What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-31 compared with 2023-11-14 · 536 added, 649 removed, 54 unchanged (96% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

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

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

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

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

This Quarterly Report on Form 10-Q

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

under Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities

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

Forward-looking statements include statements with respect to our

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

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

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

Forward-looking statements include statements with respect to our beliefs,

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

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

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

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

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

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

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

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

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

Accordingly, factors that may affect our results

include, but are not limited to:

our dependence on product

candidates that are still in an early development stage;

our ability to successfully

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

our anticipated timing

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

our ability to negotiate

strategic partnerships, where appropriate, for our product candidates;

our ability to manage multiple

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

the cost, timing, scope

and results of ongoing preclinical and clinical testing;

our expectations of the

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

the cost, timing and uncertainty

of obtaining regulatory approvals for our product candidates;

the availability, cost,

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

the availability, cost,

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

manufacturers, suppliers and partners;

our ability to commercialize

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

our ability to develop

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

our ability to develop

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

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

our ability to raise sufficient

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

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

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

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

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

part of our business;

our ability to protect

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

time and attention;

our ability to develop

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

heightened competition

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

increased pricing pressure

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

impact of changes in payment

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

fee arrangements;

adverse actions by the

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

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

of amounts allegedly owed and competitive bidding;

the impact of increased

prior authorization programs;

adverse results from pending

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

of licenses or criminal penalties;

the impact of the COVID-19

pandemic on our business or on the economy generally;

a decline in economic conditions,

including the impact of an inflationary environment.

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

You are cautioned not to place undue

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

reference into this report.

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

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

We have expressed our expectations, beliefs and projections

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

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

will result or be achieved or accomplished.

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

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

consolidated financial statements that are included elsewhere in this report.

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

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

through joint ventures, share ownership structures or distribution rights.

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

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

As a first major step into the laboratory market,

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

in February 2023.

have the following areas of focus:

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

commercial strategy.

You can identify

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

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

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

“project,” “predict,” “could,” “intend,” “target,” “potential”

and other similar words and expressions of the future.

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

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

● our ability to successfully complete research and further development, including preclinical and clinical

● our anticipated timing for preclinical development, regulatory submissions, commencement and completion

of clinical trials and product approvals;

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

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

of development;

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

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

properties, efficacy, safety and dosing regimens;

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

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

research organization partners;

● the availability, cost, delivery and quality of clinical and commercial-grade materials produced by our

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

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

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

developed by such competitors;

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

targets, exploiting our existing technology platforms to develop new product candidates and expand our focus to broader markets for our

existing targeted therapeutics;

● our ability to raise sufficient capital to fund our preclinical and clinical studies and to meet our long-term

liquidity needs, on terms acceptable to us, or at all.

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

we may have to delay or discontinue the development of one or more programs, discontinue or delay ongoing or anticipated clinical trials,

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

our product candidates, license out programs earlier than expected, raise funds at significant discount or on other unfavorable terms,

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

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

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

● our ability to develop and commercialize products without infringing upon the intellectual property rights

of third parties;

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

● increased pricing pressure from customers, including payers and patients, and changing relationships with

customers, payers, suppliers or strategic partners;

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

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

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

but does not recognize the value and importance to healthcare of clinical testing or innovative solutions, unilateral reduction of fee

schedules payable to us, unilateral recoupment of amounts allegedly owed and competitive bidding;

● the impact of increased prior authorization programs;

● adverse results from pending or future government investigations, lawsuits or private actions, which include

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

● the impact of the COVID-19 pandemic on our business or on the economy generally;

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

All forward-looking statements

are expressly qualified in their entirety by this cautionary notice.

You are cautioned not to place undue reliance on any forward-looking

statements, which speak only as of the date of this report or the date of the document incorporated by reference into this report.

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

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

We have expressed our expectations, beliefs and projections in good faith,

and we believe they have a reasonable basis.

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

be achieved or accomplished.

The following discussion

and analysis of our financial condition and results of operations for the three months ended March 31, 2024 and 2023 should be read in

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

that are included elsewhere in this report.

We are a commercial stage

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

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

genetics-driven results.

As a first step into the laboratory market, we completed an acquisition of a 40% membership interest in Laboratory

Services MSO, LLC (“Lab Services MSO”), which closed in February 2023.

We have the following

areas of focus:

Laboratory Acquisitions

We have embarked on a

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

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

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

testing and provides a broad portfolio of diagnostic tests, including drug testing, toxicology,

and a broad array of test services, from general bloodwork to anatomic pathology, and urine

Specific capabilities include STAT blood testing, qualitative drug screening,

genetic testing, urinary testing, and sexually transmitted disease testing.

