Change Agents Corporation. 10-K

ITEM 9A. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures We maintain disclosure controls and procedures that are designed to ensure that material information required to be disclosed in our periodic reports filed under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms and to ensure that such information is accumulated and communicated to our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) as appropriate, to allow timely decisions regarding required disclosure. We carried out an evaluation, under the supervision and with the participation of our management, including the principal executive officer and the principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13(a)-15(e) under the Exchange Act, as of the end of the period covered by this report. Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. During evaluation of disclosure controls and procedures as of December 31, 2023, conducted as part of our annual audit and preparation of our annual financial statements, our management, including our CEO and CFO, conducted an evaluation of the effectiveness of the design and operations of our disclosure controls and procedures and concluded that our disclosure controls and procedures were not effective due to the reasons set forth below. 57 Management’s Report on Internal Control over Financial Reporting Management is responsible for the preparation and fair presentation of the financial statements included in this report. The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America and reflect management’s judgment and estimates concerning effects of events and transactions that are accounted for or disclosed. Management is also responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting includes those policies and procedures that pertain to our ability to record, process, summarize and report reliable data. Management recognizes that there are inherent limitations in the effectiveness of any internal control over financial reporting, including the possibility of human error and the circumvention or overriding of internal control. Accordingly, even effective internal control over financial reporting can provide only reasonable assurance with respect to financial statement presentation. Further, because of changes in conditions, the effectiveness of internal control over financial reporting may vary over time. Management regularly assesses our internal control over financial reporting and did so most recently for our financial reporting as of December 31, 2023. This assessment was based on criteria for effective internal control over financial reporting described in the Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission. Based on this assessment, management has concluded that our internal control over financial reporting was not effective as of December 31, 2023, due to the lack of segregation of duties resulting from our small size and inability to perform an effective test of the operating effectiveness of the controls, including the oversight of our financial statement close process. As a result of our Lab Services MSO transaction in February 2023, we retained additional accounting staff and hired a Controller that works part-time for Lab Services MSO and part-time for the Company. We hope to be able to utilize the Controller going forward to enhance the segregation of duties. In addition, the Company has transitioned all email servers to the United States to enhance this aspect of internal controls. In light of the material weaknesses described above, we performed additional analyses and procedures in order to conclude that our consolidated financial statements for the year ended December 31, 2023 included in this Annual Report on Form 10-K were fairly stated in accordance with US GAAP. Accordingly, management believes that despite the material weakness identified in our internal control over financial reporting, our consolidated financial statements for the year ended December 31, 2023 are fairly stated, in all material respects, in accordance with US GAAP. Changes in Internal Control over Financial Reporting Other than those described above, there were no changes in our internal control over financial reporting, as such term is defined in Rules 13a-15(f) under the Exchange Act, during the quarter ended December 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting Attestation Report of the Registered Public Accounting Firm This Annual Report on Form 10-K does not include an attestation report by our independent registered public accounting firm, regarding internal control over financial reporting. As a smaller reporting company, our internal control over financial reporting was not subject to audit by our independent registered public accounting firm pursuant to rules of the SEC that permit us to provide only management’s report. ITEM 9B. OTHER INFORMATION (a) We issued 105,000 shares of our common stock as a commitment fee and warrants for the purchase of up to 252,404 shares of our common stock in connection with the issuance of the March 2024 Note to the March 2024 Lender. (b) During the quarter ended December 31, 2023, none of our directors or executive officers adopted or terminated a Rule 10b5-1 trading plan or a non-Rule 10b5-1 trading arrangement (as defined in Item 408(c) of Regulation S-K). ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS. Not applicable. 58 PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Directors and Executive Officers Below are the names of and certain information regarding our executive officers and directors as of the date hereof: Name Age Position Wenzhao Lu 66 Chairman of the Board of Directors David Jin, MD, PhD 56 Chief Executive Officer, President and Director Meng Li 46 Chief Operating Officer and Secretary Luisa Ingargiola 56 Chief Financial Officer Steven A. Sanders 78 Director Lourdes Felix 56 Director Wilbert J. Tauzin II 80 Director William B. Stilley, III 56 Director Tevi Troy 56 Director Officers are elected annually by the Board (subject to the terms of any employment agreement), at our annual meeting, to hold such office until an officer’s successor has been duly appointed and qualified, unless an officer sooner dies, resigns or is removed by the Board. The principal occupation and business experience during at least the past five years for our executive officers and directors is as follows: Wenzhao Lu, Chairman of the Board of Directors Mr. Wenzhao Lu has served as our Chairman of the Board since October 10, 2016. He is a seasoned healthcare entrepreneur with extensive operational knowledge and experience in the US & Asia. He has served as Chairman of the board of directors of the Daopei Medical Group, or DPMG, since 2010 to December, 2021. Under his leadership, DPMG operates three top-ranked private hospitals (located in Beijing and Hebei), specialty hematology laboratories, and a hematology research institute, with more than 100 partnering and collaborating hospitals in China. DPMG was founded by Professor Daopei Lu, a renowned hematologist pioneering in hematopoietic stem cell transplant and a member of the Academy of Engineering in China. Mr. Lu received a Bachelor of Arts from Temple University Tyler School of Arts in 1988 and subsequently worked as senior Art Director at Ogilvy & Mather Advertising Company. Prior to joining DPMG, in 2009, Mr. Lu served as Chief Operating Officer of BioTime Asia Limited, a subsidiary of BioTime, Inc. (NYSE American: BTX). Mr. Lu is qualified to serve as a director because of his extensive operational knowledge of, and executive level management experience in, the healthcare industry. David Jin, Chief Executive Officer, President and Director Dr. David Jin, MD, PhD, has served as our Chief Executive Officer, President and as a member of our Board since September 14, 2016. From 2009 to 2017, Dr. Jin served as the Chief Medical Officer of BioTime, Inc. (NYSE American: BTX), a clinical stage regenerative medicine company with a focus on pluripotent stem cell technology. Dr. Jin also acts as a senior translational clinician-scientist at the Howard Hughes Medical Institute and the Ansary Stem Cell Center at Weill Cornell Medical College of Cornell University. Prior to his current endeavors, Dr. Jin was Chief Consultant/Advisor for various biotech/pharmaceutical companies regarding hematology, oncology, immunotherapy and stem cell-based technology development. Dr. Jin has been Principle Investigator in more than 15 pre-clinical and clinical trials, as well as an author/co-author of over 80 peer-reviewed scientific abstracts, articles, reviews, and book chapters. Dr. Jin studied medicine at SUNY Downstate College of Medicine in Brooklyn, New York. He received his clinical training and subsequent faculty tenure at the New York-Presbyterian Hospital (the teaching hospital for both Cornell and Columbia Universities) in the areas of internal medicine, hematology, and clinical oncology. Dr. Jin was honored as Top Chief Medical Officer by ExecRank in 2012, as well as recognized by Leading Physicians of the World in 2015. Dr. Jin is qualified to serve as a director because of his role with us, and his extensive operational knowledge of, and executive level management experience in, the healthcare industry. 59 Meng Li, Chief Operating Officer and Secretary Ms. Meng Li has served as our Chief Operating Officer, Secretary since October 10, 2016 and served as a member of the Board from October 10, 2016 to July 9, 2018 and from April 5, 2019 through December 30, 2022. Ms. Li has over 15 years of executive experience in international marketing, branding, communications, and media investment consultancy. Ms. Li served as Managing Director at Maxus/GroupM (a WPP Group company) where she was responsible for business P&L and corporate management from 2006 to 2015. Prior to joining Maxus/Group M, Ms. Li worked for Zenith Media (a Publicis Group company) from 2000 to 2006 as Senior Manager. Ms. Li received a Bachelor of Arts in International Economic Law from Dalian Maritime University in China. Luisa Ingargiola, Chief Financial Officer Luisa Ingargiola has served as our Chief Financial Officer since February 21, 2017. Ms. Ingargiola has significant experience serving as Chief Financial Officer or Audit Chair for multiple Nasdaq and New York Stock Exchange companies. She currently serves as Director and Audit Chair for several public companies including ElectraMeccanica (NASDAQ:SOLO), Dragonfly Energy (DFLI) and Vision Marine (VMAR). From 2007 through 2016, Ms. Ingargiola served as the Chief Financial Officer and then a member of the board of directors at MagneGas Corporation (Nasdaq: MNGA). Prior to 2007, Ms. Ingargiola held various roles as Budget Director and Investment Analyst in several private companies. Ms. Ingargiola graduated in 1989 from Boston University with a Bachelor’s degree in Business Administration and a concentration in Finance. In 1996, she received her MBA in Health Administration from the University of South Florida. Ms. Ingargiola is qualified to serve as a Chief Financial Officer because of her extensive knowledge corporate governance, regulatory requirements, executive leadership and knowledge of, and experience in, financing and M&A transactions. Steven A. Sanders, Director Steven A. Sanders has served as a member of the Board since July 30, 2018. Since January 2017, Mr. Sanders has been Of Counsel to the law firm of Ortoli Rosenstadt LLP. From July 2007 until January 2017, Mr. Sanders was a Senior Partner at Ortoli Rosenstadt LLP. From January 1, 2004 until June 30, 2007, he was Of Counsel to the law firm of Rubin, Bailin, Ortoli, LLP. From January 1, 2001 to December 31, 2003, he was Counsel at the law firm of Spitzer & Feldman PC. Mr. Sanders also serves as a member of the boards of directors of Helijet International, Inc. and Electrameccanica Vehicles Corp. (NASDAQ:SOLO). Additionally, since October 2013, he has been a member of the board of directors at the American Academy of Dramatic Arts, and, since February 2015, has been a member of the board of directors of the Bay Street Theater. Mr. Sanders received his JD from Cornell University and his BBA from The City College of New York. Mr. Sanders is qualified to serve as a director because of his corporate, securities and international law experience, including working with companies in the life sciences industry. Lourdes Felix, Director Lourdes Felix has served as a member of the Board since January 9, 2023. Ms. Felix is an entrepreneur and corporate finance executive with 30 years of combined experience in capital markets, public accounting and in the private sector. She presently serves as Chief Executive Officer, Chief Financial Officer, and a member of the board of directors of BioCorRx Inc, a company focused on addiction treatment solutions and related disorders. She has been with BioCorRx since October 2012. Ms. Felix is one of the founders and President of BioCorRx Pharmaceuticals Inc., a majority owned subsidiary of BioCorRx Inc. Prior to joining BioCorRx, her experience was in the private sector and public accounting. Ms. Felix has expertise in finance, accounting, company-wide operations, budgeting, and internal control principles including GAAP, SEC, and SOX Compliance. She has thorough knowledge of federal and state regulations and has successfully managed and produced SEC regulatory filings. She also has extensive experience in developing and managing financial operations. Ms. Felix holds a Bachelor of Science degree in Accounting from the University of Phoenix. She continued her education and is an MBA candidate at D’Amore-McKim School of Business, Northeastern University. Ms. Felix is qualified to serve as a director because of her extensive investment and executive level management experience. 60 Wilbert J. Tauzin II, Director Wilbert J. Tauzin II has served as a member of the Board since November 1, 2017. From December 2010 until March 1, 2014, Congressman Tauzin served as a Special Legislative Counsel at Alston & Bird LLP. From December 2004 to June 2010, Congressman Tauzin was President and Chief Executive Officer of Pharmaceutical Research and Manufacturers of America, a trade group that serves as one of the pharmaceutical industry’s top lobbying groups. He served 12.5 terms in the U.S. House of Representatives, representing Louisiana’s 3rd Congressional District. From January 2001 through February 2004, Congressman Tauzin served as Chairman of the House Committee on Energy and Commerce. He also served as a senior member of the House Resources Committee and Deputy Majority Whip. Prior to serving as a member of Congress, Congressman Tauzin was a member of the Louisiana State Legislature, where he served as Chairman of the House Natural Resources Committee and Chief Administration Floor Leader. He served as Lead Independent Director of LHC Group, a publicly traded provider of quality home health care, from 2005 to 2021 and retains the role of Lead Independent Emeritus today. The Congressman also served on the board of directors of Entergy, a Fortune 500 company. In addition, the Congressman chartered a Louisiana State Savings and Loan Association and Chaired its first board of directors. He received a Bachelor of Arts Degree from Nicholls State University and a Juris Doctor degree from Louisiana State University. Congressman Tauzin is qualified to serve as a director because of his extensive knowledge of the pharmaceutical industry and his experience as a director of several publicly traded and privately held companies. William B. Stilley, III, Director William B. Stilley has served as a member of the Board since July 5, 2018. Mr. Stilley has been the Chief Executive Officer of Adovate, LLC since January 2023. Previously, he was Chief Executive Officer of Purnovate, Inc., a subsidiary of Adial Pharmaceuticals, Inc. (Adial) from January 2021 until May 2023, and was Chief Executive Officer of Adial from December 2010 until August 2022, and was a member of Adial’s board of directors from December 2010 until September 2023. From August 2008 until December 2010, he was the Vice President, Business Development and Strategic Projects at Clinical Data, Inc. Mr. Stilley was the COO and CFO of Adenosine Therapeutics, LLC until the assets of Adenosine Therapeutics were acquired by Clinical Data, Inc. in August 2008. Mr. Stilley has advised both public and private companies on financing and M&A transactions, has been the interim CFO of a public company, the interim Chief Business Officer and then Advisor for Diffusion Pharmaceuticals from September 2015 through March 2018, the audit chair for public companies, and the COO and CFO of a number of private companies. Before entering the business community, Mr. Stilley served as Captain in the U.S. Marine Corps. Mr. Stilley has an MBA with honors from the Darden School of Business and a B.S. in Commerce/Marketing from the McIntire School of Commerce at the University of Virginia. He currently serves on the Advisory Board of Virginia BIO, the statewide biotechnology organization and has guest lectures as the University School of Engineering. Mr. Stilley is qualified to serve as a director because of his extensive knowledge of the biotechnology industry, significant executive leadership and operational experience, and knowledge of, and experience in, financing and M&A transactions. Tevi Troy, Director Tevi Troy has served as a member of the Board since June 4, 2018. Mr. Troy is a former Deputy Secretary of the U.S. Department of Health and Human Services. Dr. Troy is a Senior Fellow at the Bipartisan Policy Center in Washington. He was the founder and CEO of the American Health Policy Institute and a Senior Fellow at Hudson Institute. On August 3, 2007, Dr. Troy was unanimously confirmed by the U.S. Senate as the Deputy Secretary of HHS. As Deputy Secretary, Dr. Troy was the chief operating officer of the largest civilian department in the federal government, with a budget of $716 billion and over 67,000 employees. Dr. Troy has extensive White House experience, having served in several high-level positions over a five-year period, culminating in his service as Deputy Assistant and then Acting Assistant to the President for Domestic Policy. Dr. Troy has held high-level positions on Capitol Hill as well. From 1998 to 2000, Dr. Troy served as the Policy Director for Senator John Ashcroft. From 1996 to 1998, Dr. Troy was Senior Domestic Policy Adviser and later Domestic Policy Director for the House Policy Committee, chaired by Christopher Cox. In addition to his senior level government work and health care expertise, Dr. Troy is also a best-selling presidential historian and the author of five books, including, most recently, “Fight House: Rivalries in the White House from Truman to Trump,” which the Wall Street Journal listed as one of the top political books of 2020. Dr. Troy’s many other affiliations include: contributing editor for Washingtonian magazine; member of the publication committee of National Affairs; member of the Board of Fellows of the Jewish Policy Center; a Senior Fellow at the Potomac Institute; and a member of the Bipartisan Commission on Biodefense. Dr. Troy has a B.S. in Industrial and Labor Relations from Cornell University and an M.A and Ph.D. in American Civilization from the University of Texas at Austin. Dr. Troy is qualified to serve as a director because of his extensive knowledge of the healthcare industry and his significant leadership experience. 61 Board Composition Our Board is currently composed of seven directors. Our directors hold office until their successors have been elected and qualified or until the earlier of their resignation or removal. We are subject to Nasdaq Board diversity rules and ensure our compliance with such rules. In addition, our priority in selection of board members is identification of members who will further the interests of our stockholders through his or her established record of professional accomplishment, the ability to contribute positively to the collaborative culture among board members, knowledge of our business and understanding of the competitive landscape. A majority of the authorized number of directors constitutes a quorum of the Board for the transaction of business. However, any action required or permitted to be taken by the Board may be taken without a meeting if all members of the Board individually or collectively consent in writing to the action. Board Leadership Structure and Role in Risk Oversight The positions of our Chairman of the Board and Chief Executive Officer are separated. Separating these positions allows our Chief Executive Officer to focus on our day-to-day business, while allowing the Chairman of the Board to lead our Board in its fundamental role of providing advice to and independent oversight of management. Our Board recognizes the time, effort and energy that the Chief Executive Officer must devote to his position in the current business environment, as well as the commitment required to serve as our Chairman, particularly as our Board’s oversight responsibilities continue to grow. Our Board also believes that this structure ensures a greater role for the independent directors in the oversight of our Company and active participation of the independent directors in setting agendas and establishing priorities and procedures for the work of our Board. Our Board believes its administration of its risk oversight function has not affected its leadership structure. Although our bylaws do not require our Chairman and Chief Executive Officer positions to be separate, our Board believes that having separate positions is the appropriate leadership structure for us at this time and demonstrates our commitment to good corporate governance. Risk is inherent with every business, and how well a business manages risk can ultimately determine its success. We face a number of risks, including those described under the section entitled “ Risk Factors ” of this report. Our Board is actively involved in oversight of risks that could affect us. This oversight is conducted primarily by our full Board, which has responsibility for general oversight of risks. Our Board satisfies this responsibility through full reports by each committee chair regarding the committee’s considerations and actions, as well as through regular reports directly from officers responsible for oversight of particular risks within our Company. Our Board believes that full and open communication between management and the Board is essential for effective risk management and oversight. Board of Director Meetings The primary responsibility of the Board is to provide oversight, strategic guidance, counseling, and direction to our management team. Our Board meets on a regular basis and additionally as required. Our Board met three times in 2023. Each of the directors attended at least 75% of the aggregate of (i) the total number of meetings of our Board (held during the period for which such directors served on the Board) and (ii) the total number of meetings of all committees of our Board on which the director served (during the periods for which the director served on such committee or committees). We do not have a formal policy requiring members of the Board to attend our annual meetings. Our last annual meeting of stockholders was held on October 12, 2023. One of our directors serving at the time attended last year’s annual meeting. 62 Director Independence Our common stock is listed on The Nasdaq Capital Market. Under the rules of The Nasdaq Capital Market, independent directors must comprise a majority of our Board. In addition, the rules of The Nasdaq Capital Market require that all the members of such committees be independent. Members of our Audit Committee, as defined below, must also satisfy the independence criteria set forth in Rule 10A-3 under the Exchange Act. Compensation committee members must also satisfy the independence criteria established by The Nasdaq Capital Market in accordance with Rule 10C-1 under the Exchange Act. Under the rules of The Nasdaq Capital Market, a director will only qualify as an “independent director” if, among other qualifications, in the opinion of that company’s board of directors, that person does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. The Board has reviewed its composition, the composition of its committees and the independence of each director. Based upon information requested from and provided by each director concerning his or her background, employment and affiliations, including family relationships, the Board has determined that Steven A. Sanders, Lourdes Felix, William B. Stilley, III and Tevi Troy do not, respectively, have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and that each of these directors is “independent” as that term is defined under the Rules of The Nasdaq Capital Market and the SEC. In making this determination, our Board considered the relationships that each non-employee director has with our Company and all other facts and circumstances our Board deemed relevant in determining their independence. We intend to comply with the other independence requirements for committees within the time periods specified above. Family Relationships There are no family relationships among our directors or executive officers. Board Committees The Board has established an audit committee, a compensation committee and a nominating and corporate governance committee. Our Board may establish other committees to facilitate the management of our business. The composition and functions of each committee named above are defined and described below. Members serve on these committees until their resignation or until otherwise determined by our Board. Audit Committee . We have a separately designated standing audit committee of the Board (the “Audit Committee”), established in accordance with Section 3(a)(58)(A) of the Exchange Act. The Audit Committee consists of William Stilley, Steven Sanders and Tevi Troy, with Mr. Stilley serving as the Chair of the Audit Committee. The Board has determined that each director currently serving on our Audit Committee is an “independent director” as defined by Nasdaq applicable to members of an audit committee and Rule 10A-3(b)(i) under the Exchange Act. In addition, Mr. Stilley is an “audit committee financial expert” as defined in Item 407(d)(5) of Regulation S-K and demonstrates “financial sophistication” as defined by Nasdaq Rules. The Audit Committee is appointed by the Board to assist with monitoring (i) the integrity of our financial statements, (ii) our compliance with legal and regulatory requirements, and (iii) the independence and performance of our internal and external auditors. The principal functions and responsibilities of the Audit Committee include: ● reviewing our annual audited financial statements with management and our independent auditors, including major issues regarding accounting and auditing principles and practices and financial reporting that could significantly affect our financial statements; ● reviewing our quarterly financial statements with management and our independent auditor prior to the filing of our Quarterly Reports on Form 10-Q, including the results of the independent auditors’ reviews of the quarterly financial statements; ● recommending to the Board the appointment of, and continued evaluation of the performance of, our independent auditor; ● approving and conducting a review of all related party transactions for potential conflict of interest situations on an ongoing basis; ● approving the fees to be paid to our independent auditor for audit services and approving the retention of our independent auditor for non-audit services and all fees for such services; 63 ● reviewing periodic reports from our independent auditor regarding our auditor’s independence, including discussion of such reports with the auditor; ● reviewing the adequacy of our overall control environment, including internal financial controls and disclosure controls and procedures; and ● reviewing with our management and legal counsel legal matters that may have a material impact on our financial statements or our compliance policies and any material reports or inquiries received from regulators or governmental agencies. During the fiscal year ended December 31, 2023, the Audit Committee met four times. The Audit Committee is governed by a written charter, as adopted by the Board. A copy of the Audit Committee Charter is posted under the “Investors” tab under “Corporate Governance” on our website, which is located at www.avalon-globocare.com . Compensation Committee . The compensation committee of the Board (the “Compensation Committee”) consists of Lourdes Felix, Steven Sanders and Tevi Troy, with Ms. Felix serving as the Chair of the Compensation Committee. The Board has determined that each member of the Compensation Committee is considered (i) an “independent director” as defined by Nasdaq Rules applicable to members of a compensation committee; (ii) a “non-employee director” as defined in Rule 16b-3 promulgated under the Exchange Act; and (iii) an “outside director” as that term is defined in Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”). The Compensation Committee is responsible for establishing the compensation of our senior management, including salaries, bonuses, termination arrangements, and other executive officer benefits as well as director compensation. The Compensation Committee also administers our equity incentive plans. The Compensation Committee works with the Chairman of the Board and our Chief Executive Officer and reviews and approves compensation decisions regarding senior management, including compensation levels and equity incentive awards. The Compensation Committee also approves employment and compensation agreements with our key personnel and directors. The Compensation Committee has the power and authority to conduct or authorize studies, retain independent consultants, accountants or others, and obtain unrestricted access to management, our internal auditors, human resources and accounting employees and all information relevant to its responsibilities. The principal functions and responsibilities of the Compensation Committee include: ● reviewing and approving the Company’s compensation guidelines and structure; ● reviewing and approving, on an annual basis, the corporate goals and objectives with respect to compensation for the Chief Executive Officer; ● reviewing and approving, on an annual basis, the evaluation process and compensation structure for the Company’s other officers, including salary, bonus, incentive and equity compensation; ● periodically reviewing and making recommendations to the Board regarding the compensation of non-management directors; and ● developing the executive compensation philosophy and reviewing and recommending to the Board for approval all compensation policies and compensation programs for the executive team. During the fiscal year ended December 31, 2023, the Compensation Committee did not meet. The Compensation Committee is governed by a written charter, as adopted by our Board. A copy of the Compensation Committee Charter is posted under the “Investors” tab under “Corporate Governance” on our website, which is located at www.avalon-globocare.com . Nominating and Corporate Governance