What changed in this filing

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Item 1. Financial Statements

2024-08-19 compared with 2024-05-31 · 1110 added, 831 removed, 670 unchanged (74% of the section changed)

Financial Statements.

AVALON GLOBOCARE CORP.

GLOBOCARE CORP.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

CONSOLIDATED BALANCE SHEETS

CURRENT ASSETS:

18 unchanged sentences

Operating lease obligation

Advance from pending sale of noncontrolling interest -

related party

Advance from pending sale of noncontrolling interest - related party

Equity method investment payable

11 unchanged sentences

10,000,000 shares authorized;

Series A Convertible Preferred Stock, 9,000 shares issued and outstanding at March 31, 2024 and December 31, 2023 Liquidation preference $ 9 million at March 31, 2024

Series B Convertible Preferred Stock, 11,000 shares issued and outstanding at March 31, 2024 and December 31, 2023 Liquidation preference $ 11 million at March 31, 2024

Series A Convertible Preferred Stock, 9,000 shares issued and outstanding at June 30, 2024 and December 31, 2023 Liquidation preference $ 9 million at June 30, 2024

Series B Convertible Preferred Stock, 11,000 shares issued and outstanding at June 30, 2024 and December 31, 2023 Liquidation preference $ 11 million at June 30, 2024

Common stock, $ 0.0001 par value;

490,000,000 shares authorized;

11,156,534 shares issued and 11,104,534 shares outstanding at March 31, 2024;

11,558,534 shares issued and 11,506,534 shares outstanding at June 30, 2024;

11,051,534 shares issued and 10,999,534 shares outstanding at December 31, 2023

1 unchanged sentence

common stock held in treasury, at cost;

52,000 shares at March 31, 2024 and December 31, 2023

52,000 shares at June 30, 2024 and December 31, 2023

Accumulated deficit

7 unchanged sentences

Total Liabilities and Equity

See accompanying notes to the condensed consolidated

financial statements.

AVALON GLOBOCARE CORP.

accompanying notes to the condensed consolidated financial statements.

GLOBOCARE CORP.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE LOSS

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

For the Three Months Ended

For the Six Months Ended

REAL PROPERTY RENTAL REVENUE

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REAL PROPERTY OPERATING INCOME

INCOME (LOSS) FROM EQUITY METHOD INVESTMENT - LAB SERVICES MSO

(LOSS) INCOME FROM EQUITY METHOD INVESTMENT - LAB SERVICES MSO

OTHER OPERATING EXPENSES:

6 unchanged sentences

( 1,504,363 )

( 2,068,368 )

( 2,347,425 )

( 4,821,695 )

OTHER (EXPENSE) INCOME

Interest expense - amortization of debt discount and debt issuance cost

Interest expense - amortization of debt discount and debt issuance costs

Interest expense - other

1 unchanged sentence

Change in fair value of derivative liability

Impairment of equity method investment - Epicon

Other expense

Total Other Expense, net

( 1,152,114 )

LOSS BEFORE INCOME TAXES

3 unchanged sentences

( 5,666,801 )

$ ( 2,132,026 )

$ ( 2,747,057 )

$ ( 3,499,539 )

$ ( 5,666,801 )

NET LOSS ATTRIBUTABLE TO NONCONTROLLING INTEREST

3 unchanged sentences

$ ( 2,747,057 )

$ ( 3,499,539 )

$ ( 5,666,801 )

NET LOSS PER COMMON SHARE ATTRIBUTABLE TO AVALON GLOBOCARE CORP.

6 unchanged sentences

$ ( 2,747,057 )

OTHER COMPREHENSIVE (LOSS) INCOME

Unrealized foreign currency translation (loss) gain

$ ( 3,499,539 )

$ ( 5,666,801 )

OTHER COMPREHENSIVE INCOME (LOSS)

Unrealized foreign currency translation gain (loss)

COMPREHENSIVE LOSS

1 unchanged sentence

( 2,758,068 )

( 3,499,753 )

( 5,674,142 )

COMPREHENSIVE LOSS ATTRIBUTABLE TO NONCONTROLLING INTEREST

3 unchanged sentences

$ ( 2,758,068 )

See accompanying notes to the condensed consolidated financial statements.

AVALON GLOBOCARE CORP.

$ ( 3,499,753 )

$ ( 5,674,142 )

accompanying notes to the condensed consolidated financial statements.

GLOBOCARE CORP.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN

For the Three Months Ended March 31, 2024

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

the Three and Six Months Ended June 30, 2024

GloboCare Corp.

