What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-14 compared with 2023-08-14 · 597 added, 570 removed, 106 unchanged (92% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

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

This Quarterly Report on Form 10-Q

contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995

under Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended

(the “Exchange Act”).

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

expectations, anticipations, assumptions, estimates, intentions and future performance, and involve known and unknown risks, uncertainties

and other factors, which may be beyond our control, and which may cause our actual results, performance or achievements to be materially

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

All statements other

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

You can identify these forward-looking statements

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

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

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

“predict,” “could,” “intend,” “target,” “potential” and other similar words

and expressions of the future.

Quarterly Report on Form 10-Q contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities

Litigation Reform Act of 1995 under Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities

Exchange Act of 1934, as amended (the “Exchange Act”).

Forward-looking statements include statements with respect to our

beliefs, plans, objectives, goals, expectations, anticipations, assumptions, estimates, intentions and future performance, and involve

known and unknown risks, uncertainties and other factors, which may be beyond our control, and which may cause our actual results, performance

or achievements to be materially different from future results, performance or achievements expressed or implied by such forward-looking

All statements other than statements of historical fact are statements that could be forward-looking statements.

identify these forward-looking statements through our use of words such as “may,” “will,” “can,”

“anticipate,” “assume,” “should,” “indicate,” “would,” “believe,”

“contemplate,” “expect,” “seek,” “estimate,” “continue,” “plan,”

“point to,” “project,” “predict,” “could,” “intend,” “target,”

“potential” and other similar words and expressions of the future.

Accordingly, factors that may affect our results

include, but are not limited to:

dependence on product candidates that are still in an early development stage;

ability to successfully complete research and further development, including preclinical

and clinical studies;

anticipated timing for preclinical development, regulatory submissions, commencement and

completion of clinical trials and product approvals;

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

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

stages of development;

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

expectations of the attributes of our product and development candidates, including pharmaceutical

properties, efficacy, safety and dosing regimens;

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

availability, cost, delivery and quality of clinical management services provided by our

clinical research organization partners;

availability, cost, delivery and quality of clinical and commercial-grade materials produced

by our own manufacturing facility or supplied by contract manufacturers, suppliers and partners;

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

ability to develop and commercialize products before competitors that are superior to the

alternatives developed by such competitors;

ability to develop technological capabilities, including identification of novel and clinically

important targets, exploiting our existing technology platforms to develop new product candidates

and expand our focus to broader markets for our existing targeted therapeutics;

ability to raise sufficient capital to fund our preclinical and clinical studies and to meet

our long-term liquidity needs, on terms acceptable to us, or at all.

If we are unable to

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

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

clinical trials, discontinue or delay our commercial manufacturing efforts, discontinue or

delay our efforts to expand into additional indications for our product candidates, license

out programs earlier than expected, raise funds at significant discount or on other unfavorable

terms, if at all, or sell all or part of our business;

ability to protect our intellectual property rights and our ability to avoid intellectual

property litigation, which can be costly and divert management time and attention;

ability to develop and commercialize products without infringing the intellectual property

rights of third parties;

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

pricing pressure from customers, including payers and patients, and changing relationships

with customers, payers, suppliers or strategic partners;

of changes in payment mix, including increased patient financial responsibility and any shift

from fee-for-service to discounted, capitated or bundled fee arrangements;

actions by government, including healthcare reform that focuses on reducing healthcare costs

but does not recognize the value and importance to healthcare of clinical testing or innovative

solutions, unilateral reduction of fee schedules payable to us, unilateral recoupment of

amounts allegedly owed and competitive bidding;

impact of increased prior authorization programs;

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

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

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

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

our dependence on product

candidates that are still in an early development stage;

our ability to successfully

complete research and further development, including preclinical and clinical studies;

our anticipated timing

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

our ability to negotiate

strategic partnerships, where appropriate, for our product candidates;

our ability to manage multiple

clinical trials for a variety of product candidates at different stages of development;

the cost, timing, scope

and results of ongoing preclinical and clinical testing;

our expectations of the

attributes of our product and development candidates, including pharmaceutical properties, efficacy, safety and dosing regimens;

the cost, timing and uncertainty

of obtaining regulatory approvals for our product candidates;

the availability, cost,

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

the availability, cost,

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

manufacturers, suppliers and partners;

our ability to commercialize

our product candidates and the growth of the markets for those product candidates;

our ability to develop

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

our ability to develop

technological capabilities, including identification of novel and clinically important targets, exploiting our existing technology

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

our ability to raise sufficient

capital to fund our preclinical and clinical studies and to meet our long-term liquidity needs, on terms acceptable to us, or at

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

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

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

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

part of our business;

our ability to protect

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

time and attention;

our ability to develop

and commercialize products without infringing upon the intellectual property rights of third parties;

heightened competition

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

increased pricing pressure

from customers, including payers and patients, and changing relationships with customers, payers, suppliers or strategic partners;

impact of changes in payment

mix, including increased patient financial responsibility and any shift from fee-for-service to discounted, capitated or bundled

fee arrangements;

adverse actions by the

government, including healthcare reform that focuses on reducing healthcare costs but does not recognize the value and importance

to healthcare of clinical testing or innovative solutions, unilateral reduction of fee schedules payable to us, unilateral recoupment

of amounts allegedly owed and competitive bidding;

the impact of increased

prior authorization programs;

adverse results from pending

or future government investigations, lawsuits or private actions, which include in particular, monetary damages, loss or suspension

of licenses or criminal penalties;

the impact of the COVID-19

pandemic on our business or on the economy generally;

a decline in economic conditions,

including the impact of an inflationary environment.

forward-looking statements are expressly qualified in their entirety by this cautionary notice.

You are cautioned not to place undue

relian ce on any forward-looking statements, which speak only as of the date of this report or the date of the document incorporated

by reference into this report.

We have no obligation, and expressly disclaim any obligation, to update, revise or correct any of the

forward-looking statements, whether as a result of new information, future events or otherwise.

We have expressed our expectations, beliefs

and projections in good faith, and we believe they have a reasonable basis.

However, we cannot assure you that our expectations, beliefs

or projections will result or be achieved or accomplished.

The following discussion

and analysis of our financial condition and results of operations for the three and six months ended June 30, 2023 and 2022 should be

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

statements that are included elsewhere in this report.

The Company is dedicated

to developing and delivering innovative, transformative, precision diagnostics and clinical laboratory services.

Our main strategy is

to acquire ownership or license rights in precision diagnostic assets, genetic testing and clinical laboratory companies through joint

ventures, share ownership structures or distribution rights.

We plan to play a leading role in the innovation of diagnostic testing,

utilizing proprietary technology to deliver precise, genetics-driven results.

As a first major step into the laboratory market, we completed

an acquisition of a 40% membership interest in Laboratory Services MSO, LLC, which closed in February 2023.

We have the following

areas of focus:

Laboratory Acquisitions

We have embarked on

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

As a first step, in February of 2023, we acquired a 40% membership interest in Laborat ory

Services MSO.

reliance on any forward-looking statements, which speak only as of the date of this report or the date of the document incorporated by

reference into this report.

We have no obligation, and expressly disclaim any obligation, to update, revise or correct any of the forward-looking

statements, whether as a result of new information, future events or otherwise.

We have expressed our expectations, beliefs and projections

in good faith, and we believe they have a reasonable basis.