Committee . Our Nominating and Corporate Governance Committee consists of Steven Sanders, William Stilley and Tevi Troy, with Mr. Sanders serving as the Chair of our Nominating and Corporate Governance Committee. Our Board has determined that each member of the Nominating and Governance Committee is an “independent director” as defined by Nasdaq Rules. The Nominating and Corporate Governance Committee is generally responsible for recommending to our full Board certain policies, procedures, and practices designed to ensure that our corporate governance policies, procedures, and practices continue to assist the Board and our management in effectively and efficiently promoting the best interests of our stockholders. The Nominating and Corporate Governance Committee is also responsible for selecting and recommending for approval by our Board and our stockholders a slate of director nominees for election at each of our annual meetings of stockholders, and otherwise for determining the board committee members and chairpersons, subject to ratification by our Board, as well as recommending to the Board director nominees to fill vacancies or new positions on the Board or its committees that may occur or be created from time to time, all in accordance with our bylaws and applicable law. 64 In identifying independent candidates, with significant senior-level professional experience, to be nominated as potential members of our Board, the Nominating and Corporate Governance Committee solicits candidates from the Board, senior management and others, and may engage a search firm in the process. The Nominating and Corporate Governance Committee reviews and narrows the list of candidates and interviews potential nominees. The final candidate is also introduced and interviewed by the Board and the lead director if one has been appointed. In general, in considering whether to recommend any particular candidate for inclusion in our Board’s slate of recommended director nominees, the Nominating and Corporate Governance Committee will apply the criteria set forth in our corporate governance guidelines. These criteria include the candidate’s integrity, business acumen, commitment to understanding our business and industry, experience, conflicts of interest and the ability to act in the interests of our stockholders. Further, specific consideration is given to, among other things, diversity of background and experience that a candidate would bring to our Board. The Nominating and Corporate Governance Committee does not assign specific weights to particular criteria and no particular criterion is a prerequisite for each prospective nominee. We believe that the backgrounds and qualifications of our directors, considered as a group, should provide a composite mix of experience, knowledge and abilities that will allow our Board to fulfill its responsibilities. Stockholders may recommend individuals to the Nominating and Corporate Governance Committee for consideration as potential director candidates by submitting the names, together with appropriate biographical information and background materials to our Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee considers recommendations from stockholders if submitted in a timely manner in accordance with the procedures set forth in our bylaws and will apply the same criteria to all persons being considered. The principal functions and responsibilities of the Nominating and Corporate Governance Committee include: ● developing and maintaining our corporate governance policy guidelines; ● developing and maintaining our Code of Business Conduct and Ethics; ● overseeing the interpretation and enforcement of our Code of Business Conduct and Ethics for the Chief Executive Officer and Senior Financial and Accounting Officers; ● evaluating the performance of our Board, its committees, and committee chairpersons and our directors; and ● selecting and recommending a slate of director nominees for election at each of our annual meetings of the stockholders and recommending to the Board director nominees to fill vacancies or new positions on the Board or its committees that may occur from time to time. During the fiscal year ended December 31, 2023, the Nominating and Corporate Governance Committee met one time. The Nominating and Corporate Governance Committee is governed by a written charter approved by our Board. A copy of the Nominating and Corporate Governance Committee Charter is posted under the “Investors” tab under “Corporate Governance” on our website, which is located at www.avalon-globocare.com . Stockholder nominations for directorships Stockholders may recommend individuals to the Nominating and Corporate Governance Committee for consideration as potential director candidates by submitting their names and background to the Secretary of the Company at the address set forth below under “Stockholder Communications” in accordance with the provisions set forth in our bylaws. All such recommendations will be forwarded to the Nominating and Corporate Governance Committee, which will review and only consider such recommendations if appropriate biographical and other information is provided, including, but not limited to, the items listed below, on a timely basis. All security holder recommendations for director candidates must be received by the Company in the timeframe(s) set forth under the heading “Stockholder Proposals” below. ● the name and address of record of the security holder; ● a representation that the security holder is a record holder of the Company’s securities, or if the security holder is not a record holder, evidence of ownership in accordance with Rule 14a-8(b)(2) of the Exchange Act; 65 ● the name, age, business and residential address, educational background, current principal occupation or employment, and principal occupation or employment for the preceding five (5) full fiscal years of the proposed director candidate; ● a description of the qualifications and background of the proposed director candidate and a representation that the proposed director candidate meets applicable independence requirements; ● a description of any arrangements or understandings between the security holder and the proposed director candidate; and ● the consent of the proposed director candidate to be named in the proxy statement relating to the Company’s annual meeting of stockholders and to serve as a director if elected at such annual meeting. Assuming that appropriate information is provided for candidates recommended by stockholders, the Nominating and Corporate Governance Committee will evaluate those candidates by following substantially the same process, and applying substantially the same criteria, as for candidates submitted by members of the Board or other persons, as described above and as set forth in its written charter. Compensation Committee Interlocks and Insider Participation None of our executive officers currently serves, or in the past year has served, as a member of the board of directors or compensation committee of any entity that has one or more executive officers on our board of directors or compensation committee. Code of Ethics We have adopted a written Code of Business Conduct and Ethics that applies to our employees, officers and directors. A copy of the Code of Business Conduct and Ethics is posted under the “Investors” tab under “Corporate Governance” in our website, which is located at www.avalon-globocare.com. We intend to disclose future amendments to certain provisions of our Code of Business Conduct and Ethics, or waivers of such provisions applicable to any principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, and our directors, on our website identified above or in filings with the SEC. Anti-Hedging Policy Under the terms of our insider trading policy, we prohibit each officer, director and employee, and each of their family members and controlled entities, from engaging in certain forms of hedging or monetization transactions. Such transactions include those, such as zero-cost collars and forward sale contracts, that would allow them to lock in much of the value of their stock holdings, often in exchange for all or part of the potential for upside appreciation in the stock, and to continue to own the covered securities but without the full risks and rewards of ownership. Limitation of Directors Liability and Indemnification The Delaware General Corporation Law authorizes corporations to limit or eliminate, subject to certain conditions, the personal liability of directors to corporations and their stockholders for monetary damages for breach of their fiduciary duties. Our Amended and Restated Certificate of Incorporation (the “Certificate of Incorporation”) limits the liability of our directors to the fullest extent permitted by Delaware law. In addition, we have entered into indemnification agreements with each of our directors and officers whereby we have agreed to indemnify those directors and officers to the fullest extent permitted by law, including indemnification against expenses and liabilities incurred in legal proceedings to which the director or officer was, or is threatened to be made, a party by reason of the fact that such director or officer is or was a director, officer, employee or agent of the Company, provided that such director or officer acted in good faith and in a manner that the director or officer reasonably believed to be in, or not opposed to, the best interests of the Company. We have director and officer liability insurance to cover liabilities our directors and officers may incur in connection with their services to us, including matters arising under the Securities Act. Our Certificate of Incorporation and bylaws also provide that we will indemnify our directors and officers who, by reason of the fact that he or she is one of our officers or directors, is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative related to their board role with us. There is no pending litigation or proceeding involving any of our directors, officers, employees or agents in which indemnification will be required or permitted. We are not aware of any threatened litigation or proceeding that may result in a claim for such indemnification. 66 Delinquent Section 16(a) Reports Section 16(a) of the Exchange Act requires our directors and executive, officers, and persons who are beneficial owners of more than 10% of a registered class of our equity securities, to file reports of ownership and changes in ownership with the SEC. These persons are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file. Based solely upon our review of copies of Forms 3, 4 and 5 furnished to us, we believe that all of our directors, executive officers and any other applicable stockholders timely filed all reports required by Section 16(a) of the Exchange Act during the fiscal year ended December 31, 2023, except for the following: (i) we filed a Form 3 for Lourdes Felix on March 7, 2023, covering a transaction that required a Form 4 filing due on January 11, 2023; (ii) we filed a Form 4 for Tevi Troy on March 8, 2023, covering a transaction that required a Form 4 filing due on January 5, 2021; (iii) we filed a Form 4 for William Stilley on March 8, 2023, covering a transaction that required a Form 4 filing due on January 5, 2021; (iv) we filed a Form 4 for William B. Stilley, III on March 8, 2023, covering a transaction that required a Form 4 filing due on January 5, 2021; (v) we filed a Form 4 for Steven A. Sanders on March 9, 2023, covering a transaction that required a Form 4 filing due on January 5, 2021; and (vi) we filed a Form 4 for Wilbert J. Tauzin II on March 9, 2023, covering a transaction that required a Form 4 filing due on January 5, 2021. ITEM 11. EXECUTIVE COMPENSATION Executive Officers’ Compensation We are currently a “smaller reporting company” and as such, we have opted to comply with the scaled down disclosure rules applicable to a “smaller reporting company,” as such term is defined in the rules promulgated under the Securities Act, which require compensation disclosure for (i) our principal executive officer, (ii) our two most highly compensated executive officers, other than the principal executive officer, whose total compensation for 2023 exceeded $100,000 and who were serving as executive officers as of December 31, 2023, and (iii) up to two additional individuals for whom disclosure would have been provided pursuant to the foregoing clause (ii) but for the fact that the individual was not serving as an executive officer as of December 31, 2023. We refer to these individuals as “named executive officers.” Our named executive officers for the year ended December 31, 2023 were: Summary Compensation Table Name and principal position Year Salary Stock awards Option Awards Nonequity incentive plan compensation Nonqualified deferred compensation earnings All other compensation Total ($) ($) ($) ($) ($) ($) ($) Dr. David Jin 2023 330,000 - - - - - 330,000 CEO 2022 360,000 - - - - - 360,000 Luisa Ingargiola 2023 350,000 - - - - - 350,000 CFO 2022 350,000 - - - - - 350,000 Meng Li 2023 280,244 - - - - - 280,244 COO 2022 340,000 - - - - - 340,000 Employment Agreements David Jin On December 1, 2016, the Company entered into an Executive Employment Agreement with David Jin, the Company’s CEO and President. Pursuant to the agreement, Mr. Jin was employed as President and Chief Executive Officer of the Company, which agreement had a term initially through November 30, 2017 unless earlier terminated pursuant to the terms of the agreement. On February 20, 2020, the Company entered into a Letter Agreement with Dr. Jin pursuant to which the term of Dr. Jin’s Executive Employment Agreement was extended an additional three years. During the term of the agreement, Dr. Jin is entitled to a base salary and will be eligible for a discretionary performance bonus, equity awards and to participate in employee benefits plans as the Company may institute from time to time at the discretion of the Board. On January 3, 2019, the Company entered into a Letter Agreement with Dr. Jin, pursuant to which his annual base salary set forth in his employment agreement was increased to $360,000, effective January 1, 2019. Pursuant to the agreement, Mr. Jin may be terminated for “cause” as defined and Mr. Jin may resign for “good reason” as defined. In the event Mr. Jin is terminated without cause or resigns for good reason, the Company will be required to pay Mr. Jin all accrued salary and bonuses, reimbursement for all business expenses and Mr. Jin’s salary for one year. In the event Mr. Jin is terminated with cause, resigns without good reason, dies or is disabled, the Company will be required to pay Mr. Jin all accrued salary and bonuses and reimbursement for all business expenses. Under the agreement Mr. Jin is subject to confidentiality, non-compete and non-solicitation restrictions. This agreement has not been extended, however Dr. Jin is continuing his employment with the Company at will and otherwise under the same terms and conditions, except that Dr. Jin agreed to a salary reduction as set forth in the table above for the year ended December 31, 2023 as part of the Company’s cost reduction measures. 67 Luisa Ingargiola On February 21, 2017, Ms. Ingargiola and the Company entered into an Executive Retention Agreement effective February 9, 2017, pursuant to which Ms. Ingargiola agreed to serve as Chief Financial Officer in consideration of an annual salary. On January 3, 2019, the Company entered into a Letter Agreement with Ms. Ingargiola, pursuant to which her annual base salary set forth in her employment agreement was increased to $350,000 effective January 1, 2019. The employment of Ms. Ingargiola is at will and may be terminated at any time, with or without formal cause. Pursuant to the terms of Executive Retention Agreement with Ms. Ingargiola, the Company has agreed to provide specified severance and bonus amounts and to accelerate the vesting on her equity awards upon termination upon a change of control or an involuntary termination, as each term is defined in the agreements. In the event of a termination upon a change of control, Ms. Ingargiola is entitled to receive an amount equal to 12 months of her base salary and the target bonus then in effect for the executive officer for the year in which such termination occurs, such bonus payment to be pro-rated to reflect the full number of months the executive remained in the Company’s employ. In addition, the vesting on any stock option held by the executive officer will be accelerated in full. At the election of the executive officer, the Company will also continue to provide health related employee insurance coverage for twelve months, at the Company’s expense. In the event of an involuntary termination, Ms. Ingargiola is entitled to receive an amount equal to six months of her base salary and the target bonus then in effect for the executive officer for the six months in which such termination occurs, such bonus payment to be pro-rated to reflect the full number of months the executive remained in the Company’s employ. Such payment will be increased to 12 months upon the one-year anniversary of the retention agreement. In addition, the vesting on any stock option held by the executive officer will be accelerated in full. At the election of the executive officer, the Company will also continue to provide health related employee insurance coverage for twelve months, at the Company’s expense. Meng Li On January 11, 2017, Avalon Shanghai entered into an Executive Employment Agreement with Meng Li, the Company’s COO and Secretary. Pursuant to the agreement, Ms. Li was employed as Chief Operating Officer and President of Avalon Shanghai initially through November 30, 2019, unless earlier terminated pursuant to the terms of the agreement. On February 20, 2020, the Company entered into a Letter Agreement with Meng Li pursuant to which the term of Ms. Li’s Executive Employment Agreement entered between the Company’s subsidiary and Ms. Li dated January 11, 2017 was extended an additional three years. During the term of the agreement, Ms. Li is entitled to a base salary and will be eligible for a discretionary performance bonus, equity awards and to participate in employee benefits plans as the Avalon Shanghai may institute from time to time at the discretion of its Board of Directors. On January 3, 2019, the Company entered into a Letter Agreement with Ms. Li, pursuant to which her annual base salary set forth in her employment agreement was increased to $340,000 effective January 1, 2019, except that Ms. Li agreed to a salary reduction as set forth in the table above for the year ended December 31, 2023 as part of the Company’s cost reduction measures. Pursuant to the agreement, Ms. Li may be terminated for “cause” as defined and Ms. Li may resign for “good reason” as defined. In the event Ms. Li is terminated without cause or resigns for good reason, Avalon Shanghai will be required to pay Ms. Li all accrued salary and bonuses, reimbursement for all business expenses and Ms. Li’s salary for one year. In the event Ms. Li is terminated with cause, resigns without good reason, dies or is disabled, Avalon Shanghai will be required to pay Ms. Li all accrued salary and bonuses and reimbursement for all business expenses. Under the agreement Ms. Li is subject to confidentiality, non-compete and non-solicitation restrictions. Option Exercises and Stock Vested There were no options exercised by our executive officers or stock vested to our executive officers during the year ended December 31, 2023. 68 Outstanding Equity Awards at Fiscal Year End The following table sets forth information with respect to the outstanding equity awards of our principal executive officers and principal financial officer during 2023, and each person who served as an executive officer of the Company as of December 31, 2023: Outstanding Equity Awards Option Awards Stock Awards Name and principal position Number of securities underlying unexercised options Exercisable (#) Number of securities underlying unexercised options Unexercisable (#) Equity incentive plan awards: Number of securities underlying unexercised options (#) Options exercise price ($) Option expiration Date Number of shares or units of stock that have not vested (#) Market value of shares or units of stock that have not vested ($) Equity incentive plan awards: Number of unearned shares, units or other rights that have not vested (#) Equity incentive plan awards: Market or payout value of unearned shares, units or other rights that have not vested ($) Luisa Ingargiola, 200,000 - 200,000 5.0 2/8/2027 - - - - CFO 40,000 - 40,000 15.2 2/18/2030 - - - - David Jin, 15,000 - 15,000 20.0 1/2/2024 - - - - CEO 40,000 - 40,000 15.2 2/18/2030 - - - - Meng Li, 15,000 - 15,000 20.0 1/2/2024 - - - - COO 30,000 - 30,000 15.2 2/18/2030 - - - - No Pension Benefits The Company does not maintain any plan that provides for payments or other benefits to its executive officers at, following or in connection with retirement and including, without limitation, any tax-qualified defined benefit plans or supplemental executive retirement plans. No Nonqualified Deferred Compensation The Company does not maintain any defined contribution or other plan that provides for the deferral of compensation on a basis that is not tax-qualified. Director Compensation The following table sets forth information concerning the compensation earned or paid to certain of our non-employee directors during the fiscal year ended December 31, 2023: Name Fees Earned or Paid in Cash $ Stock Awards $ Option Awards $ Non-equity Incentive Plan Compensation $ Change in Pension Value and Non- Qualified Deferred Compensation Earnings $ All Other Compensation $ Total $ Wilbert Tauzin (1) - - 38,052 - - - 38,052 Wenzhao Lu 100,000 - - - - - 100,000 David Jin - - - - - - - Lourdes Felix (2) 68,488 - 23,268 - - - 91,756 Steven Sanders (3) 70,000 - 33,665 - - - 103,665 Tevi Troy (4) 60,000 - 33,665 - - - 93,665 William Stilley (5) 70,000 - 33,665 - - - 103,665 (1) Mr. Tauzin’s 2023 compensation consisted of 20,000 options vested and valued at $38,052. (2) Ms. Felix’s 2023 compensation consisted of cash of $68,488 and 7,803 stock options vested and valued at $23,268. (3) Mr. Sanders’s 2023 compensation consisted of cash of $70,000 and 8,000 options vested and valued at $33,665. (4) Mr. Troy’s 2023 compensation consisted of cash of $60,000 and 8,000 options vested and valued at $33,665. (5) Mr. Stilley’s 2023 compensation consisted of cash of $70,000 and 8,000 options vested and valued at $33,665. 69 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS Equity Compensation Plan Information Amended and Restated 2020 Stock Incentive Plan On August 29, 2023, the Board adopted the Avalon GloboCare Corp. Amended and Restated 2020 Stock Incentive Plan (the “Amended and Restated 2020 Plan”), subject to stockholder approval, which was received on December 19, 2023. The Amended and Restated 2020 Plan provides for the grant of incentive stock options that are intended to qualify under Section 422 of the Code (“ISOs”), nonstatutory stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance-based stock awards and performance-based cash awards. ISOs may be granted only to employees. All other awards may be granted to employees, including officers, and to the Company’s non-employee directors, consultants and other advisors. A total of 2,000,000 shares of our common stock were initially available under the Amended and Restated 2020 Plan. In addition, the number of shares of our common stock reserved for issuance under the Amended and Restated 2020 Plan automatically increases on January 1 of each year, beginning on January 1, 2024, by 1% of the total number of shares of our common stock outstanding on December 31 of the preceding calendar year, or a lesser number of shares determined by our Board. On January 1, 2024, the number of shares of our common stock reserved for issuance under the Amended and Restated 2020 Plan was increased by an aggregate of 109,995 shares. As of March 29, 2024, a total of 2,109,995 shares of our common stock are available for issuance under the Amended and Restated 2020 Plan, including shares that are the subject of outstanding awards as of such date. Clawback/Recoupment. Awards granted under the Amended and Restated 2020 Plan will be subject to the requirement that the awards be forfeited or amounts repaid to the Company after they have been distributed to the participant (i) to the extent set forth in an award agreement or (ii) to the extent covered by any clawback or recapture policy adopted by the Company from time to time (including the Clawback Policy adopted by the Board on November 16, 2023), or any applicable laws that impose mandatory forfeiture or recoupment, under circumstances set forth in such applicable laws. Amendment, Termination . Our Board may at any time amend, suspend or terminate the Amended and Restated 2020 Plan for the purpose of satisfying the requirements of the Code, or other applicable law or regulation or for any other legal purpose, provided that, without the consent of our stockholders, the Board may not (i) increase the number of shares of our common stock available under the Amended and Restated 2020 Plan, (ii) change the group of individuals eligible to receive awards, or (iii) extend the term of the Amended and Restated 2020 Plan. 2020 Incentive Stock Plan On June 12, 2020, the Board adopted the Avalon GloboCare Corp. 2020 Incentive Stock Plan (the “2020 Plan”), subject to stockholder approval, which was received on August 4, 2020. The general purpose of the 2020 Plan is to provide a means whereby eligible directors, officers, employees or consultants to the Company develop a sense of proprietorship and personal involvement in our development and financial success, and to encourage them to devote their best efforts to our business, thereby advancing our interests and the interests of our stockholders. We believe that the 2020 Plan advances the Company’s interests by enhancing our ability to (i) attract, retain and reward employees, officers, directors and consultants who are in a position to make significant contributions to our success; (ii) encourage our employees, officers, directors and consultants to take into account our long-term interests through ownership of our shares of our common stock; and (iii) to provide incentives for such persons to exert maximum efforts for our success. The Board has reserved 500,000 shares of our common stock for issuance under the 2020 Plan, subject to customary adjustments for stock splits, stock dividends or similar transactions. Under the 2020 Plan, awards may be made in the form of options to purchase shares of our common stock, as well as restricted shares of our common stock and restricted stock units payable in shares of our common stock. Options may be granted which are intended to qualify as ISOs under Section 422 of the Code or which are not intended to qualify as ISOs thereunder. However, ISOs may only be granted to employees. If any option granted under the 2020 Plan terminates without having been exercised in full or if any award is forfeited, or if shares otherwise issuable are withheld to satisfy tax withholding obligations, the number of shares of our common stock as to which such option or award was forfeited or withheld will be available for future grants under the 2020 Plan. The 2020 Plan is not a qualified deferred compensation plan under Section 401(a) of the Code and is not subject to the provisions of the Employee Retirement Income Security Act of 1974. 70 2019 Incentive Stock Plan On June 7, 2019, the Board adopted the Avalon GloboCare Corp. 2019 Incentive Stock Plan (the “2019 Plan”), subject to stockholder approval, which was received on August 6, 2019. There are 500,000 shares of our common stock reserved for issuance under the 2019 Plan, subject to customary adjustments for stock splits, stock dividends or similar transactions. As of March 29, 2024, 93,200 shares remained available for issuance under the 2019 Plan. The following table provides information with respect to our 2019 Plan, 2020 Plan, and Amended and Restated 2020 Plan under which equity compensation was authorized as of December 31, 2023: Plan category Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) Weighted average exercise price of outstanding options, warrants and rights (b) Number of securities remaining available for future issuance under the 2019 Plan and 2020 Plan (excluding securities reflected in column (a)) (c) Equity compensation plan approved by security holders Amended and Restated 2020 Plan (4) — — 2020 Plan 372,403 (1) $ 4.94 (2) 127,597 2019 Plan 406,800 (3) $ 18.36 (2) 93,200 Equity compensation plans not approved by security holders — — — Total 779,203 $ 12.36 220,797 (1) Includes 324,803 shares of our common stock issuable upon exercise of outstanding options and 47,600 shares of our common stock issuable pursuant to outstanding restricted stock units. (2) The weighted average exercise price does not take into account the shares issuable pursuant to outstanding restricted stock units, which have no exercise price. (3) Includes 402,000 shares of our common stock issuable upon exercise of outstanding options and 4,800 shares of our common stock issuable pursuant to outstanding restricted stock units. (4) No issuances have been made as of December 31, 2023 under the Amended and Restated 2020 Plan. Security Ownership of Certain Beneficial Owners and Management Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. In accordance with SEC rules, shares of our common stock which may be acquired upon exercise of stock options or warrants which are currently exercisable or which become exercisable within 60 days of the date of the applicable table below are deemed beneficially owned by the holders of such options and warrants and are deemed outstanding for the purpose of computing the percentage of ownership of such person, but are not treated as outstanding for the purpose of computing the percentage of ownership of any other person. Subject to community property laws, where applicable, the persons or entities named in the tables below have sole voting and investment power with respect to all shares of our common stock indicated as beneficially owned by them. 71 The following table sets forth certain information, as of March 29, 2024 with respect to the beneficial ownership of the outstanding common stock by (i) any holder of more than five (5%) percent; (ii) each of our executive officers and directors; and (iii) our directors and executive officers as a group. The numbers below reflect a 1:10 reverse stock split implemented on January 5, 2023. Except as otherwise indicated, each of the stockholders listed below has sole voting and investment power over the shares beneficially owned. Name of Beneficial Owner (1) Common Stock Beneficially Owned Percentage of Common Stock (2) Wenzhao Lu* (3) 3,583,788 32.3 % David Jin, MD, PhD* (4) 1,585,000 14.2 % Meng Li* (5) 545,000 4.9 % Luisa Ingargiola* (6) 240,000 2.1 % Steven A. Sanders* (7) 34,000 ** Wilbert J. Tauzin II* (8) 65,000 ** William B. Stilley III* (9) 34,000 ** Tevi Troy* (10) 34,000 ** Lourdes Felix* (11) 9,803 ** All officers and directors as a group (9 persons) 6,130,591 55.1 % Shareholder owning 5% or more: FSUNSHINE TRADING PTE LTD (12) 697,610 6.2 % * Officer and/or director of our Company. ** Less than 1.0%. (1) Except as otherwise indicated, the address of each beneficial owner is c/o Avalon GloboCare Corp., 4400 Route 9 South, Suite 3100, Freehold, New Jersey 07728. (2) Applicable percentage ownership is based on 11,104,534 shares of our common stock outstanding as of March 29, 2024, together with securities exercisable or convertible into shares of our common stock within 60 days of March 29, 2024 for each stockholder. Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Shares of common stock that are currently exercisable or exercisable within 60 days of March 29, 2024 are deemed to be beneficially owned by the person holding such securities for the purpose of computing the percentage of ownership of such person, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person. (3) Wenzhao Lu holds 3,583,788 shares of our common stock. (4) David Jin holds (i) 1,545,000 shares of our common stock and (ii) 40,000 vested options to acquire 40,000 shares of our common stock. (5) Meng Li holds (i) 515,000 shares of our common stock and (ii) 30,000 vested options to acquire 30,000 shares of our common stock. 72 (6) Represents 240,000 vested options to acquire 240,000 shares of our common stock. (7) Represents stock option to acquire 34,000 shares of our common stock, 32,000 of which have been vested and 2,000 of which will be vested within 60 days. (8) Represents stock option to acquire 65,000 shares of our common stock, 64,000 of which have been vested and 1,000 of which will be vested within 60 days. (9) Represents stock option to acquire 34,000 shares of our common stock, 32,000 of which have been vested and 2,000 of which will be vested within 60 days. (10) Represents stock option to acquire 34,000 shares of our common stock, 32,000 of which have been vested and 2,000 of which will be vested within 60 days. (11) Represents stock option to acquire 9,803 shares of our common stock, 7,803 of which have been vested and 2,000 of which will be vested within 60 days. (12) FSUNSHINE TRADING PTE LTD holds (i) 573,646 shares of our common stock and (ii) 123,964 vested options to acquire 123,964 shares of our common stock. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE Other than compensation arrangements for our named executive officers and directors, we describe below each transaction or series of similar transactions, since January 1, 2022 to which we were a party or will be a party, in which: ● the amounts involved exceeded or will exceed the lesser of (i) $120,000 or (ii) 1% of the average total assets of the Company at year end for the last two completed fiscal years; and ● any of our directors, executive officers, promoters or holders of more than 5% of our capital stock, or any member of the immediate family of the foregoing persons, had or will have a direct or indirect material interest. Compensation arrangements for our named executive officers and directors are described in the section entitled “Executive Compensation.” Rental Revenue from Related Party and Rent Receivable – Related Party The Company leases part of its commercial real property located in New Jersey to D.P. Capital Investments LLC, a company controlled by Wenzhao Lu, the Company’s largest shareholder and chairman of the Board. The term of the related party lease agreement is five years commencing on May 1, 2021 and will expire on April 30, 2026. For both the years ended December 31, 2023 and 2022, the related party rental revenue amounted to $50,400 and has been included in rental revenue on the accompanying consolidated statements of operations and comprehensive loss. At December 31, 2023 and 2022, the related party rent receivable totaled $124,500 and $74,100, respectively, which has been included in rent receivable on the accompanying consolidated balance sheets, and no allowance for doubtful accounts was deemed to be required on the receivable. Services Provided by Related Party From time to time, Wilbert Tauzin, a director of the Company, and his son provide consulting services to the Company. As compensation for professional services provided, the Company recognized consulting expenses of $86,528 and $144,064 for the years ended December 31, 2023 and 2022, respectively, which have been included in professional fees on the accompanying consolidated statements of operations and comprehensive loss. 73 Accrued Liabilities and Other Payables – Related Parties In 2017, the Company acquired Beijing Genexosome for a cash payment of $450,000. As of December 31, 2023 and 2022, the unpaid acquisition consideration of $100,000, was payable to Dr. Yu Zhou, a former director and former co-chief executive officer and 40% owner of Genexosome, and has been included in accrued liabilities and other payables — related parties on the accompanying consolidated balance sheets. During the period from June 2023 through December 2023, Lab Services MSO paid shared expense on behalf of the Company. As of December 31, 2023, the balance due to Lab Services MSO amounted to $72,746, which has been included in accrued liabilities and other payables — related parties on the accompanying consolidated balance sheets. As of December 31, 2023 and 2022, $33,712 and $0 of accrued and unpaid interest related to borrowings from Wenzhao Lu, the Company’s largest shareholder and Chairman of the Board, respectively, have been included in accrued liabilities and other payables — related parties on the accompanying consolidated balance sheets. Borrowings from Related Party Line of Credit On August 29, 2019, the Company entered into a Line of Credit Agreement (the “Line of Credit Agreement”) providing the Company with a $20 million line of credit (the “Line of Credit”) from Wenzhao Lu (the “Lender”), the largest shareholder and Chairman of the Board. The Line of Credit allows the Company to request loans thereunder and to use the proceeds of such loans for working capital and operating expense purposes until the facility matures on December 31, 2024. The loans are unsecured and are not convertible into equity of the Company. Loans drawn under the Line of Credit bear interest at an annual rate of 5% and each individual loan is payable three years from the date of issuance. The Company has a right to draw down on the Line of Credit and such right is not at the discretion of the related party Lender. The Company may, at its option, prepay any borrowings under the Line of Credit, in whole or in part at any time prior to maturity, without premium or penalty. The Line of Credit Agreement includes customary events of default. If any such event of default occurs, the Lender may declare all outstanding loans under the Line of Credit to be due and payable immediately. In the years ended December 31, 2023 and 2022, activity recorded for the Line of Credit is summarized in the following table: Outstanding principal under the Line of Credit at January 1, 2022 $ 2,750,262 Draw down from Line of Credit 100,000 Repayment of Line of Credit (410,000 ) Settlement of Line of Credit in shares (2,440,262 ) Outstanding principal under the Line of Credit at December 31, 2022 - Draw down from Line of Credit 850,000 Outstanding principal under the Line of Credit at December 31, 2023 $ 850,000 For the years ended December 31, 2023 and 2022, the interest expense related to related party borrowings amounted to $33,712 and $79,898, respectively, and has been reflected as interest expense — related party on the accompanying consolidated statements of operations and comprehensive loss. As of December 31, 2023 and 2022, the related accrued and unpaid interest for the Line of Credit was $33,712 and $0, respectively, and has been included in accrued liabilities and other payables — related parties on the accompanying consolidated balance sheets. As of December 31, 2023, the Company used approximately $6.8 million of the credit facility and has approximately $13.2 million remaining available under the Line of Credit. 74 Common Stock Sold to Related Party for Cash On August 5, 2022, the Company sold 44,872 shares of its common stock at a purchase price of $7.8 per share, the fair market value on the transaction date, to Wenzhao Lu, the Chairman of the Board, pursuant to a subscription agreement. The Company received proceeds of $350,000 (See Note 14 – Common Shares Sold for Cash). Series A Preferred Stock Sold to Related Party for Cash On December 14, 2022, the Company entered into a Securities Purchase Agreement with Wenzhao Lu, the Company’s Chairman of the Board, pursuant to which the Company sold to Mr. Lu 4,000 shares of its Series A Preferred Stock, stated value $1,000, for gross proceeds of $4,000,000 (See Note 14 – Series A Preferred Stock Sold for Cash). Membership Interest Purchase Agreement On November 17, 2023, the Company entered into a Membership Interest Purchase Agreement (the “Purchase Agreement”) with Wenzhao Lu (the “Purchaser”), the largest shareholder and Chairman of the Board, pursuant to which (i) the Purchaser will acquire from the Company 30% of the total outstanding membership interests of Avalon RT 9, a wholly owned subsidiary of the Company for a cash purchase price of $3,000,000 (the “Acquisition”), and (ii) for a period of twelve months following the closing of the Acquisition, the Purchaser shall have the option to purchase from the Company up to an additional 70% of the outstanding membership interests of Avalon RT 9 for a purchase price of up to $7,000,000 (the “Option”), subject to the terms and conditions of a membership interest purchase agreement to be negotiated and entered into between the Purchaser and the Company at such time that the Purchaser desires to exercise the Option. The Acquisition was not closed as of December 31, 2023. The Company received $485,714 from Wenzhao Lu as of December 31, 2023, which was recorded as advance from sale of noncontrolling interest – related party on the accompanying consolidated balance sheets. Policies and Procedures for Related Party Transactions Our Board has adopted a policy that our executive officers, directors, nominees for election as a director, beneficial owners of more than 5% of any class of our common stock, any members of the immediate family of any of the foregoing persons and any firms, corporations or other entities in which any of the foregoing persons is employed or is a partner or principal or in a similar position or in which such person has a 5% or greater beneficial ownership interest, are not permitted to enter into a transaction with us without the prior consent of our Board acting through the Audit Committee or, in certain circumstances, the Chairman of the Audit Committee. Any request for us to enter into a transaction with a related party, in which the amount involved exceeds $100,000 and such related party would have a direct or indirect interest must first be presented to our Audit Committee, or in certain circumstances the Chairman of our Audit Committee, for review, consideration and approval. In approving or rejecting any such proposal, our Audit Committee, or the Chairman of our Audit Committee, is to consider the material facts of the transaction, including, but not limited to, whether the transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances, the extent of the benefits to us, the availability of other sources of comparable products or services and the extent of the related party’s interest in the transaction. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES Marcum LLP served as our independent auditors for the years ended December 31, 2023 and 2022. Aggregate fees billed to the Company for professional services rendered by Marcum LLP during the last two years were as follows: Fee Category 2023 2022 Audit Fees $ 292,005 $ 196,473 Audit-Related Fees $ 198,158 $ - Tax Fees $ - $ - All Other Fees $ - $ - Total Fees $ 490,163 $ 196,473 75 Audit Fees Consists of fees billed for professional services rendered for the audit of our annual consolidated financial statements, review of our Annual Report on Form 10-K, and review of the interim consolidated financial statements included in our Quarterly Reports on Form 10-Q, and services that are normally provided by our independent auditors in connection with statutory and regulatory filings or engagements, including registration statements. Audit-Related Fees Consists of fees billed for assurance and related services that are reasonably related to the performance of the audit and or review of our consolidated financial statements and are not reported under “Audit Fees”, such as audits and reviews in connection with the acquisition of Lab Services MSO. Tax Fees Consists of fees billed for professional services for tax compliance, tax advice and tax planning. All Other Fees Consists of fees for products and services other than the services reported above. There were no management consulting services provided in 2023 or 2022. Pre-Approval Policy and Procedures The current policy of the directors, acting as the Audit Committee, is to approve the appointment of the principal auditing firm and any permissible audit-related services. The audit and audit related fees include fees for the annual audit of the financial statements and review of financial statements included in Quarterly Reports on Form 10-Q. Fees charged by the auditor were approved by the Board with engagement letters signed by the Audit Committee Chairman. The Audit Committee is responsible for the pre-approval of audit and permitted non-audit services to be performed by the Company’s independent auditor. The Audit Committee will, on an annual basis, consider and, if appropriate, approve the provision of audit and non-audit services by the auditor. Thereafter, the Audit Committee will, as necessary, consider and, if appropriate, approve the provision of additional audit and non-audit services by the auditor which are not encompassed by the Audit Committee’s annual pre-approval and are not prohibited by law. The Audit Committee has delegated to the Chair of the Audit Committee the authority to pre-approve, on a case-by-case basis, non-audit services to be performed by the auditor. The Audit Committee has approved all audit and permitted non-audit services performed by the auditor for the year ended December 31, 2023. 76 PART IV ITEM 15. EXHIBITS Exhibit Number Description 1.1 Open Market Sale Agreement SM , dated as of December 13, 2019, by and between Avalon GloboCare Corp. and Jefferies LLC. (incorporated by reference to Exhibit 1.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on December 13, 2019) 2.1 Membership Interest Purchase Agreement, dated November 7, 2022, by and among the Registrant, Laboratory Services MSO, LLC, SCBC Holdings LLC, Avalon Laboratory Services, Inc., The Zoe Family Trust, Bryan Cox and Sarah Cox (incorporated by reference to Exhibit 2.1 of the Registrant’s Current Report on Form 8-K filed on November 8, 2022). 2.2 Amended and Restated Membership Interest Purchase Agreement, dated February 9, 2023 by and among the Registrant, Laboratory Services MSO, LLC, SCBC Holdings LLC, Avalon Laboratory Services, Inc., the Zoe Family Trust, Bryan Cox and Sarah Cox (incorporated by reference to Exhibit 2.1 of the Registrant’s Current Report on Form 8-K filed on February 13, 2023). 3.1 Amended and Restated Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 of the Current Report on Form 8-K/A filed with the Securities and Exchange Commission on April 26, 2018) 3.2 Certificate of Amendment to the Amended and Restated Certificate of Incorporation, as amended, of Avalon GloboCare Corp. (incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K filed on January 4, 2023). 3.3 Amended and Restated Bylaws of the Registrant (incorporated by reference to Exhibit 3.2 of the Current Report on Form 8-K/A filed with the Securities and Exchange Commission on April 26, 2018) 3.4 Certificate of Designation of Preferences, Rights and Limitations of the Series A Convertible Preferred Stock (incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K filed on November 8, 2022) 3.5 Certificate of Designation of Preferences, Rights and Limitations of the Series B Convertible Preferred Stock (incorporated by reference to Exhibit 3.2 of the Registrant’s Current Report on Form 8-K filed on February 13, 2023) 4.1 Form of Subscription Agreement by and between Avalon GloboCare Corp. and the December 2016 Accredited Investors (incorporated by reference to Exhibit 4.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on December 21, 2016) 4.2 † Stock Option issued to Luisa Ingargiola dated February 21, 2017 (incorporated by reference to Exhibit 4.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on February 21, 2017) 4.3 Form of Subscription Agreement by and between Avalon GloboCare Corp. and the March 2017 Accredited Investor (incorporated by reference to Exhibit 4.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on March 7, 2017) 4.4 Share Subscription Agreement between Avalon GloboCare Corp., Avalon (Shanghai) Healthcare Technology Co., Ltd., Beijing DOING Biomedical Technology Co., Ltd. and Daron Liang (incorporated by reference to Exhibit 4.2 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on March 7, 2017) 77 4.5 Warranty Agreement by and between Lu Wenzhao and Beijing DOING Biomedical Technology Co., Ltd., dated February 27, 2017 (incorporated by reference to Exhibit 4.3 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on March 7, 2017) 4.6 Form of Subscription Agreement between Avalon GloboCare Corp. and the October 2017 Accredited Investors (incorporated by reference to Exhibit 4.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on October 26, 2017) 4.7 Form of Warrant to Boustead Securities, LLC in connection with the private placements (incorporated by reference to Exhibit 4.8 of the Registration Statement on Form S-1/A filed with the Securities and Exchange Commission on July 27, 2018) 4.8 Form of Warrant (April 2019) (incorporated by reference to Exhibit 4.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on April 26, 2019) 4.9* Description of Securities Registered under Section 12 of the Securities Exchange Act of 1934 4.10 Form of Subscription Agreement by and between Avalon GloboCare Corp. and Wenzhao “Daniel” Lu dated August 5, 2022 (incorporated by reference to Exhibit 4.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on August 8, 2022). 4.11 Form of Subscription Agreement by and between Avalon GloboCare Corp. and Emma Li Xu Qingbo dated August 5, 2022 (incorporated by reference to Exhibit 4.2 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on August 8, 2022). 10.1 Share Exchange Agreement dated as of October 19, 2016 by and among Avalon Healthcare System, Inc., the shareholders of Avalon Healthcare System, Inc. and Avalon GloboCare Corp. (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on October 19, 2016) 10.2 † Executive Employment Agreement, effective December 1, 2016, by and between Avalon GloboCare Corp. and David Jin (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on December 2, 2016) 10.3 Agreement of Sale by and between Freehold Craig Road Partnership and Avalon GloboCare Corp., dated December 22, 2016 (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on December 23, 2016) 10.4 † Executive Employment Agreement by and between Avalon (Shanghai) Healthcare Technology Ltd. and Meng Li, dated January 11, 2017 (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on January 11, 2017) 10.5 † Executive Retention Agreement by and between Avalon GloboCare Corp. and Luisa Ingargiola, dated February 21, 2017 (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on February 21, 2017) 10.6 † Indemnification Agreement by and between Avalon GloboCare Corp. and Luisa Ingargiola, dated February 21, 2017 (incorporated by reference to Exhibit 10.2 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on February 21, 2017) 78 10.7 † Director Agreement by and between Avalon GloboCare Corp. and Steven P. Sukel dated April 28, 2017 (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on April 28, 2017) 10.8 † Director Agreement by and between Avalon GloboCare Corp. and Yancen Lu dated April 28, 2017 (incorporated by reference to Exhibit 10.2 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on April 28, 2017) 10.9 Consultation Service Contract between Daopei Investment Management (Shanghai) Co., Ltd. and Avalon HealthCare System Inc. dated April 1, 2016 (English translation) (incorporated by reference to Exhibit 10.8 of Amendment No. 1 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on July 7, 2017) 10.10 Consultation Service Contract between Hebei Yanda Ludaopei Hospital Co., Ltd and Avalon HealthCare System Inc. dated April 1, 2016 (English translation) (incorporated by reference to Exhibit 10.9 of Amendment No. 1 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on July 7, 2017) 10.11 Consultation Service Contract between Nanshan Memorial Stem Cell Biotechnology Co., Ltd. and Avalon HealthCare System Inc. dated April 1, 2016 (English translation) (incorporated by reference to Exhibit 10.10 of Amendment No. 1 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on July 7, 2017) 10.12 Loan Agreement between Lotus Capital Overseas Limited and Avalon (Shanghai) Healthcare Technology Co., Ltd. dated April 19, 2017 (English translation) (incorporated by reference to Exhibit 10.12 of the Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on August 14, 2017) 10.13 Securities Purchase Agreement between Avalon GloboCare Corp. and Genexosome Technologies Inc. dated October 25, 2017 (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on October 26, 2017) 10.14 Asset Purchase Agreement between Genexosome Technologies Inc. and Yu Zhou dated October 25, 2017 (incorporated by reference to Exhibit 10.2 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on October 26, 2017) 10.15 Stock Purchase Agreement between Genexosome Technologies Inc., Beijing Jieteng (Genexosome) Biotech Co. Ltd. and Yu Zhou dated October 25, 2017 (incorporated by reference to Exhibit 10.3 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on October 26, 2017) 10.16 † Executive Retention Agreement between Genexosome Technologies Inc. and Yu Zhou dated October 25, 2017 (incorporated by reference to Exhibit 10.4 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on October 26, 2017) 10.17 Invention Assignment, Confidentiality, Non-Compete and Non-Solicit Agreement between Genexosome Technologies Inc. and Yu Zhou dated October 25, 2017 (incorporated by reference to Exhibit 10.5 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on October 26, 2017) 10.18 † Director Agreement by and between Avalon GloboCare Corp. and Wilbert J. Tauzin II dated November 1, 2017 (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on November 7, 2017) 10.19 Agreement between Avalon GloboCare Corp. and Tauzin Consultants, LLC dated November 1, 2017 (incorporated by reference to Exhibit 10.2 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on November 7, 2017) 79 10.20 † Letter Agreement by and between Avalon GloboCare Corp. and David Jin dated April 3, 2018 (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on April 4, 2018) 10.21 † Letter Agreement by and between Avalon GloboCare Corp. and Meng Li dated April 3, 2018 (incorporated by reference to Exhibit 10.2 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on April 4, 2018) 10.22 Advisory Service Contract between Ludaopei Hematology Research Institute Co., Ltd. and Avalon (Shanghai) Healthcare Technology Co., Ltd. dated April 1, 2018 (English translation) (incorporated by reference to that Form S-1 Registration Statement filed with the Securities and Exchange Commission on April 19, 2018) 10.23 Form of Subscription Agreement by and between Avalon GloboCare Corp. and the April 2018 Accredited Investors (incorporated by reference to Exhibit 4.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on April 18, 2018) 10.24 Supplementary Agreement Related to Share Subscription by and between Avalon GloboCare Corp., Avalon (Shanghai) Healthcare Technology Co., Ltd., Beijing DOING Biomedical Technology Co., Ltd. and Daron Liang dated April 23, 2018 (English translation) (incorporated by reference to Exhibit 4.2 of the Current Report on Form 8-K/A filed with the Securities and Exchange Commission on April 26, 2018) 10.25 Loan Extension Agreement between Lotus Capital Overseas Limited and Avalon (Shanghai) Healthcare Technology Co., Ltd. dated May 3, 2018 (English translation) (incorporated by reference to Exhibit 10.18 of the Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 11, 2018) 10.26 † Director Agreement by and between Avalon GloboCare Corp. and Tevi Troy dated June 4, 2018 (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on June 6, 2018) 10.27 Joint Venture Agreement by and between Avalon (Shanghai) Healthcare Technology Co., Ltd. and Jiangsu Unicorn Biological Technology Co., Ltd. dated May 29, 2018 (English translation) (incorporated by reference to Exhibit 99.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on June 6, 2018) 10.28 † Director Agreement by and between Avalon GloboCare Corp. and William Stilley, III dated July 5, 2018 (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 10, 2018) 10.29 † Director Agreement by and between Avalon GloboCare Corp. and Steven A. Sanders dated July 30, 2018 (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 31, 2018) 10.30 Loan Extension Agreement between Lotus Capital Overseas Limited and Avalon (Shanghai) Healthcare Technology Co., Ltd. dated August 3, 2018 (English translation) (incorporated by reference to Exhibit 10.30 of the Registration Statement on Form S-1/A filed with the Securities and Exchange Commission on August 7, 2018) 10.31 Strategic Partnership Agreement between Avalon GloboCare Corp. and Weill Cornell Medical College of Cornell University dated August 6, 2018 (incorporated by reference to Exhibit 10.31 of the Registration Statement on Form S-1/A filed with the Securities and Exchange Commission on August 7, 2018) 80 10.32 Equity Joint Venture Agreement by and between Avactis Biosciences, Inc., a wholly-owned subsidiary of Avalon GloboCare Corp., and Arbele Limited for the establishment of AVAR (China) BioTherapeutics Ltd. dated October 23, 2018 (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on October 29, 2018) 10.33 Letter Agreement by and between Avalon GloboCare Corp. and David Jin dated January 3, 2019 (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on January 4, 2019) 10.34 Letter Agreement by and between Avalon GloboCare Corp. and Luisa Ingargiola dated January 3, 2019 (incorporated by reference to Exhibit 10.2 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on January 4, 2019) 10.35 Letter Agreement by and between Avalon (Shanghai) Healthcare Technology Co. Ltd. and Meng Li dated January 3, 2019 (incorporated by reference to Exhibit 10.3 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on January 4, 2019) 10.36 Promissory Note issued to Daniel Lu dated Mach 18, 2019 (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on March 22, 2019) 10.37† Director Agreement by and between Avalon GloboCare Corp. and Meng Li dated April 5, 2019 (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on April 8, 2019) 10.38† Director Agreement by and between Avalon GloboCare Corp. and Yue “Charles” Li dated April 5, 2019 (incorporated by reference to Exhibit 10.2 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on April 8, 2019) 10.39 Form of Securities Purchase Agreement dated April 25, 2019 (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on April 26, 2019) 10.40 Revolving Line of Credit Agreement dated as of August 29, 2019 between Avalon GloboCare Corp. and Wenzhao “Daniel” Lu dated August 29, 2019 (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on September 3, 2019) 10.41 Form of Warrant Redemption and Cancellation Agreement (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on October 21, 2019) 10.42 Letter Agreement by and between Avalon GloboCare Corp. and David Jin dated February 20, 2020 (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on February 24, 2020) 10.43 Letter Agreement by and between Avalon GloboCare Corp. and Meng Li dated February 20, 2020 (incorporated by reference to Exhibit 10.2 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on February 24, 2020) 10.44 Letter Agreement by and between Avalon GloboCare Corp. and Luisa Ingargiola dated February 20, 2020 (incorporated by reference to Exhibit 10.3 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on February 24, 2020) 10.45 Debt Settlement Agreement and Release between Avalon GloboCare Corp. and Wenzhao “Daniel” Lu (incorporated by reference to Exhibit 10.2 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on December 22, 2021) 81 10.46 Corporate Research Agreement between Avalon GloboCare Corp. and the University of Pittsburgh of the Commonwealth System of Higher Education dated July 8, 2021 (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 14, 2021) 10.47 Form of Securities Purchase Agreement dated March 28, 2022 (incorporated by reference to Exhibit 10.47 of the Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 30, 2022) 10.48 Form of Convertible Note - March 2022 (incorporated by reference to Exhibit 10.48 of the Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 30, 2022) 10.49 Loan Extension and Modification Agreement between Avalon GloboCare Corp. and Wenzhao Lu dated March 28, 2022 (incorporated by reference to Exhibit 10.49 of the Form 10-K filed with the Securities and Exchange Commission on March 30, 2022) 10.50* Consulting Agreement, dated February 9, 2023, by and between Laboratory Services MSO, LLC and Sarah Cox 10.51 Form of Warrant - March 2022 (incorporated by reference to Exhibit 10.3 of the Form 8-K filed with the Securities and Exchange Commission on April 29, 2022) 10.52 Amendment No. 1 to the Equity Joint Venture Agreement entered between Avalon GloboCare Corp., Avactis Biosciences Inc., Arbele Limited and Arbele Biotherapeutics Limited dated April 6, 2022 (incorporated by reference to Exhibit 10.53 of the Form 10-Q filed with the Securities and Exchange Commission on May 11, 2022) 10.53 Letter Agreement between Avalon GloboCare Corp. and Fsunshine Trading PTE. Ltd. dated June 8, 2022 (incorporated by reference to Exhibit 10.4 of the Form 8-K filed with the Securities and Exchange Commission on June 8, 2022) 10.54 Debt Settlement Agreement and Release between Avalon GloboCare Corp. and Wenzhao “Daniel” Lu dated July 25, 2022 (incorporated by reference to Exhibit 10.2 of the Form 8-K filed with the Securities and Exchange Commission on July 27, 2022) 10.55 Conversion Agreement between Avalon GloboCare Corp. and Fsunshine Trading PTE. Ltd. Dated July 25, 2022 (incorporated by reference to Exhibit 10.3 of the Form 8-K filed with the Securities and Exchange Commission on July 27, 2022) 10.56 Form of Balloon Promissory Note issued to S&P Principal LLC (incorporated by reference to Exhibit 10.1 of the Form 8-K filed with the Securities and Exchange Commission on September 8, 2022) 10.57 Form of Mortgage and Security Agreement (incorporated by reference to Exhibit 10.2 of the Form 8-K filed with the Securities and Exchange Commission on September 8, 2022) 10.58 Form