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Item 7. Management’s Discussion and Analysis

2024-04-15 compared with 2023-03-30 · 541 added, 586 removed, 43 unchanged (96% of the section changed)

1 unchanged sentence

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial

condition and results of operations for the years ended December 31, 2022 and 2021 should be read in conjunction with our consolidated

financial statements and related notes to those consolidated financial statements that are included elsewhere in this report.

information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.

Special Note Regarding Forward-looking Statements

All statements other than statements of historical

fact included in this Form 10-K including, without limitation, statements under “Management’s Discussion and Analysis of Financial

Condition and Results of Operations” regarding our financial position, business strategy and the plans and objectives of management

for future operations, are forward-looking statements.

When used in this Form 10-K, words such as “anticipate,” “believe,”

“estimate,” “expect,” “intend” and similar expressions, as they relate to us or our management, identify

The following discussion

and analysis of our financial condition and results of operations for the years ended December 31, 2023 and 2022 should be read in conjunction

with our consolidated financial statements and related notes to those consolidated financial statements that are included elsewhere in

Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve

risks and uncertainties.

Special Note Regarding

Forward-looking Statements

Such forward-looking statements are based on the beliefs of management, as well as assumptions made by, and

information currently available to, our management.

Actual results could differ materially from those contemplated by the forward-looking

statements as a result of a number of factors, including those set forth under the risk factors and business sections in this Form 10-K.

Impact of COVID-19 on Our Operations, Financial

Condition, Liquidity and Results of Operations

Although the COVID-19 vaccines have generally

been introduced to the public, the ultimate impact of the COVID-19 pandemic on our operations is unknown and will depend on future developments,

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

may emerge concerning the severity of the COVID-19 pandemic, a significant increase in new and variant strains of COVID-19 cases, availability

and effectiveness of COVID-19 vaccines and therapeutics, the level of acceptance of the vaccine by the general population and any additional

preventative and protective actions that governments, or us, may determine are needed.

The occurrence of COVID-19 pandemic had negative

impact on our operations.

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

Our general development

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

However, we are uncertain if the COVID-19

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

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

Given the dynamic nature of these circumstances, the duration

of business disruption and reduced traffic, the related financial effect cannot be reasonably estimated at this time.

We have limited cash available to fund planned

operations and although we have other sources of capital described below under “Liquidity and Capital Resources,” management

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

However, the COVID-19

pandemic has created significant economic uncertainty and volatility in the credit and capital markets.

Management plans to secure the

necessary financing through the issue of new equity and/or the entering into of strategic partnership arrangements but the ultimate impact

of the COVID-19 pandemic on our ability to raise additional capital is unknown and will depend on future developments, which are highly

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

concerning the severity of the COVID-19 pandemic.

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

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

Nevertheless, there is no assurance that these initiatives will be

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

The Company is a clinical-stage biotechnology

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

The Company also provides strategic advisory and outsourcing services to facilitate and enhance its clients’ growth and

development, as well as competitiveness in healthcare and CellTech industry markets.

Through its subsidiary structure with unique integration

of verticals from innovative research and development to automated bioproduction and accelerated clinical development, the Company is

establishing a leading role in the fields of cellular immunotherapy (including CAR-T/NK), exosome technology (ACTEX™), and regenerative

therapeutics.

Avalon achieves and fosters seamless integration

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

Avalon’s upstream innovative research includes:

● Development of Avalon Clinical-grade Tissue-specific

Exosome (“ACTEX™”);

● Novel therapeutic and diagnostic targets development

utilizing QTY-code protein design technology with Massachusetts Institute of Technology (MIT) including using the QTY code protein design

technology for development of a hemofiltration device to treat Cytokine Storm;

● Co-development of next generation, mRNA-based

immune effector cell therapeutic modalities with Arbele Limited.

Avalon’s midstream bio-processing and bio-production

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

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

cellular products involved in our clinical programs in immune effector cell therapy and ACTEX-based regenerative therapeutics.

Avalon’s downstream medical team and facility

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

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

Our major clinical programs include:

Avalon has initiated its first-in-human

clinical trial of CD19 CAR-T candidate, AVA-001 in August 2019 at the Hebei Yanda Lu Daopei Hospital and Beijing Lu Daopei Hospital in

China (the world’s single largest CAR-T treatment network with over 1,200 patients being treated with CAR-T) for the indication

of relapsed/refractory B-cell acute lymphoblastic leukemia and non-Hodgkin Lymphoma).

The AVA-001 candidate (co-developed with China Immunotech

Ltd) is characterized by the utilization of 4-1BB (CD137) co-stimulatory signaling pathway, conferring a strong anti-cancer activity

during pre-clinical study.

It also features a shorter bio-manufacturing time which leads to the advantage of prompt treatment to patients

where timing is important related hematologic malignancies.

Avalon has successfully completed the first-in-human clinical trial of its

AVA-001 anti-CD19 CAR-T cell therapy as a bridge to allogeneic bone marrow transplantation for patients with relapsed/refractory B-cell

acute lymphoblastic leukemia at the Lu Daopei Hospital (registered clinical trial number NCT03952923) with excellent efficacy (90% complete

remission rate) and minimal adverse side effects.

Avalon is currently expanding the patient recruitment and indication for AVA-001

to include relapsed/refractory non-Hodgkin lymphoma patients.

● AVA-011 and FLASH-CAR™:

The Company advanced

its next generation immune cell therapy using RNA-based, non-viral FLASH-CAR™ technology co-developed with the Company’s strategic

partner Arbele Limited.

The multiplex FLASH-CAR™ platform can be used to create personalized (“autologous’) cell therapy from

a patient’s own cells, as well as “off-the-shelf” cell therapy from a universal donor.

Our leading candidate, AVA-011,

is a dual-target (anti-CD19/CD22) CAR-T which has completed pre-clinical research stage, and currently at IND-enabling process development

stage at UPMC (Dr.