The panels that

Lab Services MSO tests for are thyroid panel, comprehensive metabolic panel, kidney profile,

liver function tests, and other individual tests.

Through Lab Services MSO, we use fast,

accurate, and efficient equipment to provide practitioners with the tools to quickly determine

if a patient is following their designated treatment plan.

In most instances, we are able

to provide a practitioner with qualitative drug class results the same day the sample is

Lab Services MSO provides a menu of extensive chemistry tests that physicians can

use to obtain information to better treat their patients and maintain their overall wellness.

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

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

first area of focus in this area is confirmatory genetic testing during toxicology screening

and genetic testing to screen for addictive propensity.

Lab Services MSO laboratory plans

to focus on diagnostic testing utilizing proprietary technology to deliver precise genetic

driven results.

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

medical equipment retail company.

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

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

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

urinary testing and COVID-19 PCR testing.

Commercialization

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

The KetoAir breathalyzer

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

The acetone level is in concentration units

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

inadequate ketosis (0-3.99 ppm), mild ketosis

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

The breathalyzer is registered with the United States

FDA as a Class I medical device.

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

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

by Apple iOS AppStore).

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

We believe the KetoAir breathalyzer

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

We were granted exclusive

distributorship rights for the KetoAir breathalyzer in the following territories:

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

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

21-23, 2023).

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

We are evaluating options

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

and Development

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

and provides a broad portfolio of diagnostic tests, including drug testing, toxicology, and a broad array of test services, from general

bloodwork to anatomic pathology, and urine toxicology.

Specific capabilities include STAT blood testing, qualitative drug screening, genetic

testing, urinary testing, and sexually transmitted disease testing.

The panels that Lab Services MSO tests for are thyroid panel, comprehensive

metabolic panel, kidney profile, liver function tests, and other individual tests.

Through Lab Services MSO, we use fast, accurate, and

efficient equipment to provide practitioners with the tools to quickly determine if a patient is following their designated treatment

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

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

and maintain their overall wellness.

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

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

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

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

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

which is a medical equipment

retail company.

Research and Development

We are focused on bringing

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

Using the unique QTY code

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

affinity to the respective cytokines.

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

program through joint patent submissions.

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

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

outlined above.

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

laboratory services.

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

to deliver precise, genetics-driven results.

The Company also provides laboratory services, offering a broad portfolio of diagnostic

tests including drug testing, toxicology, and a broad array of test services, from general bloodwork to anatomic pathology, and urine

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

The Company also has income from

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

These condensed consolidated financial statements

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

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

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

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

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

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

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

In addition, the current cash balance cannot be projected to cover the operating expenses for the next twelve months from

the release date of this report.

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

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

its business plan, and generate significant revenues.

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

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

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

However, there is no assurance these plans will be

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

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

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

a going concern.

Using the unique QTY code protein

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

respective cytokines.

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

patent submissions.

Product Commercialization

We have begun the commercialization

and development of a versatile breathalyzer system.

We were granted exclusive

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

North America, South America, the EU and the

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

On May 31,2024, we plan to formally launch

sales of the KetoAir at the 2024 KetoCon Hack Your Health conference in Texas.

We plan to sell the product through the KetoAir website

and social media.

We believe the KetoAir device has some competitive advantages to other methods for measuring ketosis and expect initial

sales to occur in the United States.

The KetoAir is a handheld

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

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

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

inadequate ketosis (0-3.99 ppm), mild ketosis (4-9.99 ppm), optimal ketosis

(10-40 ppm), or alarming level (> 40 ppm).

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

is also paired with an “AI Nutritionist” software program (via Bluetooth connection) which is downloadable from Google Play

(for Android mobile phones, approved) and iPhone (the app is currently being reviewed by Apple iOS AppStore).

It helps users monitor and

manage their ketogenic diet and related programs.

We believe the KetoAir can be an essential tool to help diabetic patients adhere to

their therapeutic programs and optimize their ketogenic dietary management.

In order to preserve

cash and focus on our core laboratory rollup strategy and product commercialization, we have currently suspended all research and development

efforts related to cellular therapy in order to redirect our funding efforts to our core business strategies outlined above.

Going Concern

We are a commercial stage company dedicated to

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

We are focused on establishing

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

We also provide laboratory services, offering a broad portfolio of diagnostic tests, including drug testing, toxicology, and a broad array

of test services, from general bloodwork to anatomic pathology, and urine toxicology.

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

We also have income from equity method investment

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

These condensed consolidated financial statements have been prepared assuming

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

in the normal course of business.

