the five-year anniversary of the Closing Date ,

which warrant shall be cancelled and extinguished against payment of the May 2023 Convertible Note, to Mast Hill;

and issued a warrant

to purchase 10,000 shares of common stock with an exercise price of $ 4.50 exercisable until the five-year anniversary of the Closing

Date to a third party as a finder’s fee.

AVALON GLOBOCARE CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 – EQUITY

Warrants (continued)

upon the Company’s analysis of the criteria contained in ASC 815, the Company determined that all the warrants issued to Mast

Hill and a third party as a finder’s fee meet the definition of derivative liability, as the Company cannot avoid a net cash settlement

under certain circumstances.

Management determined the probability of fail to make an amortization payment when due to be remote and

as such the fair value of the 105,500 warrants with an exercise price of $ 3.20 exercisable until the five-year anniversary of the Closing

Date, which warrant shall be cancelled and extinguished against payment of the May 2023 Convertible Note, has been estimated to be zero.

Accordingly, the fair value of the 135,000 warrants with an exercise price of $ 4.50 exercisable until the five-year anniversary of the

Closing Date was classified as derivative liability on the Closing Date, May 23, 2023.

The fair values of the 135,000 warrants with an

exercise price of $ 4.50 exercisable until the five-year anniversary of the Closing Date issued on May 23, 2023 were computed using the

Black-Scholes option-pricing model with the following assumptions:

stock price of $ 1.96 , volatility of 88.80 %, risk-free rate of 3.76 %,

annual dividend yield of 0 % and expected life of 5 years.

warrants with an exercise price of $ 4.50 exercisable until the five-year anniversary of the Closing Date issued to Mast Hill to

purchase 125,000 shares of the Company’s common stock were treated as a discount on the convertible note payable and were valued

at $ 127,654 and will be amortized over the term of the May 2023 Convertible Note.

warrants with an exercise price of $ 4.50 exercisable until the five-year anniversary of the Closing Date issued to a third party

as a finder’s fee to purchase 10,000 shares of the Company’s common stock were treated as convertible debt issuance costs

and were valued at $ 11,162 and will be amortized over the term of the May 2023 Convertible Note.

summary of the status of the Company’s nonvested stock warrants issued as of June 30, 2023 and changes during the six months

ended June 30, 2023 is presented below:

Nonvested at January 1, 2023

Nonvested at June 30, 2023

NOTE 11 - STATUTORY

RESERVE AND RESTRICTED NET ASSETS

The Company’s PRC

subsidiary, Avalon Shanghai, is restricted in its ability to transfer a portion of its net asset to the Company.

The payment of dividends

by entities organized in China is subject to limitations, procedures and formalities.

Regulations in the PRC currently permit payment

of dividends only out of accumulated profits as determined in accordance with accounting standards and regulations in China.

The Company is required

to make appropriations to certain reserve funds, comprising the statutory surplus reserve and the discretionary surplus reserve, based

on after-tax net income determined in accordance with generally accepted accounting principles of the PRC (“PRC GAAP”).

Appropriations

to the statutory surplus reserve are required to be at least 10 % of the after-tax net income determined in accordance with PRC GAAP until

the reserve is equal to 50 % of the entity’s registered capital.

Appropriations to the discretionary surplus reserve are made at

the discretion of the Board of Directors.

The statutory reserve may be applied against prior year losses, if any, and may be used for

general business expansion and production or increase in registered capital, but are not distributable as cash dividends.

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 .

The Company’s PRC subsidiary, Avalon Shanghai,

is restricted in its ability to transfer a portion of its net asset to the Company.

The payment of dividends by entities organized in

China is subject to limitations, procedures and formalities.

Regulations in the PRC currently permit payment of dividends only out of

accumulated profits as determined in accordance with accounting standards and regulations in China.

The Company is required to make appropriations

to certain reserve funds, comprising the statutory surplus reserve and the discretionary surplus reserve, based on after-tax net income

determined in accordance with generally accepted accounting principles of the PRC (“PRC GAAP”).

Appropriations to the statutory

surplus reserve are required to be at least 10 % of the after-tax net income determined in accordance with PRC GAAP until the reserve

is equal to 50 % of the entity’s registered capital.

Appropriations to the discretionary surplus reserve are made at the discretion

of the Board of Directors.

The statutory reserve may be applied against prior year losses, if any, and may be used for general business

expansion and production or increase in registered capital, but are not distributable as cash dividends.

The Company did not make any

appropriation to statutory reserve for Avalon Shanghai during the six months ended June 30, 2023 and 2022 as it incurred net loss in

As of June 30, 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 third party.

30, 2023 and December 31, 2022, total restricted net assets amounted to $ 1,106,578 and $ 1,006,578 , respectively.