Stockholders’ Equity

Preferred Stock

A Preferred Stock

B Preferred Stock

Comprehensive

Noncontrolling

January 1, 2024

9 unchanged sentences

( 81,137,244 )

of common stock as convertible note payable commitment fee

conversion feature related to convertible note payable

currency translation adjustment

loss for the three months ended June 30, 2024

( 2,132,026 )

See accompanying notes to the condensed consolidated

financial statements.

AVALON GLOBOCARE CORP.

June 30, 2024

$ ( 522,500 )

$ ( 83,269,270 )

$ ( 231,941 )

accompanying notes to the condensed consolidated financial statements.

GLOBOCARE CORP.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN

For the Three Months Ended March 31, 2023

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

the Three and Six Months Ended June 30, 2023

GloboCare Corp.

Stockholders’ Equity

Preferred Stock

A Preferred Stock

B Preferred Stock

Comprehensive

Non-controlling

January 1, 2023

10 unchanged sentences

( 65,982,465 )

correct shares issued for adjustments for 1:10 reverse split

of common stock for services

of common stock as convertible note payable commitment fee

currency translation adjustment

loss for the three months ended June 30, 2023

( 2,747,057 )

See accompanying notes to the condensed consolidated

financial statements.

AVALON GLOBOCARE CORP.

June 30, 2023

$ ( 522,500 )

$ ( 68,729,522 )

$ ( 220,478 )

accompanying notes to the condensed consolidated financial statements.

GLOBOCARE CORP.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Three Months Ended

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Six Months Ended

CASH FLOWS FROM OPERATING ACTIVITIES:

1 unchanged sentence

$ ( 5,666,801 )

Adjustments to reconcile net loss to net cash used in operating activities:

Adjustments to reconcile net loss to net cash used in

operating activities:

Change in straight-line rent receivable

1 unchanged sentence

Stock-based compensation and service expense

(Income) loss from equity method investments

Loss from equity method investments

Distribution of earnings from equity method investment

Impairment of equity method investment

Amortization of debt issuance costs and debt discount

10 unchanged sentences

( 1,997,616 )

( 4,359,759 )

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchase of property and equipment

Payment for equity interest purchase

NET CASH USED IN INVESTING ACTIVITIES

1 unchanged sentence

Proceeds from loan payable - related party

Proceeds from issuance of convertible debt and warrants

Payments of convertible debt issuance costs

Repayments of convertible debt

Advance from sale of noncontrolling interest in subsidiary

Proceeds from issuance of convertible debts and warrants

Payments of convertible debts issuance costs

Repayments of convertible debts

( 3,100,000 )

Proceeds from issuance of balloon promissory note

Payments of balloon promissory note issuance costs

Advance from pending sale of noncontrolling interest in subsidiary

NET CASH PROVIDED BY FINANCING ACTIVITIES

EFFECT OF EXCHANGE RATE ON CASH

NET INCREASE (DECREASE) IN CASH

NET DECREASE IN CASH

( 1,337,719 )

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Accrued purchase price related to equity method investment

Warrants issued as convertible note payable finder’s fee

Warrants issued with convertible note payable recorded as debt discount

Common stock issued as convertible note payable commitment fee

Warrants issued as convertible notes payable finder’s fee

Warrants issued with convertible notes payable recorded as debt discount

Common stock issued as convertible notes payable commitment fee

Beneficial conversion feature related to convertible note payable

Convertible debts issuance costs in accrued liabilities

Deferred financing costs in accrued liabilities

Equity method investment payable paid by a related party

See accompanying notes to the condensed consolidated financial

accompanying notes to the condensed consolidated financial statements.

AVALON GLOBOCARE CORP.

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Avalon GloboCare Corp.

(the “Company” or “ALBT”)

is a Delaware corporation.

The Company was incorporated under the laws of the State of Delaware on July 28, 2014.

(the “Company”

or “ALBT”) was incorporated under the laws of the State of Delaware on July 28, 2014.

The Company is a commercial stage company dedicated

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

Through its membership interest in a laboratory, the Company also provides laboratory services, offering a broad portfolio of

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

and urine toxicology.

On February 7, 2017, the Company formed Avalon

RT 9 Properties, LLC (“Avalon RT 9”), a New Jersey limited liability company.

On May 5, 2017, Avalon RT 9 purchased a real

property located in Township of Freehold, County of Monmouth, State of New Jersey, having a street address of 4400 Route 9 South, Freehold,

This property was purchased to serve as the Company’s world-wide headquarters for all corporate administration and operations.

The Company also provides laboratory services, offering a broad portfolio of diagnostic tests, including drug testing, toxicology,

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

May 18, 2015, Avalon Healthcare System, Inc.