However, we cannot assure you that our expectations, beliefs or projections

will result or be achieved or accomplished.

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

30, 2023 and 2022 should be read in conjunction with our condensed consolidated financial statements and related notes to those condensed

consolidated financial statements that are included elsewhere in this report.

Company is dedicated to developing and delivering innovative, transformative, precision diagnostics and clinical laboratory services.

Our main strategy is to acquire ownership or license rights in precision diagnostic assets, genetic testing and clinical laboratory companies

through joint ventures, share ownership structures or distribution rights.

We plan to play a leading role in the innovation of diagnostic

testing, utilizing proprietary technology to deliver precise, genetics-driven results.

As a first major step into the laboratory market,

we completed an acquisition of a 40% membership interest in Laboratory Services MSO, LLC (“Lab Services MSO”), which closed

in February 2023.

have the following areas of focus:

have embarked on a laboratory rollup strategy focused on forming joint ventures and acquiring laboratories that are accretive to our

commercial strategy.

As a first step, in February of 2023, we acquired a 40% membership interest in Lab Services MSO.

Services MSO is focused on delivering high quality services related to toxicology and wellness

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driven results.

the third quarter of 2023, Lab Services MSO acquired Merlin Technologies, Inc.

medical equipment retail company.

Services MSO plans to open a new laboratory, Veritas Laboratories LLC (“Veritas”).

Veritas is a CLIA-certified and COLA-accredited laboratory located in Scottsdale, Arizona

that offers a wide range of high-quality testing, including drug testing, genetic testing,

urinary testing and COVID-19 PCR testing.

Commercialization

are exploring the commercialization and development of a versatile breathalyzer system.

KetoAir breathalyzer is a handheld device that allows the user to detect acetone levels in

exhaled breath.

The acetone level is in concentration units (ppm, part-per-million) such

that the user will know his/her real-time ketosis status:

inadequate ketosis (0-3.99 ppm),

mild ketosis (4-9.99 ppm), optimal ketosis (10-40 ppm), or alarming level (> 40 ppm).

The breathalyzer is registered with the United States FDA as a Class I medical device.

device is also paired with an “AI Nutritionist” software program (via Bluetooth

connection) which is downloadable from Google Play (for Android mobile phones, approved)

and iPhone (the app is currently being reviewed by Apple iOS AppStore).

It helps users to

monitor and manage their ketogenic diet and related programs.

The KetoAir breathalyzer

is a handheld device that allows the user to detect acetone levels in exhaled breath.

The acetone level is in concentration units

(ppm, part-per-million) such that the user will know his/her real-time ketosis status:

inadequate ketosis (0-3.99 ppm), mild ketosis

(4-9.99 ppm), optimal ketosis (10-40 ppm), or alarming level (> 40 ppm).

The breathalyzer is registered with the United States

FDA as a Class I medical device.

The device is also paired with an “AI Nutritionist” software program (via Bluetooth

connection) which is downloadable from Google Play (for Android mobile phones, approved) and iPhone (the app is currently being reviewed

by Apple iOS AppStore).

It helps users monitor and manage their ketogenic diet and related programs.

We believe the KetoAir breathalyzer

can be an essential tool to help diabetic patients adhere to their therapeutic programs and

optimize their ketogenic dietary management.

were granted exclusive distributorship rights for the KetoAir breathalyzer in the following

can be an essential tool to help diabetic patients adhere to their therapeutic programs and optimize their ketogenic dietary management.

We were granted exclusive

distributorship rights for the KetoAir breathalyzer in the following territories:

North America, South America, the EU and the UK.

We had a pilot launch and exhibition

of the KetoAir breathalyzer in this year’s KetoCon conference in Austin, Texas (April

We had a pilot launch and exhibition of the KetoAir breathalyzer in this year’s KetoCon conference in Austin, Texas (April

21-23, 2023).

For our commercialization strategy, we intend to target the diabetes and obesity

We are evaluating options for commercialization, including identifying distribution

partners or distributing KetoAir ourselves.

For our commercialization strategy, we intend to target the diabetes and obesity markets.

We are evaluating options

for commercialization, including identifying distribution partners or distributing KetoAir ourselves.

and Development

are focused on bringing forward intellectual property through joint patent filings with the

Massachusetts Institute of Technology (MIT).

We completed a sponsored research and co-development

project with MIT led by Professor Shuguang Zhang as Principal Investigator.

Using the unique

QTY code protein design platform, six water-soluble variant cytokine receptors have been

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

currently are focused on bringing forward the intellectual property associated with this

We are focused on bringing

forward intellectual property through joint patent filings with the Massachusetts Institute of Technology (MIT).

We completed a sponsored

research and co-development project with MIT led by Professor Shuguang Zhang as Principal Investigator.

Using the unique QTY code

protein design platform, six water-soluble variant cytokine receptors have been successfully designed and tested to show binding

affinity to the respective cytokines.

We currently are focused on bringing forward the intellectual property associated with this

program through joint patent submissions.

order to preserve cash and focus on our core laboratory rollup strategy and product commercialization, we have currently suspen ded

all research and development efforts related to cellular therapy in order to redirect our funding efforts to our core business strategies

order to preserve cash and focus on our core laboratory rollup strategy and product commercialization, we have currently suspended all

research and development efforts related to cellular therapy in order to redirect our funding efforts to our core business strategies

outlined above.

Going Concern

The 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 toxicology.

In addition, the Company

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

The Company also has income from equity method investment

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

These condensed consolidated financial statements have been prepared assuming

that the Company will continue as a going concern, which contemplates, among other things, the realization of assets and the satisfaction

of liabilities in the normal course of business.

As reflected in the

accompanying condensed consolidated financial statements, the Company had working capital deficit of approximately $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 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.

The Company also has income from

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

These condensed consolidated financial statements

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

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

reflected in the accompanying condensed consolidated financial statements, the Company had working capital deficit of approximately $5,828,000

at September 30, 2023 and had incurred recurring net losses and generated negative cash flow from operating activities of approximately

$7,152,000 and $5,708,000 for the nine months ended September 30, 2023, respectively.

Company has a limited operating history and its continued growth is dependent upon the continuation of generating rental revenue from

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

The accompanying condensed

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

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

Critical Accounting

Use of Estimates

The preparation of the

condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America

GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities

and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and

expenses during the reporting period.

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

statements and accompanying notes.

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

of asset-carrying amounts or the amounts and classification of liabilities that may result should the Company be unable to continue as

a going concern.

Accounting Policies

preparation of the condensed consolidated financial statements in conformity with accounting principles generally accepted in the United

States of America (“U.S.

GAAP”) requires management to make estimates and assumptions that affect the reported amounts of

assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts

of revenues and expenses during the reporting period.

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

financial statements and accompanying notes.

Making estimates requires management to exercise significant judgment.

It is at least reasonably possible

that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements,

which management considered in formulating its estimate, could change in the near term due to one or more future confirming events.

the actual results could differ significantly from those estimates.

Significant 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 MSO.

Investment in

Unconsolidated Companies

It is at least reasonably

possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial

statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming

Accordingly, the actual results could differ significantly from those estimates.

Significant estimates during

the three and nine months ended September 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 and assets acquired in the purchase of 40% of Lab

Services MSO.

in Unconsolidated Companies

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

4 unchanged sentences

the overall health of the investee), then a write-down would be recorded to estimated fair value.