As reflected in the accompanying

condensed consolidated financial statements, we had working capital deficit of approximately $7,026,000 at March 31, 2024 and had incurred

recurring net losses and generated negative cash flow from operating activities of approximately $1,368,000 and $916,000 for the three

months ended March 31, 2024, respectively.

We have a limited operating

history and our continued growth is dependent upon the continuation of generating rental revenue from our income-producing real estate

property in New Jersey and income from equity method investment through our forty percent (40%) interest in Lab Services MSO and

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

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

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

Our ability to continue as a going concern

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

There are no assurances

that we will be successful in our efforts to generate sufficient revenues, maintain sufficient cash balance or report profitable operations

or to continue as a going concern.

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

However, there

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

The accompanying condensed

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

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

Accounting Policies

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

States of America (“U.S.

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

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

of revenues and expenses during the reporting period.

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

financial statements and accompanying notes.

Use of Estimates

The preparation of the

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

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

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

during the reporting period.

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

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

Significant estimates during

the three and nine months ended September 30, 2023 and 2022 include the valuation of deferred tax assets and the associated valuation

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

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

Services MSO.

in Unconsolidated Companies

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

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

See Note 5 for discussion of equity method investments.

Property Rental

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

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

Lease payments under tenant leases

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

The cumulative difference between lease revenue recognized

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

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

It is at least reasonably possible

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

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

the actual results could differ significantly from those estimates.

Significant estimates

during the three months ended March 31, 2024 and 2023 include the useful life of investment in real estate and intangible assets, the

assumptions used in assessing impairment of long-term assets, the valuation of deferred tax assets and the associated valuation allowances,

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

convertible note payable, and the fair value of the consideration given and assets acquired in the purchase of our equity interest in

Lab Services MSO.

Investment in Unconsolidated

We use the equity method

of accounting for our investment in, and earning or loss of, company that we do not control but over which we do exert significant influence.

We apply the equity method by initially recording these investments at cost, as equity method investments, subsequently adjusted for equity

in earnings and cash distributions.

We consider whether the

fair value of our equity method investment has declined below its carrying value whenever adverse event or change in circumstance indicates

that recorded value may not be recoverable.

If we consider any decline to be other than temporary (based on various factors, including

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

We classify distributions

received from equity method investments using the cumulative earnings approach.

Distributions received are considered returns on the investment

and classified as cash inflows from operating activities.

If, however, the investor’s cumulative distributions received, less distributions

received in prior periods determined to be returns of investment, exceeds cumulative equity in earnings recognized, the excess is considered

a return of investment and is classified as cash inflows from investing activities.

Real Property Rental

We have determined that

ASC 606 does not apply to rental contracts, which are within the scope of other revenue recognition accounting standards.

Rental income from operating

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

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

basis over the term of the related leases.

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

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

We do not offer promotional

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

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

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

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

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

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

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

case the deferred tax is changed to equity.

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

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

Accounting Standards

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

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

Deferred tax is calculated

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

Deferred tax is charged

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

tax is changed to equity.

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

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

Recent Accounting

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

financial statements accompanying this report.

OF OPERATIONS

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

Property Rental Revenue

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

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

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

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

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

We expect that our revenue

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

Property Operating Expenses

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

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

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

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

The increase was mainly due to an increase in repairs and

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

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

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

The increase was mainly due to an increase in property management

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

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

Property Operating Income

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

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

Our real property operating income for the nine months ended September

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

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

We expect our real property

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

from Equity Method Investment — Lab Services MSO

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

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

RESULTS OF OPERATIONS

Comparison of Results of Operations for the

Three Months Ended March 31, 2024 and 2023

Real Property Rental

For the three months

ended March 31, 2024, we had real property rental revenue of $314,588, as compared to $296,165 for the three months ended March 31, 2023,

an increase of $18,423, or 6.2%.

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

in the three months ended March 31, 2024 as compared to the three months ended March 31, 2023.

We expect that our revenue from real property

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

Real Property Operating

Real property operating

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

and other expenses related to our rental properties.

For the three months

ended March 31, 2024, our real property operating expenses amounted to $263,126, as compared to $ 248,445

for the three months ended March 31, 2023, an increase of $14,681 or 5.9%.

The increase was primarily due to an increase in

repairs and maintenance fee of approximately $11,000 and an increase in other miscellaneous items of approximately $4,000.

Real Property Operating

Our real property operating

income for the three months ended March 31, 2024 was $51,462, representing an increase of $3,742 or 7.8%, as compared to $47,720 for the

three months ended March 31, 2023.