(“AHS”) was incorporated under the laws of the State of Delaware.

owns 100 % of the capital stock of Avalon (Shanghai) Healthcare Technology Co., Ltd.

(“Avalon Shanghai”), which is a wholly

foreign-owned enterprise organized under the laws of the People’s Republic of China (“PRC”).

Avalon Shanghai was incorporated

on April 29, 2016, and was engaged in medical related consulting services for customers.

Due to the winding down of the medical related

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

expenses in Avalon Shanghai.

As a result, Avalon Shanghai is no longer an operating entity.

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

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

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

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

for all corporate administration and operations.

In addition, the property generates rental income.

Avalon RT 9 owns this office building.

Avalon RT 9’s business consists of the

ownership and operation of the income-producing real estate property in New Jersey.

As of March 31, 2024, the occupancy rate of the building

On July 18, 2018, the Company formed a wholly

owned subsidiary, Avactis Biosciences Inc.

(“Avactis”), a Nevada corporation, which is a patent holding company.

on April 6, 2022, the Company owns 60 % of Avactis and Arbele Biotherapeutics Limited (“Arbele Biotherapeutics”) owns 40 % of

Avactis owns 100 % of the capital stock of Avactis Nanjing Biosciences Ltd., a company incorporated in the PRC on May 8, 2020

(“Avactis Nanjing”), which only owns a patent and is not considered an operating entity.

On October 14, 2022,

the Company formed a wholly owned subsidiary, Avalon Laboratory Services, Inc.

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

As of June 30, 2024, the occupancy rate of the building is 89.4 %.

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

(“Avactis”), a Nevada corporation, which

is a patent holding company.

Commencing on April 6, 2022, the Company owns 60 % of Avactis and Arbele Biotherapeutics Limited (“Arbele

Biotherapeutics”) owns 40 % of Avactis.

Avactis owns 100 % of the capital stock of Avactis Nanjing Biosciences Ltd., a company

incorporated in the PRC on May 8, 2020 (“Avactis Nanjing”), which only owns a patent and is not considered an operating entity.

Currently, Avactis and Avactis Nanjing are dormant and are in process of being dissolved.

On October 14, 2022, the Company formed a wholly

owned subsidiary, Avalon Laboratory Services, Inc.

(“Avalon Lab”), a Delaware company.

9, 2023, Avalon Lab purchased forty percent ( 40 %) of the issued and outstanding equity interests of Laboratory Services MSO, LLC, a private

limited company formed under the laws of the State of Delaware on September 6, 2019 (“Lab Services MSO”), and its subsidiaries.

Lab Services MSO, through its subsidiaries, is engaged in providing laboratory testing services.

On February 9, 2023, Avalon Lab purchased

40 % of the issued and outstanding equity interests of Laboratory Services MSO, LLC, a private limited company formed under the laws of

the State of Delaware on September 6, 2019 (“Lab Services MSO”), and its subsidiaries.

Lab Services MSO, through its subsidiaries,

is engaged in providing laboratory testing services.

May 1, 2024, the Company formed a wholly owned subsidiary, Q&A Distribution LLC (“Q&A Distribution”), a Texas company.

AVALON GLOBOCARE CORP.

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Details of the Company’s subsidiaries which

are included in these condensed consolidated financial statements as of March 31, 2024 are as follows:

are included in these condensed consolidated financial statements as of June 30, 2024 are as follows:

Name of Subsidiary Place and Date of

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July 18, 2018

60% held by ALBT Patent holding company

60 % held by ALBT Dormant,

is in process of being dissolved

Avactis Nanjing Biosciences Ltd.

(“Avactis Nanjing”)

100% held by Avactis Owns a patent and is not considered an operating entity

100 % held by Avactis Dormant,

is in process of being dissolved

Avalon Laboratory Services, Inc.

2 unchanged sentences

100 % held by ALBT Laboratory holding company with a 40% membership interest in Lab Services MSO

Q&A Distribution LLC

(“Q&A Distribution”)

100 % held by ALBT Distributes KetoAir device

2 – BASIS OF PRESENTATION AND GOING CONCERN CONDITION

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The accompanying condensed consolidated financial statements have been prepared in accordance

with the rules and regulations of the Securities and Exchange Commission and do not include all information and footnotes necessary for

a complete presentation of financial statements in conformity with accounting principles generally accepted in the United States (“U.S.

The Company’s condensed consolidated financial statements include the accounts of the Company and its subsidiaries.

with the rules and regulations of the Securities and Exchange Commission (the “SEC”) and do not include all information and

footnotes necessary for a complete presentation of financial statements in conformity with accounting principles generally accepted in

the United States (“U.S.