Impairment of equity method

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

Impairment of equity method investment

amounted to $464,406 for the nine months ended September 30, 2023.

See Note 5 for discussion of equity method investments.

Real Property Rental

The Company has determined that the ASC 606 does

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

Rental income from operating

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

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

basis over the term of the related leases.

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

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

The Company does not

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

We are governed by the

income tax laws of China and the United States.

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

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

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

The charge for taxes is based on the

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

It is calculated using tax rates that have been

enacted or substantively enacted by the balance sheet date.

Deferred tax is accounted

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

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

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

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

Deferred tax is calculated

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

Deferred tax is charged

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

tax is changed to equity.

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

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

Recent Accounting Standards

Property Rental

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

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

Lease payments under tenant leases

are recognized on a straight-line basis over the term of the related leases.

The cumulative difference between lease revenue recognized

under the straight-line method and contractual lease payments are included in rent receivable on the consolidated balance sheets.

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

are governed by the income tax laws of China and the United States.

Income taxes are accounted for pursuant to ASC 740 “Accounting

for Income Taxes,” which is an asset and liability approach that requires the recognition of deferred tax assets and liabilities

for the expected future tax consequences of events that have been recognized in our financial statements or tax returns.

The charge for

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

It is calculated using tax

rates that have been enacted or substantively enacted by the balance sheet date.

tax is accounted for using the balance sheet liability method in respect of temporary differences arising from differences between the

carrying amount of assets and liabilities in the financial statements and the corresponding tax basis used in the computation of assessable

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

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

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

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

case the deferred tax is changed to equity.

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

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

Accounting Standards

For details of applicable new accounting standards, please, refer to Recent Accounting Standards in Note 3 of our condensed consolidated

financial statements accompanying this report.

RESULTS OF OPERATIONS

Comparison of Results of Operations for the

Three and Six Months Ended June 30, 2023 and 2022

Real Property Rental

three months ended June 30, 2023, we had real property rental revenue of $306,905, as compared to $290,821 for the three months ended

June 30, 2022, an increase of $16,084, or 5.5%.

For the six months ended June 30, 2023, we had real property rental revenue of $603,070,

as compared to $588,452 for the six months ended June 30, 2022, an increase of $14,618, or 2.5%.

The increase was primarily attributable

to the increase of tenants in the second quarter of 2023.

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

quarterly level with minimal increase in the near future.

Real Property Operating

Real property operating

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

and other expenses related to our rental properties.

For the three months

ended June 30, 2023, our real property operating expenses amounted to $245,403, as compared to $211,703 for the three months ended June

30, 2022, an increase of $33,700, or 15.9%.

The increase was mainly due to an increase in property management fees of approximately

$6,000, an increase in repairs and maintenance fee of approximately $20,000, and an increase in utilities of approximately $11,000, offset

by a decrease in other miscellaneous items of approximately $3,000.

For the six months ended

June 30, 2023, our real property operating expenses amounted to $493,848, as compared to $430,151 for the six months ended June 30, 2022,

an increase of $63,697 or 14.8%.

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

an increase in repairs and maintenance fee of approximately $36,000, and an increase in utilities of approximately $16,000, offset by

a decrease in other miscellaneous items of approximately $3,000.

Real Property Operating Income

property operating income for the three months ended June 30, 2023 was $61,502, representing a decrease of $17,616 or 22.3%, as compared

to $79,118 for the three months ended June 30, 2022.

Our real property operating income for the six months ended June 30, 2023 was $109,222,

representing a decrease of $49,079 or 31.0%, as compared to $158,301 for the six months ended June 30, 2022.

The decrease was primarily

attributable to the increase in real property operating expenses as described above.

We expect our real property operating income will

remain in its current quarterly level with minimal increase in the near future.

Income from Equity Method Investment –

Lab Services MSO

three and six months ended June 30, 2023, we had income from our investment in Lab Services MSO of $308,395 and $355,134, respectively,

OF OPERATIONS

of Results of Operations for the Three and Nine Months Ended September 30, 2023 and 2022

Property Rental Revenue

the three months ended September 30, 2023, we had real property rental revenue of $331,290, as compared to $317,390 for the three months

ended September 30, 2022, an increase of $13,900, or 4.4%.

For the nine months ended September 30, 2023, we had real property rental

revenue of $934,360, as compared to $905,842 for the nine months ended September 30, 2022, an increase of $28,518, or 3.1%.

was primarily attributable to the increase of tenants in the three and nine months ended September 30, 2023.

We expect that our revenue

from real property rent will remain at its current quarterly level with minimal increase in the near future.

Property Operating Expenses

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

fees, utilities and other expenses related to our rental properties.

the three months ended September 30, 2023, our real property operating expenses amounted to $288,083, as compared to $247,152 for the

three months ended September 30, 2022, an increase of $40,931, or 16.6%.

The increase was mainly due to an increase in repairs and

maintenance fee of approximately $35,000, and an increase in other miscellaneous items of approximately $6,000.

the nine months ended September 30, 2023, our real property operating expenses amounted to $781,931, as compared to $677,303 for the

nine months ended September 30, 2022, an increase of $104,628 or 15.4%.

The increase was mainly due to an increase in property management

fees of approximately $15,000, an increase in repairs and maintenance fee of approximately $71,000, an increase in utilities of approximately

$15,000, and an increase in other miscellaneous items of approximately $4,000.

Property Operating Income

real property operating income for the three months ended September 30, 2023 was $43,207, representing a decrease of $27,031 or 38.5%,

as compared to $70,238 for the three months ended September 30, 2022.

Our real property operating income for the nine months ended September

30, 2023 was $152,429, representing a decrease of $76,110 or 33.3%, as compared to $228,539 for the nine months ended September 30, 2022.

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

We expect our real property

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

from Equity Method Investment — Lab Services MSO

the three and nine months ended September 30, 2023, we had income from our investment in Lab Services MSO of $354,500 and $370,060, respectively,

which represents our share of Lab Services MSO’s net income.

We purchased 40% of Lab Services MSO on February 9, 2023.

that our income from our investment in Lab Services MSO will continue to increase in the near future.

Other Operating Expenses

the three and six months ended June 30, 2023 and 2022, other operating expenses consisted of the following:

Three Months Ended June 30,

Six Months Ended June 30,

quarter of 2023, Lab Services MSO acquired Merlin Technologies, Inc.

which is a medical equipment retail company.

Lab Services MSO plans

to open a new laboratory, Veritas Laboratories LLC (“Veritas”).

Veritas is a CLIA-certified and COLA-accredited laboratory

located in Scottsdale, Arizona that offers a wide range of high-quality testing, including drug testing, genetic testing, urinary testing

and COVID-19 PCR testing.

We expect that our income from our investment in Lab Services MSO will continue to increase in the near future

since Lab Services MSO has a strong earnings growth potential.

Operating Expenses

the three and nine months ended September 30, 2023 and 2022, other operating expenses consisted of the following:

September 30,

Advertising and marketing expenses

3 unchanged sentences

Litigation settlement

Directors and officers liability insurance premium

Directors and officers liability insurance

Travel and entertainment

1 unchanged sentence

Other general and administrative

● For the three months ended June 30, 2023, advertising and marketing expenses increased by $374,822 or

287.5% as compared to the three months ended June 30, 2022.