Yen-Michael Hsu as Principal Investigator) to generate clinical-grade cell-therapy products for subsequent clinical

Stem cell-derived Avalon Clinical-grade

Tissue-specific Exosomes (ACTEX™) is one of the core technology platforms that has been co-developed by Avalon GloboCare and the

University of Pittsburgh Medical Center.

The Company formed a strategic partnership with HydroPeptide, LLC, a leading epigenetics skin

care company, to engage in co-development and commercialization of a series of clinical-grade, exosome-based cosmeceutical and orthopedic

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

and the University of Pittsburgh Medical Center.

Avalon’s AVA-Trap™

therapeutic program plans to enter animal model testing followed by expedited clinical studies with the goal of providing an effective

therapeutic option to combat COVID-19 and other life-threatening conditions involving cytokine storms.

The Company initiated a sponsored

research and co-development project with Massachusetts Institute of Technology (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.

All statements other

than statements of historical fact included in this Annual Report Form 10-K including, without limitation, statements under “Management’s

Discussion and Analysis of Financial Condition and Results of Operations” regarding our financial position, business strategy and

the plans and objectives of management for future operations, are forward-looking statements.

When used in this Annual Report on Form

10-K, words such as “anticipate,” “believe,” “estimate,” “expect,” “intend”

and similar expressions, as they relate to us or our management, identify forward-looking statements.

Such forward-looking statements

are based on the beliefs of management, as well as assumptions made by, and information currently available to, our management.

results could differ materially from those contemplated by the forward-looking statements as a result of a number of factors, including

those set forth under the risk factors and business sections in this Annual Report on Form 10-K.

We are a commercial stage

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

are focused on establishing a leading role in the innovation of diagnostic testing, utilizing proprietary technology to deliver precise,

genetics-driven results.

As a first 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.

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 Lab Services MSO.

Lab Services MSO is focused on delivering high quality services related to toxicology and wellness testing and provides a broad portfolio of diagnostic tests, including drug testing, toxicology, and a broad array of test services, from general bloodwork to anatomic pathology, and urine toxicology.

Specific capabilities include STAT blood testing, qualitative drug screening, genetic testing, urinary testing, and sexually transmitted disease testing.

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

Through Lab Services MSO, we use fast, accurate, and efficient equipment to provide practitioners with the tools to quickly determine if a patient is following their designated treatment plan.

In most instances, we are able to provide a practitioner with qualitative drug class results the same day the sample is received.

Lab Services MSO provides a menu of extensive chemistry tests that physicians can use to obtain information to better treat their patients and maintain their overall wellness.

Lab Services MSO has developed a premier reputation for customer service and fast turnaround times.

Lab Services MSO is also focused on commercialization of genetic-based proprietary testing.

The first area of focus in this area is confirmatory genetic testing during toxicology screening and genetic testing to screen for addictive propensity.

Lab Services MSO laboratory plans to focus on diagnostic testing utilizing proprietary technology to deliver precise genetic driven results.

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

which is a medical equipment retail company.

Research and Development

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.

Commercialization

We have begun the commercialization

and development of a versatile breathalyzer system.

We were granted

exclusive distributorship rights for the KetoAir from Qi Diagnostics for the following territories:

North America, South America,

the EU and the UK.

We had a pilot launch and exhibition of the KetoAir 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 markets.

We are evaluating

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

The KetoAir 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 KetoAir is registered with the United States FDA as a Class I medical 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 can be an essential tool to help diabetic patients adhere to

their therapeutic programs and optimize their ketogenic dietary management.

In 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 clinical-stage biotechnology

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

The Company also provides strategic advisory and outsourcing services to facilitate and enhance its clients’ growth and

development, as well as competitiveness in healthcare and CellTech industry markets.

Through its subsidiary structure with unique integration

of verticals from innovative research and development to automated bioproduction and accelerated clinical development, the Company is

establishing a leading role in the fields of cellular immunotherapy (including CAR-T/NK), exosome technology (ACTEX™), and regenerative

therapeutics.

In addition, the Company owns commercial real

estate that houses its headquarters in Freehold, New Jersey.

We are a commercial stage company dedicated to

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

We are focused on establishing

a leading role in the innovation of diagnostic testing, utilizing proprietary technology to deliver precise, genetics-driven results.

We also provide 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.

addition, we own commercial real estate that houses our headquarters in Freehold, New Jersey.

We also have income from equity method investment

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

These consolidated financial statements have been prepared assuming that

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

liabilities in the normal course of business.

As reflected in the accompanying consolidated financial statements,

the Company had working capital deficit of $1,206,279 at December 31, 2022 and had incurred recurring net losses and generated negative

cash flow from operating activities of $11,930,847 and $7,037,224 for the year ended December 31, 2022, respectively.

The Company has

a limited operating history and its continued growth is dependent upon the generating rental revenue from its income-producing real estate

property in New Jersey and obtaining additional financing to fund future obligations and pay liabilities arising from normal business

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.

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

However, there is no assurance these plans will be

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

The occurrence of an uncontrollable event such

as the COVID-19 pandemic had negatively impact on the Company’s operations.

Our general development operations have continued during

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

However, we are uncertain if the COVID-19 pandemic will impact future

operations at our laboratory, or our ability to collaborate with other laboratories and universities.

In addition, we are unsure if the

COVID-19 pandemic will impact future clinical trials.

Given the dynamic nature of these circumstances, the duration of business disruption

and reduced traffic, the related financial effect cannot be reasonably estimated at this time.

The accompanying consolidated financial statements

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

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

Critical Accounting Policies

Use of Estimates

The preparation of the 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.

Accordingly, the actual results could differ significantly

from those estimates.

Significant estimates during the years ended December 31, 2022 and 2021 include the useful life of property and

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

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

and embedded conversion features of convertible note payable.

Revenue Recognition

The Company recognizes revenue under Accounting

Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”).

The core principle

of the revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in

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

The following

five steps are applied to achieve that core principle:

Identify the contract with the customer

Identify the performance obligations in the contract

Determine the transaction price

Allocate the transaction price to the performance obligations in the contract

Recognize revenue when the company satisfies a performance obligation

In order to identify the performance obligations

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

service that is distinct.