The increase was primarily attributable to the increase in real property rental revenue as described

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

Income (Loss) from

Equity Method Investment – Lab Services MSO

For the three months

ended March 31, 2024, we had income from our investment in Lab Services MSO of $107,469, which consists of our share of Lab Services MSO’s

net income of $274,202 and amortization of identifiable intangible assets acquired from Lab Services MSO acquisition of $166,733.

the three months ended March 31, 2023, we had loss from our investment in Lab Services MSO of $89,091, which consists of our share of

Lab Services MSO’s net income of $46,739 and amortization of identifiable intangible assets acquired from Lab Services MSO acquisition

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

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

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

Technologies, Inc.

which is a medical equipment retail company.

Lab Services MSO plans

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

Veritas is a CLIA-certified and COLA-accredited laboratory

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

and COVID-19 PCR testing.

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

since Lab Services MSO has a strong earnings growth potential.

Operating Expenses

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

September 30,

Lab Services MSO has also opened a new laboratory, Veritas Laboratories

LLC (“Veritas”).

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

range of high-quality testing, including drug testing, genetic testing, urinary testing and COVID-19 PCR testing.

We expect to continue

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

Other Operating Expenses

the three months ended March 31, 2024 and 2023, other operating expenses consisted of the following:

Three Months Ended March 31,

Advertising and marketing expenses

2 unchanged sentences

Research and development

Litigation settlement

Directors and officers liability insurance

Directors and officers’ liability insurance premium

Travel and entertainment

1 unchanged sentence

Other general and administrative

the three months ended September 30, 2023, advertising

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

September 30, 2022.

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

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

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

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

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

minimal increase in the near future .

● Professional

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

investor relations service charges and other fees.

For the three months ended September 30,

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

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

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

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

approximately $7,000.

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

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

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

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

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

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

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

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

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

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

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

miscellaneous items of approximately $15,000.

We expect that our professional fees will decrease

in the near future.

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

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

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

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

The decrease was primarily

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

granted and vested to our management.

We expect that our compensation and related benefits

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

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

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

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

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

● For the three months ended March 31, 2024, advertising and marketing

expenses decreased by $646,753 or 93.5% as compared to the three months ended March 31, 2023.

The decrease was primarily due to decreased

advertising activities in the three months ended March 31, 2024.

We expect that our advertising and marketing expenses will decrease in

the near future as we conserve cash .

● Professional fees primarily consisted of accounting fees, audit

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

For the three months

ended March 31, 2024, professional fees decreased by $783,904, or 63.9%, as compared to the three months ended March 31, 2023, which was

primarily attributable to a decrease in consulting fees of approximately $471,000, mainly due to the decrease in use of consulting service

providers related to our acquisition of Lab Services MSO, a decrease in accounting fees of approximately $209,000, mainly due to the decreased

accounting services related to our acquisition of Lab Services MSO, and a decrease in legal service fees of approximately $121,000, mainly

due to the decreased legal services related to our acquisition of Lab Services MSO, offset by an increase in other miscellaneous items

of approximately $17,000.

We expect that our professional fees will likely remain at their current level with minimal increase in the

● For the three months ended March 31, 2024, compensation and related

benefits decreased by $97,984, or 21.7%, as compared to the three months ended March 31, 2023.

The decrease was primarily attributable

to the decreased compensation for two of our named executive officers,

David Jin and Meng Li (as described in detail in Item 11 of our Annual Report on Form 10-K filed with the Securities and Exchange Commission

on April 15, 2024) .

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

current level with minimal increase in the near future .

● For the three months ended March 31, 2024, research and development

expenses decreased by $92,350, or 100.0%, as compared to the three months ended March 31, 2023.

In the three months ended March 31, 2024,

we did not incur any activity with respect to research and development projects as we redirected our funding efforts to our core business

strategies discussed above.

● For the three months ended March 31, 2024, Directors and Officers’

Liability Insurance premium decreased by $34,494, or 33.2%, as compared to the three months ended March 31, 2023.

The decrease was mainly

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

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

We expect that we will not incur any

research and development expenses in the near future.

the three months ended September 30, 2023 and 2022,

we did not have any litigation settlement.

For the nine months ended September 30, 2023,

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

ended September 30, 2022.

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

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

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

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

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

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

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

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

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

The increase was mainly due

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

months ended September 30, 2023.

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

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

ended September 30, 2022.

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

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

ended September 30, 2022.

The decrease was attributable to decreased rental rate in the three

and nine months ended September 30, 2023.

general and administrative expenses mainly consisted

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

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

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

driven by our efforts at stricter controls on corporate expenditure.