For the six months ended June 30, 2023, advertising and marketing expenses

increased by $539,769 or 82.1% as compared to the six months ended June 30, 2022.

The increase was primarily due to increased advertising

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

We expect that our

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

● Professional fees primarily consisted of accounting fees, audit

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

For the three months ended June 30, 2023,

professional fees increased by $562,065, or 128.8%, as compared to the three months ended June 30, 2022, which was primarily attributable

to an increase in audit fees of approximately $173,000 mainly due to the increased audit services related to our purchase of 40% of Lab

Services MSO, an increase in accounting fees of approximately $282,000 mainly due to the increased accounting services related to our

purchase of 40% of Lab Services MSO, and an increase in legal service fees of approximately $141,000 mainly due to the increased legal

services related to our purchase of 40% of Lab Services MSO, offset by a decrease in other miscellaneous items of approximately $34,000.

For the six months ended June 30, 2023, professional fees increased by $966,996, or 76.9%, as compared to the six months ended June 30,

2022, which was primarily attributable to an increase in consulting fees of approximately $268,000 mainly due to the increase in use of

consulting service providers related to our purchase of 40% of Lab Services MSO, an increase in audit fees of approximately $238,000 due

to the increased audit services related to our purchase of 40% of Lab Services MSO, and an increase in accounting fees of approximately

$500,000 mainly due to the increased accounting services related to our purchase of 40% of Lab Services MSO, offset by a decrease in other

the three months ended September 30, 2023, advertising

and marketing expenses increased by $287,130 or 190.6% as compared to the three months ended

September 30, 2022.

For the nine months ended September 30, 2023, advertising and marketing

expenses increased by $826,899 or 102.4% as compared to the nine months ended September 30,

The increase was primarily due to increased advertising activities to enhance the visibility

and marketability of our company and to improve brand recognition and awareness.

that our advertising and marketing expenses will remain in its current quarterly level with

minimal increase in the near future .

● Professional

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

investor relations service charges and other fees.

For the three months ended September 30,

2023, professional fees decreased by $193,663, or 30.8%, as compared to the three months

ended September 30, 2022, which was primarily attributable to a decrease in legal service

fees of approximately $201,000 mainly due to the decreased legal services related to our

purchase of 40% of Lab Services MSO, offset by an increase in other miscellaneous items of

approximately $7,000.

For the nine months ended September 30, 2023, professional fees increased

by $773,333, or 41.0%, as compared to the nine months ended September 30, 2022, which was

primarily attributable to an increase in consulting fees of approximately $278,000 mainly

due to the increase in use of consulting service providers related to our purchase of 40%

of Lab Services MSO, an increase in audit fees of approximately $241,000 due to the increased

audit services related to our purchase of 40% of Lab Services MSO, and an increase in accounting

fees of approximately $531,000 mainly due to the increased accounting services related to

our purchase of 40% of Lab Services MSO, offset by a decrease in investor relations service

charges of approximately $161,000 resulting from the decrease in investor relations service

providers, a decrease in legal service fees of approximately $101,000 mainly due to the decreased

legal services related to our purchase of 40% of Lab Services MSO, and a decrease in other

miscellaneous items of approximately $15,000.

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

● For the three months ended June 30, 2023, compensation and related

benefits decreased by $49,418, or 9.8%, as compared to the three months ended June 30, 2022.

For the six months ended June 30, 2023, compensation

and related benefits decreased by $120,908, or 11.8%, as compared to the six months ended June 30, 2022.

The decrease was primarily attributable

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

We expect that

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

● For the three months ended June 30, 2023, research and development

expenses decreased by $236,666, or 93.0%, as compared to the three months ended June 30, 2022.

For the six months ended June 30, 2023,

research and development expenses decreased by $261,000, or 70.3%, as compared to the six months ended June 30, 2022.

The decrease was

mainly attributable to we decreased research and development projects in the first half of 2023.

We expect that our research and development

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

● For the three months ended June 30, 2023, litigation settlement decreased by $1,350,000, or 100.0%, as

compared to the three months ended June 30, 2022.

For the six months ended June 30, 2023, litigation settlement decreased by $1,350,000,

or 100.0%, as compared to the six months ended June 30, 2022.

We expect that our professional fees will decrease

in the near future.

the three months ended September 30, 2023, compensation and related benefits decreased by

$18,414, or 3.8%, as compared to the three months ended September 30, 2022.

months ended September 30, 2023, compensation and related benefits decreased by $139,322,

or 9.2%, as compared to the nine months ended September 30, 2022.

The decrease was primarily

attributable to the decrease in stock-based compensation which reflected the value of options

granted and vested to our management.

We expect that our compensation and related benefits

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

the three months ended September 30, 2023, research and development expenses decreased by

$170,406, or 100.0%, as compared to the three months ended September 30, 2022.

months ended September 30, 2023, research and development expenses decreased by $431,406,

or 79.7%, as compared to the nine months ended September 30, 2022.

The decrease was mainly

attributable to our decreased activity with respect to research and development projects

in the three and nine months ended September 30, 2023.

We expect that we will not incur any

research and development expenses in the near future.

the three months ended September 30, 2023 and 2022,

we did not have any litigation settlement.

For the nine months ended September 30, 2023,

litigation settlement decreased by $1,350,000, or 100.0%, as compared to the nine months

ended September 30, 2022.

The decrease was due to a settlement signed in June 2022 .

● For the three months ended June 30, 2023, Directors and Officers

Liability Insurance premium increased by $218, or 0.2%, as compared to the three months ended June 30, 2022.

For the six months ended

June 30, 2023, Directors and Officers Liability Insurance premium increased by $435, or 0.2%, as compared to the six months ended June

● For the three months ended June 30, 2023, travel and entertainment

expense increased by $14,296, or 34.6%, as compared to the three months ended June 30, 2022.

six months ended June 30, 2023, travel and entertainment expense increased by $38,390, or 48.3%, as compared to the six months ended June

The increase was mainly due to increased business travel activities in the first half of 2023.

● For the three months ended June 30, 2023, rent and related utilities

expenses decreased by $3,683, or 18.7%, as compared to the three months ended June 30, 2022.

six months ended June 30, 2023, rent and related utilities expenses decreased by $6,951, or 17.3%, as compared to the six months ended

June 30, 2022.

The decrease was attributable to decreased rental rate in the first half of 2023.

● Other general and administrative expenses mainly consisted of NASDAQ

listing fee, office supplies, miscellaneous taxes, and other miscellaneous items.

For the three months ended June 30, 2023, other general

and administrative expenses increased by $198, or 0.2%, as compared to the three months ended June 30, 2022.

For the six months ended

June 30, 2023, other general and administrative expenses increased by $10,932, or 7.9%, as compared to the six months ended June 30, 2022,

which was mainly attributable to an increase in franchise tax of approximately $26,000, offset by a decrease in other miscellaneous items

of approximately $15,000 due to our efforts at stricter controls on corporate expenditure.

Loss from Operations

As a result of the foregoing,

for the three months ended June 30, 2023, loss from operations amounted to $1,864,624, as compared to $2,843,571 for the three months

ended June 30, 2022, a decrease of $978,947 or 34.4%.