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

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

● The customer can benefit from the goods or service

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

being distinct).

● The entity’s promise to transfer the goods

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

service is distinct within the context of the contract).

If a goods or service is not distinct, the goods

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

The transaction price is the amount of consideration

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

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

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

amounts, variable amounts, or both.

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

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

consideration is subsequently resolved.

The transaction price is allocated to each performance

obligation on a relative standalone selling price basis.

The transaction price allocated to each performance obligation is recognized

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

The Company’s revenues are derived from

providing medial related consulting services for its’ related parties.

Revenues related to its service offerings are recognized

at a point in time when service is rendered.

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

revenue until such time as the services are performed.

The Company has determined that the ASC 606 does

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

Rental income from operating leases is recognized

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

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

the term of the related leases.

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

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

The Company does not offer promotional payments,

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

We are governed by the income tax laws of China

and the United States.

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

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

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

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

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

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

enacted by the balance sheet date.

Deferred tax is accounted for using the balance

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

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

In principle, deferred tax

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

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

Deferred tax is calculated using tax rates that

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

Deferred tax is charged or credited in the

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

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

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

Recent Accounting Standards

For details of applicable new accounting standards,

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

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

in the normal course of business.

As reflected in the accompanying

consolidated financial statements, we had working capital deficit of approximately $5,912,000 at December 31, 2023 and had incurred recurring

net losses and generated negative cash flow from operating activities of approximately $16,707,000 and $6,505,000 for the year ended December

31, 2023, respectively.

We have a limited operating

history and our 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 ordinary course business operations.

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

These matters raise substantial doubt about our ability to continue as a going concern.

The ability of us to continue as a going

concern is dependent on our ability to raise additional capital, implement our business plan, and generate sufficient revenues.

are no assurances that we will be successful in its efforts to generate sufficient revenues, maintain sufficient cash balance or report

profitable operations or to continue as a going concern.

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

However, there is no assurance these plans will be realized and that any additional financings will be available to us on satisfactory

terms and conditions, if any.

The accompanying consolidated

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

and classification of liabilities that may result should we be unable to continue as a going concern.

Accounting Policies

The preparation of the

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.

Accordingly, the actual

results could differ significantly from those estimates.

Significant estimates during the years ended December 31, 2023 and 2022

include the useful life of property and equipment, investment in real estate, and intangible assets, the assumptions used in assessing

impairment of long-term assets, 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 our equity interest in Lab Services MSO.

Investment in Unconsolidated

We use the equity method

of accounting for its investments in, and earning or loss of, companies that it does not control but over which it does exert significant

We consider whether the fair values of our equity method investments have declined below their carrying values whenever adverse

events or changes in circumstances indicate that recorded values may not be recoverable.

If we consider any decline to be other than temporary

(based on various factors, including historical financial results and the overall health of the investee), then a write-down would be

recorded to estimated fair value.

Impairment of equity method investment amounted to $9,651,361 for the year ended December 31, 2023.

See Note 7 for discussion of equity method investments.

Real Property Rental

We have determined that

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.

We do 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 probable 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.

RESULTS OF OPERATIONS

1 unchanged sentence

Years Ended December 31, 2023 and 2022

For the year ended December 31, 2022, we had real

property rental revenue of $1,202,169, as compared to $1,203,560 for the year ended December 31, 2021, a decrease of $1,391, or 0.1%.

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

For the year ended December 31, 2022, we did not

have any medical related consulting services revenue since there was no demand for our consulting service from our related parties and

there were no orders for our medical related consulting services from third party in 2022.

Due to the winding down of the medical related

consulting services segment in 2022, the Company decided to cease all operations of this segment and no longer has any material revenues

or expenses in this segment.

For the year ended December 31, 2021, we had medical related consulting services revenue from related party

Costs and Expenses

Real property operating expenses consist of property

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

to our rental properties.

For the year ended December 31, 2022, our real

property operating expenses amounted to $929,441, as compared to $829,287 for the year ended December 31, 2021, an increase of $100,154,

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

management fees of approximately $21,000, an increase in repairs and maintenance fee of approximately $32,000, an increase in utilities

of approximately $30,000, and an increase in other miscellaneous items of approximately $2,000.

Costs of medical related consulting services include

the cost of labor and related benefits, travel expenses related to medical related consulting services, and other overhead costs.

There were no comparative revenue and related

costs of revenue from our medical related consulting services for the year ended December 31, 2022 since there was no demand for our consulting

service from our related parties and there were no orders for our medical related consulting services from third party in 2022.

year ended December 31, 2021, costs of medical related consulting services amounted to $147,167.

Real Property Operating Income

Our real property operating income for the year

ended December 31, 2022 was $272,728, representing a decrease of $101,545, or 27.1%, as compared to $374,273 for the year ended December

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 level with minimal increase in the near future.

Gross Profit from Medical Related Consulting

Services and Gross Margin

We did not generate any gross profit from medical

related consulting services in the year ended December 31, 2022.

Our gross profit from medical related consulting services for the year

ended December 31, 2021 was $40,245, with a gross margin of 21.5%.

Property Rental Revenue

the year ended December 31, 2023, we had real property rental revenue of $1,255,681, as compared to $1,202,169 for the year ended December

31, 2022, an increase of $53,512, or 4.5%.

The increase was primarily attributable to the increase in the number of tenants occupying

the building in the year ended December 31, 2023 as compared to the year ended December 31, 2022.

We expect that our revenue from real

property rent will remain at its current 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 year ended December

31, 2023, our real property operating expenses amounted to $1,017,493, as compared to $ 929,441 for

the year ended December 31, 2022, an increase of $88,052 or 9.5%.

The increase was primarily due to an increase in property management

fees of approximately $15,000, an increase in repairs and maintenance fee of approximately $64,000, and an increase in other miscellaneous

items of approximately $9,000.