For the nine months

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

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

from Operations

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

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

As a result of the foregoing, for the nine

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

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

(Expense) Income

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

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

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

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

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

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

conversion inducement expense of approximately $344,000 resulted from

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

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

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

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

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

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

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

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

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

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

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

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

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

As a result of the factors described above, our net

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

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

Loss Attributable to Avalon GloboCare Corp.

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

● For the three months ended March 31, 2024, travel and entertainment

expense decreased by $40,051, or 64.2%, as compared to the three months ended March 31, 2023.

The decrease was mainly due to decreased

business travel activities in the first quarter of 2024.

● For the three months ended March 31, 2024, rent and related utilities expenses decreased by $1,696, or

9.8%, as compared to the three months ended March 31, 2023.

The decrease was attributable to decreased rental rate in the three months

ended March 31, 2024 .

● Other general and administrative expenses mainly consisted of NASDAQ

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

For the three months ended March 31, 2024, other general

and administrative expenses decreased by $12,731, or 19.1%, as compared to the three months ended March 31, 2023, reflecting our efforts

at stricter controls on corporate expenditures.

Loss from Operations

As a result of the foregoing,

for the three months ended March 31, 2024, loss from operations amounted to $843,062, as compared to $2,753,327 for the three months ended

March 31, 2023, a decrease of $1,910,265 or 69.4%.

Other (Expense)

Other (expense) income

mainly includes third party and related party interest expense, change in fair value of derivative liability, and other miscellaneous

Other expense, net, totaled

$524,451 for the three months ended March 31, 2024, as compared to $ 166,417 for the three

months ended March 31, 2023, an increase of $358,034, or 215.1%, which was primarily attributable to an increase in third party interest

expense of approximately $354,000, mainly driven by the increase in amortization of debt discount and debt issuance cost of approximately

$250,000 and the increased interest expense of approximately $104,000 from third party debts in the three months ended March 31, 2024.

We did not have any income

taxes expense for the three months ended March 31, 2024 and 2023 since we incurred losses in these periods.

As a result of the factors

described above, our net loss was $1,367,513 for the three months ended March 31, 2024, as compared to $2,919,744 for the three months

ended March 31, 2023, a decrease of $1,552,231 or 53.2%.

Net Loss Attributable to Avalon GloboCare

Common Shareholders

loss attributable to Avalon GloboCare Corp.

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

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

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

The net loss attributable to Avalon GloboCare Corp.

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

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

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

Currency Translation Adjustment

reporting currency is the U.S.

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

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

The financial statement

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

dollars using period end rate of exchange for assets and

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

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

As a result of foreign currency

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

ended September 30, 2023 and 2022, respectively.

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

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

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

Comprehensive

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

loss attributable to our common shareholders was $1,367,513 or $0.12 per share (basic and diluted) for the three months ended March 31,

2024, as compared to $2,919,744 or $0.29 per share (basic and diluted) for the three months ended March 31, 2023, a decrease of $1,552,231

Foreign Currency Translation Adjustment

Our reporting

currency is the U.S.

The functional currency of our 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”).

The financial statement of our subsidiary whose functional

currency is the RMB are translated to U.S.

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

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

Net gains and losses resulting from foreign

exchange transactions are included in the results of operations.

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

we reported a foreign currency translation loss of $2,920 and a foreign currency translation gain of $3,670 for the three months ended

March 31, 2024 and 2023, respectively.

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

in each respective period.

Comprehensive Loss

of our foreign currency translation adjustment, we had comprehensive loss of $1,370,433 and $2,916,074 for the three months ended March

31, 2024 and 2023, respectively.

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

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

and Capital Resources

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

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

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

In addition, the current cash balance cannot be projected to cover the operating expenses for the next twelve months from the release

date of this report.

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

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

business plan, and generate significant revenues.

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

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

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

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

However, there is no assurance these plans will be realized

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

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

Liquidity and Capital Resources

We have a limited operating

history and our continued growth is dependent upon the continuation of generating rental revenue from our income-producing real estate

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

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

In addition, the

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

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

Our ability to continue as a going concern is

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

There are no assurances

that we will be successful in our efforts to generate sufficient revenues, maintain sufficient cash balance or report profitable operations

or to continue as a going concern.

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

to raise additional capital in the future through the sale of equity or debt to implement our business plan.

However, there is no assurance

these plans will be realized and that any additional financings will be available to us on satisfactory terms and conditions, if at all.

Liquidity is the ability

of a company to generate funds to support its current and future operations, satisfy its obligations as they come due and otherwise operate

on an ongoing basis.

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

At March 31, 2024 and December 31, 2023, we had cash balance of approximately $305,000 and $285,000, respectively.