As a result of the foregoing, for the six months ended June 30, 2023, loss from

operations amounted to $4,482,121, as compared to $4,970,513 for the six months ended June 30, 2022, a decrease of $488,392 or 9.8%.

Other (Expense)

Other (expense) income

mainly includes third party and related party interest expense, loss from equity method investment, change in fair value of derivative

liability, impairment of equity method investment, and other miscellaneous (expense) income.

Other expense, net, totaled

$678,689 for the three months ended June 30, 2023, as compared to other income, net, of $815,097 for the three months ended June 30, 2022,

a decrease of $1,493,786, or 183.3%, which was primarily attributable to an increase in interest expense of approximately $153,000 mainly

driven by the increase in outstanding borrowings in the second quarter of 2023, a decrease in gain from change in fair value of derivative

liability of approximately $728,000, an increase in impairment of equity method investment of approximately $464,000, and a decrease in

other miscellaneous income of approximately $152,000.

Other expense, net, totaled

$845,106 for the six months ended June 30, 2023, as compared to other income, net, of $871,501 for the six months ended June 30, 2022,

a decrease of $1,716,607, or 197.0%, which was primarily attributable to an increase in interest expense of approximately $269,000 mainly

driven by the increase in outstanding borrowings in the six months ended June 30, 2023, a decrease in gain from change in fair value of

derivative liability of approximately $728,000, an increase in impairment of equity method investment of approximately $464,000, and a

decrease in other miscellaneous income of approximately $262,000.

have any income taxes expense for the three and six months ended June 30, 2023 and 2022 since we incurred losses in these periods.

of the factors described above, our net loss was $2,543,313 for the three months ended June 30, 2023, as compared to $2,028,474 for the

three months ended June 30, 2022, an increase of $514,839 or 25.4%.

As a result of the factors described above, our net loss was $5,327,227

for the six months ended June 30, 2023, as compared to $4,099,012 for the six months ended June 30, 2022, an increase of $1,228,215 or

Net Loss Attributable to Avalon GloboCare

the three months ended September 30, 2023, Directors and Officers Liability Insurance premium

decreased by $30,952, or 29.8%, as compared to the three months ended September 30, 2022.

For the nine months ended September 30, 2023, Directors and Officers Liability Insurance

premium decreased by $30,517, or 9.8%, as compared to the nine months ended September 30,

three months ended September 30, 2023, travel and entertainment expense increased by $20,969,

or 51.6%, as compared to the three months ended September 30, 2022.

months ended September 30, 2023, travel and entertainment expense increased by $59,359, or

49.4%, as compared to the nine months ended September 30, 2022.

The increase was mainly due

to increased business travel activities for seeking strategic partners in the three and nine

months ended September 30, 2023.

t he three months ended September 30, 2023, rent and

related utilities expenses decreased by $3,600, or 19.0%, as compared to the three months

ended September 30, 2022.

For the nine months ended September 30, 2023, rent and

related utilities expenses decreased by $10,551, or 17.8%, as compared to the nine months

ended September 30, 2022.

The decrease was attributable to decreased rental rate in the three

and nine months ended September 30, 2023.

general and administrative expenses mainly consisted

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

For the three months ended September 30, 2023, other general and administrative expenses

decreased by $11,558, or 20.0%, as compared to the three months ended September 30, 2022,

driven by our efforts at stricter controls on corporate expenditure.

For the nine months

ended September 30, 2023, other general and administrative expenses decreased by $626, or

0.3%, as compared to the nine months ended September 30, 2022.

from Operations

a result of the foregoing, for the three months ended September 30, 2023, loss from operations amounted to $1,141,136, as compared to

$1,589,099 for the three months ended September 30, 2022, a decrease of $447,963 or 28.2%.

As a result of the foregoing, for the nine

months ended September 30, 2023, loss from operations amounted to $5,962,831, as compared to $6,559,612 for the nine months ended September

30, 2022, a decrease of $596,781 or 9.1%.

(Expense) Income

(expense) income mainly includes third party and related party interest expense, conversion inducement expense, loss from equity method

investment - Epicon, change in fair value of derivative liability, impairment of equity method investment, and other miscellaneous income.

expense, net, totaled $343,939 for the three months ended September 30, 2023, as compared to $3,825,055 for the three months ended September

30, 2022, a decrease of $3,481,116, or 91.0%, which was primarily attributable to a decrease in third party interest expense of approximately

$2,867,000 mainly driven by the decrease in amortization of debt discount and debt issuance cost of approximately $3,049,000 which was

offset by the increased interest expense of approximately $182,000 from third party debts in the third quarter of 2023, a decrease in

conversion inducement expense of approximately $344,000 resulted from

the reduction in the conversion price which was incurred in the third quarter of 2022, a decrease in change in fair value of derivative

liability of approximately $256,000, and a decrease in other miscellaneous items of approximately $14,000.

expense, net, totaled $1,189,045 for the nine months ended September 30, 2023, as compared to $2,953,554 for the nine months ended September

30, 2022, a decrease of $1,764,509, or 59.7%, which was primarily attributable to a decrease in third party interest expense of approximately

$2,539,000 mainly driven by the decrease in amortization of debt discount and debt issuance cost of approximately $3,013,000 which was

offset by the increased interest expense of approximately $474,000 from third party debts in the nine months ended September 30, 2023,

and a decrease in conversion inducement expense of approximately $344,000 resulted from the reduction in the conversion price which was

incurred in the nine months ended September 30, 2022, offset by a decrease in gain from change in fair value of derivative liability

of approximately $472,000, an increase in impairment of equity method investment of approximately $464,000, and

a decrease in other miscellaneous items of approximately $182,000, which was mainly driven by the decrease in reagent sale.

did not have any income taxes expense for the three and nine months ended September 30, 2023 and 2022 since we incurred losses in these

a result of the factors described above, our net loss was $1,485,075 for the three months ended September 30, 2023, as compared to $5,414,154

for the three months ended September 30, 2022, a decrease of $3,929,079 or 72.6%.

As a result of the factors described above, our net

loss was $7,151,876 for the nine months ended September 30, 2023, as compared to $9,513,166 for the nine months ended September 30, 2022,

a decrease of $2,361,290 or 24.8%.

Loss Attributable to Avalon GloboCare Corp.

Common Shareholders

1 unchanged sentence

common shareholders was $1,485,075 or $0.14 per share (basic and diluted) for the three months

ended June 30, 2023, as compared with $2,028,474 or $0.23 per share (basic and diluted) for the three months ended June 30, 2022, an increase

of $514,839 or 25.4%.

ended September 30, 2023, as compared with $5,414,154 or $0.56 per share (basic and diluted) for the three months ended September 30,

2022, a decrease of $3,929,079 or 72.6%.

The net loss attributable to Avalon GloboCare Corp.

common shareholders was $5,327,227 or $0.52 per share (basic

and diluted) for the six months ended June 30, 2023, as compared with $4,099,012 or $0.46 per share (basic and diluted) for the six months

ended June 30, 2022, an increase of $1,228,215 or 30.0%.

Foreign Currency Translation Adjustment

Our reporting

currency is the U.S.

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

common shareholders was $7,151,876 or $0.69

per share (basic and diluted) for the nine months ended September 30, 2023, as compared with $9,513,166 or $1.04 per share (basic and

diluted) for the nine months ended September 30, 2022, a decrease of $2,361,290 or 24.8%.