Real Property Operating

Our real property operating

income for the year ended December 31, 2023 was $238,188, representing a decrease of $34,540 or 12.7%, as compared to $ 272,728

for the year ended December 31, 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 level with minimal increase in the near future.

from Equity Method Investment — Lab Services MSO

For the year ended December 31, 2023, we had loss from our investment in

Lab Services MSO of $8,571,647, which consists of our share of Lab Services MSO’s net income of $1,236,391 and amortization of identifiable

intangible assets acquired from Lab Services MSO acquisition of $611,356 and impairment of goodwill acquired from Lab Services MSO acquisition

of $9,196,682, which was primarily attributable to Lab Services MSO’s lower revenues and net incomes than anticipated and the decline

in our stock price and market capitalization.

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

In the third quarter of 2023,

Lab Services MSO acquired Merlin Technologies, Inc.

which is a medical equipment retail company.

Lab Services MSO has also opened 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 to receive income from our investment in Lab Services MSO in the near future.

Other Operating Expenses

For the years ended December 31, 2022 and 2021,

other operating expenses consisted of the following:

the years ended December 31, 2023 and 2022, other operating expenses consisted of the following:

Years Ended December 31,

Advertising and marketing

Advertising and marketing expenses

Professional fees

6 unchanged sentences

Other general and administrative

● For the year ended December 31, 2022, advertising

and marketing expenses increased by $996,748 or 303.4% as compared to the year ended December 31, 2021.

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

● Professional fees primarily consisted of

accounting fees, audit fees, legal service fees, consulting fees, investor relations service charges, valuation service fees and

For the year ended December 31, 2022, professional fees decreased by $2,037,044, or 41.2%, as compared to the year ended

December 31, 2021, which was primarily attributable to a decrease in consulting fees of approximately $1,648,000 mainly due to the

decrease in use of consulting service providers, a decrease in legal service fees of approximately $262,000 mainly due to the

decrease in use of legal service providers related to the acquisition of a British Virgin Island company which was terminated on January 1, 2022, and a decrease in one time valuation service fees of $180,000, offset by an increase in

other miscellaneous items of approximately $53,000.

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

minimal increase in the near future.

● For the year ended December 31, 2022, compensation

and related benefits decreased by $179,090, or 8.8%, as compared to the year ended December 31, 2021, which was primarily attributable

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

We expect that

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

● For the year ended December 31, 2022, research

and development expenses decreased by $293,681, or 28.7%, as compared to the year ended December 31, 2021.

The decrease was mainly attributable

to decreased research and development projects in year 2022.

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

level with minimal decrease in the near future.

● For the year ended December 31, 2022, litigation

settlement increased by $1,350,000, or 100.0%, as compared to the year ended December 31, 2021.

The increase was due to a settlement signed

in June 2022 related to Research Institute litigation.

● For the year ended December 31, 2022, Directors

and Officers Liability Insurance premium increased by $47,392, or 12.9%, as compared to the year ended December 31, 2021.

was mainly due to different insurance provider with different premium.

● For the year ended December 31, 2022, travel

and entertainment expense increased by $6,730, or 4.3%, as compared to the year ended December 31, 2021.

The increase was mainly due to

increased business travel activities in year 2022.

● For the year ended December 31, 2022, rent and

related utilities expenses decreased by $1,195, or 1.5%, as compared to the year ended December 31, 2021.

● Other general and administrative expenses mainly

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

For the year ended December 31, 2022, other general and

administrative expenses decreased by $72,585, or 23.9%, as compared to the year ended December 31, 2021.

For the year ended December 31, 2023, advertising and marketing expenses increased by $341,408 or 25.8% as compared to the year ended December 31, 2022.

The increase was primarily due to increased advertising activities to enhance our visibility and marketability and to improve brand recognition and awareness.

We expect that our advertising and marketing expenses will decrease in the near future as we conserve cash.

● Professional fees primarily consisted

of accounting fees, audit fees, legal service fees, consulting fees, investor relations service charges and other fees.

For the year ended

December 31, 2023, professional fees increased by $166,825, or 5.7%, as compared to the year ended December 31, 2022, which was primarily

attributable to an increase in consulting fees of approximately $331,000, mainly due to the increase in use of consulting service providers

related to our acquisition of Lab Services MSO, an increase in audit fees of approximately $242,000, due to the increased audit services

related to our acquisition of Lab Services MSO, and an increase in accounting fees of approximately $425,000 mainly due to the increased

accounting services related to our acquisition of Lab Services MSO, offset by a decrease in investor relations service charges of approximately

$242,000, resulting from the decrease in investor relations service providers, a decrease in legal service fees of approximately $568,000,

mainly due to the decreased legal services related to our acquisition of Lab Services MSO, and a decrease in other miscellaneous items

of approximately $21,000.

We expect that our professional fees are likely to decrease in the near future.

the year ended December 31, 2023, compensation and related benefits decreased by $94,739,

or 5.1%, as compared to the year ended December 31, 2022.

The decrease was primarily attributable

to the decreased compensation for our two officers as further described in Item 11 of this

We expect that our compensation and related benefits will continue to decrease in

the near future .

the year ended December 31, 2023, research and development expenses decreased by $621,710,

or 85.0%, as compared to the year ended December 31, 2022.

The decrease was mainly attributable

to a decrease in depreciation of approximately $19,000, which was primarily due to certain office equipment and furniture had reached

the end of depreciation period and no further depreciation is required for these fixed assets in year 2022, a decrease in office supplies

of approximately $13,000, and a decrease in other miscellaneous items of approximately $40,000 due to our efforts at stricter controls

on corporate expenditure.

Loss from Operations

As a result of the foregoing, for the year ended

December 31, 2022, loss from operations amounted to $8,792,895, as compared to $8,833,830 for the year ended December 31, 2021, a decrease

of $40,935 or 0.5%.

Other (Expense) Income

Other (expense) income mainly includes third party

and related party interest expense, conversion inducement expense, loss from equity method investment, change in fair value of derivative

liability, and other miscellaneous income.

to our decreased activity with respect to research and development projects in the year ended

December 31, 2023.