The Company’s condensed consolidated financial statements include the accounts of the

Company and its subsidiaries.

All significant intercompany accounts and transactions have been eliminated in consolidation.

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consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and

notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 filed with the Securities

and Exchange Commission on April 15, 2024.

notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on April

AVALON GLOBOCARE CORP.

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In addition, the Company owns commercial real estate that houses its headquarters in Freehold,

These condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern,

which contemplates, among other things, the realization of assets and the satisfaction of liabilities in the normal course of business.

As reflected in the accompanying

condensed consolidated financial statements, the Company had a 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.

These unaudited 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

reflected in the accompanying unaudited condensed consolidated financial statements, the Company had a working capital deficit of approximately

$7, 880,000 at June 30, 2024 and had incurred recurring net losses and generated negative cash flow from operating activities

of approximately $ 3,500,000 and $ 1,998,000 for the six months ended June 30, 2024, respectively.

The Company has a limited

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

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

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

In addition, the

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

estate property in New Jersey and income from equity method investment through its 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 Quarterly Report on Form

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

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.

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

The Company plans on raising capital

The Company plans to raise capital

through the sale of equity to implement its business plan.

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Accordingly, the actual results could differ significantly from those

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 40 % of Lab Services MSO.

estimates during the three and six months ended June 30, 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, beneficial conversion

feature 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.

AVALON GLOBOCARE CORP.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 3 – SUMMARY OF SIGNIFICANT

ACCOUNTING POLICIES (continued)

Fair Value of Financial Instruments and Fair Value Measurements

The Company adopted

the guidance of Accounting Standards Codification (“ASC”) 820 for fair value measurements which clarifies the d efinition

of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring

fair value as follows:

1-Inputs are unadjusted quoted prices in active markets for identical assets or liabilities

available at the measurement date.

2-Inputs are unadjusted quoted prices for similar assets and liabilities in active markets,

quoted prices for identical or similar assets and liabilities in markets that are not active,

inputs other than quoted prices that are observable, and inputs derived from or corroborated

by observable market data.

3-Inputs are unobservable inputs which reflect the reporting entity’s own assumptions

on what assumptions the market participants would use in pricing the asset or liability based

The Company adopted the

guidance of the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”)

820 for fair value measurements which clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes

a fair value hierarchy to classify the inputs used in measuring fair value as follows:

● Level 1-Inputs are unadjusted quoted prices in active markets

for identical assets or liabilities available at the measurement date.

● Level 2-Inputs are unadjusted quoted prices for similar assets

and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs

other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.

● Level 3-Inputs are unobservable inputs which reflect the

reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based

on the best available information.

fair v alue of the Company’s assets and liabilities, which qualify as financial instruments

under ASC Topic 820, “Fair Value Measurement,” approximates the carrying amounts represented in the accompanying condensed

consolidated financial statements, primarily due to their short-term nature.

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

approximates the carrying amounts represented in the accompanying condensed consolidated financial statements, primarily due to their

short-term nature.

and liabilities measured at fair value on a recurring basis.

Certain assets and liabilities

are measured at fair value on a recurring basis.

These assets and liabilities are measured at fair value on an ongoing basis.

and liabilities include derivative liability.

Derivative liability is carried at fair value and measured on an ongoing basis.

The table below reflects the activity of derivative liability measured at fair value for the three months ended March 31, 2024:

Certain assets

and liabilities are measured at fair value on a recurring basis.

These assets and liabilities are measured at fair value on an ongoing

These assets and liabilities include derivative liability.

Derivative liability is carried at fair value and measured on an ongoing

The table below reflects the activity of derivative liability measured at fair value for the six months ended June 30, 2024:

Balance of derivative liability as of January 1, 2024

Initial fair value of derivative liability attributable to warrants issuance with March 2024 fund

Initial fair value of derivative liability attributable to warrants issuance with March and June 2024 fund raises

Gain from change in the fair value of derivative liability

Balance of derivative liability as of March 31, 2024

ASC 825-10 “Financial

Instruments”, allows entities to voluntarily choose to measure certain financial assets and liabilities at fair value (fair value

The fair value option may be elected on an instrument-by-instrument basis and is irrevocable, unless a new election date occurs.

If the fair value option is elected for an instrument, unrealized gains and losses for that instrument should be reported in earnings

at each subsequent reporting date.

Balance of derivative liability as of June 30, 2024

“Financial Instruments”, allows entities to voluntarily choose to measure certain financial assets and liabilities at fair

value (fair value option).