These funds are kept in financial institutions located as follows:

March 31, 2024

December 31, 2023

United States

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

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

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

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

These reserves are not distributable

as cash dividends.

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

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

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

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

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

documents and signed contracts.

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

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

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

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

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

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

September 30,

The following table sets

forth a summary of changes in our working capital deficit from December 31, 2023 to March 31, 2024:

Working capital deficit:

Total current assets

$ (1,509,491 )

Total current liabilities

3 unchanged sentences

$ (1,113,698 )

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

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

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

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

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

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

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

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

items of approximately $43,000.

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

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

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

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

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

September 30,

Our working capital deficit

increased by $1,113,698 to $7,025,517 at March 31, 2024 from $5,911,819 at December 31, 2023.

The increase in working capital deficit

was primarily attributable to a decrease in rent receivable of approximately $109,000 driven by collection efforts in the three months

ended March 31, 2024, an increase in accrued liabilities and other payables – related parties of approximately $605,000 mainly due

to our equity method investment payable paid by a related party on our behalf, and a significant increase in advance from sale of noncontrolling

interest – related party of approximately $1,210,000 resulting from advance received in connection with the membership interest

purchase agreement entered into in November 2023 in the three months ended March 31, 2024, offset by a decrease in equity method investment

payable of approximately $667,000 resulting from payment made by a related party on our behalf in the first quarter of 2024, and a decrease

in convertible note payable, net, of approximately $95,000 mainly due to the repayments made to lenders of $866,000, which was partially

offset by the issuance of the March 2024 Convertible Note with principal of $700,000 in the first quarter of 2024 (as described below).

Because the exchange

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

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

the comparable changes reflected on the condensed consolidated balance sheets.

Cash Flows for the Three Months Ended March

31, 2024 Compared to the Three Months Ended March 31, 2023

The following summarizes the key components of

our cash flows for the three months ended March 31, 2024 and 2023:

Months Ended March 31,

Net cash used in operating activities

$ (1,834,810 )

$ (5,072,932 )

Net cash used in investing activities

Net cash provided by financing activities

Effect of exchange rate

Net (decrease) increase

Effect of exchange rate on cash

Net increase (decrease) in cash

$ (1,103,879 )

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

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

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

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

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

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

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

Net cash flow used in

operating activities for the three months ended March 31, 2024 was $915,709, which primarily reflected our consolidated net loss of approximately

$1,368,000, and the non-cash items adjustment, primarily consisting of income from equity method investment of approximately $107,000,

offset by distribution of earnings from equity method investment of approximately $161,000, and amortization of debt issuance costs and

debt discount of approximately $272,000, and the changes in operating assets and liabilities, primarily consisting of a decrease in rent

receivable of approximately $113,000 driven by our collection efforts.

cash flow used in operating activities for the three months ended March 31, 2023 was $1,834,810, which primarily reflected our consolidated

net loss of approximately $2,920,000, and the changes in operating assets and liabilities, primarily consisting of an increase in prepaid

expense and other assets of approximately $87,000, offset by an increase in accrued liabilities and other payables of approximately $635,000

which was primarily attributable to an increase in accrued professional fees of approximately $414,000 resulting from the increase in

professional service related to our acquisition of Lab Services MSO and an increase in accrued research and development fees of approximately

$62,000 and an increase in other payables of approximately $159,000, and the non-cash items adjustment primarily consisting of depreciation

of approximately $61,000, stock-based compensation and service expense of approximately $327,000, and loss from equity method investments

of approximately $99,000.

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

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

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

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

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

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

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

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

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

from the reduction in the conversion price.

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

We expect our cash used

in operating activities to increase due to the following:

development and commercialization of new products;

an increase in professional

staff and services;

an increase in public relations

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

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

months ended September 30, 2022.

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

of approximately $22,000.

During the nine

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

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

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

the nine months ended September 30, 2022.

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

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

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

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

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

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

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

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

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

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

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

increase in working capital requirements to finance our current business;

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

cost of being a public company.

2019 Credit Facility

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

The unsecured

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

As of September 30,

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

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

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

under which the Company may offer and sell from time to time shares of its common stock having an aggregate offering price of up to $3.5

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

price of $1.39 per share to investors.

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

and other fees of $19,132.

Mortgage Note

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

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

Mortgage Note accrues interest at the annual rate of 13.0% and is paid in monthly installments of interest-only in the amount of $10,833

commencing in June 2023 and continuing through October 2025 (at which point any unpaid balance of principal, interest and other charges

become due and payable).

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

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

2023 Convertible Note Financing

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

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

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

230,000 shares of the Company’s common stock.