We expect that our research and development expenses will continue to

decrease in the near future as we redirect our

funding efforts to our core business strategies discussed above .

the year ended December 31, 2023, litigation settlement decreased by $1,350,000, or 100.0%,

as compared to the year ended December 31, 2022.

The decrease was due to a settlement signed

in June 2022.

the year ended December 31, 2023, Directors and Officers Liability Insurance premium decreased

by $65,012, or 15.7%, as compared to the year ended December 31, 2022.

The decrease was mainly

due to us switching to a different insurance provider, resulting in a lower premium.

the year ended December 31, 2023, travel and entertainment

expense increased by $3,708, or 2.3%, as compared to the year ended December 31, 2022.

the year ended December 31, 2023, rent and related

utilities expenses decreased by $13,203, or 17.1%, as compared to the year ended December

The decrease was attributable to decreased rental rate in the year ended December

general and administrative expenses mainly consisted

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

For the year ended December 31, 2023, other general and administrative expenses decreased

by $12,676, or 5.5%, as compared to the year ended December 31, 2022, reflecting our efforts

at stricter controls on corporate expenditures.

from Operations

As a result of the foregoing, for the year ended December 31, 2023, loss

from operations amounted to $15,753,683, as compared to $ 8,792,895 for the year ended December

31, 2022, an increase of $6,960,788 or 79.2%.

(Expense) Income

Other (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 - Epicon, gain on debts extinguishment, and other miscellaneous (expense) income.

Other expense, net, totaled $953,327 for the year ended December 31, 2023,

31, 2022, as compared to $256,669 for the year ended December 31, 2021, an increase of $2,881,283, or 1,122.6%, which was primarily attributable

to an increase in third party interest expense of approximately $3,496,000 mainly driven by the amortization of debt discount and debt

issuance cost of approximately $3,311,000 and the increased interest expense of approximately $186,000 from third party debts in year

2022, and an increase in conversion inducement expense of approximately $344,000 resulted from the reduction in the conversion price,

offset by an increase in gain from change in fair value of derivative liability of approximately $601,000, an increase in other miscellaneous

income of approximately $219,000, mainly driven by reagent sale in year 2022, a decrease in interest expense – related party of

approximately $121,000 due to the decrease in outstanding borrowing in year 2022, and a decrease in loss from equity method investment

of approximately $19,000.

We did not have any income taxes expense for the

years ended December 31, 2022 and 2021 since we incurred losses in these periods.

As a result of the factors described above, our net loss was $11,930,847

for the year ended December 31, 2022, as compared to $9,090,499 for the year ended December 31, 2021, an increase of $2,840,348 or 31.2%.

Net Loss Attributable to Avalon GloboCare

Common Shareholders

The net loss attributable to Avalon GloboCare Corp.

as compared to $ 3,137,952 for the year ended December 31, 2022, a decrease of $2,184,625,

or 69.6%, which was primarily attributable to a decrease in third party interest expense of approximately $2,179,000, mainly driven by

the decrease in amortization of debt discount and debt issuance cost of approximately $2,767,000 which was offset by the increased interest

expense of approximately $588,000 from third party debts in the year ended December 31, 2023, a decrease in conversion inducement expense

of approximately $344,000 resulted from the reduction in the conversion price which was incurred in the year ended December 31, 2022,

and an increase in gain on debts extinguishment of approximately $683,000, offset by a decrease in gain from change in fair value of derivative

liability of approximately $412,000, and an increase in impairment of equity method investment - Epicon of approximately $455,000 due

to Epicon’s series of operating losses and the joint venture partner unable to obtain funds to commence operations, and a decrease

in other miscellaneous income of approximately $224,000.

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

a result of the factors described above, our net loss was $16,707,010 for the year ended December 31, 2023, as compared to $11,930,847

for the year ended December 31, 2022, an increase of $4,776,163 or 40.0%.

Net Loss Attributable

to Avalon GloboCare Corp.

Common Shareholders

was $11,930,847 or $1.28 per share (basic and diluted) for the year ended December 31, 2022, as compared with $9,090,499 or $1.07 per

share (basic and diluted) for the year ended December 31, 2021, an increase of $2,840,348 or 31.2%.

Foreign Currency Translation Adjustment

Our reporting currency is the U.S.

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

dollar and the functional currency

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

The financial statement of our subsidiary whose functional currency is

the RMB are translated to U.S.

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

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

Net gains and losses resulting from foreign exchange transactions

are included in the results of operations.

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

a foreign currency translation loss of $47,871 and a foreign currency translation gain of $ 25,244 for the years ended December 31, 2022

and 2021, respectively.

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

net loss attributable to our common shareholders was $16,707,010 or $1.59 per share (basic and diluted) for the year ended December 31,

2023, as compared to $11,930,847 or $1.28 per share (basic and diluted) for the year ended December 31, 2022, an increase of $4,776,163

Foreign Currency

Translation Adjustment

reporting currency is the U.S.

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

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

The financial statement of our subsidiary

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

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

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

Net gains and losses resulting

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

As a result of foreign currency translations, which are

a non-cash adjustment, we reported a foreign currency translation loss of $18,590 and $47,871 for the years ended December 31, 2023 and

2022, respectively.

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

Comprehensive Loss

As a result of our foreign currency translation adjustment, we had

comprehensive loss of $11,978,718 and $9,065,255 for the years ended December 31, 2022 and 2021, respectively.

Liquidity and Capital Resources

The Company has a limited operating history and

its continued growth is dependent upon generating rental revenue from its income-producing real estate property in New Jersey and obtaining

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

In addition, the current

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

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

The ability of the Company to continue

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

significant revenues.

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

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

The Company plans on raising capital through

the sale of equity to implement its business plan.

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

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

The occurrence of an uncontrollable event such

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

Efforts to contain the spread of the coronavirus

have intensified, including social distancing, travel bans and quarantine, and these are likely to negatively impact our tenants, employees

and consultants.