Currency Translation Adjustment

reporting currency is the U.S.

The functional currency of our parent company, AHS, Avalon RT 9, Genexosome, Avactis, and Exosome,

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

The financial statement of our

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

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

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

Net gains and losses

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

As a result of foreign currency translations,

which are a non-cash adjustment, we reported a foreign currency translation loss of $11,011 and $43,503 for the three months ended June

30, 2023 and 2022, respectively.

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

currency translation loss of $7,341 and $41,482 for the six months ended June 30, 2023 and 2022, respectively.

This non-cash loss had

the effect of increasing our reported comprehensive loss.

Comprehensive Loss

of our foreign currency translation adjustment, we had comprehensive loss of $2,554,324 and $2,071,977 for the three months ended June

The financial statement

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

dollars using period end rate of exchange for assets and

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

gains and losses resulting from foreign exchange transactions are included in the results of operations.

As a result of foreign currency

translations, which are a non-cash adjustment, we reported a foreign currency translation loss of $8,685 and $37,033 for the three months

ended September 30, 2023 and 2022, respectively.

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

a foreign currency translation loss of $16,026 and $78,515 for the nine months ended September 30, 2023 and 2022, respectively.

non-cash loss had the effect of increasing our reported comprehensive loss.

Comprehensive

of our foreign currency translation adjustment, we had comprehensive loss of $1,493,760 and $5,451,187 for the three months ended September

30, 2023 and 2022, respectively.

As a result of our foreign currency translation adjustment, we had comprehensive loss of $5,334,568 and

$4,140,494 for the six months ended June 30, 2023 and 2022, respectively.

Liquidity and Capital Resources

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 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.

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

As a result of our foreign currency translation adjustment, we had comprehensive loss of $7,167,902

and $9,591,681 for the nine months ended September 30, 2023 and 2022, respectively.

and Capital Resources

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 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.

The ability of the Company

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

generate significant revenues.

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

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

As described below, the Company has

raised additional capital through the sale of equity and debt and the Company plans on raising additional capital in the future through

the sale of equity or debt to implement its business plan.

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

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

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.

below, the Company has raised additional capital through the sale of equity and debt and the Company plans on raising additional capital

in the future through the sale of equity or debt to implement its business plan.

However, there is no assurance these plans will be realized

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

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

on an ongoing basis.

At June 30, 2023 and December 31, 2022, we had cash balance of approximately $653,000 and $1,991,000, respectively.

At September 30, 2023 and December 31, 2022, we had cash balance of approximately $342,000 and $1,991,000, respectively.

These funds are kept in financial institutions located as follows:

June 30, 2023

December 31, 2022

United States

Under the applicable

People’s Republic of China (“PRC”) regulations, foreign invested enterprises, or FIEs, in China may pay dividends only

out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations.

In addition, an FIE

in China is required to set aside at least 10% of its after-tax profit based on PRC accounting standards each year to its general reserves

until the cumulative amount of such reserves reach 50% of its registered capital.

These reserves are not distributable as cash dividends.

In addition, a small

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

All foreign exchange transactions

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

rates quoted by the People’s Bank of China.

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

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

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

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

The current PRC Enterprise

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

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

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

The following table sets

forth a summary of changes in our working capital deficit from December 31, 2022 to June 30, 2023:

the applicable People’s Republic of China (“PRC”) regulations, foreign invested enterprises, or FIEs, in China may

pay dividends only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations.

In addition, an FIE in China is required to set aside at least 10% of its after-tax profit based on PRC accounting standards each year

to its general reserves until the cumulative amount of such reserves reach 50% of its registered capital.

These reserves are not distributable

as cash dividends.

addition, a small portion of our assets are denominated in RMB, which is not freely convertible into foreign currencies.

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

at the exchange rates quoted by the People’s Bank of China.

Approval of foreign currency payments by the People’s Bank of

China or other regulatory institutions requires submitting a payment application form together with suppliers’ invoices, shipping

documents and signed contracts.

These currency exchange control procedures imposed by the PRC government authorities may restrict the

ability of our PRC subsidiary to transfer its net assets to the Parent Company through loans, advances or cash dividends.

current PRC Enterprise Income Tax (“EIT”) Law and its implementing rules generally provide that a 10% withholding tax applies

to China-sourced income derived by non-resident enterprises for PRC enterprise income tax purposes unless the jurisdiction of incorporation

of such enterprises’ shareholder has a tax treaty with China that provides for a different withholding arrangement.

following table sets forth a summary of changes in our working capital deficit from December 31, 2022 to September 30, 2023:

September 30,

Working capital deficit:

Total current assets

$ (1,509,491 )

Total current liabilities

3 unchanged sentences

$ (4,621,511 )

Our working capital

deficit increased by $3,336,199 to $4,542,478 at June 30, 2023 from $1,206,279 at December 31, 2022.

The increase in working capital deficit

was primarily attributable to a decrease in cash of approximately $1,338,000, an increase in operating lease obligation of approximately

$110,000, an increase in equity method investment payable of $1,000,000 resulting from the purchase of 40% of Lab Services MSO incurred

in February 2023, an increase in convertible note payable, net, of approximately $1,020,000 resulting from the issuance of May 2023 Convertible

Note, offset by an increase in prepaid expense and other current assets of approximately $386,000 which was mainly attributable to an

increase in prepaid professional fees of approximately $175,000 and an increase in deferred financing costs of approximately $191,000.

Because the exchange

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

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

the comparable changes reflected on the condensed consolidated balance sheets.

Cash Flows for the Six Months Ended June 30,

2023 Compared to the Six Months Ended June 30, 2022

The following summarizes the key components of

our cash flows for the six months ended June 30, 2023 and 2022:

Six Months Ended June 30,

working capital deficit increased by $4,621,511 to $5,827,790 at September 30, 2023 from $1,206,279 at December 31, 2022.

in working capital deficit was primarily attributable to a decrease in cash of approximately $1,649,000, an increase in accrued payroll

liability and compensation of approximately $162,000, an increase in accrued liabilities and other payables of approximately $100,000,

an increase in operating lease obligation of approximately $113,000, an increase in equity method investment payable of $1,000,000 resulting

from the purchase of 40% of Lab Services MSO incurred in February 2023, an increase in convertible note payable, net, of approximately

$1,526,000 resulting from the issuance of May 2023 Convertible Note and July 2023 Convertible Note, offset by an increase in prepaid

expense and other current assets of approximately $158,000 which was mainly attributable to the increase in deferred financing costs

of approximately $90,000 and the increase in prepaid NASDAQ listing fee of approximately $25,000 and the increase in other miscellaneous

items of approximately $43,000.

the exchange rate conversion is different for the condensed consolidated balance sheets and the condensed consolidated statements of

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

identical with the comparable changes reflected on the condensed consolidated balance sheets.