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

a security interest in certain property of the Company and its subsidiaries to secure the prompt payment, performance and discharge in

full of all of the Company’s obligations under the May 2023 Note.

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

after an original issue discount of $75,000.

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

The May 2023 Note contains certain negative covenants.

If the May 2023 Note is accelerated following the occurrence of an event of default

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

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

price of $4.50 per share, unless the Company fails to make an amortization payment when due in accordance with the terms of the May 2023

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

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

The warrants are comprised of (i) a warrant to purchase 125,000 shares of the Company’s common stock at an exercise price of $4.50

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

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

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

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

2023 Convertible Note Financing

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

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

2023 Note”), as well as the issuance of 25,000 shares of common stock as a commitment fee and warrants for the purchase of up to

76,830 shares of the Company’s common stock.

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

a security interest in certain property of the Company and its subsidiaries to secure the prompt payment, performance and discharge in

full of all of the Company’s obligations under the July 2023 Note.

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

after an original issue discount of $25,000.

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

The July 2023 Note contains certain negative covenants.

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

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

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

conversion price of $4.50 per share, unless the Company fails to make an amortization payment when due which commences in January 2024

in accordance with the terms of the July 2023 Note, in which case the conversion price shall be the lower of (i) $4.50 or (ii) 85% of

the lowest VWAP of the Company’s common stock on any trading day during the five (5) trading days prior to the respective conversion

date, subject to a floor of $1.50 per share.

The warrants are comprised of (i) a warrant to purchase 41,665 shares of the Company’s

common stock at an exercise price of $4.50 and exercisable until July 6, 2028 and (ii) a warrant to purchase 35,165 shares of the Company’s

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

the payment of the July 2023 Notes).

The conversion price of the July 2023 Note and the exercise price of the warrants issued thereunder

contain certain price protection anti-dilution adjustments if an event of default occurs under the July 2023 Notes.

2023 Convertible Note Financing

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

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

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

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

The Company and its subsidiaries have also entered into security agreements, creating

a security interest in certain property of the Company and its subsidiaries to secure the prompt payment, performance and discharge in

full of all of the Company’s obligations under the October 2023 Note.

The October 2023 Lenders acquired the October 2023 Note for

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

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

of 13.0% per annum.

The October 2023 Note contains certain negative covenants.

If the October 2023 Note is accelerated following the

occurrence of an event of default as described in such note, the Company is required to pay 120% of the principal and interest outstanding

under the October 2023 Note.

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

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

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

or (ii) 85% of the lowest VWAP of the Company’s common stock on any trading day during the five (5) trading days prior to the respective

conversion date.

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

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

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

of the October 2023 Note.

The conversion price of the October 2023 Note and the exercise price of the warrants issued thereunder contain

certain price protection anti-dilution adjustments if an event of default occurs under the October 2023 Note.

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

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

and sales of equity.

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

no other significant alternative source of working capital.

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

and grow our company.

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

our ongoing operations and obligations.

an increase in professional staff and services;

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

was no investing activity during the three months ended March 31, 2024.

cash flow used in investing activities was $20,185 for the three months ended March 31, 2023.

During the three months ended March 31,

2023, we made payment for purchase of property and equipment of approximately $20,000.

Net cash flow provided

by financing activities was $936,772 for the three months ended March 31, 2024 as compared to $750,000 for the three months ended March

During the three months ended March 31, 2024, we received net proceeds from issuance of convertible debt and warrants of approximately

$592,000 (net of original issue discount of $35,000 and cash paid for convertible note issuance costs of approximately $73,000), and advance

from sale of noncontrolling interest in subsidiary of approximately $1,210,000, offset by repayments made for convertible debt of $866,000.

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

The following trends

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

● an increase in working capital requirements to finance our current business;

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

● the cost of being a public company.

August 2019 Credit

In the third quarter

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

The unsecured credit facility

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

As of March 31, 2024, we have used approximately

$6.8 million of the credit facility and have approximately $13.2 million remaining available under the Line Credit.

In June 2023, we entered

into a sales agreement (the “Sales Agreement”) with Roth Capital Partners, LLC (“Roth”) under which we may offer

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

From July 1, 2023 to May

15, 2024, Roth has sold an aggregate of 456,627 shares of our common stock at an average price of $1.39 per share to investors.

net cash proceeds of $616,259, net of cash paid for sales agent’s commission and other fees of $19,132.

March 2024 Convertible

Note Financing

In March 2024, we entered

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

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

of 105,000 shares of common stock as a commitment fee and warrants for the purchase of up to 252,404 shares of our common stock.

our subsidiaries also entered into security agreements in connection with the March 2024 Convertible Note, creating a security interest

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

obligations under the March 2024 Convertible Note.