of Guaranty (incorporated by reference to Exhibit 10.3 of the Form 8-K filed with the Securities and Exchange Commission on September 8, 2022) 10.59 Form of Securities Purchase Agreement for the purchase of Series A Convertible Preferred Stock (incorporated by reference to Exhibit 10.1 of the Form 8-K filed with the Securities and Exchange Commission on November 8, 2022) 10.60 Director Agreement by and Between Avalon GloboCare Corp. and Lourdes Felix dated January 9, 2023 (incorporated by reference to Exhibit 10.1 of the Registrants Current Report on Form 8-K filed with the SEC on January 11, 2023) 82 10.61 Second Amended and Restated Limited Company Agreement, dated February 9, 2023, by and among Laboratory Services MSO, LLC, SCBC Holdings LLC, the Zoe Family Trust, Bryan Cox, Sarah Cox and the members named therein (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed on February 13, 2023) 10.62 Securities Purchase Agreement, dated May 23, 2023, between Avalon GloboCare Corp. and Mast Hill Fund, L.P (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed with the SEC on May 26, 2023) 10.63 Security Agreement, dated May 23, 2023, by and among Avalon GloboCare Corp., Avalon Healthcare System Inc., Avalon Laboratory Services, Inc., Avalon RT 9 Properties, LLC, Avactis Biosciences, Inc., Laboratory Services MSO, LLC, Genexosome Technologies Inc., International Exosome Association LLC and Mast Hill Fund, L.P. (incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K filed with the SEC on May 26, 2023) 10.64 Senior Secured Promissory Note, dated May 23, 2023, between Avalon Globocare Corp. and Mast Hill Fund, L.P. (incorporated by reference to Exhibit 10.3 of the Registrant’s Current Report on Form 8-K filed with the SEC on May 26, 2023) 10.65 First Warrant, dated May 23, 2023, by and between Avalon GloboCare Corp. and Mast Hill Fund, L.P. (incorporated by reference to Exhibit 10.4 of the Registrant’s Current Report on Form 8-K filed with the SEC on May 26, 2023) 10.66 Second Warrant, dated May 23, 2023, by and between Avalon GloboCare Corp. and Mast Hill Fund, L.P. (incorporated by reference to Exhibit 10.5 of the Registrant’s Current Report on Form 8-K filed with the SEC on May 26, 2023) 10.67 Form of Balloon Mortgage Note (incorporated by reference to Exhibit 10.6 of the Registrant’s Current Report on Form 8-K filed with the SEC on May 26, 2023) 10.68 Form of Second Mortgage and Security Agreement (incorporated by reference to Exhibit 10.7 of the Registrant’s Current Report on Form 8-K filed with the SEC on May 26, 2023) 10.69 Form of Guaranty (incorporated by reference to Exhibit 10.8 of the Registrant’s Current Report on Form 8-K filed with the SEC on May 26, 2023) 10.70 Form of Hazardous Material Guaranty and Indemnification Agreement (incorporated by reference to Exhibit 10.9 of the Registrant’s Current Report on Form 8-K filed with the SEC on May 26, 2023) 10.71 Sales Agreement, dated June 16, 2023, by and between Avalon GloboCare Corp. and Roth Capital Partners, LLC. (incorporated by reference to Exhibit 1.1 of the Registrant’s Current Report on Form 8-K filed with the SEC on June 16, 2023) 10.72 Securities Purchase Agreement, dated July 6, 2023, by and between Avalon Globocare Corp. and Firstfire Global Opportunities, LLC. (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed with the SEC on July 10, 2023) 10.73 Security Agreement, dated July 6, 2023, by and among Avalon GloboCare Corp., Avalon Healthcare System Inc., Avalon Laboratory Services, Inc., Avalon RT 9 Properties, LLC, Avactis Biosciences, Inc., Laboratory Services MSO, LLC, Genexosome Technologies Inc., International Exosome Association LLC and Firstfire Global Opportunities, LLC. (incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K filed with the SEC on July 10, 2023) 83 10.74 Senior Secured Promissory Note, dated July 6, 2023, by and between Avalon GloboCare Corp. and Firstfire Global Opportunities, LLC. (incorporated by reference to Exhibit 10.3 of the Registrant’s Current Report on Form 8-K filed with the SEC on July 10, 2023) 10.75 First Warrant dated July 6, 2023, by and between Avalon GloboCare Corp. and Firstfire Global Opportunities, LLC. (incorporated by reference to Exhibit 10.4 of the Registrant’s Current Report on Form 8-K filed with the SEC on July 10, 2023) 10.76 Second Warrant, dated July 6, 2023, by and between Avalon Globocare Corp. and Firstfire Global Opportunities, LLC. (incorporated by reference to Exhibit 10.5 of the Registrant’s Current Report on Form 8-K filed with the SEC on July 10, 2023) 10.77 Securities Purchase Agreement, dated October 9, 2023, between Avalon Globocare Corp. and Mast Hill Fund, L.P. (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed with the SEC on October 13, 2023) 10.78 Security Agreement, dated October 9, 2023, among Avalon Globocare Corp., Avalon Healthcare System Inc., Avalon Laboratory Services, Inc., Avalon RT 9 Properties, LLC, Avactis Biosciences, Inc., Laboratory Services MSO, LLC, Genexosome Technologies Inc., International Exosome Association LLC and Mast Hill Fund, L.P. (incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K filed with the SEC on October 13, 2023) 10.79 Senior Secured Promissory Note, dated October 9, 2023, between Avalon Globocare Corp. and Mast Hill Fund, L.P. (incorporated by reference to Exhibit 10.3 of the Registrant’s Current Report on Form 8-K filed with the SEC on October 13, 2023) 10.80 First Warrant, dated October 9, 2023, between Avalon Globocare Corp. and Mast Hill Fund, L.P. (incorporated by reference to Exhibit 10.4 of the Registrant’s Current Report on Form 8-K filed with the SEC on October 13, 2023) 10.81 Second Warrant, dated October 9, 2023, between Avalon Globocare Corp. and Mast Hill Fund, L.P. (incorporated by reference to Exhibit 10.5 of the Registrant’s Current Report on Form 8-K filed with the SEC on October 13, 2023) 10.82 Securities Purchase Agreement, dated October 9, 2023, between Avalon Globocare Corp. and Firstfire Global Opportunities Fund, LLC (incorporated by reference to Exhibit 10.6 of the Registrant’s Current Report on Form 8-K filed with the SEC on October 13, 2023) 10.83 Security Agreement, dated October 9, 2023, among Avalon Globocare Corp., Avalon Healthcare System Inc., Avalon Laboratory Services, Inc., Avalon RT 9 Properties, LLC, Avactis Biosciences, Inc., Laboratory Services MSO, LLC, Genexosome Technologies Inc., International Exosome Association LLC and Firstfire Global Opportunities Fund, LLC (incorporated by reference to Exhibit 10.7 of the Registrant’s Current Report on Form 8-K filed with the SEC on October 13, 2023) 10.84 Senior Secured Promissory Note, dated October 9, 2023, between Avalon Globocare Corp. and Firstfire Global Opportunities Fund, LLC (incorporated by reference to Exhibit 10.8 of the Registrant’s Current Report on Form 8-K filed with the SEC on October 13, 2023) 10.85 First Warrant, dated October 9, 2023, between Avalon Globocare Corp. and Firstfire Global Opportunities Fund, LLC (incorporated by reference to Exhibit 10.9 of the Registrant’s Current Report on Form 8-K filed with the SEC on October 13, 2023) 10.86 Second Warrant, dated October 9, 2023, between Avalon Globocare Corp. and Firstfire Global Opportunities Fund, LLC (incorporated by reference to Exhibit 10.10 of the Registrant’s Current Report on Form 8-K filed with the SEC on October 13, 2023) 84 10.87 Mortgage and Security Agreement, dated October 9, 2023, between Avalon Globocare Corp., Mast Hill Fund, L.P and Firstfire Global Opportunities Fund, LLC (incorporated by reference to Exhibit 10.11 of the Registrant’s Current Report on Form 8-K filed with the SEC on October 13, 2023) 10.88 Membership Interest Purchase Agreement, dated November 17, 2023, between Avalon Globocare Corp. and Wenzhao Lu (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed with the SEC on November 22, 2023) 10.89 Mortgage and Security Agreement, dated March 27, 2024, between Avalon Globocare Corp. and Mast Hill Fund, L.P. (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed with the SEC on March 27, 2024) 10.90 Mortgage and Security Agreement, dated March 27, 2024, between Avalon Globocare Corp. and Firstfire Global Opportunities Fund, LLC (incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K filed with the SEC on March 27, 2024) 21.1 List of Subsidiaries (incorporated by reference to Exhibit 21.1 of the Registration Statement on Form S-1/A filed with the Securities and Exchange Commission on July 20, 2018) 23.1* Consent of Independent Registered Accounting Firm 31.1* Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2* Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1** Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 97.1* Avalon GloboCare Corp. Compensation Recovery Policy. 101.INS* Inline XBRL Instance Document. 101.SCH* Inline XBRL Taxonomy Extension Schema Document. 101.CAL* Inline XBRL Taxonomy Extension Calculation Linkbase Document. 101.DEF* Inline XBRL Taxonomy Extension Definition Linkbase Document. 101.LAB* Inline XBRL Taxonomy Extension Label Linkbase Document. 101.PRE* Inline XBRL Taxonomy Extension Presentation Linkbase Document. 104* Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). * Filed herewith ** This certification will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or the Exchange Act, or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent specifically incorporated by reference into such filing. † Management contract or compensatory plan or arrangement. ITEM 16. FORM 10-K SUMMARY. None. 85 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. AVALON GLOBOCARE CORP. Dated: April 15, 2024 By: /s/ David K. Jin Name: David K. Jin Title: Chief Executive Officer, President and Director (Principal Executive Officer) Dated: April 15, 2024 By: /s/ Luisa Ingargiola Name: Luisa Ingargiola Title: Chief Financial Officer (Principal Financial and Accounting Officer) In accordance with the Exchange Act, this report has been signed below by the following persons on April 15, 2024, on behalf of the registrant and in the capacities indicated. Signature Title /s/ David K. Jin Chief Executive Officer, President and Director David K. Jin (Principal Executive Officer) /s/ Luisa Ingargiola Chief Financial Officer Luisa Ingargiola (Principal Financial and Accounting Officer) /s/ Wenzhao Lu Chairman of the Board of Directors Wenzhao Lu /s/ Meng Li Chief Operating Officer and Secretary Meng Li /s/ Steven A. Sanders Director Steven A. Sanders /s/ Lourdes Felix Director Lourdes Felix /s/ Wilbert J. Tauzin II Director Wilbert J. Tauzin II /s/ William B. Stilley III Director William B. Stilley III /s/ Tevi Troy Director Tevi Troy 86 AVALON GLOBOCARE CORP. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 CONTENTS Report of Independent Registered Public Accounting Firm (PCAOB No. 688 ) F-2 Consolidated Financial Statements: Consolidated Balance Sheets - As of December 31, 2023 and 2022 F-6 Consolidated Statements of Operations and Comprehensive Loss - For the Years Ended December 31, 2023 and 2022 F-7 Consolidated Statements of Changes in Equity - For the Years Ended December 31, 2023 and 2022 F-8 Consolidated Statements of Cash Flows – For the Years Ended December 31, 2023 and 2022 F-9 Notes to Consolidated Financial Statements F-10 F- 1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and Board of Directors of Avalon GloboCare Corp. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Avalon GloboCare Corp. (the “Company”) as of December 31, 2023 and 2022, and the related consolidated statements of operations and comprehensive loss, changes in equity and cash flows for each of the two years in the period ended December 31, 2023, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America. Explanatory Paragraph – Going Concern The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 2, the Company has a significant working capital deficiency, has incurred significant losses and needs to raise additional funds to meet its obligations and sustain its operations. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. F- 2 We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates. Critical Audit Matter Description On February 9, 2023 (the “Acquisition Date”), the Company acquired 40% of the issued and outstanding equity interests of Laboratory Services MSO, LLC (the “Labs”) for a total consideration of approximately $21 million. The investment was recorded on the Acquisition Date at cost with the investment being accounted for under the equity method as the Company has significant influence over the Labs. As disclosed in Note 7 of the accompanying financial statements, the Company identified equity method goodwill and intangible assets, which included tradename and customer relationships, of approximately $9.5 million and $10 million, respectively, on the Acquisition Date. As of December 31, 2023 (the “Reporting Date”), the Company concluded that approximately $9.2 million of the equity method goodwill was impaired. F- 3 We identified the initial allocation of purchase consideration and the subsequent impairment assessment on such goodwill as a critical audit matter because of the significant estimates and assumptions made by management, required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists, when performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to the selection of the valuation techniques and assumptions utilized, growth rates, and the future operating margins. Under the income approach, the Company utilizes the discounted cash flow method to estimate the fair value of the Labs. Some of the significant assumptions inherent in estimating the fair values include the estimated future annual net cash flows for the Labs (including net sales, operating income margin, and working capital) and a discount rate that appropriately reflects the risks inherent in each future cash flow stream. The Company selects assumptions used in the financial forecasts using historical data, supplemented by current and anticipated market conditions, estimated growth rates, management’s plans, and guideline companies. Under the market approach, fair value is derived from metrics of publicly traded companies or historically completed transactions of comparable businesses. The selection of comparable businesses is based on the markets in which the reporting units operate giving consideration to risk profiles, size, geography, and diversity of products and services. The estimates of fair value of the reporting units as of the Acquisition Date and Reporting Date are computed using a combination of both the income approach and market approach noted above. How the Critical Audit Matter was Addressed in the Audit Our audit procedures included the following: (1) We assessed the reasonableness of the forecasted revenue growth rates and operating margins over the cash flow forecast period by comparing them to the Labs’ actual revenues and operating margins during the recent historical periods; (2) We evaluated the reasonableness of the (a) valuation methodologies; (b) revenue growth rate by comparing it to industry rates; (c) customer attrition rates by testing the mathematical accuracy of the rates used and comparing them to industry rates; and (d) discount rates, which included testing the source information underlying the determination of the discount rates, testing the mathematical accuracy of the calculations, and developing a range of independent estimates and comparing those to the discount rates selected by management; (3) We evaluated the guideline companies used and operated in a similar industry as the subject reporting unit; (4) We sensitized the projections and compared them to the valuation reports for reasonableness; (5) We evaluated the disclosures in the Company's financial statements for proper reporting. F- 4 For the Company’s impairment assessment as of the Reporting Date, in additions to the aforementioned audit procedures, we assessed the reasonableness of t he Company’s use of the appropriate modified capital asset pricing model and a weighted average cost of capital. /s/ Marcum llp Marcum llp We have served as the Company’s auditor since 2019. New York, NY April 15, 2024 F- 5 AVALON GLOBOCARE CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 2023 2022 ASSETS CURRENT ASSETS: Cash $ 285,400 $ 1,990,910 Rent receivable 197,473 134,626 Prepaid expense and other current assets 367,994 247,990 Total Current Assets 850,867 2,373,526 NON-CURRENT ASSETS: Operating lease right-of-use assets, net 128,250 10,885 Property and equipment, net 38,083 138,294 Investment in real estate, net 7,191,404 7,360,087 Equity method investments, net 12,095,020 485,008 Advances for equity interest purchase - 8,999,722 Other non-current assets 278,912 384,383 Total Non-current Assets 19,731,669 17,378,379 Total Assets $ 20,582,536 $ 19,751,905 LIABILITIES AND EQUITY CURRENT LIABILITIES: Accrued professional fees $ 1,804,100 $ 1,673,411 Accrued research and development fees 208,772 838,001 Accrued payroll liability and compensation 588,722 223,722 Accrued litigation settlement 450,000 450,000 Accrued liabilities and other payables 272,915 283,234 Accrued liabilities and other payables - related parties 206,458 100,000 Operating lease obligation 129,396 11,437 Advance from sale of noncontrolling interest - related party 485,714 - Equity method investment payable 666,667 - Derivative liability 24,796 - Convertible note payable, net 1,925,146 - Total Current Liabilities 6,762,686 3,579,805 NON-CURRENT LIABILITIES: Operating lease obligation - noncurrent portion 4,855 - Accrued litigation settlement - noncurrent portion - 450,000 Note payable, net 5,596,219 4,563,152 Loan payable - related party 850,000 - Total Non-current Liabilities 6,451,074 5,013,152 Total Liabilities 13,213,760 8,592,957 Commitments and Contingencies (Note 20) EQUITY: Preferred stock, $ 0.0001 par value; 10,000,000 shares authorized; Series A Convertible Preferred Stock, 9,000 shares issued and outstanding at December 31, 2023 and 2022 Liquidation preference $ 9 million at December 31, 2023 9,000,000 9,000,000 Series B Convertible Preferred Stock, 11,000 and 0 shares issued and outstanding at December 31, 2023 and 2022, respectively Liquidation preference $ 11 million at December 31, 2023 11,000,000 - Common stock, $ 0.0001 par value; 490,000,000 shares authorized; 11,051,534 shares issued and 10,999,534 shares outstanding at December 31, 2023; 10,013,576 shares issued and 9,961,576 shares outstanding at December 31, 2022 1,105 1,005 Additional paid-in capital 67,885,051 65,949,723 Less: common stock held in treasury, at cost; 52,000 shares at December 31, 2023 and 2022 ( 522,500 ) ( 522,500 ) Accumulated deficit ( 79,769,731 ) ( 63,062,721 ) Statutory reserve 6,578 6,578 Accumulated other comprehensive loss ( 231,727 ) ( 213,137 ) Total Avalon GloboCare Corp. stockholders’ equity 7,368,776 11,158,948 Noncontrolling interest - - Total Equity 7,368,776 11,158,948 Total Liabilities and Equity $ 20,582,536 $ 19,751,905 See accompanying notes to the consolidated financial statements. F- 6 AVALON GLOBOCARE CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS For the Years Ended December 31, 2023 2022 RENTAL REVENUE $ 1,255,681 $ 1,202,169 OPERATING EXPENSES 1,017,493 929,441 OPERATING INCOME 238,188 272,728 LOSS FROM EQUITY METHOD INVESTMENT - LAB SERVICES MSO ( 8,571,647 ) - OTHER OPERATING EXPENSES: Advertising and marketing expenses 1,666,721 1,325,313 Professional fees 3,076,477 2,909,652 Compensation and related benefits 1,768,449 1,863,188 Research and development expenses 109,618 731,328 Litigation settlement - 1,350,000 Other general and administrative expenses 798,959 886,142 Total Other Operating Expenses 7,420,224 9,065,623 LOSS FROM OPERATIONS ( 15,753,683 ) ( 8,792,895 ) OTHER (EXPENSE) INCOME Interest expense - amortization of debt discount and debt issuance cost ( 544,010 ) ( 3,310,684 ) Interest expense - other ( 773,780 ) ( 185,751 ) Interest expense - related party ( 33,712 ) ( 79,898 ) Conversion inducement expense - ( 344,264 ) Loss from equity method investment - Epicon ( 18,175 ) ( 41,863 ) Change in fair value of derivative liability 188,374 600,749 Impairment of equity method investment - Epicon ( 454,679 ) - Gain on debts extinguishment 682,979 - Other (expense) income ( 324 ) 223,759 Total Other Expense, net ( 953,327 ) ( 3,137,952 ) LOSS BEFORE INCOME TAXES ( 16,707,010 ) ( 11,930,847 ) INCOME TAXES - - NET LOSS $ ( 16,707,010 ) $ ( 11,930,847 ) LESS: NET LOSS ATTRIBUTABLE TO NONCONTROLLING INTEREST - - NET LOSS ATTRIBUTABLE TO AVALON GLOBOCARE CORP. COMMON SHAREHOLDERS $ ( 16,707,010 ) $ ( 11,930,847 ) NET LOSS PER COMMON SHARE ATTRIBUTABLE TO AVALON GLOBOCARE CORP. COMMON SHAREHOLDERS: Basic and diluted $ ( 1.59 ) $ ( 1.28 ) WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: Basic and diluted 10,528,975 9,328,609 COMPREHENSIVE LOSS: NET LOSS $ ( 16,707,010 ) $ ( 11,930,847 ) OTHER COMPREHENSIVE LOSS Unrealized foreign currency translation loss ( 18,590 ) ( 47,871 ) COMPREHENSIVE LOSS ( 16,725,600 ) ( 11,978,718 ) LESS: COMPREHENSIVE LOSS ATTRIBUTABLE TO NONCONTROLLING INTEREST - - COMPREHENSIVE LOSS ATTRIBUTABLE TO AVALON GLOBOCARE CORP. COMMON SHAREHOLDERS $ ( 16,725,600 ) $ ( 11,978,718 ) See accompanying notes to the consolidated financial statements. F- 7 AVALON GLOBOCARE CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY For the Years Ended December 31, 2023 and 2022 Avalon GloboCare Corp. Stockholders’ Equity Series A Preferred Stock Series B Preferred Stock Common Stock Additional Treasury Stock Accumulated Other Number of Number of Number of Paid-in Number of Accumulated Statutory Comprehensive Noncontrolling Total Shares Amount Shares Amount Shares Amount Capital Shares Amount Deficit Reserve Loss Interest Equity Balance, January 1, 2022 - $ - - $ - 8,897,518 $ 890 $ 54,896,567 ( 52,000 ) $ ( 522,500 ) $ ( 51,131,874 ) $ 6,578 $ ( 165,266 ) $ - $ 3,084,395 Sale of common stock, net - - - - 49,115 5 362,323 - - - - - - 362,328 Warrants issued with convertible debt offering - - - - - - 498,509 - - - - - - 498,509 Conversion of convertible note payable and accrued interest into common stock - - - - 573,645 57 4,072,901 - - - - - - 4,072,958 Reclassification of derivative liability to equity - - - - - - 2,181,820 - - - - - - 2,181,820 Issuance of common stock for settlement of loan payable and accrued interest - related party - - - - 444,399 44 2,888,549 - - - - - - 2,888,593 Sale of common stock - related party - - - - 44,872 5 349,995 - - - - - - 350,000 Sale of Series A Convertible Preferred Stock 9,000 9,000,000 - - - - - - - - - - - 9,000,000 Issuance of common stock for services - - - - 40,896 4 340,946 - - - - - - 340,950 Stock-based compensation - - - - - - 358,113 - - - - - - 358,113 Shares issued for adjustments for 1:10 reverse split - - - - ( 36,869 ) - - - - - - - - - Foreign currency translation adjustment - - - - - - - - - - - ( 47,871 ) - ( 47,871 ) Net loss for the year - - - - - - - - - ( 11,930,847 ) - - - ( 11,930,847 ) Balance, December 31, 2022 9,000 9,000,000 - - 10,013,576 1,005 65,949,723 ( 52,000 ) ( 522,500 ) ( 63,062,721 ) 6,578 ( 213,137 ) - 11,158,948 To correct shares issued for adjustments for 1:10 reverse split - - - - 50,000 1 ( 1 ) - - - - - - - Issuance of Series B Convertible Preferred Stock for equity method investment - - 11,000 11,000,000 - - - - - - - - - 11,000,000 Issuance of common stock as convertible note payable commitment fee - - - - 170,000 17 236,383 - - - - - - 236,400 Sale of common stock, net - - - - 456,627 46 414,350 - - - - - - 414,396 Issuance of common stock for services - - - - 361,331 36 999,619 - - - - - - 999,655 Stock-based compensation - - - - - - 284,977 - - - - - - 284,977 Foreign currency translation adjustment - - - - - - - - - - - ( 18,590 ) - ( 18,590 ) Net loss for the year - - - - - - - - - ( 16,707,010 ) - - - ( 16,707,010 ) Balance, December 31, 2023 9,000 $ 9,000,000 11,000 $ 11,000,000 11,051,534 $ 1,105 $ 67,885,051 ( 52,000 ) $ ( 522,500 ) $ ( 79,769,731 ) $ 6,578 $ ( 231,727 ) $ - $ 7,368,776 See accompanying notes to the consolidated financial statements. F- 8 AVALON GLOBOCARE CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31, 2023 2022 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ ( 16,707,010 ) $ ( 11,930,847 ) Adjustments to reconcile net loss to net cash used in operating activities: Credit loss provision - 2,295 Depreciation 211,720 330,723 Change in straight-line rent receivable 10,496 ( 6,821 ) Amortization of operating lease right-of-use asset 118,226 135,557 Stock-based compensation and service expense 1,179,761 1,106,634 Loss from equity method investments 8,589,822 41,863 Impairment of equipment held for sale - 22,285 Impairment of equity method investment - Epicon 454,679 - Amortization of debt issuance costs and debt discount 544,010 3,310,684 Conversion inducement expense - 344,264 Change in fair market value of derivative liability ( 188,374 ) ( 600,749 ) Gain on debts extinguishment ( 682,979 ) - Changes in operating assets and liabilities: Rent receivable ( 46,220 ) ( 43,765 ) Security deposit 396 ( 416 ) Deferred leasing costs 33,402 27,298 Prepaid expense and other assets 411 ( 45,996 ) Accrued liabilities and other payables ( 16,601 ) 331,425 Accrued liabilities and other payables - related parties 106,458 79,898 Operating lease obligation ( 112,915 ) ( 141,556 ) NET CASH USED IN OPERATING ACTIVITIES ( 6,504,718 ) ( 7,037,224 ) CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment ( 22,159 ) ( 1,749 ) Additional investment in equity method investment - ( 51,999 ) Payments for equity interest purchase - ( 8,999,722 ) NET CASH USED IN INVESTING ACTIVITIES ( 22,159 ) ( 9,053,470 ) CASH FLOWS FROM FINANCING ACTIVITIES Repayments of note payable - related party - ( 390,000 ) Proceeds from loan payable - related party 850,000 100,000 Repayments of loan payable - related party - ( 410,000 ) Proceeds from issuance of convertible debt and warrants 2,565,000 3,718,943 Payments of convertible debt issuance costs ( 327,200 ) - Repayments of convertible debt ( 300,000 ) - Proceeds from issuance of balloon promissory note 1,000,000 4,800,000 Payments of balloon promissory note issuance costs ( 64,436 ) ( 266,454 ) Proceeds from equity offering 635,391 735,567 Disbursements for equity offering costs ( 19,132 ) ( 24,067 ) Advance from sale of noncontrolling interest in subsidiary 485,714 - Proceeds from issuance of convertible preferred stock - 9,000,000 NET CASH PROVIDED BY FINANCING ACTIVITIES 4,825,337 17,263,989 EFFECT OF EXCHANGE RATE ON CASH ( 3,970 ) 10,077 NET (DECREASE) INCREASE IN CASH ( 1,705,510 ) 1,183,372 CASH - beginning of year 1,990,910 807,538 CASH - end of year $ 285,400 $ 1,990,910 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for: Interest $ 718,753 $ 176,000 NON-CASH INVESTING AND FINANCING ACTIVITIES: Common stock issued for accrued liabilities $ 164,871 $ 30,000 Reclassification of advances for equity interest purchase to equity method investment $ 9,000,000 $ - Series B Convertible Preferred Stock issued related to equity method investment $ 11,000,000 $ - Accrued purchase price related to equity method investment $ 666,667 $ - Warrants issued as convertible note payable finder’s fee $ 16,977 $ - Warrants issued with convertible note payable recorded as debt discount $ 196,193 $ 498,509 Bifurcated embedded conversion feature recorded as derivative liability and debt discount $ - $ 2,782,569 Common stock issued as convertible note payable commitment fee $ 236,400 $ - Deferred financing costs in accrued liabilities $ 202,892 $ - Conversion of convertible note payable and accrued interest into common stock $ - $ 4,072,958 Reclassification of derivative liability to equity $ - $ 2,181,820 Related party loan and accrued interest settled in shares $ - $ 2,888,593 See accompanying notes to the consolidated financial statements. F- 9 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 – ORGANIZATION AND NATURE OF OPERATIONS Avalon GloboCare Corp. (the “Company” or “ALBT”) is a Delaware corporation. The Company was incorporated under the laws of the State of Delaware on July 28, 2014. On October 19, 2016, the Company entered into and closed a Share Exchange Agreement with the shareholders of Avalon Healthcare System, Inc., a Delaware corporation (“AHS”), each of which were accredited investors (“AHS Shareholders”), pursuant to which the Company acquired 100 % of the outstanding securities of AHS in exchange for 5,000,000 shares of the Company’s common stock (the “AHS Acquisition”). AHS was incorporated on May 18, 2015 under the laws of the State of Delaware. For accounting purposes, AHS was the surviving entity. The transaction was accounted for as a recapitalization of AHS, pursuant to which AHS was treated as the accounting acquirer, surviving and continuing entity although the Company was the legal acquirer. The Company did not recognize goodwill or any intangible assets in connection with this transaction. Accordingly, the Company’s historical financial statements are those of AHS and its wholly owned subsidiary, Avalon (Shanghai) Healthcare Technology Co., Ltd. (“Avalon Shanghai”) immediately following the consummation of this reverse merger transaction. AHS owns 100 % of the capital stock of Avalon Shanghai, which is a wholly foreign-owned enterprise organized under the laws of the People’s Republic of China (“PRC”). Avalon Shanghai was incorporated on April 29, 2016 and was engaged in medical related consulting services for customers. Due to the winding down of the medical related consulting services in 2022, the Company decided to cease all operations of Avalon Shanghai and no longer has any material revenues or expenses in Avalon Shanghai. As a result, Avalon Shanghai is no longer an operating entity. The Company is a commercial stage company dedicated to developing and delivering innovative, transformative, precision diagnostics and clinical laboratory services. The Company is establishing a leading role in the innovation of diagnostic testing, utilizing proprietary technology to deliver precise, genetics-driven results. The Company also provides laboratory services, offering a broad portfolio of diagnostic tests, including drug testing, toxicology, and a broad array of test services, from general bloodwork to anatomic pathology, and urine toxicology. On February 7, 2017, the Company formed Avalon RT 9 Properties, LLC (“Avalon RT 9”), a New Jersey limited liability company. On May 5, 2017, Avalon RT 9 purchased a real property located in Township of Freehold, County of Monmouth, State of New Jersey, having a street address of 4400 Route 9 South, Freehold, NJ 07728. This property was purchased to serve as the Company’s world-wide headquarters for all corporate administration and operations. In addition, the property generates rental income. Avalon RT 9 owns this office building. Avalon RT 9’s business consists of the ownership and operation of the income-producing real estate property in New Jersey. As of December 31, 2023, the occupancy rate of the building is 89.4 %. On July 18, 2018, the Company formed a wholly owned subsidiary, Avactis Biosciences Inc. (“Avactis”), a Nevada corporation, which is a patent holding company. Commencing on April 6, 2022, the Company owns 60 % of Avactis and Arbele Biotherapeutics Limited (“Arbele Biotherapeutics”) owns 40 % of Avactis. Avactis owns 100 % of the capital stock of Avactis Nanjing Biosciences Ltd., a company incorporated in the PRC on May 8, 2020 (“Avactis Nanjing”), which only owns a patent and is not considered an operating entity. On October 14, 2022, the Company formed a wholly owned subsidiary, Avalon Laboratory Services, Inc. (“Avalon Lab”), a Delaware company. On February 9, 2023, Avalon Lab purchased forty percent ( 40 %) of the issued and outstanding equity interests of Laboratory Services MSO, LLC, a private limited company formed under the laws of the State of Delaware on September 6, 2019 (“Lab Services MSO”), and its subsidiaries. Lab Services MSO, through its subsidiaries, is engaged in providing laboratory testing services. F- 10 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 – ORGANIZATION AND NATURE OF OPERATIONS (continued) Details of the Company’s subsidiaries which are included in these consolidated financial statements as of December 31, 2023 are as follows: Name of Subsidiary Place and date of Incorporation Percentage of Ownership Principal Activities Avalon Healthcare System, Inc. (“AHS”) Delaware May 18, 2015 100% held by ALBT Holding company for payroll and other expenses Avalon RT 9 Properties LLC (“Avalon RT 9”) New Jersey February 7, 2017 100% held by ALBT Owns and operates an income-producing real property and holds and manages the corporate headquarters Avalon (Shanghai) Healthcare Technology Co., Ltd. (“Avalon Shanghai”) PRC April 29, 2016 100% held by AHS Is not considered an operating entity Genexosome Technologies Inc. (“Genexosome”) Nevada July 31, 2017 60% held by ALBT No current activities to report, dormant Avactis Biosciences Inc. (“Avactis”) Nevada July 18, 2018 60% held by ALBT Patent holding company Avactis Nanjing Biosciences Ltd. (“Avactis Nanjing”) PRC May 8, 2020 100% held by Avactis Owns a patent and is not considered an operating entity Avalon Laboratory Services, Inc. (“Avalon Lab”) Delaware October 14, 2022 100% held by ALBT Laboratory holding company with a 40% membership interest in Lab Services MSO NOTE 2 – BASIS OF PRESENTATION AND GOING CONCERN CONDITION Basis of Presentation The accompanying consolidated financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and with the rules and regulations of the U.S. Securities and Exchange Commission for financial information. The Company’s consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. F- 11 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 – BASIS OF PRESENTATION AND GOING CONCERN CONDITION (continued) Going Concern The Company is a commercial stage company dedicated to developing and delivering innovative, transformative, precision diagnostics and clinical laboratory services. The Company is establishing a leading role in the innovation of diagnostic testing, utilizing proprietary technology to deliver precise, genetics-driven results. The Company also provides laboratory services through its 40 % equity investment in Lab Services MSO, offering a broad portfolio of diagnostic tests, including drug testing, toxicology, and a broad array of test services, from general bloodwork to anatomic pathology, and urine toxicology. In addition, the Company owns commercial real estate that houses its headquarters in Freehold, New Jersey. 