AVALON GLOBOCARE CORP.

2 unchanged sentences

12 – 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

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

2 unchanged sentences

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.

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 13 - 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 months ended

March 31, 2023 and 2022.

Three Months Ended

* Less than 10 %

Two customers,

of which, one is a related party and the other is a third party, whose outstanding receivable accounted for 10 % or more of the Company’s

total outstanding rent receivable 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 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.

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

for the three and six months ended June 30, 2023 and 2022.

Ended June 30,

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 at June 30, 2023, accounted for 77.8 % of the Company’s total outstanding rent receivable at June 30, 2023.

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

No supplier accounted for 10 % or more of

the Company’s purchase during the three and six months ended June 30, 2023 and 2022.

NOTE 14 – 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.

For the three and six months ended June 30, 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.

are managed separately based on the fundamental differences in their operations.

Due to the winding down of the medical related

3 unchanged sentences

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.

On February 9, 2023, the Company purchased 40 %

of Lab Services MSO.

Commencing from the purchase date, February 9, 2023, the Company is active in the management of Lab Services MSO.

During the three and six months ended June 30, 2023, the Company operated in two reportable business segments:

(1) the real property

operating segment, and (2) laboratory testing services segment (which commenced with the purchase date, February 9, 2023) since Lab Services

MSO’s operating results are regularly reviewed by the Company’s chief operating decision maker to make decisions about resources

to be allocated to the segment and assess its performance.

The Company regularly reviews the operating results and performance of Lab

Services MSO, which is the Company’s an equity method investee.

AVALON GLOBOCARE CORP.

3 unchanged sentences

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

Information with respect

to these reportable business segments for the three and six months ended June 30, 2023 and 2022 was as follows:

Three Months Ended June 30, 2023

Lab Services MSO

Real property rental revenue

1 unchanged sentence

Real property operating income

Income from equity method investment – Lab Services MSO

Other operating expenses

3 unchanged sentences

Interest expense

Other income (expense)

Net (loss) income

$ ( 2,833,583 )

$ ( 2,543,313 )

Three Months Ended March 31, 2022

Real property rental

Medical related consulting services

Corporate/Other

Three Months Ended June 30, 2022

Real property rental revenue

9 unchanged sentences

$ ( 2,028,474 )

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

Six Months Ended June 30, 2023

Lab Services MSO

Real property rental revenue

Real property operating expenses

Real property operating income

Income from equity method investment – Lab Services MSO

Other operating expenses

( 4,753,136 )

( 4,946,477 )

Other (expense) income:

Interest expense

Other income (expense)

Net (loss) income

$ ( 5,598,249 )

$ ( 5,327,227 )

AVALON GLOBOCARE CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14 – SEGMENT

INFORMATION (continued)

Six Months Ended June 30, 2022

Real property rental revenue

Real property operating expenses

Real property operating income

Other operating expenses

( 4,746,512 )

( 5,128,814 )

Other (expense) income:

Interest expense

Net (loss) income

$ ( 4,107,601 )

$ ( 4,099,012 )

Identifiable long-lived tangible assets at June 30, 2023 and December 31, 2022

Real property operations

1 unchanged sentence

Corporate/Other

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

Identifiable long-lived tangible assets at June 30, 2023 and December 31, 2022

United States

AVALON GLOBOCARE CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 15 – COMMITMENTS

1 unchanged sentence

Operating Leases Commitment

Company is a party to leases for office space.

The Company is a party to leases for office

These lease agreements will expire through February 2025.

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,

Rent expense under all operating leases amounted to approximately $ 66,000 and

$ 72,000 for the six months ended June 30, 2023 and 2022, respectively.

Supplemental cash flow information related to leases for

the six months ended June 30, 2023 and 2022 is as follows:

Six Months Ended June 30,

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 March 31, 2023:

and discount rate for the Company’s operating lease as of June 30, 2023:

Operating Lease

1 unchanged sentence

Weighted average discount rate

AVALON GLOBOCARE CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 15 – COMMITMENTS AND CONTINGENCIES (continued)

Operating Leases Commitment (continued)

The following table summarizes the maturity of lease liabilities under

operating lease as of March 31, 2023:

For the Twelve-month Period Ending March 31:

operating lease as of June 30, 2023:

For the Twelve-month Period Ending June 30:

Operating Lease

5 unchanged sentences

Long-term portion

Investment Commitment

On May 29, 2018, Avalon

Shanghai entered into a Joint Venture Agreement with Jiangsu Unicorn Biological Technology Co., Ltd.

(“Unicorn”), pursuant

to which a company named Epicon Biotech Co., Ltd.

(“Epicon”) was formed on August 14, 2018.