These, in turn, will not only impact our operations, financial condition and demand for our medical related consulting

services but our overall ability to react timely to mitigate the impact of this event.

Given the dynamic nature of these circumstances,

the duration of business disruption and reduced traffic, the related financial effect cannot be reasonably estimated at this time.

Liquidity is the ability of a company to generate

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

At December 31,

2022 and 2021, we had cash balance of approximately $1,991,000 and $808,000, respectively.

These funds are kept in financial institutions

located as follows:

of our foreign currency translation adjustment, we had comprehensive loss of $16,725,600 and $11,978,718 for the years ended December

31, 2023 and 2022, respectively.

Liquidity and Capital

a limited operating history and our continued growth is dependent upon the continuation of generating rental revenue from our income-producing

real estate property in New Jersey and income from equity method investment through our equity interest in Lab Services MSO, as well as

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

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

These matters raise substantial doubt about our ability to continue as a going concern.

The ability of us to continue as a going

concern is dependent on our ability to raise additional capital, implement its business plan, and generate sufficient revenues.

are no assurances that we will be successful in its efforts to generate sufficient revenues, maintain sufficient cash balance or report

profitable operations or to continue as a going concern.

As described below, we have raised additional capital through the sale of equity

and debt and our 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 us on satisfactory

terms and conditions, if at all.

Liquidity is the ability

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

At December 31, 2023 and 2022, we had cash balance of approximately $285,000 and $1,991,000, respectively.

These funds are kept

in financial institutions located as follows:

December 31, 2023

1 unchanged sentence

United States

Under applicable PRC regulations, foreign invested

enterprises, or FIEs, in China may pay dividends only out of their accumulated profits, if any, determined in accordance with PRC accounting

standards and regulations.

In addition, a foreign invested enterprise in China is required to set aside at least 10% of its after-tax

profit based on PRC accounting standards each year to its general reserves until the cumulative amount of such reserves reach 50% of its

registered capital.

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, 2021 to December 31, 2022:

The following

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

Working capital deficit:

Total current assets

$ (1,522,659 )

Total current liabilities

2 unchanged sentences

$ (1,206,279 )

Our working capital deficit decreased by $1,872,337

to $1,206,279 at December 31, 2022 from $3,078,616 at December 31, 2021.

The decrease in working capital deficit was primarily attributable

to an increase in cash of approximately $1,183,000 mainly due to the issuance of convertible debt and balloon promissory note in year

2022, a decrease in accrued professional fees of approximately $208,000 which was mainly due to payments made to our professional service

providers in the year ended December 31, 2022, a decrease in accrued research and development fees of approximately $90,000 resulting

from payments made to research and development service providers in the year ended December 31, 2022, a decrease in accrued payroll liability

and directors’ compensation of approximately $83,000, a decrease in accrued liabilities and other payables – related parties

of approximately $368,000 which was mainly attributable to the accrued and unpaid related party interest was settled in shares in the

year ended December 31, 2022, a decrease in operating lease obligation of approximately $140,000, a decrease in note payable – related

party of $390,000 due to repayment made to this related party in the year ended December 31, 2022, offset by a decrease in other current

assets of approximately $200,000, which was mainly attributable to the decrease in prepaid professional fee of approximately $93,000,

which were recognized as expense over the related service period in year 2022, and the decrease in recoverable VAT of approximately $20,000

and the decrease in other miscellaneous items of approximately $87,000, and an increase in accrued settlement of lawsuit of $450,000 due

to a settlement signed in June 2022.

Because the exchange rate conversion is different

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

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

Cash Flows for the Year Ended December 31,

2022 Compared to the Year Ended December 31, 2021

The following summarizes the key components of

our cash flows for the years ended December 31, 2022 and 2021:

$ (4,705,540 )

working capital deficit increased by $4,705,540 to $5,911,819 at December 31, 2023 from $1,206,279 at December 31, 2022.

in working capital deficit was primarily attributable to a decrease in cash of approximately $1,706,000, an increase in accrued professional

fees of approximately $131,000, an increase in accrued payroll liability and compensation of approximately $365,000, an increase in accrued

liabilities and other payables – related parties of approximately $106,000, an increase in operating lease obligation of approximately

$118,000, an increase in advance from sale of noncontrolling interest – related party of approximately $486,000 driven by advance

received in connection with the membership interest purchase agreement signed in November 2023, an increase in equity method investment

payable of $667,000 resulting from the purchase of 40% of Lab Services MSO incurred in February 2023, an increase in convertible note

payable, net, of approximately $1,925,000 resulting from the issuance of May 2023 Convertible Note, July 2023 Convertible Note, and October

2023 Convertible Note, offset by an increase in prepaid expense and other current assets of approximately $120,000, and a decrease in

accrued research and development fees of approximately $629,000 mainly due to the extinguishment of accrued liability.

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

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

reflected on the consolidated balance sheets.

Flows for the Year Ended December 31, 2023 Compared to the Year Ended December 31, 2022

following summarizes the key components of our cash flows for the years ended December 31, 2023 and 2022:

Years Ended December 31,

4 unchanged sentences

Net cash provided by financing activities

Effect of exchange rate on cash and restricted cash

Net increase in cash and restricted cash

Net cash flow used in operating activities for the year ended December

31, 2022 was $7,037,224, which primarily reflected our consolidated net loss of approximately $11,931,000, and the non-cash item adjustment

consisting of change in fair market value of derivative liability of approximately $601,000, and the changes in operating assets and liabilities,

primarily consisting of a decrease in operating lease obligation of approximately $142,000, offset by an increase in accrued liabilities

and other payables of approximately $331,000, 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 $331,000, amortization of right-of-use

asset of approximately $136,000, stock-based compensation and service expense of approximately $1,107,000, amortization of debt discount

of approximately $3,281,000 mainly resulting from the conversion of convertible debt in July 2022, and conversion inducement expense of

approximately $344,000 resulted from the reduction in the conversion price.