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 a 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. The Company has a limited operating history and its continued growth is dependent upon the continuation of generating rental revenue from its income-producing real estate property in New Jersey and income from equity method investment through its forty percent ( 40 %) interest in Lab Services MSO and obtaining additional financing to fund future obligations and pay liabilities arising from normal business operations. In addition, the current cash balance cannot be projected to cover the operating expenses for the next twelve months from the release date of this report. These matters raise substantial doubt about the Company’s ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company’s ability to raise additional capital, implement its business plan, and generate significant revenues. There are no assurances that the Company will be successful in its efforts to generate significant revenues, maintain sufficient cash balance or report profitable operations or to continue as a going concern. The Company plans on raising capital through the sale of equity to implement its business plan. However, there is no assurance these plans will be realized and that any additional financings will be available to the Company on satisfactory terms and conditions, if any. The accompanying consolidated financial statements do not include any adjustments related to the recoverability or classification of asset-carrying amounts or the amounts and classification of liabilities that may result should the Company be unable to continue as a going concern. NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Use of Estimates The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Changes in these estimates and assumptions may have a material impact on the 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 40 % of Lab Services MSO. F- 12 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Fair Value of Financial Instruments and Fair Value Measurements The Company adopted the guidance of Accounting Standards Codification (“ASC”) 820 for fair value measurements which clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows : ● Level 1-Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date. ● Level 2-Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data. ● Level 3-Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the mark et participants would use in pricing the asset or liability based on the best available information. The fair value of the Company’s assets and liabilities, which qualify as financial instruments under ASC Topic 820, “Fair Value Measurement,” approximates the carrying amounts represented in the accompanying consolidated financial statements, primarily due to their short-term nature . Assets and liabilities measured at fair value on a recurring basis. Certain assets and liabilities are measured at fair value on a recurring basis. These assets and liabilities are measured at fair value on an ongoing basis. These assets and liabilities include derivative liability . Derivative liability. Derivative liability is carried at fair value and measured on an ongoing basis. The table below reflects the activity of derivative liability measured at fair value for the years ended December 31, 2023 and 2022: Significant Unobservable Inputs (Level 3) Balance of derivative liability as of January 1, 2022 $ - Initial fair value of derivative liability attributable to embedded conversion feature of convertible note payable 2,782,569 Gain from change in the fair value of derivative liability ( 600,749 ) Reclassification of derivative liability to equity ( 2,181,820 ) Balance of derivative liability as of December 31, 2022 - Initial fair value of derivative liability attributable to warrants issuance with fund raise 213,170 Gain from change in the fair value of derivative liability ( 188,374 ) Balance of derivative liability as of December 31, 2023 $ 24,796 Assets and liabilities measured at fair value on a nonrecurring basis. Certain assets and liabilities are measured at fair value on a nonrecurring basis. These assets and liabilities are not measured at fair value on an ongoing basis, but are subject to fair value adjustments in certain circumstances. These assets and liabilities can include equipment held for sale and equity method investment that are written down to fair value when they are impaired. Equipment held for sale. The Company conducted an impairment assessment on the equipment held for sale based on the guidelines established in Financial Accounting Standards Board (“FASB”) ASC Topic 360 to determine the estimated fair market value of the equipment as of December 31, 2022. Upon completion of its 2022 impairment analysis, the Company determined that the carrying value exceeded the fair market value on equipment which was held for sale. The fair market value of equipment held for sale is a level 3 valuation. The Company recorded an impairment charge of $ 22,285 for the years ended December 31, 2022. Equity method investment in Epicon Biotech Co., Ltd. The factors used to determine fair value are subject to management’s judgment and expertise and include, but are not limited to, the investee’s series of operating losses and the joint venture partner unable to obtain funds to commence operations. These assumptions represent Level 3 inputs. Impairment of equity method investment in Epicon Biotech Co., Ltd. for the year ended December 31, 2023 was $ 454,679 . F- 13 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Fair Value of Financial Instruments and Fair Value Measurements (continued) Equity method investment in Laboratory Services MSO, LLC The factors used to determine fair value are subject to management’s judgment and expertise. These assumptions represent Level 3 inputs. Impairment of equity method investment in Laboratory Services MSO, LLC for the year ended December 31, 2023 was $ 9,196,682 . ASC 825-10 “Financial Instruments”, allows entities to voluntarily choose to measure certain financial assets and liabilities at fair value (fair value option). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable, unless a new election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that instrument should be reported in earnings at each subsequent reporting date. The Company did not elect to apply the fair value option to any outstanding instruments. Cash and Cash Equivalents At December 31, 2023 and 2022, the Company’s cash balances by geographic area were as follows: Country: December 31, 2023 December 31, 2022 United States $ 280,197 98.2 % $ 1,806,083 90.7 % China 5,203 1.8 % 184,827 9.3 % Total cash $ 285,400 100.0 % $ 1,990,910 100.0 % For purposes of the consolidated statements of cash flows, the Company considers all highly liquid instruments with a maturity of three months or less when purchased and money market accounts to be cash equivalents. The Company had no cash equivalents at December 31, 2023 and 2022. Credit Risk and Uncertainties A portion of the Company’s cash is maintained with state-owned banks within the PRC. Balances at state-owned banks within the PRC are covered by insurance up to RMB 500,000 (approximately $ 71,000 ) per bank. Any balance over RMB 500,000 per bank in PRC will not be covered. At December 31, 2023, cash balances held in the PRC are RMB 36,827 (approximately $ 5,000 ), which was covered by such insurance. The Company has not experienced any losses in such accounts and believes it is not exposed to any risks on its cash in bank accounts. The Company maintains a portion of its cash on deposits with bank and financial institution within the U.S. that at times may exceed federally-insured limits of $ 250,000 . The Company manages this credit risk by concentrating its cash balances in high quality financial institutions and by periodically evaluating the credit quality of the primary financial institutions holding such deposits. The Company has not experienced any losses in such bank accounts and believes it is not exposed to any risks on its cash in bank accounts. At December 31, 2023, there were no balances in excess of the federally-insured limits. The Company’s concentrations of credit risk with respect to its rent receivable is limited due to short-term payment terms. The Company also performs ongoing credit evaluations of its tenants to help further reduce credit risk. Rent Receivable and Reserve for Credit Losses Rent receivable is presented net of reserve for credit losses. Rent receivable balance consists of base rents, tenant reimbursements and receivables arising from straight-lining of rents represent amounts accrued and unpaid from tenants in accordance with the terms of the respective leases, subject to the Company’s revenue recognition policy. A reverse for the uncollectible portion of rent receivable is determined based upon an analysis of the tenant’s payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates and economic conditions in Freehold, New Jersey in which the property is located. Management believes that the rent receivable is fully collectable. Therefore, no material reverse for credit losses is deemed to be required on its rent receivable at December 31, 2023 and 2022. F- 14 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Deferred Offering Costs Deferred offering costs consist of legal, accounting and other costs that are directly related to the Company’s open market sale equity financing and will be charged to stockholders’ equity upon the completion of the equity offering. As of December 31, 2023 and 2022, deferred offering costs amounted to $ 175,136 and $ 174,107 , of which $ 175,136 and $ 34,821 were included in prepaid expense and other current assets and $ 0 and $ 139,286 were included in other non-current assets, respectively. Deferred Leasing Costs Costs incurred to obtain tenant leases are amortized using the straight-line method over the term of the related lease agreement. Such costs include lease incentives and leasing commissions. If the lease is terminated early, the remaining unamortized deferred leasing cost is written off. Property and Equipment Property and equipment are carried at cost less accumulated depreciation, and are depreciated on a straight-line basis over the estimated useful lives of the assets. The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in income in the period of disposition. The Company examines the possibility of decreases in the value of fixed assets when events or changes in circumstances reflect the fact that their recorded value may not be recoverable. Investment In Real Estate and Depreciation Investment in real estate is carried at cost less accumulated depreciation, and consists of building and improvement. The Company depreciates real estate building and improvement on a straight-line basis over estimated useful life. Expenditures for ordinary repair and maintenance costs are charged to expense as incurred. Expenditure for improvements, renovations, and replacements of real estate asset is capitalized and depreciated over its estimated useful life if the expenditure qualifies as betterment. Impairment of Long-lived Assets In accordance with ASC Topic 360, the Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable, or at least annually. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value. For the year ended December 31, 2022, the Company incurred impairment charges in operations of $ 22,285 on the laboratory equipment. The valuations of the laboratory equipment, and the amounts of the impairment charge, were based on impairment assessments conducted on the equipment held for sale at December 31, 2022. Investment in Unconsolidated Companies The Company uses the equity method of accounting for its investments in, and earning or loss of, companies that it does not control but over which it does exert significant influence. The Company considers whether the fair values of its equity method investments have declined below their carrying values whenever adverse events or changes in circumstances indicate that recorded values may not be recoverable. If the Company considers any decline to be other than temporary (based on various factors, including historical financial results and the overall health of the investee), then a write-down would be recorded to estimated fair value. Impairment of equity method investment amounted to $ 9,651,361 and $0 for the years ended December 31, 2023 and 2022, respectively. See Note 7 for discussion of equity method investments. F- 15 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Deferred Rental Income Deferred rental income represents rental income collected but not earned as of the reporting date. The Company defers the revenue related to lease payments received from tenants in advance of their due dates. As of December 31, 2023 and 2022, deferred rental income totaled $ 11,429 and $ 27,685 , respectively, which were included in accrued liabilities and other payables on the accompanying consolidated balance sheets. Real Property Rental Revenue The Company has 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 account receivable on the consolidated balance sheets. The Company does not offer promotional payments, customer coupons, rebates or other cash redemption offers to its customers. Office Lease When a lease contains “rent holidays”, the Company records rental expense on a straight-line basis over the term of the lease. The Company begins recording rent expense on the lease possession date. Real Property Operating 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 the Company’s rental properties. Research and Development Expenditures for research and product development costs are expensed as incurred. The Company incurred research and development expense of $ 109,618 and $ 731,328 in the years ended December 31, 2023 and 2022, respectively. Advertising and Marketing Costs All costs related to advertising and marketing are expensed as incurred. For the years ended December 31, 2023 and 2022, advertising and marketing costs amounted to $ 1,666,721 and $ 1,325,313 , respectively. Stock-based Compensation The Company accounts for its stock-based compensation awards in accordance with Accounting Standards Codification (“ASC”) Topic 718, Compensation—Stock Compensation (“ASC 718”). ASC 718 requires all stock-based payments to employees and non-employees including grants of stock options, to be recognized as expense in the statements of operations based on their grant date fair values. The Company estimates the grant date fair value of each option award using the Black-Scholes option-pricing model. The Company periodically issues common stock and common stock options to consultants for various services. Costs of these transactions are measured at the fair value of the service received or the fair value of the equity instruments issued, whichever is more reliably measurable. The value of the common stock is measured at the earlier of (i) the date at which a firm commitment for performance by the counterparty to earn the equity instruments is reached or (ii) the date at which the counterparty’s performance is complete. F- 16 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Income Taxes The Company is governed by the income tax laws of China and the United States. The Company accounts for income taxes using the asset/liability method prescribed by ASC 740, “Income Taxes.” Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the period in which the differences are expected to reverse. The Company records a valuation allowance to offset deferred tax assets if, based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is recognized as income or loss in the period that includes the enactment date. The Company follows the accounting guidance for uncertainty in income taxes using the provisions of ASC 740 “Income Taxes”. Using that guidance, the benefit for tax positions taken can only be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. As of December 31, 2023 and 2022, the Company had no significant uncertain tax positions which would require either recognition of a liability or disclosure in the financial statements. For United States entities, tax year that remains subject to examination is the years ended December 31, 2023, 2022, 2021 and 2020. For China entities, income tax returns for the tax years ended December 31, 2019 through December 31, 2023 remain open for statutory examination by PRC tax authorities. The Company recognizes interest and penalties related to significant uncertain income tax positions in income tax expense. However, no such interest and penalties were recorded as of December 31, 2023 and 2022. Foreign Currency Translation The reporting currency of the Company is the U.S. dollar. The functional currency of the parent company, AHS, Avalon RT 9, and Avalon Lab is the U.S. dollar and the functional currency of Avalon Shanghai is the Chinese Renminbi (“RMB”). For Avalon Shanghai whose functional currency is the RMB, result of operations and cash flows are translated at average exchange rates during the period, assets and liabilities are translated at the unified exchange rate at the end of the period, and equity is translated at historical exchange rates. As a result, amounts relating to assets and liabilities reported on the statements of cash flows may not necessarily agree with the changes in the corresponding balances on the balance sheets. Translation adjustments resulting from the process of translating the local currency financial statements into U.S. dollars are included in determining comprehensive income/loss. Transactions denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing on the transaction dates. Assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing at the balance sheet date with any transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred. All of the Company’s revenue transactions are transacted in the functional currency of the operating subsidiaries. The Company does not enter into any material transaction in foreign currencies. Transaction gains or losses have not had, and are not expected to have, a material effect on the results of operations of the Company. Asset and liability accounts at December 31, 2023 and 2022 were translated at 7.0786 RMB and 6.8979 RMB to $ 1.00 , respectively, which were the exchange rates on the balance sheet dates. Equity accounts were stated at their historical rates. The average translation rates applied to the statements of operations for the years ended December 31, 2023 and 2022 were 7.0752 RMB and 6.7309 RMB to $ 1.00 , respectively. Cash flows from the Company’s operations are calculated based upon the local currencies using the average translation rate. Comprehensive Loss Comprehensive loss is comprised of net loss and all changes to the statements of equity, except those due to investments by stockholders, changes in paid-in capital and distributions to stockholders. For the Company, comprehensive loss for the years ended December 31, 2023 and 2022 consisted of net loss and unrealized loss from foreign currency translation adjustment. Commitments and Contingencies In the normal course of business, the Company is subject to contingencies, such as legal proceedings and claims arising out of its business, that cover a wide range of matters. Liabilities for such contingencies are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated. F- 17 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Per Share Data ASC Topic 260 “Earnings per Share,” requires presentation of both basic and diluted earnings per share (“EPS”) with a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. Basic EPS excludes dilution. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. Basic net loss per share is computed by dividing net loss available to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share is computed by dividing net loss by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during each period. For the years ended December 31, 2023 and 2022, potentially dilutive common shares consist of the common shares issuable upon the conversion of convertible preferred stock and convertible note (using the if-converted method) and exercise of common stock options and warrants (using the treasury stock method). Common stock equivalents are not included in the calculation of diluted net loss per share if their effect would be anti-dilutive. In a period in which the Company has a net loss, all potentially dilutive securities are excluded from the computation of diluted shares outstanding as they would have had an anti-dilutive impact. The following table summarizes the securities that were excluded from the diluted per share calculation because the effect of including these potential shares was antidilutive: Years Ended December 31, 2023 2022 Options to purchase common stock 853,303 858,500 Warrants to purchase common stock 645,527 123,964 Series A convertible preferred stock (*) 900,000 900,000 Series B convertible preferred stock (**) 2,910,053 - Convertible notes (***) 911,111 572,145 Potentially dilutive securities 6,219,994 2,454,609 (*) Assumed the Series A convertible preferred stock was converted into shares of common stock of the Company at a conversion price of $ 10.00 per share . (**) Assumed the Series B convertible preferred stock was converted into shares of common stock of the Company at a conversion price of $ 3.78 per share. (***) Assumed the convertible notes were converted into shares of common stock of the Company at a conversion price of $ 4.50 and $ 1.50 per share for the year ended December 31, 2023. Assumed the convertible note was converted into shares of common stock of the Company at a conversion price of $ 6.50 per share for the year ended December 31, 2022. Noncontrolling Interest As of December 31, 2023, Dr. Yu Zhou, former director and former Co-Chief Executive Officer of Genexosome, who owns 40 % of the equity interests of Genexosome, which is not under the Company’s control. Since the fourth quarter of 2019, the non-controlling interest has remained inactive. F- 18 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Segment Reporting The Company uses “the management approach” in determining reportable operating segments. The management approach considers the internal organization and reporting used by the Company’s chief operating decision maker for making operating decisions and assessing performance as the source for determining the Company’s reportable segments. The Company’s chief operating decision maker is the Chief Executive Officer (“CEO”) and president of the Company, who reviews operating results to make decisions about allocating resources and assessing performance for the entire Company. During the year ended December 31, 2022, the Company operated in two reportable business segments - (1) the real property operating segment, and (2) the medical related consulting services segment. These reportable segments offer different services and products, have different types of revenue, and are managed separately as each requires different operating strategies and management expertise. Due to the winding down of the medical related consulting services segment in 2022, the Company decided to cease all operations of this segment and no longer has any material revenues or expenses in this segment. As a result, commencing from the first quarter of 2023, the Company’s chief operating decision maker no longer reviews medical related consulting services operating results. On February 9, 2023, the Company purchased 40 % of Lab Services MSO. Commencing from the purchase date, February 9, 2023, the Company is active in the management of Lab Services MSO. During the year ended December 31, 2023, the Company operated in two reportable business segments: (1) the real property operating segment, and (2) laboratory testing services segment (which commenced with the purchase date, February 9, 2023) since Lab Services MSO’s operating results are regularly reviewed by the Company’s chief operating decision maker to determine the resources to be allocated to the segment and assess its performance. The Company regularly reviews the operating results and performance of Lab Services MSO, for which the Company accounts for under the equity method. Reclassification Certain prior period amounts have been reclassified to conform to the current period presentation. These reclassifications have no effect on the previously reported financial position, results of operations and cash flows. Fiscal Year End The Company has adopted a fiscal year end of December 31st. Reverse Stock Split The Company effected a one-for-ten reverse stock split of its outstanding shares of common stock on January 5, 2023. The reverse split did not change the number of authorized shares of common stock or par value. All references in these consolidated financial statements to shares, share prices, exercise prices, and other per share information in all periods have been adjusted, on a retroactive basis, to reflect the reverse stock split. F- 19 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Recent Accounting Standards In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit Losses (“Topic 326”). The ASU introduces a new accounting model, the Current Expected Credit Losses model (“CECL”), which requires earlier recognition of credit losses and additional disclosures related to credit risk. The CECL model utilizes a lifetime expected credit loss measurement objective for the recognition of credit losses at the time the financial asset is originated or acquired. ASU 2016-13 is effective for annual period beginning after December 15, 2022, including interim reporting periods within those annual reporting periods. The adoption of this new guidance did not have any material impact on the Company’s consolidated financial statements. In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which amends the accounting related to contract assets and liabilities acquired in business combinations. ASU 2021-08 requires that entities recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC Topic 606, Revenue from Contracts with Customers. ASU 2021-08 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, and should be applied prospectively to business combinations occurring on or after the effective date of the amendment. Early adoption is permitted, including adoption in an interim period. The adoption of this new guidance did not have any material impact on the Company’s consolidated financial statements. In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This guidance is intended to enhance the transparency and decision-usefulness of income tax disclosures. The amendments in ASU 2023-09 address investor requests for enhanced income tax information primarily through changes to disclosure regarding rate reconciliation and income taxes paid both in the U.S. and in foreign jurisdictions. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024 on a prospective basis, with the option to apply the standard retrospectively. Early adoption is permitted. The company is currently evaluating this guidance to determine the impact it may have on its consolidated financial statements disclosures. Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its consolidated financial condition, results of operations, cash flows or disclosures. NOTE 4 – PREPAID EXPENSE AND OTHER CURRENT ASSETS At December 31, 2023 and 2022, prepaid expense and other current assets consisted of the following: December 31, 2023 December 31, 2022 Prepaid professional fees $ 33,062 $ 93,817 Prepaid directors and officers liability insurance premium 27,192 29,301 Deferred offering costs 175,136 34,821 Deferred leasing costs 33,402 33,402 Security deposit - 19,084 Due from broker 37,187 - Others 62,015 37,565 Total $ 367,994 $ 247,990 NOTE 5 – PROPERTY AND EQUIPMENT At December 31, 2023 and 2022, property and equipment consisted of the following: Useful life December 31, 2023 December 31, 2022 Laboratory equipment 5 Years $ 100,548 $ 374,183 Office equipment and furniture 3 – 10 Years 54,797 35,145 155,345 409,328 Less: accumulated depreciation ( 117,262 ) ( 271,034 ) $ 38,083 $ 138,294 For the years ended December 31, 2023 and 2022, depreciation expense of property and equipment amounted to $ 43,037 and $ 162,040 , respectively, of which, $ 7,221 and $ 2,987 was included in real property operating expenses, $ 417 and $ 825 was included in other operating expenses, and $ 35,399 and $ 158,228 was included in research and development expense, respectively. F- 20 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 6 – INVESTMENT IN REAL ESTATE At December 31, 2023 and 2022, investment in real estate consisted of the following: Useful life December 31, 2023 December 31, 2022 Commercial real property building 39 Years $ 7,708,571 $ 7,708,571 Improvement 12 Years 529,372 529,372 8,237,943 8,237,943 Less: accumulated depreciation ( 1,046,539 ) ( 877,856 ) $ 7,191,404 $ 7,360,087 For both the years ended December 31, 2023 and 2022, depreciation expense of this commercial real property amounted to $ 168,683 , which was included in real property operating expenses. NOTE 7 – EQUITY METHOD INVESTMENTS Investment in Epicon Biotech Co., Ltd. As of December 31, 2023 and 2022, the equity method investment in Epicon Biotech Co., Ltd. (“Epicon”) amounted to $ 0 and $ 485,008 , respectively. The investment represents the Company’s subsidiary, Avalon Shanghai’s interest in Epicon. Epicon was incorporated on August 14, 2018 in PRC. Avalon Shanghai and an unrelated company, Jiangsu Unicorn Biological Technology Co., Ltd. (“Unicorn”), have an ownership interest in Epicon of 40 % and 60 %, respectively. Epicon is focused on cell preparation, third party testing, biological sample repository for commercial and scientific research purposes and clinical transformation of scientific achievements. The Company is not involved in the management of Epicon. Therefore, it is a passive investment. In June 2023, the Company assessed its equity method investment in Epicon for any impairment and concluded that there were indicators of impairment as of June 30, 2023. The impairment is due to the Company’s conclusion that it will be unable to recover the carrying amount of the investment due to the investee’s series of operating losses and the inability of Avalon Shanghai’s joint venture partner (Unicorn) to obtain adequate funding to commence operations. The Company calculated that the estimated undiscounted cash flows were less than the carrying amount related to the equity method investment. The Company has recognized an impairment loss of $ 454,679 related to the equity method investment for the year ended December 31, 2023, which reduced the investment value to zero. Under the equity method, if there is a commitment for the Company to fund the losses of its equity method investees, the Company would continue to record its share of losses resulting in a negative equity method investment, which would be presented as a liability on the consolidated balance sheets. Commitments may be explicit and may include formal guarantees, legal obligations, or arrangements by contract. Implicit commitments may arise from reputational expectations, intercompany relationships, statements by the Company of its intention to provide support, a history of providing financial support or other facts and circumstances. When the Company has no commitment to fund the losses of its equity method investees, the carrying value of its equity method investments will not be reduced below zero. The Company has no commitment to fund additional losses of its equity method investments. Investment in Laboratory Services MSO, LLC On February 9, 2023 (the “Closing Date”), the Company entered into and closed an Amended and Restated Membership Interest Purchase Agreement (the “Amended MIPA”), by and among Avalon Laboratory Services, Inc., a wholly owned subsidiary of the Company (the “Buyer”), SCBC Holdings LLC (the “Seller”), the Zoe Family Trust, Bryan Cox and Sarah Cox as individuals (each an “Owner” and collectively, the “Owners”), and Laboratory Services MSO, LLC. Pursuant to the terms and conditions set forth in the Amended MIPA, the Buyer acquired from the Seller, forty percent ( 40 %) of the issued and outstanding equity interests of Lab Services MSO (the “Purchased Interests”). The consideration paid by Buyer to Seller for the Purchased Interests consisted of $ 20,666,667 , which was comprised of (i) $9,000,000 in cash, (ii) $11,000,000 pursuant to the issuance of 11,000 shares of the Company’s Series B Convertible Preferred Stock (the “Series B Preferred Stock”), stated value $1,000 (the “Series B Stated Value”), which approximated the fair value, and (iii) a $666,667 cash payment on February 9, 2024. The Series B Preferred Stock is convertible into shares of the Company’s common stock at a conversion price per share equal to $3.78, which approximated the market price at the date of closing, or an aggregate of 2,910,053 shares of the Company’s common stock, which are subject to a lock-up period and restrictions on sale (See Note 14 — Series B Convertible Preferred Stock Issued for Equity Method Investment). F- 21 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 7 – EQUITY METHOD INVESTMENTS (continued) Investment in Laboratory Services MSO, LLC (continued) Lab Services MSO, through its subsidiaries, is engaged in providing laboratory testing services. Avalon Lab and an unrelated company, have an ownership interest in Lab Services MSO of 40 % and 60 %, respectively. In accordance with ASC 810, the Company determined that Lab Services MSO does not qualify as a Variable Interest Entity, nor does it have a controlling financial interest over the legal entity. However, the Company determined that it does have significant influence as a result of its board representation. Therefore, the Company treats the equity investment in the consolidated financial statements under the equity method. Under the equity method, the investment is initially recorded at cost, adjusted for any excess of the Company’s share of the purchased-date fair values of the investee’s identifiable net assets over the cost of the investment (if any). At February 9, 2023 (date of investment), the excess of the Company’s share of the fair values of the investee’s identifiable net assets over the cost of the investment was approximately $ 19,460,000 which was attributable to intangible assets and goodwill. Thereafter, the investment is adjusted for the post purchase change in the Company’s share of the investee’s net assets and any impairment loss relating to the investment. Intangible assets consist of the valuation of identifiable intangible assets acquired, representing trade names and customers relationships, which are being amortized on a straight-line method over the estimated useful life of 15 years. The straight-line method of amortization represents the Company’s best estimate of the distribution of the economic value of the identifiable intangible assets. Goodwill represents the excess of the purchase price paid over the fair value of net assets acquired in the business acquisition of Lab Services MSO incurred on February 9, 2023. Goodwill is not amortized, but is tested for impairment at December 31, 2023. In December 2023, the Company assessed its equity method investment in Laboratory Services MSO, LLC for any impairment and concluded that there were indicators of impairment as of December 31, 2023. The Company calculated that the estimated undiscounted cash flows of goodwill were less than the carrying amount of goodwill related to the equity method investment. The Company has recognized an impairment loss of $ 9,196,682 related to the equity method investment for the year ended December 31, 2023. For the period from February 9, 2023 (date of investment) through December 31, 2023, the Company’s share of Lab Services MSO’s net income was $ 625,035 , which was included in income from equity method investment — Lab Services MSO in the accompanying consolidated statements of operations and comprehensive loss. In the year ended December 31, 2023, activity recorded for the Company’s equity method investment in Lab Services MSO is summarized in the following table: Equity investment carrying amount at January 1, 2023 $ - Payment for equity method investment: The Company’s interest in the fair value of Lab Services MSO’s net assets at February 9, 2023 1,206,406 The Company’s interest in the net excess of Lab Services MSO’s fair value over net assets which was attributable to identifiable intangible assets at February 9, 2023 10,004,000 The Company’s interest in the net excess of Lab Services MSO’s fair value over net assets which was attributable to goodwill at February 9, 2023 9,456,261 20,666,667 Loss from equity method investment – Lab Services MSO: Lab Services MSO’s net income attributable to the Company 1,236,391 Intangible assets amortization amount ( 611,356 ) Impairment of goodwill ( 9,196,682 ) ( 8,571,647 ) Equity investment carrying amount at December 31, 2023 $ 12,095,020 As of December 31, 2023, the Company’s carrying value of the identified intangible assets and goodwill which are included in the equity investment carrying amount was $ 9,392,644 and $ 259,579 , respectively. The tables below present the summarized financial information, as provided to the Company by the investee, for the unconsolidated company: December 31, 2023 Current assets $ 4,930,254 Noncurrent assets 5,228,044 Current liabilities 828,713 Noncurrent liabilities 4,104,183 Equity 5,225,402 F- 22 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 7 – EQUITY METHOD INVESTMENTS (continued) Investment in Laboratory Services MSO, LLC (continued) For the Period from February 9, 2023 (Date of Investment) through December 31, 2023 Net revenue $ 12,699,683 Gross profit 4,744,277 Income from operation 2,393,830 Net income 3,090,977 NOTE 8 – ACCRUED LIABILITIES AND OTHER PAYABLES At December 31, 2023 and 2022, accrued liabilities and other payables consisted of the following: December 31, 2023 December 31, 2022 Accrued tenants’ improvement reimbursement $ 43,500 $ 43,500 Tenants’ security deposit 81,233 73,733 Accrued business expense reimbursement 25,061 52,437 Accrued utilities 15,166 15,631 Deferred rental income 11,429 27,685 Accrued real property cleaning service fee 7,570 23,564 Interest payable 55,027 - Taxes payable 11,794 7,337 Others 22,135 39,347 Total $ 272,915 $ 283,234 NOTE 9 – CONVERTIBLE NOTE PAYABLE 2022 Convertible Note On March 28, 2022, the Company entered into Securities Purchase Agreement with an accredited investor, which was amended on June 8, 2022, providing for the sale by the Company to the investor of a Convertible Note in the amount of $ 3,718,943 (“2022 Convertible Note”). In addition to the 2022 Convertible Note, the investor also received a Stock Purchase Warrant (“2022 Warrant”) to acquire an aggregate of 123,964 shares of common stock. The 2022 Warrant is exercisable for five years at an exercise price of $ 12.5 . The financing closed with respect to: ● $ 2,669,522 of the financing on April 15, 2022, ● $ 659,581 of the financing on April 29, 2022, ● $ 199,840 of the financing on May 18, 2022, and ● $ 190,000 of the financing on May 25, 2022. As a result of each of the closings, the Company issued the investor a 2022 Convertible Note in the principal amount of $ 2,669,522 and a 2022 Warrant to acquire 88,984 shares of common stock dated April 15, 2022, a 2022 Convertible Note in the principal amount of $ 659,581 and a 2022 Warrant to acquire 21,986 shares of common stock dated April 29, 2022, a 2022 Convertible Note in the principal amount of $ 199,840 and a 2022 Warrant to acquire 6,661 shares of common stock dated May 18, 2022, and a 2022 Convertible Note in the principal amount of $ 190,000 and a 2022 Warrant to acquire 6,333 shares of common stock dated May 25, 2022. Interest accrued on the principal amount at 1.0 % per annum. The investor may elect to convert all or part of the 2022 Convertible Note, plus accrued interest, at any time into shares of common stock of the Company at a conversion price equal to 95 % of the average of the highest three trading prices for the common stock during the 20-trading day period ending one trading day prior to the conversion date but in no event will the conversion price be lower than $ 0.75 per share. F- 23 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 9 – CONVERTIBLE NOTE PAYABLE (continued) 2022 Convertible Note (continued) The investor agreed to restrict its ability to convert the 2022 Convertible Note and exercise the 2022 Warrant and receive shares of common stock such that the number of shares of common stock held by the investor after such conversion or exercise does not exceed 4.99 % of the then issued and outstanding shares of common stock. Further, the investor agreed to not sell or transfer any or all of the shares of common stock underlying the 2022 Convertible Note or the 2022 Warrant for a period of 90 days beginning on the closing date (the “Lock-Up Period”). Following the expiration of the Lock-Up Period, the investor has agreed to limit its sale or transfer of such shares of common stock to a maximum monthly amount equal to 20 % of the shares of common stock issuable upon conversion of the 2022 Convertible Note. The Company agreed to use its reasonable best efforts to file a registration statement on Form S-3 (or other appropriate form) providing for the resale by the investor of the shares of common stock underlying the 2022 Convertible Note and the 2022 Warrant. Based upon the Company’s analysis of the criteria contained in ASC Topic 815-40, “Derivatives and Hedging - Contracts in an Entity’s Own Equity”, the Company determined that all the warrants issued to the investor with this private placement were classified as equity in additional paid in-capital. In accordance with ASC 470-20-25-2, proceeds from the sale of a debt instrument with stock purchase warrants are allocated to the two elements based on the relative fair values of the debt instrument without the warrants and of the warrants themselves at time of issuance. The portion of the proceeds so allocated to the warrants are accounted for as additional paid-in capital. The remainder of the proceeds are allocated to the debt instrument portion of the transaction. The fair values of the warrants issued to the investor with this private placement were computed using the Black-Scholes option-pricing model with the following assumptions: volatility of 111.94 %, risk-free rate of 2.71 % - 2.92 %, annual dividend yield of 0 % and expected life of 5 years. In accordance with ASC 480-10-25-14, the Company determined that the conversion provisions contain an embedded derivative feature and the Company valued the derivative feature separately, and recorded debt discount and derivative liabilities in accordance with the provisions of the convertible debt (see Note 10). The Company calculated the fair value of conversion option at the commitment dates using the Black-Scholes valuation model with the following assumptions: volatility of 95.97 %, risk-free rate of 2.75 % - 2.89 %, annual dividend yield of 0 % and expected life of 10 years. The warrants issued to the investor to purchase 123,964 shares of the Company’s common stock were treated as a discount on the convertible note payable and were valued at $ 498,509 and had been amortized over the term of the 2022 Convertible Note. Additionally, the fair value of embedded conversion option at commitment dates, which was valued at $ 2,782,569 , was recorded as a discount on the convertible note payable and had been amortized over the term of the 2022 Convertible Note. Hence, in connection with the issuance of the 2022 Convertible Note and 2022 Warrant, the Company recorded a total debt discount of $ 3,281,078 , which had been amortized over the term of the convertible note payable. On July 25, 2022, the Company and the investor entered into a Conversion Agreement (“Conversion Agreement”) pursuant to which the investor converted all of its Convertible Notes in the principal amount of $ 3,718,943 and unpaid interest of $ 9,751 into 573,645 shares of common stock of the Company at a per share price of $ 6.5 (see Note 14 - Common Shares Issued for Debt Conversion). The Company recorded a conversion inducement charge of $ 344,264 as a result of the Conversion Agreement, representing the value of common stock issued upon conversion in excess of the common stock issuable under the original terms of the 2022 Convertible Note. For the year ended December 31, 2022, amortization of debt discount and interest expense related to the 2022 Convertible Note amounted to $ 3,281,078 and $ 9,751 , which have been included in interest expense – amortization of debt discount and debt issuance cost and interest expense – other, respectively, on the accompanying consolidated statements of operations and comprehensive loss. F- 24 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 9 – CONVERTIBLE NOTE PAYABLE (continued) May 2023 Convertible Note On May 23, 2023, the Company entered into securities purchase agreements with Mast Hill Fund, L.P. (“Mast Hill”) for the issuance of 13.0 % senior secured promissory notes in the aggregate principal amount of $ 1,500,000 (collectively, the “May 2023 Convertible Note”) convertible into shares of common stock, par value $ 0.0001 per share, of the Company, as well as the issuance of 75,000 shares of common stock as a commitment fee and warrants for the purchase of 230,500 shares of common stock of the Company. The Company and its subsidiaries have also entered into a security agreement, creating a security interest in certain property of the Company and its subsidiaries to secure the prompt payment, performance and discharge in full of all of the Company’s obligations under the May 2023 Convertible Note. Principal amount and interest under the May 2023 Convertible Note are convertible into shares of common stock of the Company at a conversion price of $ 4.50 per share unless the Company fails to make an amortization payment when due, in which case the conversion price shall be the lower of $ 4.50 or the trading price of the shares, subject to a floor of $ 1.50 . Mast Hill acquired the May 2023 Convertible Note with principal amount of $ 1,500,000 and paid the purchase price of $ 1,425,000 after an original issue discount of $ 75,000 . On May 23, 2023, the Company issued (i) a warrant to purchase 125,000 shares of common stock with an exercise price of $ 4.50 exercisable until the five-year anniversary of May 23, 2023, (ii) a warrant to purchase 105,500 shares of common stock with an exercise price of $ 3.20 exercisable until the five-year anniversary of May 23, 2023, which warrant shall be cancelled and extinguished against payment of the May 2023 Convertible Note, and (iii) 75,000 shares of common stock as a commitment fee for the purchase of the May 2023 Convertible Note, which were earned in full as of May 23, 2023. On May 23, 2023, the Company delivered such duly executed May 2023 Convertible Note, warrants and common stock to Mast Hill against delivery of such purchase price. The Company is obligated to make amortization payments in cash to Mast Hill towards the repayment of the May 2023 Convertible Note, as provided in the following table: Payment Date: Payment Amount: November 23, 2023 $150,000 plus accrued interest through November 23, 2023 December 23, 2023 $150,000 plus accrued interest through December 23, 2023 January 23, 2024 $200,000 plus accrued interest through January 23, 2024 February 23, 2024 $250,000 plus accrued interest through February 23, 2024 March 23, 2024 $250,000 plus accrued interest through March 23, 2024 April 23, 2024 $300,000 plus accrued interest through April 23, 2024 May 23, 2024 The entire remaining outstanding balance of the May 2023 Convertible Note In connection with the issuance of the May 2023 Convertible Note, the Company incurred debt issuance costs of $ 175,162 (including the issuance of 10,000 warrants as a finder’s fee) which is capitalized and will be amortized into interest expense over the term of the May 2023 Convertible Note. Based upon the Company’s analysis of the criteria contained in ASC 815, the Company determined that all the warrants issued to Mast Hill and a third party as a finder’s fee met the definition of a derivative liability, as the Company cannot avoid a net cash settlement under certain circumstances. Management determined the probability of failing to make an amortization payment when due to be remote and as such the fair value of the 105,500 warrants with an exercise price of $ 3.20 exercisable until the five-year anniversary of May 23, 2023, which warrant shall be cancelled and extinguished against payment of the May 2023 Convertible Note, has been estimated to be zero. Accordingly, the fair value of the 135,000 warrants with an exercise price of $ 4.50 exercisable until the five-year anniversary of May 23, 2023 was classified as derivative liability on May 23, 2023. The fair values of the 135,000 warrants with an exercise price of $ 4.50 exercisable until the five-year anniversary of May 23, 2023 issued on May 23, 2023 were computed using the Black-Scholes option-pricing model with the following assumptions: stock price of $ 1.96 , volatility of 88.80 %, risk-free rate of 3.76 %, annual dividend yield of 0 % and expected life of 5 years. In accordance with ASC 470-20-25-2, proceeds from the sale of a debt instrument with stock purchase warrants are allocated to the two elements based on the relative fair values of the debt instrument without the warrants and of the warrants themselves at time of issuance. The portion of the proceeds allocated to the warrants are accounted for as derivative liability. The remainder of the proceeds are allocated to the debt instrument portion of the transaction. F- 25 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 9 – CONVERTIBLE NOTE PAYABLE (continued) May 2023 Convertible Note (continued) In accordance with ASC 480-10-25-14, the Company determined that the conversion provisions contain an embedded derivative feature and the Company valued the derivative feature separately, recording debt discount and derivative liability in accordance with the provisions of the convertible debt (see Note 10). However, management determined the probability of failing to make an amortization payment when due to be remote and as such the fair value of the embedded conversion feature has been estimated to be zero. The Company recorded a total debt discount of $ 349,654 related to the original issue discount, common shares issued and warrants issued to Mast Hill, which will be amortized over the term of the May 2023 Convertible Note. For the year ended December 31, 2023, amortization of debt discount and debt issuance costs and interest expense related to the May 2023 Convertible Note amounted to $307,123 and $ 115,450 , respectively, which have been included in interest expense — amortization of debt discount and debt issuance cost and interest expense — other on the accompanying consolidated statements of operations and comprehensive loss. July 2023 Convertible Note On July 6, 2023, the Company entered into securities purchase agreements with Firstfire Global Opportunities Fund, LLC (“Firstfire”) for the issuance of 13.0 % senior secured promissory notes in the aggregate principal amount of $ 500,000 (collectively, the “July 2023 Convertible Note”) convertible into shares of common stock, par value $ 0.0001 per share, of the Company, as well as the issuance of 25,000 shares of common stock as a commitment fee and warrants for the purchase of 76,830 shares of common stock of the Company. The Company and its subsidiaries have also entered into a security agreement, creating a security interest in certain property of the Company and its subsidiaries to secure the prompt payment, performance and discharge in full of all of the Company’s obligations under the July 2023 Convertible Note. Principal amount and interest under the July 2023 Convertible Note are convertible into shares of common stock of the Company at a conversion price of $ 4.50 per share unless the Company fails to make an amortization payment when due, in which case the conversion price shall be the lower of $ 4.50 or the trading price of the shares, subject to a floor of $ 1.50 . Firstfire acquired the July 2023 Convertible Note with principal amount of $ 500,000 and paid the purchase price of $ 475,000 after an original issue discount of $ 25,000 . On July 6, 2023, the Company issued (i) a warrant to purchase 41,665 shares of common stock with an exercise price of $ 4.50 exercisable until the five-year anniversary of July 6, 2023, (ii) a warrant to purchase 35,165 shares of common stock with an exercise price of $ 3.20 exercisable until the five-year anniversary of July 6, 2023, which warrant shall be cancelled and extinguished against payment of the July 2023 Convertible Note, and (iii) 25,000 shares of common stock as a commitment fee for the purchase of the July 2023 Convertible Note, which were earned in full as of July 6, 2023. On July 6, 2023, the Company delivered such duly executed July 2023 Convertible Note, warrants and common stock to Firstfire against delivery of such purchase price. The Company is obligated to make amortization payments in cash to Firstfire towards the repayment of the July 2023 Convertible Note, as provided in the following table: Payment Date: Payment Amount: January 6, 2024 $50,000 plus accrued interest through January 6, 2024 February 6, 2024 $50,000 plus accrued interest through February 6, 2024 March 6, 2024 $66,000 plus accrued interest through March 6, 2024 April 6, 2024 $83,000 plus accrued interest through April 6, 2024 May 6, 2024 $83,000 plus accrued interest through May 6, 2024 June 6, 2024 $100,000 plus accrued interest through June 6, 2024 July 6, 2024 The entire remaining outstanding balance of the July 2023 Convertible Note In connection with the issuance of the July 2023 Convertible Note, the Company incurred debt issuance costs of $ 74,204 (including the issuance of 3,333 warrants as a finder’s fee), which is capitalized and will be amortized into interest expense over the term of the July 2023 Convertible Note. F- 26 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 9 – CONVERTIBLE NOTE PAYABLE (continued) July 2023 Convertible Note (continued) Based upon the Company’s analysis of the criteria contained in ASC 815, the Company determined that all the warrants issued to Firstfire and a third party as a finder’s fee meet the definition of a derivative liability, as the Company cannot avoid a net cash settlement under certain circumstances. Management determined the probability of failing to make an amortization payment when due to be remote and as such the fair value of the 35,165 warrants with an exercise price of $ 3.20 exercisable until the five-year anniversary of July 6, 2023, which warrant shall be cancelled and extinguished against payment of the July 2023 Convertible Note, has been estimated to be zero. Accordingly, the fair value of the 44,998 warrants with an exercise price of $ 4.50 exercisable until the five-year anniversary of July 6, 2023 was classified as a derivative liability on July 6, 2023. The fair values of the 44,998 warrants with an exercise price of $ 4.50 exercisable until the five-year anniversary of July 6, 2023 issued on July 6, 2023 were computed using the Black-Scholes option-pricing model with the following assumptions: stock price of $ 1.42 , volatility of 88.52 %, risk-free rate of 4.37 %, annual dividend yield of 0 % and expected life of 5 years. In accordance with ASC 470-20-25-2, proceeds from the sale of a debt instrument with stock purchase warrants are allocated to the two elements based on the relative fair values of the debt instrument without the warrants and of the warrants themselves at time of issuance. The portion of the proceeds allocated to the warrants are accounted for as derivative liability. The remainder of the proceeds are allocated to the debt instrument portion of the transaction. In accordance with ASC 480-10-25-14, the Company determined that the conversion provisions contain an embedded derivative feature and the Company valued the derivative feature separately, recording debt discount and derivative liability in accordance with the provisions of the convertible debt (see Note 10). However, management determined the probability of failing to make an amortization payment when due to be remote and as such the fair value of the embedded conversion feature has been estimated to be zero. The Company recorded a total debt discount of $ 89,191 related to the original issue discount, common shares issued and warrants issued to Firstfire, which will be amortized over the term of the July 2023 Convertible Note. For the year ended December 31, 2023, amortization of debt discount and debt issuance costs and interest expense related to the July 2023 Convertible Note amounted to $ 78,974 and $ 31,164 , respectively, which have been included in interest expense — amortization of debt discount and debt issuance cost and interest expense — other on the accompanying consolidated statements of operations and comprehensive loss. October 2023 Convertible Note On October 9, 2023, the Company entered into securities purchase agreements with Mast Hill and Firstfire for the issuance of 13.0 % senior secured promissory notes in the aggregate principal amount of $ 700,000 (collectively, the “October 2023 Convertible Note”) convertible into shares of common stock, par value $ 0.0001 per share, of the Company, as well as the issuance of 70,000 shares of common stock as a commitment fee and warrants for the purchase of 192,500 shares of common stock of the Company. The Company and its subsidiaries have entered into that certain security agreements, creating a security interest in certain property of the Company and its subsidiaries to secure the prompt payment, performance and discharge in full of all of the Company’s obligations under the October 2023 Convertible Note. Principal amount and interest under the October 2023 Convertible Note are convertible into shares of common stock of the Company at a conversion price of $ 1.50 per share unless the Company fails to make an amortization payment when due, in which case the conversion price shall be the lower of $ 1.50 or the market price (as defined in the October 2023 Convertible Note) of the shares. Mast Hill acquired the October 2023 Convertible Note with principal amount of $ 350,000 and paid the purchase price of $ 332,500 after an original issue discount of $ 17,500 . On October 9, 2023, the Company issued (i) a warrant to purchase 52,500 shares of common stock with an exercise price of $ 2.50 exercisable until the five-year anniversary of October 9, 2023, (ii) a warrant to purchase 43,750 shares of common stock with an exercise price of $ 1.80 exercisable until the five-year anniversary of October 9, 2023, which warrant shall be cancelled and extinguished against payment of the October 2023 Convertible Note, and (iii) 35,000 shares of common stock as a commitment fee for the purchase of the October 2023 Convertible Note, which were earned in full as of October 9, 2023. On October 9, 2023, the Company delivered such duly executed October 2023 Convertible Note, warrants