2023 Convertible Notes

and March 2024 Convertible Notes – Events of Default

to the March 2024 Convertible Note, as of the date of this report, we have outstanding the May 2023 Convertible Note with Mast Hill, the

July 2023 Convertible Note with Firstfire and the October 2023 Convertible Note with Mast Hill and Firstfire (collectively, the “2023

Notes Lenders”), each as defined and further discussed in Item 1 of this report under “Note 6.

Convertible Note Payable”

(collectively, the “2023 Convertible Notes”).

The 2023 Convertible Notes and the March 2024 Convertible Note contain customary

events of default, upon the occurrence of which (after giving effect to the right to cure of the borrower), the notes shall become due

and payable and the borrower shall pay to the lender/s an amount equal to the principal amount then outstanding under such notes plus

accrued interest (including any Default Interest, as defined in the 2023 Convertible Notes and the March 2024 Convertible Note, respectively),

provided, however, that the 2023 Notes Lenders and the March 2024 Lender may in their sole discretion determine to accept payment part

in shares of the Company’s common stock (pursuant to the conversion formula set forth in the 2023 Convertible Notes and the March

2024 Convertible Note) and part in cash.

quarter ended March 31, 2024, the Company’s market capitalization fell below $5 million, which constitutes an event of default under

the 2023 Convertible Notes and the March 2024 Convertible Note.

Pursuant to Section 3.22

of the 2023 Convertible Notes (and the March 2024 Convertible Note), the Company (as borrower under such notes) has a right to cure such

default within ten (10) calendar days (the “Cure Period”) after the earlier of (i) the date the borrower receives notice from

the lenders demanding cure of such default, or (ii) the first date that the then Chief Executive Officer, Chief Financial Officer, or

Board of Directors of the borrower has actual knowledge of the existence of the default.

The Company did not receive any notice from the

2023 Notes Lenders or the March 2024 Lender with respect to the event of default.

The Company first had actual knowledge of the existence

of the default on April 29, 2024 and received a waiver from the 2023 Notes Lenders and the March 2024 Lender, waiving this event of default

on May 29, 2024.

Although this waiver was not within the Cure Period, the lenders provided a full waiver to the event of default prior

to the issuance of this report.

In addition, the Company failed to file this report

in a timely manner during the prescribed period following the Company’s filing of a 12b-25 extension with respect thereto, which

would have triggered an event of default under the 2023 Convertible Notes and the March 2024 Convertible

Note but for receipt by the Company of the waiver with respect to this event of default from the 2023 Notes Lenders and the March 2024

Lender on the original due date of this report (which waiver was reaffirmed on May 29, 2024) .

Furthermore, on May 23, 2024, the Company received

a waiver to the required amortization payment under the May 2023 Convertible Note.

Pursuant to the waiver, the Company received an extension

until June 10, 2024 to allow time for the payment to be made or to allow the Company to refinance the Convertible Notes.

the 2023 Convertible Notes and the March 2024 Convertible Note are no longer in default as of the date of this report.

The events of default

described above did not have an accounting impact on the Company’s unaudited financial statements for the quarter ended March 31,

2024 since the events of default were either cured within the Cure Period or prior to the date of this report and no penalties associated

with such events of default under the 2023 Convertible Notes and March 2024 Convertible Notes were ever triggered.

We estimate that based

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

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

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

source of working capital.

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

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

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

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

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

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

through the issuance of equity or debt securities.

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

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

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

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

The inability to obtain additional capital

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

If we are unable to obtain additional

financing, we will be required to cease our operations.

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

Currency Exchange Rate Risk

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

do not expect nor do we plan that there will be further revenue generated from PRC operations in the foreseeable future.

Thus, exchange

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

For the three months ended September 30, 2023

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

in the exchange rate.

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

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

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

Financing transactions may include the issuance

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

However, the trading price of our common stock

and a downturn in the U.S.

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

debt securities.

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

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

Furthermore, if we issue additional equity

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

senior to those of existing holders of our common stock.

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

may reduce our ability to continue to conduct business operations.

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

to cease our operations.

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

Foreign Currency

Exchange Rate Risk

We ceased all operations

in China in 2022, with the exception of a small administrative office.

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

generated from PRC operations in the foreseeable future.

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

a material effect on us.

For the three months ended March 31, 2024 and 2023, we had an unrealized foreign currency translation loss of

approximately $3,000 and an unrealized foreign currency translation gain of approximately $4,000, respectively, because of changes in

the exchange rate.

The effect of inflation

on our revenue and operating results was not significant.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

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Item 2. Management’s Discussion and Analysis