Net cash flow used in operating activities for

the year ended December 31, 2021 was $5,024,479, which primarily reflected our consolidated net loss of approximately $9,090,000, and

the changes in operating assets and liabilities, primarily consisting of a decrease in operating lease obligation of approximately $121,000,

offset by an increase accrued liabilities and other payables of approximately $1,331,000, which was mainly attributable the increase in

accrued professional fees of approximately $669,000 due to increased professional service providers, the increase in accrued research

and development fees of approximately $415,000 which was primarily attributable to we increased research and development projects in 2021,

and the increase in accrued payroll liability and directors’ compensation of approximately $153,000, and an increase in accrued

liabilities and other payables – related parties of approximately $200,000 resulting from the increase in accrued interest for related

party borrowings, and the non-cash items adjustment primarily consisting of depreciation of approximately $312,000, amortization of right-of-use

asset of approximately $127,000, and stock-based compensation and service expense of approximately $2,110,000.

We expect our cash used in operating activities

to increase due to the following:

● the development and commercialization of new

● 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

$5,053,748 for the year ended December 31, 2022 as compared to $68,135 for the year ended December 31, 2021.

Effect of exchange rate on cash

Net (decrease) increase in cash

$ (1,705,510 )

cash flow used in operating activities for the year ended December 31, 2023 was $6,504,718, which primarily reflected our consolidated

net loss of approximately $16,707,000, and the changes in operating assets and liabilities, primarily consisting of a decrease in operating

lease obligation of approximately $113,000, and the non-cash items adjustment, consisting of change in fair market value of derivative

liability of approximately $188,000, and gain on debts extinguishment of approximately $683,000, offset by depreciation of approximately

$212,000, amortization of operating lease right-of-use asset of approximately $118,000, stock-based compensation and service expense of

approximately $1,180,000, loss from equity method investments of approximately $8,590,000 mainly due to the impairment of goodwill acquired

from Lab Services MSO acquisition resulting from Lab Services MSO’s lower revenues and net incomes than anticipated and the decline

in our stock price and market capitalization, impairment of equity method investment - Epicon of approximately $455,000 due to Epicon’s

series of operating losses and the joint venture partner unable to obtain funds to commence operations, and amortization of debt issuance

costs and debt discount of approximately $544,000 resulting from our outstanding convertible note payable and note payable, and the changes

in operating assets and liabilities, primarily consisting of an increase in accrued liabilities and other payables – related parties

of approximately $106,000 driven by the increased accrued interest for related party.

cash flow used in operating activities for the year ended December 31, 2022 was $7,037,224, which primarily reflected our consolidated

net loss of approximately $11,931,000, and the non-cash item adjustment consisting of change in fair market value of derivativ e

liability of approximately $601,000, and the changes in operating assets and liabilities, primarily consisting of a decrease in operating

lease obligation of approximately $142,000, offset by an increase in accrued liabilities and other payables of approximately $331,000,

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 $331,000, amortization of operating lease right-of-use asset of approximately $136,000,

stock-based compensation and service expense of approximately $1,107,000, amortization of debt issuance costs and debt discount of approximately

$3,311,000 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;

increase in professional staff and services;

increase in public relations

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

or enter new markets.

cash flow used in investing activities was $22,159 for the year ended December 31, 2023 as compared to $9,053,470 for the year ended

December 31, 2022.

During the year ended December 31, 2023, we made payment for purchase of property and equipment of approximately $22,000.

the year ended December 31, 2022, we made payments for purchase of property and equipment of approximately $2,000 and made additional

investment in Epicon equity method investment of approximately $52,000 and made payments for acquisition of 40% interest in Laboratory

Services MSO, LLC of approximately $9,000,000.

Net cash flow provided by financing

activities was $4,825,337 for the year ended December 31, 2023 as compared to $17,263,989 for the year ended December 31, 2022.

the year ended December 31, 2023, we received proceeds from related party borrowings of $850,000, and net proceeds from issuance of convertible

debt and warrants of approximately $2,238,000 (net of original issue discount of $135,000 and cash paid for convertible note issuance

costs of approximately $327,000), 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), and advance from sale of noncontrolling interest in subsidiary

of approximately $486,000, offset by repayments made for convertible debt of $300,000.

During the year ended December 31, 2022,

31, 2022, we made payments for purchase of property and equipment of approximately $2,000 and made additional investment in Epicon equity

method investment of approximately $52,000 and made payments for acquisition of 40% interest in Laboratory Services MSO, LLC of approximately

During the year ended December 31, 2021, we made payments for purchase of property and equipment of approximately $18,000

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

approximately $40,000.

Net cash flow provided by financing activities

was $17,263,989 for the year ended December 31, 2022 as compared to $5,170,132 for the year ended December 31, 2021.

During the year ended

December 31, 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 approximately $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), and proceeds from issuance of Series A preferred stock of $9,000,000

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.

During the year ended December 31, 2021, we received proceeds from related party borrowings

of approximately $2,550,000 and net proceeds from equity offering of approximately $2,620,000 (net of cash paid for commission and other

offering costs of approximately $240,000) to fund our working capital needs.

Our capital requirements for the next twelve months

primarily relate to working capital requirements, including salaries, fees related to third parties’ professional services, reduction

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

These uses of cash will depend on numerous

factors including our revenues and our ability to control costs.

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

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

● an increase in working capital requirements to

finance our current business, including ongoing research and development programs, clinical studies, as well as commercial strategies;

● the use of capital for mergers, acquisitions

and the development of business opportunities;

● addition of administrative personnel as the business

● the cost of being a public company.

In the third quarter of 2019, we had secured a

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

The unsecured credit facility bears interest at a rate

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

As of December 31, 2022, the total principal amount outstanding

under the Credit Line was $0 and we used approximately $5.9 million of the credit facility and have approximately $14.1 million remaining

available under the Line Credit.