and common stock to Mast Hill against delivery of such purchase price. F- 27 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 9 – CONVERTIBLE NOTE PAYABLE (continued) October 2023 Convertible Note (continued) The Company is obligated to make amortization payments in cash to Mast Hill towards the repayment of the October 2023 Convertible Note, as provided in the following table: Payment Date: Payment Amount: April 9, 2024 $35,000 plus accrued interest through April 9, 2024 May 9, 2024 $35,000 plus accrued interest through May 9, 2024 June 9, 2024 $46,667 plus accrued interest through June 9, 2024 July 9, 2024 $58,333 plus accrued interest through July 9, 2024 August 9, 2024 $58,333 plus accrued interest through August 9, 2024 September 9, 2024 $70,000 plus accrued interest through September 9, 2024 October 9, 2024 The entire remaining outstanding balance of the October 2023 Convertible Note Firstfire acquired the October 2023 Convertible Note with principal amount of $ 350,000 and paid the purchase price of $ 332,500 after an original issue discount of $ 17,500 . On October 9, 2023, the Company issued (i) a warrant to purchase 52,500 shares of common stock with an exercise price of $ 2.50 exercisable until the five-year anniversary of October 9, 2023, (ii) a warrant to purchase 43,750 shares of common stock with an exercise price of $ 1.80 exercisable until the five-year anniversary of October 9, 2023, which warrant shall be cancelled and extinguished against payment of the October 2023 Convertible Note, and (iii) 35,000 shares of common stock as a commitment fee for the purchase of the October 2023 Convertible Note, which were earned in full as of October 9, 2023. On October 9, 2023, the Company delivered such duly executed October 2023 Convertible Note, warrants and common stock to Firstfire against delivery of such purchase price. The Company is obligated to make amortization payments in cash to Firstfire towards the repayment of the October 2023 Convertible Note, as provided in the following table: Payment Date: Payment Amount: April 9, 2024 $35,000 plus accrued interest through April 9, 2024 May 9, 2024 $35,000 plus accrued interest through May 9, 2024 June 9, 2024 $46,667 plus accrued interest through June 9, 2024 July 9, 2024 $58,333 plus accrued interest through July 9, 2024 August 9, 2024 $58,333 plus accrued interest through August 9, 2024 September 9, 2024 $70,000 plus accrued interest through September 9, 2024 October 9, 2024 The entire remaining outstanding balance of the October 2023 Convertible Note In connection with the issuance of the October 2023 Convertible Note, the Company incurred debt issuance costs of $ 95,349 (including the issuance of 8,400 warrants as a finder’s fee), which is capitalized and will be amortized into interest expense over the term of the October 2023 Convertible Note. Based upon the Company’s analysis of the criteria contained in ASC 815, the Company determined that all the warrants issued to Mast Hill and Firstfire and a third party as a finder’s fee meet the definition of a derivative liability, as the Company cannot avoid a net cash settlement under certain circumstances. Management determined the probability of failing to make an amortization payment when due to be remote and as such the fair value of the 87,500 warrants with an exercise price of $ 1.80 exercisable until the five-year anniversary of October 9, 2023, which warrant shall be cancelled and extinguished against payment of the October 2023 Convertible Note, has been estimated to be zero. Accordingly, the fair value of the 113,400 warrants with an exercise price of $ 2.50 exercisable until the five-year anniversary of October 9, 2023 was classified as a derivative liability on October 9, 2023. The fair values of the 113,400 warrants with an exercise price of $ 2.50 exercisable until the five-year anniversary of October 9, 2023 issued on October 9, 2023 were computed using the Black-Scholes option-pricing model with the following assumptions: stock price of $ 0.77 , volatility of 89.70 %, risk-free rate of 4.75 %, annual dividend yield of 0 % and expected life of 5 years. F- 28 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 9 – CONVERTIBLE NOTE PAYABLE (continued) October 2023 Convertible Note (continued) In accordance with ASC 470-20-25-2, proceeds from the sale of a debt instrument with stock purchase warrants are allocated to the two elements based on the relative fair values of the debt instrument without the warrants and of the warrants themselves at time of issuance. The portion of the proceeds allocated to the warrants are accounted for as derivative liability. The remainder of the proceeds are allocated to the debt instrument portion of the transaction. In accordance with ASC 480-10-25-14, the Company determined that the conversion provisions contain an embedded derivative feature and the Company valued the derivative feature separately, recording debt discount and derivative liability in accordance with the provisions of the convertible debt (see Note 10). However, management determined the probability of failing to make an amortization payment when due to be remote and as such the fair value of the embedded conversion feature has been estimated to be zero. The Company recorded a total debt discount of $ 128,748 related to the original issue discount, common shares issued and warrants issued to Mast Hill and Firstfire, which will be amortized over the term of the October 2023 Convertible Note. For the year ended December 31, 2023, amortization of debt discount and debt issuance costs and interest expense related to the October 2023 Convertible Note amounted to $51,356 and $20,444, respectively, which have been included in interest expense — amortization of debt discount and debt issuance cost and interest expense — other on the accompanying consolidated statements of operations and comprehensive loss. NOTE 10 – DERIVATIVE LIABILITY As stated in Note 9, 2022 Convertible Note, the Company determined that the convertible note payable contained an embedded derivative feature in the form of a conversion provision which was adjustable based on future prices of the Company’s common stock. In accordance with ASC 815-10-25, each derivative feature was initially recorded at its fair value using the Black-Scholes option valuation method and then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. The estimated fair value of the derivative feature of convertible debt was $ 2,782,569 at commitment dates, which was calculated using the following assumptions: volatility of 95.97 %, risk-free rate of 2.75 % - 2.89 %, annual dividend yield of 0 % and expected life of 10 years. On July 25, 2022, the Company and the 2022 Convertible Note holder entered into a Conversion Agreement pursuant to which the investor converted all of its Convertible Notes into shares of common stock of the Company. The estimated fair value of the derivative feature of convertible debt was $ 2,181,820 on July 25, 2022, which was computed using the following assumptions: volatility of 95.53 %, risk-free rate of 2.81 %, annual dividend yield of 0 % and expected life of 9.7 – 9.8 years. Increases or decreases in fair value of the derivative liability is included as a component of total other (expenses) income in the accompanying consolidated statements of operations and comprehensive loss. The change to the derivative liability for the embedded conversion option resulted in a decrease of $ 600,749 in the derivative liability and the corresponding increase in other income as a gain for the year ended December 31, 2022. As stated in Note 9, May 2023 Convertible Note, July 2023 Convertible Note, and October 2023 Convertible Note, the Company determined that the convertible note payable contains an embedded derivative feature in the form of a conversion provision which is adjustable based on future prices of the Company’s common stock. In accordance with ASC 815-10-25, each derivative feature is initially recorded at its fair value using the Black-Scholes option valuation method and then re-value at each reporting date, with changes in the fair value reported in the statements of operations. However, on May 23, 2023, July 6, 2023, October 9, 2023, and December 31, 2023, management determined the probability of failing to make an amortization payment when due to be remote and as such the fair value of the embedded conversion feature has been estimated to be zero. On May 23, 2023, the Company issued 240,500 warrants to Mast Hill and a third party as a finder’s fee (see Note 9). Upon evaluation, the warrants meet the definition of a derivative liability under FASB ASC 815, as the Company cannot avoid a net cash settlement under certain circumstances. Management determined the probability of failing to make an amortization payment when due to be remote and as such the fair value of the 105,500 warrants with an exercise price of $ 3.20 exercisable until the five-year anniversary of May 23, 2023, which warrant shall be cancelled and extinguished against payment of the May 2023 Convertible Note, has been estimated to be zero. Accordingly, the fair value of the 135,000 warrants with an exercise price of $ 4.50 exercisable until the five-year anniversary of May 23, 2023 was classified as a derivative liability on May 23, 2023. F- 29 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 10 – DERIVATIVE LIABILITY (continued) On May 23, 2023, the estimated fair value of the 135,000 warrants with an exercise price of $ 4.50 exercisable until the five-year anniversary of May 23, 2023 issued were computed using the Black-Scholes option-pricing model with the following assumptions: stock price of $ 1.96 , volatility of 88.80 %, risk-free rate of 3.76 %, annual dividend yield of 0 % and expected life of 5 years. On December 31, 2023, the estimated fair value of the 135,000 warrants with an exercise price of $ 4.50 exercisable until the five-year anniversary of May 23, 2023 as derivative liability was $ 14,805 . The estimated fair value of the warrants was computed as of December 31, 2023 using Black-Scholes option-pricing model, with the following assumptions: stock price of $ 0.48 , volatility of 83.96 %, risk-free rate of 3.84 %, annual dividend yield of 0 % and expected life of 4.4 years. On July 6, 2023, the Company issued 80,163 warrants to Firstfire and a third party as a finder’s fee (see Note 9). Upon evaluation, the warrants meet the definition of a derivative liability under FASB ASC 815, as the Company cannot avoid a net cash settlement under certain circumstances. Management determined the probability of failing to make an amortization payment when due to be remote and as such the fair value of the 35,165 warrants with an exercise price of $ 3.20 exercisable until the five-year anniversary of July 6, 2023, which warrant shall be cancelled and extinguished against payment of the July 2023 Convertible Note, has been estimated to be zero. Accordingly, the fair value of the 44,998 warrants with an exercise price of $ 4.50 exercisable until the five-year anniversary of July 6, 2023 was classified as a derivative liability on July 6, 2023. On July 6, 2023, the estimated fair values of the 44,998 warrants with an exercise price of $ 4.50 exercisable until the five-year anniversary of July 6, 2023 issued were computed using the Black-Scholes option-pricing model with the following assumptions: stock price of $ 1.42 , volatility of 88.52 %, risk-free rate of 4.37 %, annual dividend yield of 0 % and expected life of 5 years. On December 31, 2023, the estimated fair value of the 44,998 warrants with an exercise price of $ 4.50 exercisable until the five-year anniversary of July 6, 2023 as derivative liability was $ 5,098 . The estimated fair value of the warrants was computed as of December 31, 2023 using Black-Scholes option-pricing model, with the following assumptions: stock price of $ 0.48 , volatility of 83.66 %, risk-free rate of 3.84 %, annual dividend yield of 0 % and expected life of 4.5 years. On October 9, 2023, the Company issued 200,900 warrants to Mast Hill and Firstfire and a third party as a finder’s fee (see Note 9). Upon evaluation, the warrants meet the definition of a derivative liability under FASB ASC 815, as the Company cannot avoid a net cash settlement under certain circumstances. Management determined the probability of failing to make an amortization payment when due to be remote and as such the fair value of the 87,500 warrants with an exercise price of $ 1.80 exercisable until the five-year anniversary of October 9, 2023, which warrant shall be cancelled and extinguished against payment of the October 2023 Convertible Note, has been estimated to be zero . Accordingly, the fair value of the 113,400 warrants with an exercise price of $ 2.50 exercisable until the five-year anniversary of October 9, 2023 was classified as a derivative liability on October 9, 2023. On October 9, 2023, the estimated fair values of the 113,400 warrants with an exercise price of $ 2.50 exercisable until the five-year anniversary of October 9, 2023 issued were computed using the Black-Scholes option-pricing model with the following assumptions: stock price of $ 0.77 , volatility of 89.70 %, risk-free rate of 4.75 %, annual dividend yield of 0 % and expected life of 5 years. On December 31, 2023, the estimated fair value of the 113,400 warrants with an exercise price of $ 2.50 exercisable until the five-year anniversary of October 9, 2023 as derivative liability was $ 20,920 . The estimated fair value of the warrants was computed as of December 31, 2023 using Black-Scholes option-pricing model, with the following assumptions: stock price of $ 0.48 , volatility of 86.33 %, risk-free rate of 3.84 %, annual dividend yield of 0 % and expected life of 4.8 years. Increases or decreases in fair value of the derivative liability is included as a component of total other (expenses) income in the accompanying consolidated statements of operations and comprehensive loss. The changes to the derivative liability resulted in a decrease of $ 188,374 in the derivative liability and the corresponding increase in other income as a gain for the year ended December 31, 2023. NOTE 11 – NOTE PAYABLE, NET On September 1, 2022, the Company issued a balloon promissory note in the form of a mortgage on its headquarters to a third party company in the principal amount of $ 4,800,000 , which carries interest of 11.0 % per annum. Interest is due in monthly payments of $ 44,000 beginning November 1, 2022 and payable monthly thereafter until September 1, 2025 when the principal outstanding and all remaining interest is due. The principal of $ 4,800,000 can be extended for an additional 36 months, provided that the Company has not defaulted. The Company may not prepay the principal of $ 4,800,00 for a period of 12 months. The principal of $ 4,800,000 is secured by a first mortgage on the Company’s real property located in Township of Freehold, County of Monmouth, State of New Jersey, having a street address of 4400 Route 9 South, Freehold, NJ 07728. F- 30 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 11 – NOTE PAYABLE, NET (continued) In May 2023, the Company borrowed $ 1,000,000 from the same lender. The principal of $ 1,000,000 accrues interest at an annual rate of 13.0 % and is payable 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 are due and payable). The loan is secured by a second-lien mortgage on certain real property and improvements located at 4400 Route 9, Freehold, Monmouth County, New Jersey. The note payable as of December 31, 2023 and 2022 is as follows: December 31, 2023 December 31, 2022 Principal amount $ 5,800,000 $ 4,800,000 Less: unamortized debt issuance costs ( 203,781 ) ( 236,848 ) Note payable, net $ 5,596,219 $ 4,563,152 For the year ended December 31, 2023 and 2022, amortization of debt issuance costs related to note payable amounted to $ 106,557 and $ 29,606 , respectively, which have been included in interest expense — amortization of debt discount and debt issuance cost on the accompanying consolidated statements of operations and comprehensive loss. For the year ended December 31, 2023 and 2022, interest expense related to note payable amounted to $606,722 and $ 176,000 , respectively, which have been included in interest expense - other on the accompanying consolidated statements of operations and comprehensive loss. NOTE 12 – RELATED PARTY TRANSACTIONS Rental Revenue from Related Party and Rent Receivable – Related Party The Company leases space of its commercial real property located in New Jersey to a company, D.P. Capital Investments LLC, which is controlled by Wenzhao Lu, the Company’s largest shareholder and chairman of the Board of Directors. The term of the related party lease agreement is five years commencing on May 1, 2021 and will expire on April 30, 2026. For both the years ended December 31, 2023 and 2022, the related party rental revenue amounted to $ 50,400 and has been included in rental revenue on the accompanying consolidated statements of operations and comprehensive loss. At December 31, 2023 and 2022, the related party rent receivable totaled $ 124,500 and $ 74,100 , respectively, which has been included in rent receivable on the accompanying consolidated balance sheets, and no allowance for doubtful accounts was deemed to be required on the receivable. Services Provided by Related Party From time to time, Wilbert Tauzin, a director of the Company, and his son provide consulting services to the Company. As compensation for professional services provided, the Company recognized consulting expenses of $ 86,528 and $ 144,064 for the years ended December 31, 2023 and 2022, respectively, which have been included in professional fees on the accompanying consolidated statements of operations and comprehensive loss. Accrued Liabilities and Other Payables – Related Parties In 2017, the Company acquired Beijing Genexosome for a cash payment of $ 450,000 . As of December 31, 2023 and 2022, the unpaid acquisition consideration of $ 100,000 , was payable to Dr. Yu Zhou, former director and former co-chief executive officer and 40 % owner of Genexosome, and has been included in accrued liabilities and other payables — related parties on the accompanying consolidated balance sheets. During the period from June 2023 through December 2023, Lab Services MSO paid shared expense on behalf of the Company. As of December 31, 2023, the balance due to Lab Services MSO amounted to $ 72,746 , which has been included in accrued liabilities and other payables — related parties on the accompanying consolidated balance sheets. As of December 31, 2023 and 2022, $ 33,712 and $ 0 of accrued and unpaid interest related to borrowings from Wenzhao Lu, the Company’s largest shareholder and chairman of the Board of Directors, respectively, have been included in accrued liabilities and other payables — related parties on the accompanying consolidated balance sheets. F- 31 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 12 – RELATED PARTY TRANSACTIONS (continued) Borrowings from Related Party Line of Credit On August 29, 2019, the Company entered into a Line of Credit Agreement (the “Line of Credit Agreement”) providing the Company with a $ 20 million line of credit (the “Line of Credit”) from Wenzhao Lu (the “Lender”), the largest shareholder and Chairman of the Board of Directors of the Company. The Line of Credit allows the Company to request loans thereunder and to use the proceeds of such loans for working capital and operating expense purposes until the facility matures on December 31, 2024 . The loans are unsecured and are not convertible into equity of the Company. Loans drawn under the Line of Credit bear interest at an annual rate of 5 % and each individual loan is payable three years from the date of issuance. The Company has a right to draw down on the line of credit and not at the discretion of the related party Lender. The Company may, at its option, prepay any borrowings under the Line of Credit, in whole or in part at any time prior to maturity, without premium or penalty. The Line of Credit Agreement includes customary events of default. If any such event of default occurs, the Lender may declare all outstanding loans under the Line of Credit to be due and payable immediately. In the years ended December 31, 2023 and 2022, activity recorded for the Line of Credit is summarized in the following table: Outstanding principal under the Line of Credit at January 1, 2022 $ 2,750,262 Draw down from Line of Credit 100,000 Repayment of Line of Credit ( 410,000 ) Settlement of Line of Credit in shares ( 2,440,262 ) Outstanding principal under the Line of Credit at December 31, 2022 - Draw down from Line of Credit 850,000 Outstanding principal under the Line of Credit at December 31, 2023 $ 850,000 For the years ended December 31, 2023 and 2022, the interest expense related to related party borrowings amounted to $ 33,712 and $ 79,898 , respectively, and has been reflected as interest expense — related party on the accompanying consolidated statements of operations and comprehensive loss. As of December 31, 2023 and 2022, the related accrued and unpaid interest for Line of Credit was $ 33,712 and $ 0 , respectively, and has been included in accrued liabilities and other payables — related parties on the accompanying consolidated balance sheets. As of December 31, 2023, the Company used approximately $ 6.8 million of the credit facility and has approximately $ 13.2 million remaining available under the Line of Credit. Common Shares Sold to Related Party for Cash On August 5, 2022, the Company sold 44,872 shares of its common stock at a purchase price of $ 7.8 per share, the fair market value on transaction date, to Wenzhao Lu pursuant to a subscription agreement. The Company received proceeds of $ 350,000 (See Note 14 – Common Shares Sold for Cash). Series A Convertible Preferred Stock Sold to Related Party for Cash On December 14, 2022, the Company entered into a Securities Purchase Agreement with Wenzhao Lu, the Company’s Chairman of the Board, pursuant to which the Company sold to Mr. Lu 4,000 shares of its Series A Preferred Stock, stated value $ 1,000 , for the gross proceeds of $ 4,000,000 (See Note 14 – Series A Convertible Preferred Stock Sold for Cash). F- 32 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 12 – RELATED PARTY TRANSACTIONS (continued) Membership Interest Purchase Agreement On November 17, 2023, the Company entered into a Membership Interest Purchase Agreement (the “Purchase Agreement”) with Wenzhao Lu (the “Purchaser”), the largest shareholder and Chairman of the Board of Directors of the Company, pursuant to which (i) the Purchaser will acquire from the Company 30 % of the total outstanding membership interests of Avalon RT 9, a wholly owned subsidiary of the Company for a cash purchase price of $ 3,000,000 (the “Acquisition”), and (ii) for a period of twelve months following the closing of the Acquisition, the Purchaser shall have the option to purchase from the Company up to an additional 70 % of the outstanding membership interests of Avalon RT 9 for a purchase price of up to $ 7,000,000 (the “Option”), subject to the terms and conditions of a membership interest purchase agreement to be negotiated and entered into between the Purchaser and the Company at such time that the Purchaser desires to exercise the Option The Acquisition was not closed as of December 31, 2023. The Company received $ 485,714 from Wenzhao Lu as of December 31, 2023 which was recorded as advance from sale of noncontrolling interest – related party on the accompanying consolidated balance sheets. NOTE 13 – INCOME TAXES The Company is governed by the Income Tax Law of the PRC and the U.S. Internal Revenue Code of 1986, as amended. Under the Income Tax Laws of PRC, Chinese companies are generally subject to an income tax at an effective rate of 25 % on income reported in the statutory financial statements after appropriate tax adjustments. The Company has a cumulative deficit from its foreign subsidiary of $ 3,135,027 as of December 31, 2023, which is included in the consolidated accumulated deficit. The Company’s loss before income taxes includes the following components: Years Ended December 31, 2023 2022 United States loss before income taxes $ ( 15,928,780 ) $ ( 11,567,154 ) China loss before income taxes ( 778,230 ) ( 363,693 ) Total loss before income taxes $ ( 16,707,010 ) $ ( 11,930,847 ) Components of income taxes expense (benefit) consisted of the following: Years Ended December 31, 2023 2022 Current: U.S. federal $ - $ - U.S. state and local - - China - - Total current income taxes expense $ - $ - Deferred: U.S. federal $ ( 3,256,007 ) $ ( 1,729,700 ) U.S. state and local ( 1,102,392 ) ( 585,627 ) China ( 183,443 ) 209,806 Total deferred income taxes (benefit) $ ( 4,541,842 ) $ ( 2,105,521 ) Change in valuation allowance 4,541,842 2,105,521 Total income taxes expense $ - $ - F- 33 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 13 – INCOME TAXES (continued) The table below summarizes the differences between the U.S. statutory rate and the Company’s effective tax rate for the years ended December 31, 2023 and 2022: Years Ended December 31, 2023 2022 U.S. federal rate 21.0 % 21.0 % U.S. state rate 6.7 % 5.6 % Permanent difference ( 0.1 )% ( 3.8 )% Non-US rate differential 0.2 % 0.1 % True ups ( 0.6 )% ( 5.3 )% U.S. valuation allowance ( 27.2 )% ( 17.6 )% Total provision for income taxes 0.0 % 0.0 % For the years ended December 31, 2023 and 2022, the Company did not incur any income taxes expense since it did not generate any taxable income in those periods. The Company’s foreign entity did not pay any income taxes during the years ended December 31, 2023 and 2022. The Company’s components of deferred taxes as of December 31, 2023 and 2022 were as follows: December 31, 2023 December 31, 2022 Deferred tax assets Stock-based compensation $ 3,501,507 $ 3,499,969 Disallowed business interest deduction 9,476 - Research and development expense 130,823 137,864 Accrued directors’ compensation 165,490 47,787 Accrued settlement 126,945 126,495 Partnership Investment 2,422,744 - Lease liability 20,935 1,687 Capital Loss Limitation 149,394 - Net operating loss carryforward 15,493,570 13,634,920 Total deferred tax assets, gross 22,020,434 17,448,722 Valuation allowance ( 21,871,551 ) ( 17,329,708 ) Total deferred tax assets, net $ 148,884 $ 119,014 Deferred tax liabilities Fixed assets and intangible assets book/tax basis difference ( 129,636 ) ( 119,014 ) Right-of-use assets ( 19,248 ) - Total deferred tax liabilities $ ( 148,884 ) $ ( 119,014 ) Net deferred tax assets $ - $ - As of December 31, 2023 and 2022, the Company’s both federal and state net operating loss carryforwards amounted to $ 52,929,248 and $ 46,969,776 , respectively. As of December 31, 2023, the Company has $ 48,003,744 of U.S. federal net operating loss carryovers that have no expiration date, and $ 2,487,555 of the federal net operating loss and state net operating loss carry-forwards begin to expire in 2034. As of December 31, 2023, the Company had net operating loss carryforwards in China of $ 2,460,636 that begin to expire in 2024. Additionally, as of December 31, 2023, $ 61,847 of the future utilization of the net operating loss carryforward to offset future taxable income is subject to special tax rules which may limit their usage under IRS Section 382 (Change of Ownership) and possibly the Separate Return Limitation Year (“SRLY”) rules. A full valuation allowance has been provided against the Company’s deferred tax assets at December 31, 2023 as the Company believes it is more likely than not that sufficient taxable income will not be generated to realize these temporary differences. F- 34 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 13 – INCOME TAXES (continued) The Company has been notified and assessed an IRS Section 6038 penalty of $10,000 for failure to file a foreign entity tax disclosure. The Company has appealed the penalty and awaits the Internal Revenue Service’s review of the appeal. There is no assurance such appeal will be successful. The Company has not been audited by any jurisdiction since its inception. The Company is open for audit by the U.S. Internal Revenue Service and U.S. state tax jurisdictions from 2020 to 2023, and open for audit by the Chinese Ministry of Finance from 2019 to 2023. There were no material uncertain tax positions as of December 31, 2023 and 2022. The Company recognizes interest and penalties related to unrecognized tax benefits as income tax expense, if any. The Company does not have any significant uncertain tax positions or events leading to uncertainty in a tax position. NOTE 14 – EQUITY The Company is authorized to issue an aggregate of 490,000,000 shares of common stock and 10,000,000 shares of “blank check” preferred stock. Series A Convertible Preferred Stock The Company designated up to 15,000 shares of its previously undesignated preferred stock as Series A Preferred Stock. Each share of Series A Preferred Stock has a par value of $ 0.0001 per share and a stated value equal to $ 1,000 . During the year ended December 31, 2022, the Company sold an aggregate of 9,000 shares of Series A Preferred stock and received proceeds of $ 9,000,000 . Each share of Series A Preferred Stock shall be convertible, at any time and from time to time from and after the later of (i) the date of the stockholder approval, in accordance with the Nasdaq Stock Market Listing Rules, and (ii) the nine (9) month anniversary of the Closing (the “Initial Conversion Date”), at the option of the Series A Holder, into that number of shares of common stock (subject to the limitations set forth in Series A Certificate of Designations, determined by dividing the Stated Value of such share of Series A Preferred Stock by the Conversion Price). The Series A Holders may convert such shares into shares of the Company’s common stock at a conversion price per share equal to the greater of (i) ten dollars ($ 10.0 ) and (ii) ninety percent ( 90 %) of the closing price of the Company’s common stock on Nasdaq on the day prior to receipt of a conversion notice (collectively, the “Conversion Price”), subject to adjustment for stock splits and similar matters. The Company evaluated the features of the Series A Convertible Preferred Stock under ASC 480, and classified them as permanent equity because the Series A Convertible Preferred Stock is not mandatorily or contingently redeemable at the stockholder’s option and the liquidation preference that exists does not fall within the guidance of SEC Accounting Series Release No. 268 – Presentation in Financial Statements of “Redeemable Preferred Stocks” (“ASR 268”). As of December 31, 2023 and 2022, 9,000 shares of Series A Preferred Stock were issued and outstanding. Series B Convertible Preferred Stock The Company designated up to 15,000 shares of its previously undesignated preferred stock as Series B Preferred Stock. Each share of Series B Preferred Stock has a par value of $ 0.0001 per share and a stated value equal to $ 1,000 . On February 9, 2023, the Company issued 11,000 shares of its Series B Convertible Preferred Stock as a part of consideration for the purchase of 40 % of equity interest of Lab Services MSO. The Series B Preferred Stock is convertible into shares of the