Epicon is owned 60 % by Unicorn

and 40 % by Avalon Shanghai.

Within five years of execution of the Joint Venture Agreement, Unicorn shall invest cash into Epicon in an

amount not less than RMB 8,000,000 (approximately $ 1.2 million) and the premises of the laboratories of Nanjing Hospital of Chinese Medicine

for exclusive use by Epicon, and Avalon Shanghai shall invest cash into Epicon in an amount not less than RMB 10,000,000 (approximately

$ 1.5 million).

Epicon is focused on cell preparation, third party testing, biological sample repository for commercial and scientific

research purposes and the clinical transformation of scientific achievements.

As of 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.

Joint Venture – Avactis Biosciences

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.

(“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

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.

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.

In addition, the Company is responsible for contributing

registered capital of RMB 5,000,000 (approximately $ 0.7 million) for working capital purposes as required by local regulation,

which is not required to be contributed immediately and will be contributed subject to the Company’s discretion.

As of the date

hereof, this company has been limited to a patent holding company and there no activity or planned contributions in 2023.

AVALON GLOBOCARE CORP.

2 unchanged sentences

NOTE 15 – COMMITMENTS AND CONTINGENCIES (continued)

Joint Venture – Avactis Biosciences Inc.

On July 18, 2018, the

Company formed Avactis Biosciences Inc.

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

On October 23, 2018,

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

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

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

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

Loans drawn under the Line of Credit bears interest at an annual rate of 5 % and each individual loan will be payable three

years from the date of issuance.

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

party Lender.

The Company may, at its option, prepay any borrowings under the Line of Credit, in whole or in part at any time prior to

maturity, without premium or penalty.

The Line of Credit Agreement includes customary events of default.

If any such event of default occurs, the Lender may declare

all outstanding loans under the Line of Credit to be due and payable immediately.

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

the Line of Credit.

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 June 30, 2023,

$ 850,000 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) .

On 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) .

As of June 30, 2023, the Company did not purchase any additional equity interest from SCBC Holdings

NOTE 16 – SUBSEQUENT

3 unchanged sentences

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.

July 2023 Convertible

Note Financing

In July 2023, the Company

entered into a securities purchase agreement with certain lenders (the “July 2023 Lenders”) and closed on the issuance of

a 13.0 % senior secured convertible promissory note in the aggregate principal amount of $ 500,000 (the “July 2023 Note”),

as well as the issuance of 25,000 shares of common stock as a commitment fee and warrants for the purchase of up to 76,830 shares of

the Company’s common stock.

The Company and its subsidiaries have also entered into a security agreement, creating a security interest

in certain property of the Company and its subsidiaries to secure the prompt payment, performance and discharge in full of all of the

Company’s obligations under the July 2023 Note.

The July 2023 Lenders acquired the July 2023 Note for $ 475,000 after an original

issue discount of $ 25,000 .

The July 2023 Note matures on July 6, 2024 and accrues interest at a rate of 13.0 % per annum.

The July 2023

Note contains certain negative covenants.

If the July 2023 Note is accelerated following the occurrence of an event of default as described

in such note, the Company is required to pay 120 % of the principal and interest outstanding under the July 2023 Note.

The principal amount

and interest under the July 2023 Note is convertible into shares of Company common stock at a conversion price of $4.50 per share, unless

the Company fails to make an amortization payment when due which commences in January 2024 in accordance with the terms of the July 2023

Note, in which case the conversion price shall be the lower of (i) $4.50 or (ii) 85% of the lowest VWAP of the Company’s common

stock on any trading day during the five (5) trading days prior to the respective conversion date, subject to a floor of $1.50 per share.

The warrants are comprised of (i) a warrant to purchase 41,665 shares of the Company’s common stock at an exercise price of $4.50

and exercisable until July 6, 2028 and (ii) a warrant to purchase 35,165 shares of Company common stock at an exercise price of $3.20

and exercisable until July 6, 2028 and which warrant shall be cancelled and extinguished upon the payment of the July 2023 Notes.

conversion price of the July 2023 Note and the exercise price of the warrants issued thereunder contain certain price protection anti-dilution

adjustments if an event of default occurs under the July 2023 Notes.

AVALON GLOBOCARE CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 16 – SUBSEQUENT

EVENTS (continued)

In June 2023, the Company

entered into a sales agreement (the “Sales Agreement”) with Roth Capital Partners, LLC (“Roth) under which the Company

may offer and sell from time to time shares of its common stock having an aggregate offering price of up to $ 3.5 million.

2023 to August 10, 2023, Roth sold an aggregate of 343,380 shares of common stock at an average price of $ 1.45 per share to investors.

The Company received net cash proceeds of $ 483,235 , net of commission paid for sales agent and other fees of $ 14,975 .

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