Flows for the Nine Months Ended September 30, 2023 Compared to the Nine Months Ended September 30, 2022

following summarizes the key components of our cash flows for the nine months ended September 30, 2023 and 2022:

September 30,

Net cash used in operating activities

3 unchanged sentences

Net cash provided by financing activities

Effect of exchange rate on cash

Net (decrease) increase in cash

Effect of exchange rate

Net (decrease) increase

$ (1,649,139 )

Net cash flow used in

operating activities for the six months ended June 30, 2023 was $4,359,759, which primarily reflected our consolidated net loss of approximately

$5,327,000, and the changes in operating assets and liabilities, primarily consisting of a decrease in accrued liabilities and other payables

of approximately $231,000 due to payments made to vendors in the six months ended June 30, 2023, and the non-cash items adjustment primarily

consisting of income from equity method investment of approximately $337,000 resulting from our purchase of 40% of Lab Services MSO in

February 2023, offset by depreciation of approximately $123,000, stock-based compensation and service expense of approximately $867,000,

and impairment of equity method investment of approximately $464,000.

cash flow used in operating activities for the six months ended June 30, 2022 was $2,686,722, which primarily reflected our consolidated

cash flow used in operating activities for the nine months ended September 30, 2023 was $5,708,402, which primarily reflected our consolidated

net loss of approximately $7,152,000, and the changes in operating assets and liabilities, primarily consisting of a decrease in accrued

liabilities and other payables of approximately $140,000 due to payments made to vendors in the nine months ended September 30, 2023,

and the non-cash items adjustment, primarily consisting of income from equity method investment of approximately $351,000 resulting from

our purchase of a 40% equity interest in Lab Services MSO in February 2023, and change in fair market value of derivative liability of

approximately $129,000, offset by depreciation of approximately $167,000, stock-based compensation and service expense of approximately

$1,056,000, impairment of equity method investment of approximately $464,000, and amortization of debt issuance costs and debt discount

of approximately $291,000.

cash flow used in operating activities for the nine months ended September 30, 2022 was $5,072,932, which primarily reflected our consolidated

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

of approximately $769,000, and the changes in operating assets and liabilities, primarily consisting of a decrease in operating lease

obligation of approximately $80,000, offset by an increase in accounts payable of approximately $389,000, an increase in accrued liabilities

and other payables of approximately $675,000, which was mainly attributable to the increase in accrued settlement of lawsuit of $1,350,000

resulting from a settlement signed in June 2022 offset by the decrease in accrued professional fees of approximately $396,000 due to payments

made to our professional service providers in the first half of 2022 and the decrease in accrued research and development fees of approximately

$319,000 resulting from payments made to research and development service provider in the six months ended June 30, 2022, and an increase

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

and other assets of approximately $66,000, a decrease in operating lease obligation of approximately $108,000, offset by an increase

in accounts payable of approximately $87,000, an increase in accrued liabilities and other payables of approximately $63,000, an increase

in accrued liabilities and other payables — related parties of approximately $80,000, and the non-cash items adjustment primarily

consisting of depreciation of approximately $169,000, amortization of right-of-use asset of approximately $68,000, stock-based compensation

and service expense of approximately $821,000, and amortization of debt discount of approximately $55,000.

We expect our cash used

in operating activities to increase due to the following:

● the development and commercialization of new products;

● an increase in professional staff and services;

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

existing markets or enter new markets.

Net cash flow used in

investing activities was $22,201 for the six months ended June 30, 2023 as compared to $55,757 for the six months ended June 30,

During the six months ended June 30, 2023, we made payment for purchase of property and equipment of approximately $22,000.

the six months ended June 30, 2022, we made payments for purchase of property and equipment of approximately $2,000 and made additional

investment in equity method investment in Epicon of approximately $54,000.

Net cash flow provided

by financing activities was $3,046,564 for the six months ended June 30, 2023 as compared to $3,130,443 for the six months ended June

During the six months ended June 30, 2023, we received proceeds from related party borrowings of $850,000 and net proceeds from

issuance of convertible debt and warrants of $1,261,000 (net of original issue discount of $75,000 and cash paid for convertible note

issuance costs of $164,000), and net proceeds from issuance of balloon promissory note of $936,000

(net of cash paid for promissory note issuance costs of approximately $64,000) .

During the six months ended June 30, 2022, we received

proceeds from related party borrowings of $100,000 and net proceeds from equity offering of approximately $112,000 (net of cash paid for

commission and other offering costs of approximately $24,000) and proceeds from issuance of convertible debt and warrants of approximately

$3,719,000 to fund our working capital needs, offset by repayments made for note payable – related party of $390,000 and repayments

made for loan payable – related party of $410,000.

The following trends

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

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

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

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

● addition of administrative personnel as the business grows;

● the cost of being a public company.

August 2019 Credit

In the third quarter

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

The unsecured credit facility

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

As of June 30, 2023, the total principal

amount outstanding under the Credit Line was $850,000 and we used approximately $6.8 million of the credit facility and have approximately

$13.2 million remaining available under the Line Credit.

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.

From July 1, 2023 t o

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.

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

Balloon Mortgage Note

In May 2023, the Company,

through Avalon RT9 Properties, LLC (“Avalon RT9”), executed a balloon mortgage note in favor of a lender (the “ Lender ”)

in the original principal amount of $1,000,000 (the “ Balloon Mortgage Note ”), which Balloon Mortgage Note 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

The Balloon Mortgage Note is secured by a second-lien mortgage on the Company’s real property in Monmouth County, New

Jersey, In addition, the Company and Avalon RT9 executed a guaranty related to the Balloon Mortgage Note.

May 2023 Convertible Note Financing

In May 2023, the Company

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

13.0% senior secured convertible promissory note in the aggregate principal amount of $1,500,000 (the “May 2023 Note”), as

well as the issuance of 75,000 shares of common stock as a commitment fee and warrants for the purchase of up to 230,000 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 May 2023 Note.

The May 2023 Lenders acquired the May 2023 Note for $1,425,000 after an original

issue discount of $75,000.

consisting of depreciation of approximately $251,000, amortization of operating lease right-of-use asset of approximately $102,000, stock-based

compensation and service expense of approximately $983,000, amortization of debt issuance costs and debt discount of approximately $3,303,000

mainly resulting from the conversion of convertible debt in July 2022, and conversion inducement expense of approximately $344,000 resulted

from the reduction in the conversion price.

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

development and commercialization of new products;

an increase in professional

staff and services;

an increase in public relations

and/or sales promotions for existing and/or new brands as we expand within existing markets or enter new markets.

cash flow used in investing activities was $22,171 for the nine months ended September 30, 2023 as compared to $54,743 for the nine

months ended September 30, 2022.

During the nine months ended September 30, 2023, we made payment for purchase of property and equipment

of approximately $22,000.

During the nine

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

investment in equity method investment of approximately $53,000.

cash flow provided by financing activities was $4,091,323 for the nine months ended September 30, 2023 as compared to $8,263,989 for

the nine months ended September 30, 2022.

During the nine months ended September 30, 2023, we received proceeds from related party borrowings

of $850,000, and net proceeds from issuance of convertible debt and warrants of approximately $1,690,000 (net of original issue discount

of $100,000 and cash paid for convertible note issuance costs of approximately $211,000), and net proceeds from issuance of balloon

promissory note of approximately $936,000 (net of cash paid for promissory note issuance costs of approximately $64,000), and net proceeds

from equity offering of approximately $616,000 (net of cash paid for commission and other offering costs of approximately $19,000).

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

of convertible debt and warrants of approximately $3,719,000, and net proceeds from issuance of balloon promissory note of $4,534,000

(net of cash paid for debt issuance costs of approximately $266,000), and net proceeds from equity offering of approximately $712,000

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

made for note payable — related party of $390,000 and repayments made for loan payable — related party of $410,000.

following trends are reasonably likely to result in a material decrease in our liquidity over the near to long term:

increase in working capital requirements to finance our current business;

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

cost of being a public company.