On December 13, 2019, we entered into an

Open Market Sale Agreement SM (the “Sales Agreement”) with Jefferies LLC, as sales agent (“Jefferies”),

pursuant to which we may offer and sell, from time to time, through Jefferies, shares of our common stock, par value $0.0001 per share,

having an aggregate offering price of up to $20.0 million.

On April 6, 2020, the date on which we filed our Annual Report on Form 10-K for

the fiscal year ended December 31, 2019, our registration statement became subject to the offering limits set forth in General Instruction

I.B.6 of Form S-3.

As of April 6, 2020, the aggregate market value of our outstanding common stock held by non-affiliates, or

public float, was $39,564,237, based on 2,369,116 shares of our outstanding common stock that were held by non-affiliates on

such date and a price of $16.7 per share, which was the price at which our common stock was last sold on The Nasdaq Capital Market on

February 19, 2020 (a date within 60 days of the date hereof), calculated in accordance with General Instruction I.B.6 of Form S-3.

have not offered any securities pursuant to General Instruction I.B.6 of Form S-3 in the 12 calendar months preceding the date

of this prospectus supplement.

We filed a prospectus supplement to amend and supplement the information in our prospectus and original

prospectus supplement based on the amount of securities that we are eligible to sell under General Instruction I.B.6 of Form S-3.

giving effect to the $13,000,000 offering limit imposed by General Instruction I.B.6 of Form S-3, we may offer and sell

additional shares of our common stock having an aggregate offering price of up to $13,000,000 from time to time through Jefferies acting

as our sales agent in accordance with the terms of the sales agreement.

As of December 31, 2022, we sold a total of 642,949 shares

of our common stock through Jefferies with an aggregate offering price of $10,073,707 and we have approximately $4.9 million offering

price remaining available under the Sales Agreement.

We estimate that based on current plans and assumptions,

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

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

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

Lender of $750,000 in March 2023.

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

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

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.

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.

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 approximately $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), and proceeds from issuance of Series A Preferred Stock of $9,000,000 to fund our working

capital needs and equity interest purchase, 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 December 31, 2023,

we used approximately $6.8 million of the credit facility and have approximately $13.2 million remaining available un der the Line

June 2023, we entered into a sales agreement (the “Sales Agreement”) with Roth Capital Partners, LLC

(“Roth”) under which we may offer and sell from time to time shares of our common stock having an aggregate offering

price of up to $3.5 million.

From July 1, 2023 to March 29, 2024, Roth has sold an aggregate of 456,627 shares of our common stock

at an average price of $1.39 per share to investors.

We received net cash proceeds of $616,259, net of cash paid for sales

agent’s commission and other fees of $19,132.

Balloon Mortgage Note

In May 2023, we, through

Avalon RT 9, 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”).

The Balloon 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 our real property in Monmouth County, New Jersey, In addition, we and Avalon RT 9 executed a guaranty related to the Balloon

Mortgage Note.

May 2023 Convertible Note Financing

May 2023, we 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 our common stock as a commitment fee and warrants for the purchase of

up to 230,000 shares of our common stock.

We and our subsidiaries also entered into a security agreement in connection with the May

2023 Note, 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 our 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, we are 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 our common stock at

a conversion price of $4.50 per share, unless we fail 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 our 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 our common stock at an exercise price of $4.50 and

exercisable until May 23, 2028 and (ii) a warrant to purchase 105,500 shares of our 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).

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 Note.

July 2023 Convertible

Note Financing

July 2023, we 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 our common stock as a commitment fee and warrants for the purchase of

up to 76,830 shares of our common stock.

We and our subsidiaries also entered into a security agreement in connection with the July

2023 Note, 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 our 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, we are 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 our common stock

at a conversion price of $4.50 per share, unless we fail 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 our 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 our 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 our 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.

October 2023 Convertible

Note Financing

October 2023, we 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 our common stock as a commitment fee and warrants for

the purchase of up to 105,000 shares of our common stock.

We and our subsidiaries also entered into security agreements in

connection with the October 2023 Note, 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 our 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.

October 2023 Note is accelerated following the occurrence of an event of default as described in such note, we are 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 our common stock at a conversion price of $1.50 per share, unless we fail 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 our 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 our

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 our

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.

March 2024 Convertible

Note Financing

In March 2024, we entered

into security purchase agreement with a lender (the “March 2024 Lender”) and closed on the issuance of 13.0% senior secured

convertible promissory note in the principal amount of $700,000 (the “March 2024 Note”), as well as the issuance of 105,000

shares of common stock as a commitment fee and warrants for the purchase of up to 252,404 shares of our common stock.

We and our subsidiaries

also entered into security agreements in connection with the March 2024 Note, 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 our obligations under the March

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.

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.

Off-balance Sheet

We presently do not have

off-balance sheet arrangements.

We presently do not have off-balance sheet arrangements.

Foreign Currency Exchange Rate Risk

In November of 2022, we decided to cease all operations

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

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

revenue generated from PRC operations in the foreseeable future.

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

a material effect on us.

For the years ended December 31, 2022 and 2021, we had an unrealized foreign currency translation loss of approximately

$48,000 and an unrealized foreign currency translation gain of approximately $25,000, respectively, because of changes in the exchange

The effect of inflation on our revenue and operating

results was not significant.

QUANTITATIVE AND QUALITATIVE DISCLOSURES

ABOUT MARKET RISK

As a smaller reporting company, as defined in

Rule 12b-2 of the Exchange Act, we are not required to provide the information required by this Item.

In November of 2022,

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

We do not expect nor

do we plan that there will be further revenue generated from PRC operations in the foreseeable future.

Thus, exchange rate fluctuations

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

For the years ended December 31, 2023 and 2022, we had an unrealized

foreign currency translation loss of approximately $19,000 and $48,000, respectively, because of changes in the exchange rate.

The effect of inflation

on our revenue and operating results was not significant.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

reporting company, as defined in Rule 12b-2 of the Exchange Act, we are not required to provide the information required by this Item.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements begin on page F-1.

The financial statements begin

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS

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

What changed 10-K

Item 7. Management’s Discussion and Analysis