Company’s common stock at a conversion price per share equal to $ 3.78 or an aggregate of 2,910,053 shares of the Company’s common stock and are subject to a lock-up period and restrictions on sale (See Note — 7 - Investment in Laboratory Services MSO, LLC). As of December 31, 2023, 11,000 shares of Series B Preferred Stock were issued and outstanding. F- 35 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 14 – EQUITY (continued) Common Shares Sold for Cash On December 13, 2019, the Company entered into an Open Market Sale Agreement SM (the “Sales Agreement”) with Jefferies LLC, as sales agent (“Jefferies”), pursuant to which the Company may offer and sell, from time to time, through Jefferies, shares of its common stock. During the year ended December 31, 2022, Jefferies sold an aggregate of 17,064 shares of common stock at an average price of $ 7.9 per share to investors and the Company recorded net proceeds of $ 112,328 , net of commission and other offering costs of $ 23,239 . The Open Market Sale Agreement SM was terminated in 2023. On August 5, 2022, the Company sold 32,051 shares of its common stock at a purchase price of $ 7.8 per share to an investor pursuant to a subscription agreement. The Company received proceeds of $ 250,000 . On August 5, 2022, the Company sold 44,872 shares of its common stock at a purchase price of $ 7.8 per share, the fair market value on transaction date, to Wenzhao Lu pursuant to a subscription agreement. The Company received proceeds of $ 350,000 (see Note 12 - Common Shares Sold to Related Party for Cash). In June 2023, the Company entered into a sales agreement (the “Sales Agreement”) with Roth Capital Partners, LLC (“Roth”) under which the Company may offer and sell from time to time shares of its common stock having an aggregate offering price of up to $ 3.5 million. During the year ended December 31, 2023, Roth sold an aggregate of 456,627 shares of common stock at an average price of $ 1.39 per share to investors and the Company recorded net proceeds of $ 414,396 , net of commission and other offering costs of $ 220,995 . Common Shares Issued for Services During the year ended December 31, 2022, the Company issued a total of 40,896 shares of its common stock for services rendered. These shares were valued at $ 340,950 , the fair market values on the grant dates using the reported closing share prices on the dates of grant, and the Company recorded stock-based compensation expense of $ 310,950 for the year ended December 31, 2022 and reduced accrued liabilities of $ 30,000 . During the year ended December 31, 2023, the Company issued a total of 361,331 shares of its common stock for services rendered. These shares were valued at $ 999,655 , the fair market values on the grant dates using the reported closing share prices on the dates of grant, and the Company recorded stock-based compensation expense of $ 834,784 for the year ended December 31, 2023 and reduced accrued liabilities of $ 164,871 . Common Shares Issued as Convertible Note Payable Commitment Fee During the year ended December 31, 2023, the Company issued a total of 170,000 shares of its common stock as commitment fee for the purchases of convertible note. These shares were valued at $ 236,400 , the fair market values on the grant dates using the reported closing share prices on the dates of grant, and the Company recorded it as debt discount. Common Shares Issued for Debt Conversion On July 25, 2022, the Company and 2022 Convertible Note holder entered into a Conversion Agreement pursuant to which the investor converted its Convertible Notes in the principal amount of $ 3,718,943 and unpaid interest of $ 9,751 into 573,645 shares of common stock of the Company at a per share price of $ 6.5 (see Note 9). The Company recorded a conversion inducement charge of $ 344,264 as a result of the Conversion Agreement, representing the value of common stock issued upon conversion in excess of the common stock issuable under the original terms of the 2022 Convertible Note. Common Shares Issued Pursuant to Related Party Debt Settlement Agreement and Release On July 25, 2022, the Company and Mr. Lu entered into and closed a Debt Settlement Agreement and Release pursuant to which the Company settled $ 2,440,262 debt owed under the Line of Credit and unpaid interest of $ 448,331 by issuance of 444,399 shares of common stock of the Company (see Note 12 - Borrowings from Related Party – Line of Credit ). The total amount of the debt settled of $ 2,888,593 exceeded the fair market value of the shares issued by $ 888,353 which was treated as a capital transaction due to Mr. Lu’s relationship with the Company. F- 36 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 14 – EQUITY (continued) Options The following table summarizes the shares of the Company’s common stock issuable upon exercise of options outstanding at December 31, 2023: Options Outstanding Options Exercisable Range of Exercise Price Number Outstanding at December 31, 2023 Weighted Average Remaining Contractual Life (Years) Weighted Average Exercise Price Number Exercisable at December 31, 2023 Weighted Average Exercise Price $ 0.59 – 2.08 149,000 4.01 $ 1.72 69,333 $ 1.88 3.25 – 8.20 307,803 3.04 5.26 307,803 5.26 10.20 – 20.00 396,500 2.04 16.65 396,500 16.65 $ 0.59 – 20.00 853,303 2.75 $ 9.94 773,636 $ 10.80 Stock option activity for the years ended December 31, 2023 and 2022 were as follows: Number of Options Weighted Average Exercise Price Outstanding at January 1, 2022 772,500 $ 14.48 Granted 86,000 6.59 Expired ( 58,000 ) ( 22.79 ) Outstanding at December 31, 2022 800,500 13.03 Granted 186,803 2.35 Expired ( 134,000 ) ( 17.86 ) Outstanding at December 31, 2023 853,303 $ 9.94 Options exercisable at December 31, 2023 773,636 $ 10.80 Options expected to vest 79,667 $ 1.57 The aggregate intrinsic value of both stock options outstanding and stock options exercisable at December 31, 2023 was $ 0 . The fair values of options granted during the year ended December 31, 2023 were estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions: volatility of 79.76 % - 96.37 %, risk-free rate of 3.58 % - 4.76 %, annual dividend yield of 0 %, and expected life of 3.00 - 5.00 years. The aggregate fair value of the options granted during the year ended December 31, 2023 was $ 319,380 . The fair values of options granted during the year ended December 31, 2022 were estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions: volatility of 74.8 % - 117.46 %, risk-free rate of 1.37 % - 4.48 %, annual dividend yield of 0 %, and expected life of 3.00 - 5.00 years. The aggregate fair value of the options granted during the year ended December 31, 2022 was $ 421,428 . For the year ended December 31, 2023 and 2022, stock-based compensation expense associated with stock options granted amounted to $ 284,977 and $ 358,113 , of which, $ 172,943 and $ 234,856 was recorded as compensation and related benefits, $ 106,565 and $ 84,064 was recorded as professional fees, and $ 5,469 and $ 39,193 was recorded as research and development expenses, respectively. F- 37 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 14 – EQUITY (continued) Options (continued) A summary of the status of the Company’s nonvested stock options granted as of December 31, 2023 and changes during the years ended December 31, 2023 and 2022 is presented below: Number of Options Weighted Average Exercise Price Nonvested at January 1, 2022 20,583 $ 10.39 Granted 86,000 6.59 Vested ( 86,583 ) ( 8.03 ) Nonvested at December 31, 2022 20,000 4.29 Granted 186,803 2.35 Vested ( 127,136 ) ( 3.14 ) Nonvested at December 31, 2023 79,667 $ 1.57 Warrants The following table summarizes the shares of the Company’s common stock issuable upon exercise of warrants outstanding at December 31, 2023: Warrants Outstanding Warrants Exercisable Exercise Price Number Outstanding at December 31, 2023 Weighted Average Remaining Contractual Life (Years) Weighted Average Exercise Price Number Exercisable at December 31, 2023 Weighted Average Exercise Price $ 1.80 – 2.50 200,900 4.78 $ 2.20 113,400 $ 2.50 3.20 – 4.50 320,663 4.43 3.93 179,998 4.50 12.50 123,964 3.31 12.50 123,964 12.50 $ 1.80 – 12.50 645,527 4.32 $ 5.04 417,362 $ 6.33 Stock warrant activity for the years ended December 31, 2023 and 2022 were as follows: Number of Warrants Weighted Average Exercise Price Outstanding at January 1, 2022 - $ - Issued 123,964 12.50 Outstanding at December 31, 2022 123,964 12.50 Issued 521,563 3.26 Outstanding at December 31, 2023 645,527 $ 5.04 Warrants exercisable at December 31, 2023 417,362 $ 6.33 Warrants expected to vest 228,165 $ 2.66 The aggregate intrinsic value of both stock warrants outstanding and stock warrants exercisable at December 31, 2023 was $ 0 . F- 38 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 14 – EQUITY (continued) Warrants (continued) Warrants Issued in 2022 On March 28, 2022, the Company entered into Securities Purchase Agreement with an accredited investor, which was amended on June 8, 2022, providing for the sale by the Company to the investor of a Convertible Note in the amount of $ 3,718,943 (“2022 Convertible Note”). In addition to the 2022 Convertible Note, the investor also received a Stock Purchase Warrant (“2022 Warrant”) to acquire an aggregate of 123,964 shares of common stock. The 2022 Warrant is exercisable for five years at an exercise price of $ 12.5 . The fair values of the warrants issued to the investor with this private placement were computed using the Black-Scholes option-pricing model with the following assumptions: volatility of 111.94 %, risk-free rate of 2.71 % - 2.92 %, annual dividend yield of 0 % and expected life of 5 years. The warrants issued to the investor to purchase 123,964 shares of the Company’s common stock were treated as a discount on the convertible note payable and were valued at $ 498,509 and had been amortized over the term of the 2022 Convertible Note. Warrants Issued in May 2023 In connection with the issuance of May 2023 Convertible Note (See Note 9), the Company issued (i) a warrant to purchase 125,000 shares of common stock with an exercise price of $4.50 exercisable until the five-year anniversary of May 23, 2023, and (ii) a warrant to purchase 105,500 shares of common stock with an exercise price of $3.20 exercisable until the five-year anniversary of May 23, 2023, which warrant shall be cancelled and extinguished against payment of the May 2023 Convertible Note, to Mast Hill; and issued a warrant to purchase 10,000 shares of common stock with an exercise price of $4.50 exercisable until the five-year anniversary of May 23, 2023 to a third party as a finder’s fee. Based upon the Company’s analysis of the criteria contained in ASC 815, the Company determined that all the warrants issued to Mast Hill and a third party as a finder’s fee meet the definition of derivative liability, as the Company cannot avoid a net cash settlement under certain circumstances. Management determined the probability of failing to make an amortization payment when due to be remote and as such the fair value of the 105,500 warrants with an exercise price of $ 3.20 exercisable until the five-year anniversary of May 23, 2023, which warrant shall be cancelled and extinguished against payment of the May 2023 Convertible Note, has been estimated to be zero. Accordingly, the fair value of the 135,000 warrants with an exercise price of $ 4.50 exercisable until the five-year anniversary of May 23, 2023 was classified as derivative liability on May 23, 2023. The fair values of the 135,000 warrants with an exercise price of $ 4.50 exercisable until the five-year anniversary of May 23, 2023 issued on May 23, 2023 were computed using the Black-Scholes option-pricing model with the following assumptions: stock price of $ 1.96 , volatility of 88.80 %, risk-free rate of 3.76 %, annual dividend yield of 0 % and expected life of 5 years. The warrants with an exercise price of $ 4.50 exercisable until the five-year anniversary of May 23, 2023 issued to Mast Hill to purchase 125,000 shares of the Company’s common stock were treated as a discount on the convertible note payable and were valued at $ 127,654 and will be amortized over the term of the May 2023 Convertible Note. The warrants with an exercise price of $ 4.50 exercisable until the five-year anniversary of May 23, 2023 issued to a third party as a finder’s fee to purchase 10,000 shares of the Company’s common stock were treated as convertible debt issuance costs and were valued at $ 11,162 and will be amortized over the term of the May 2023 Convertible Note. Warrants Issued in July 2023 In connection with the issuance of July 2023 Convertible Note (See Note 9), the Company issued (i) a warrant to purchase 41,665 shares of common stock with an exercise price of $4.50 exercisable until the five-year anniversary of July 6, 2023, and (ii) a warrant to purchase 35,165 shares of common stock with an exercise price of $3.20 exercisable until the five-year anniversary of July 6, 2023, which warrant shall be cancelled and extinguished against payment of the July 2023 Convertible Note, to Firstfire; and issued a warrant to purchase 3,333 shares of common stock with an exercise price of $4.50 exercisable until the five-year anniversary of July 6, 2023 to a third party as a finder’s fee. F- 39 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 14 – EQUITY (continued) Warrants (continued) Warrants Issued in July 2023 (continued) Based upon the Company’s analysis of the criteria contained in ASC 815, the Company determined that all the warrants issued to Firstfire and a third party as a finder’s fee meet the definition of derivative liability, as the Company cannot avoid a net cash settlement under certain circumstances. Management determined the probability of failing to make an amortization payment when due to be remote and as such the fair value of the 35,165 warrants with an exercise price of $ 3.20 exercisable until the five-year anniversary of July 6, 2023, which warrant shall be cancelled and extinguished against payment of the July 2023 Convertible Note, has been estimated to be zero. Accordingly, the fair value of the 44,998 warrants with an exercise price of $ 4.50 exercisable until the five-year anniversary of July 6, 2023 was classified as derivative liability on July 6, 2023. The fair values of the 44,998 warrants with an exercise price of $ 4.50 exercisable until the five-year anniversary of July 6, 2023 issued on July 6, 2023 were computed using the Black-Scholes option-pricing model with the following assumptions: stock price of $ 1.42 , volatility of 88.52 %, risk-free rate of 4.37 %, annual dividend yield of 0 % and expected life of 5 years. The warrants with an exercise price of $ 4.50 exercisable until the five-year anniversary of July 6, 2023 issued to Firstfire to purchase 41,665 shares of the Company’s common stock were treated as a discount on the convertible note payable and were valued at $ 28,691 and will be amortized over the term of the July 2023 Convertible Note. The warrants with an exercise price of $ 4.50 exercisable until the five-year anniversary of July 6, 2023 issued to a third party as a finder’s fee to purchase 3,333 shares of the Company’s common stock were treated as convertible debt issuance costs and were valued at $ 2,435 and will be amortized over the term of the July 2023 Convertible Note. Warrants Issued in October 2023 In connection with the issuance of October 2023 Convertible Note (See Note 9), the Company issued (i) a warrant to purchase 105,000 shares of common stock with an exercise price of $2.50 exercisable until the five-year anniversary of October 9, 2023, (ii) a warrant to purchase 87,500 shares of common stock with an exercise price of $1.80 exercisable until the five-year anniversary of October 9, 2023, which warrant shall be cancelled and extinguished against payment of the October 2023 Convertible Note, to Mast Hill and Firstfire; and issued a warrant to purchase 8,400 shares of common stock with an exercise price of $2.50 exercisable until the five-year anniversary of October 9, 2023 to a third party as a finder’s fee. Based upon the Company’s analysis of the criteria contained in ASC 815, the Company determined that all the warrants issued to Mast Hill and Firstfire and a third party as a finder’s fee meet the definition of a derivative liability, as the Company cannot avoid a net cash settlement under certain circumstances. Management determined the probability of failing to make an amortization payment when due to be remote and as such the fair value of the 87,500 warrants with an exercise price of $ 1.80 exercisable until the five-year anniversary of October 9, 2023, which warrant shall be cancelled and extinguished against payment of the October 2023 Convertible Note, has been estimated to be zero. Accordingly, the fair value of the 113,400 warrants with an exercise price of $ 2.50 exercisable until the five-year anniversary of October 9, 2023 was classified as a derivative liability on October 9, 2023. The fair values of the 113,400 warrants with an exercise price of $ 2.50 exercisable until the five-year anniversary of October 9, 2023 issued on October 9, 2023 were computed using the Black-Scholes option-pricing model with the following assumptions: stock price of $ 0.77 , volatility of 89.70 %, risk-free rate of 4.75 %, annual dividend yield of 0 % and expected life of 5 years. The warrants with an exercise price of $ 2.50 exercisable until the five-year anniversary of October 9, 2023 issued to Mast Hill and Firstfire to purchase 105,000 shares of the Company’s common stock were treated as a discount on the convertible note payable and were valued at $ 39,848 and will be amortized over the term of the October 2023 Convertible Note. The warrants with an exercise price of $ 2.50 exercisable until the five-year anniversary of October 9, 2023 issued to a third party as a finder’s fee to purchase 8,400 shares of the Company’s common stock were treated as convertible debt issuance costs and were valued at $ 3,380 and will be amortized over the term of the October 2023 Convertible Note. F- 40 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 14 – EQUITY (continued) Warrants (continued) Warrants Issued in October 2023 (continued) A summary of the status of the Company’s nonvested stock warrants issued as of December 31, 2023 and changes during the years ended December 31, 2023 and 2022 is presented below: Number of Warrants Weighted Average Exercise Price Nonvested at January 1, 2022 - - Issued 123,964 12.50 Vested ( 123,964 ) ( 12.50 ) Nonvested at December 31, 2022 - $ - Issued 521,563 3.26 Vested ( 293,398 ) ( 3.73 ) Nonvested at December 31, 2023 228,165 $ 2.66 NOTE 15 – STATUTORY RESERVE AND RESTRICTED NET ASSETS The Company’s PRC subsidiary, Avalon Shanghai, is restricted in its ability to transfer a portion of its net asset to the Company. The payment of dividends by entities organized in China is subject to limitations, procedures and formalities. Regulations in the PRC currently permit payment of dividends only out of accumulated profits as determined in accordance with accounting standards and regulations in China. The Company is required to make appropriations to certain reserve funds, comprising the statutory surplus reserve and the discretionary surplus reserve, based on after-tax net income determined in accordance with generally accepted accounting principles of the PRC (“PRC GAAP”). Appropriations to the statutory surplus reserve are required to be at least 10 % of the after-tax net income determined in accordance with PRC GAAP until the reserve is equal to 50 % of the entity’s registered capital. Appropriations to the discretionary surplus reserve are made at the discretion of the Board of Directors. The statutory reserve may be applied against prior year losses, if any, and may be used for general business expansion and production or increase in registered capital, but are not distributable as cash dividends. The Company did not make any appropriation to statutory reserve for Avalon Shanghai during the years ended December 31, 2023 and 2022 as it incurred net loss in the periods. As of December 31, 2023 and 2022, the restricted amount as determined pursuant to PRC statutory laws totaled $ 6,578 . Relevant PRC laws and regulations restrict the Company’s PRC subsidiary, Avalon Shanghai, from transferring a portion of its net assets, equivalent to its statutory reserve and its share capital, to the Company’s shareholders in the form of loans, advances or cash dividends. Only PRC entity’s accumulated profit may be distributed as dividend to the Company’s shareholders without the consent of a third party. As of December 31, 2023 and 2022, total restricted net assets amounted to $ 1,106,578 and $ 1,006,578 , respectively. NOTE 16 – NONCONTROLLING INTEREST As of December 31, 2023, Dr. Yu Zhou, former director and former co-chief executive officer of Genexosome, who owns 40 % of the equity interests of Genexosome, which is not under the Company’s control. During the years ended December 31, 2023 and 2022, the Company did not allocate any net loss and foreign currency translation adjustment to the noncontrolling interest holder due to its inability to satisfy these deficits. NOTE 17 – CONDENSED FINANCIAL INFORMATION OF THE PARENT COMPANY Pursuant to the requirements of Rule 12-04(a), 5-04(c) and 4-08(e)(3) of Regulation S-X, the condensed financial information of the parent company shall be filed when the restricted net assets of consolidated subsidiary exceed 25 percent of consolidated net assets as of the end of the most recently completed fiscal year. For purposes of this test, restricted net assets of consolidated subsidiary shall mean that amount of the Company’s proportionate share of net assets of consolidated subsidiary (after intercompany eliminations) which as of the end of the most recent fiscal year may not be transferred to the parent company by subsidiary in the form of loans, advances or cash dividends without the consent of a third party. The Company performed a test on the restricted net assets of consolidated subsidiary in accordance with such requirement and concluded that it was not applicable to the Company as the restricted net assets of the Company’s PRC subsidiary did not exceed 25 % of the consolidated net assets of the Company, therefore, the condensed financial statements for the parent company have not been required. F- 41 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 18 – CONCENTRATIONS Customers The following table sets forth information as to each customer that accounted for 10% or more of the Company’s revenue for the years ended December 31, 2023 and 2022. Years Ended December 31, Customer 2023 2022 A 30 % 31 % B 18 % 19 % C 12 % 13 % Two customers, of which, one is a related party and the other is a third party, whose outstanding receivable accounted for 10% or more of the Company’s total outstanding rent receivable at December 31, 2023, accounted for 80.6 % of the Company’s total outstanding rent receivable at December 31, 2023. Two customers, of which, one is a related party and the other is a third party, whose outstanding receivable accounted for 10% or more of the Company’s total outstanding rent receivable at December 31, 2022, accounted for 81.4 % of the Company’s total outstanding rent receivable at December 31, 2022. Suppliers No supplier accounted for 10% or more of the Company’s purchase during the years ended December 31, 2023 and 2022. NOTE 19 – SEGMENT INFORMATION For the year ended December 31, 2022, the Company operated in two reportable business segments - (1) the real property operating segment, and (2) the medical related consulting services segment. The Company’s reportable segments are strategic business units that offer different services and products. They are managed separately based on the fundamental differences in their operations. Due to the winding down of the medical related consulting services segment in 2022, the Company decided to cease all operations of this segment and no longer has any material revenues or expenses in this segment. As a result, commencing from the first quarter of 2023, the Company’s chief operating decision maker no longer reviews medical related consulting services operating results. On February 9, 2023, the Company purchased 40 % of Lab Services MSO. Commencing from the purchase date, February 9, 2023, the Company is active in the management of Lab Services MSO. During the year ended December 31, 2023, the Company operated in two reportable business segments: (1) the real property operating segment, and (2) laboratory testing services segment (which commenced with the purchase date, February 9, 2023) since Lab Services MSO’s operating results are regularly reviewed by the Company’s chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance. The Company regularly reviews the operating results and performance of Lab Services MSO, which is the Company’s an equity method investee. F- 42 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 19 – SEGMENT INFORMATION (continued) Information with respect to these reportable business segments for the years ended December 31, 2023 and 2022 was as follows: Year Ended December 31, 2023 Real Property Operations Lab Services MSO Corporate / Other Total Real property rental revenue $ 1,255,681 $ - $ - $ 1,255,681 Real property operating expenses ( 1,017,493 ) - - ( 1,017,493 ) Real property operating income 238,188 - - 238,188 Loss from equity method investment - Lab Services MSO - ( 8,571,647 ) - ( 8,571,647 ) Other operating expenses ( 347,356 ) - ( 7,072,868 ) ( 7,420,224 ) Other (expense) income: Interest expense ( 918,885 ) - ( 432,617 ) ( 1,351,502 ) Other income 15 - 398,160 398,175 Net loss $ ( 1,028,038 ) $ ( 8,571,647 ) $ ( 7,107,325 ) $ ( 16,707,010 ) Year Ended December 31, 2022 Real Property Operations Medical Related Consulting Services Corporate / Other Total Real property rental revenue $ 1,202,169 $ - $ - $ 1,202,169 Real property operating expenses ( 929,441 ) - - ( 929,441 ) Real property operating income 272,728 - - 272,728 Other operating expenses ( 352,032 ) ( 404,121 ) ( 8,309,470 ) ( 9,065,623 ) Other (expense) income: Interest expense - - ( 3,576,333 ) ( 3,576,333 ) Other income 15 178,546 259,820 438,381 Net loss $ ( 79,289 ) $ ( 225,575 ) $ ( 11,625,983 ) $ ( 11,930,847 ) Identifiable long-lived tangible assets at December 31, 2023 and 2022 December 31, 2023 December 31, 2022 Real property operations $ 7,211,641 $ 7,367,360 Medical related consulting services - 408 Corporate/Other 17,846 130,613 Total $ 7,229,487 $ 7,498,381 Identifiable long-lived tangible assets at December 31, 2023 and 2022 December 31, 2023 December 31, 2022 United States $ 7,227,533 $ 7,393,307 China 1,954 105,074 Total $ 7,229,487 $ 7,498,381 F- 43 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 20 – COMMITMENTS AND CONTINCENGIES Operating Leases Commitment The Company is a party to leases for office space. These lease agreements will expire through February 2025. Rent expense under all operating leases amounted to approximately $ 129,000 and $ 141,000 for the years ended December 31, 2023 and 2022, respectively. Supplemental cash flow information related to leases for the years ended December 31, 2023 and 2022 is as follows: Years Ended December 31, 2023 2022 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows paid for operating lease $ 125,929 $ 150,577 Right-of-use assets obtained in exchange for lease obligation: Operating lease $ 235,893 $ - The following table summarizes the lease term and discount rate for the Company’s operating lease as of December 31, 2023: Operating Lease Weighted average remaining lease term (in years) 1.08 Weighted average discount rate 11.0 % The following table summarizes the maturity of lease liabilities under operating lease as of December 31, 2023: For the Year Ending December 31: Operating Lease 2024 $ 136,803 2025 4,900 Total lease payments 141,703 Amount of lease payments representing interest ( 7,452 ) Total present value of operating lease liabilities $ 134,251 Current portion $ 129,396 Long-term portion 4,855 Total $ 134,251 Joint Venture – Avactis Biosciences Inc. On July 18, 2018, the Company formed a wholly owned subsidiary, Avactis Biosciences Inc. (“Avactis”), a Nevada corporation, which focuses on accelerating commercial activities related to cellular therapies as well as cellular immunotherapy including CAR-T, CAR-NK, TCR-T and others. When formed, Avactis was designed to integrate and optimize the Company’s global scientific and clinical resources to further advance the use of cellular therapies to treat certain cancers, however the Company is no longer pursuing any commercial activities with respect to cellular immunotherapy and CAR-T, in particular. As of April 6, 2022, the Company owns 60 % of Avactis and Arbele Biotherapeutics Limited (“Arbele Biotherapeutics”) owns 40 % of Avactis. Avactis owns 100 % of the capital stock of Avactis Nanjing Biosciences Ltd., a company incorporated in the PRC on May 8, 2020 (“Avactis Nanjing”), which only owns a patent and is not considered an operating entity. F- 44 AVALON GLOBOCARE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 20 – COMMITMENTS AND CONTINCENGIES (continued) Joint Venture – Avactis Biosciences Inc. (continued) The Company is required to contribute $ 10 million (or equivalent in RMB) in cash and/or services, which shall be contributed in tranches based on milestones to be determined jointly by Avactis and the Company in writing subject to the Company’s cash reserves. Within 30 days, Arbele Biotherapeutics shall make contribution of $ 6.66 million in the form of entering into a License Agreement with Avactis granting Avactis an exclusive right and license in China to its technology and intellectual property pertaining to CAR-T/CAR-NK/TCR-T/universal cellular immunotherapy technology and any additional technology developed in the future with terms and conditions to be mutually agreed upon the Company and Avactis and services. As of the date hereof, the License Agreement has not been finalized by the parties. In addition, the Company is responsible for contributing registered capital of RMB 5,000,000 (approximately $ 0.7 million) for working capital purposes as required by local regulation, which is not required to be contributed immediately and will be contributed subject to the Company’s discretion. As of the date hereof, Avactis’ activities have been limited to that of a patent holding company and there is no other activity or planned contributions in 2024. NOTE 21 – SUBSEQUENT EVENTS The Company evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that the financial statements were issued. Based upon this review, other than as described below, the Company did not identify any subsequent events that would have required adjustment or disclosure in the financial statements. March 2024 Convertible Note Financing In March 2024, the Company 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 the Company’s common stock. The Company and its subsidiaries have also entered into security agreements, creating a security interest in certain property of the Company and its subsidiaries to secure the prompt payment, performance and discharge in full of all of the Company’s obligations under the March 2024 Note. F-45