2019 Credit Facility

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

The unsecured

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

As of September 30,

2023, the total principal amount outstanding under the Credit Line was $850,000 and we used approximately $6.8 million of the credit

facility and have approximately $13.2 million remaining available under the Line Credit.

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

From July 1, 2023 to November 13, 2023, Roth has sold an aggregate of 456,627 shares of common stock of the Company at an average

price of $1.39 per share to investors.

The Company received net cash proceeds of $616,259, net of cash paid for sales agent’s commission

and other fees of $19,132.

Mortgage Note

May 2023, the Company, through Avalon RT9 Properties, LLC (“Avalon RT9”), executed a balloon mortgage note in favor of a

lender (the “Lender”) in the original principal amount of $1,000,000 (the “Balloon Mortgage Note”).

Mortgage Note accrues interest at the annual rate of 13.0% and is 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

become due and payable).

The Balloon Mortgage Note is secured by a second-lien mortgage on the Company’s real property in Monmouth

County, New Jersey, In addition, the Company and Avalon RT9 executed a guaranty related to the Balloon Mortgage Note.

2023 Convertible Note Financing

May 2023, the Company entered into a securities purchase agreement with certain lenders (the “May 2023 Lenders”) and closed

on the issuance of a 13.0% senior secured convertible promissory note in the aggregate principal amount of $1,500,000 (the “May

2023 Note”), as well as the issuance of 75,000 shares of common stock as a commitment fee and warrants for the purchase of up to

230,000 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 May 2023 Note.

The May 2023 Lenders acquired the May 2023 Note for $1,425,000

after an original issue discount of $75,000.

The May 2023 Note matures on May 23, 2024 and accrues interest at a rate of 13.0% per annum.

The May 2023 Note

contains certain negative covenants.

If the May 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 May 2023 Note.

The principal amount

and interest under the May 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 in accordance with the terms of the May 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 125,000 shares of the Company’s common stock at an exercise price of $4.50 and exercisable until May 23, 2028

and (ii) a warrant to purchase 105,5000 shares of Company common stock at an exercise price of $3.20 and exercisable until May 23, 2028

and which warrant shall be cancelled and extinguished upon the payment of the May 2023 Note.

The conversion price of the May 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 May 2023 Notes.

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

The May 2023 Note contains certain negative covenants.

If the May 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 May 2023 Note.

principal amount and interest under the May 2023 Note is convertible into shares of the Company’s common stock at a conversion

price of $4.50 per share, unless the Company fails to make an amortization payment when due in accordance with the terms of the May 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

1 unchanged sentence

The warrants are comprised of (i) a warrant to purchase 125,000 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.

We estimate that based

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

expectations through cash flow provided by operations, and cash available under our ATM and lending facilities and sales of equity.

than funds received as described above and cash resource generating from our operations, we presently have no other significant alternative

source of working capital.

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

need to raise significant additional capital to fund our operations and to provide working capital for our ongoing operations and obligations.

and exercisable until May 23, 2028 and (ii) a warrant to purchase 105,500 shares of the Company’s common stock at an exercise price

of $3.20 and exercisable until May 23, 2028 (which warrant shall be cancelled and extinguished upon the payment of the May 2023 Note).

The conversion price of the May 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 May 2023 Notes.

2023 Convertible Note Financing

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

The principal amount and interest under the July 2023 Note is convertible into shares of the Company’s 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 the Company’s

common stock at an exercise price of $3.20 and exercisable until July 6, 2028 (which warrant shall be cancelled and extinguished upon

the payment of the July 2023 Notes).

The 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.

2023 Convertible Note Financing

October 2023, the Company entered into securities purchase agreements with certain lenders (the “October 2023 Lenders”) and

closed on the issuance of 13.0% senior secured convertible promissory notes in the aggregate principal amount of $700,000 (the “October

2023 Note”), as well as the issuance of 70,000 shares of common stock as a commitment fee and warrants for the purchase of up to

105,000 shares of the Company’s common stock.

The Company and its subsidiaries have also entered into security agreements, 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 October 2023 Note.

The October 2023 Lenders acquired the October 2023 Note for

$665,000 after an original issue discount of $35,000.

The October 2023 Note matures on October 9, 2024 and accrues interest at a rate

of 13.0% per annum.

The October 2023 Note contains certain negative covenants.

If the October 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 October 2023 Note.

The principal amount and interest under the October 2023 Note is convertible into shares of the Company’s

common stock at a conversion price of $1.50 per share, unless the Company fails to make an amortization payment when due which commences

in April 2024 in accordance with the terms of the October 2023 Note, in which case the conversion price shall be the lower of (i) $1.50

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.

The warrants are comprised of (i) a warrant to purchase 105,000 shares of the Company’s common stock at an exercise

price of $2.50 and exercisable until October 9, 2028 and (ii) a warrant to purchase 87,500 shares of the Company’s common stock

at an exercise price of $1.80 and exercisable until October 9, 2028 and which warrant shall be cancelled and extinguished upon the payment

of the October 2023 Note.

The conversion price of the October 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 October 2023 Note.

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

our present operating expectations through cash flow provided by operations, and cash available under our ATM and lending facilities

and sales of equity.

Other than funds received as described above and cash resource generating from our operations, we presently have

no other significant alternative source of working capital.

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

and grow our company.

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

our ongoing operations and obligations.

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

Financing transactions may include the issuance

of equity or debt securities, obtaining credit facilities, or other financing mechanisms.

However, the trading price of our common stock

and a downturn in the U.S.

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

debt securities.

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

experience unexpected cash requirements that would force us to seek alternative financing.

Furthermore, if we issue additional equity

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

senior to those of existing holders of our common stock.

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

may reduce our ability to continue to conduct business operations.

If we are unable to obtain additional financing, we will be required

to cease our operations.

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

Foreign Currency Exchange Rate Risk

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

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

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

through the issuance of equity or debt securities.

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

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

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

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

The inability to obtain additional capital

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

If we are unable to obtain additional

financing, we will be required to cease our operations.

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

Currency Exchange Rate Risk

November of 2022, we decided to cease all operations in China with the exception of a small administrative office, Avalon Shanghai.

1 unchanged sentence

Thus, exchange

rate fluctuations between RMB and US dollars do not have a material effect on us.

For the three months ended June 30, 2023 and 2022, we

had an unrealized foreign currency translation loss of approximately $11,000 and $44,000, respectively, because of changes in the exchange

For the six months ended June 30, 2023 and 2022, we had an unrealized foreign currency translation loss of approximately $7,000

and $41,000, respectively, because of changes in the exchange rate.

The effect of inflation on our revenue and operating

results was not significant.

rate fluctuations between the RMB and the US dollar do not have a material effect on us.

For the three months ended September 30, 2023

and 2022, we had an unrealized foreign currency translation loss of approximately $9,000 and $37,000, respectively, because of changes

in the exchange rate.

For the nine months ended September 30, 2023 and 2022, we had an unrealized foreign currency translation loss of

approximately $16,000 and $79,000, respectively, because of changes in the exchange rate.

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

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

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What changed 10-Q

Item 2. Management’s Discussion and Analysis