The fair value option may be elected on an instrument-by-instrument basis and is irrevocable, unless a new

election date occurs.

If the fair value option is elected for an instrument, unrealized gains and losses for that instrument should be

reported in earnings at each subsequent reporting date.

The Company did not elect to apply the fair value option to any outstanding instruments.

Cash and Cash Equivalents

At March 31, 2023 and

At June 30, 2024 and

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

March 31, 2024

December 31, 2023

United States

For purposes of the condensed consolidated statements

of cash flows, the Company considers all highly liquid instruments with a maturity of three months or less when purchased and money market

accounts to be cash equivalents.

The Company had no cash equivalents at March 31, 2024 and December 31, 2023.

For purposes of the condensed

consolidated statements of cash flows, the Company considers all highly liquid instruments with a maturity of three months or less when

purchased and money market accounts to be cash equivalents.

The Company had no cash equivalents at June 30, 2024 and December 31, 2023.

AVALON GLOBOCARE CORP.

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any losses in such bank accounts and believes it is not exposed to any risks on its cash in bank accounts.

At March 31, 2024, there were

At June 30, 2024, there were

no balances in excess of the federally-insured limits.

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Investment in Unconsolidated

The Company uses the equity method

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

The Company applies the equity method by initially recording these investments at cost, as equity method investments, subsequently

adjusted for equity in earnings and cash distributions.

uses the equity method of accounting for its investment in, and earning or loss of, investees that it does not control but over which

it does exert significant influence.

The Company applies the equity method by initially recording these investments at cost, as equity

method investments, subsequently adjusted for equity in earnings and cash distributions.

considers whether the fair value of its equity method investment has declined below its carrying value whenever adverse events or changes

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See Note 5 for discussion of equity method investments.

The Company classifies

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.

classifies 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

1 unchanged sentence

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

Beneficial Conversion Feature and Warrants

The Company evaluates the conversion feature of

convertible debt instruments to determine whether the conversion feature is beneficial as described in ASC 470-20, Debt with Conversion

and Other Options.

The Company records a beneficial conversion feature (“BCF”) related to the issuance of convertible debt

that has conversion features at fixed or adjustable rates that are in-the-money when issued and records the relative fair value of any

warrants issued with those instruments.

The BCF for the convertible instruments is recognized and measured by allocating a portion of

the proceeds to the warrants and as a reduction to the carrying amount of the convertible instrument equal to the intrinsic value of the

conversion features, both of which are credited to additional paid-in capital.

The Company calculates the fair value of warrants with

the convertible instruments using the Black-Scholes valuation model.

Under these guidelines, the Company first allocates

the value of the proceeds received from a convertible debt transaction between the convertible debt instrument and any other detachable

instruments included in the transaction (such as warrants) on a relative fair value basis.

A BCF is then measured as the intrinsic value

of the conversion option at the commitment date, representing the difference between the effective conversion price and the Company’s

stock price on the commitment date multiplied by the number of shares into which the debt instrument is convertible.

The allocated value

of the BCF and warrants are recorded as a debt discount and accreted over the expected term of the convertible debt as interest expense.

If the intrinsic value of the BCF is greater than the proceeds allocated to the convertible debt instrument, the amount of the discount

assigned to the BCF is limited to the amount of the proceeds allocated to the convertible debt instrument.

Real Property Rental Revenue

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

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

Rental income

4 unchanged sentences

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

AVALON GLOBOCARE CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 – SUMMARY OF SIGNIFICANT

ACCOUNTING POLICIES (continued)

Commitments and Contingencies

In the normal course of business, the Company

is subject to contingencies, such as legal proceedings and claims arising out of its business, that cover a wide range of matters.

for such contingencies are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably

In the normal

course of business, the Company is subject to contingencies, such as legal proceedings and claims arising out of its business, that cover

a wide range of matters.

Liabilities for such contingencies are recorded when it is probable that a liability has been incurred and the

amount of the assessment can be reasonably estimated.

Per Share Data

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stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the

AVALON GLOBOCARE CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 – SUMMARY OF SIGNIFICANT

ACCOUNTING POLICIES (continued)

Per Share Data (continued)

loss per share is computed by dividing net loss available to common stockholders by the weighted average number of shares of common stock

2 unchanged sentences

common stock, common stock equivalents and potentially dilutive securities outstanding during each period.

For the three

months ended March 31, 2024 and 2023, potentially dilutive common shares consist of the common shares issuable upon the conversion of

convertible preferred stock and convertible note (using the if-converted method) and exercise of common stock options and warrants (using

the treasury stock method).

Common stock equivalents are not included in the calculation of diluted net loss per share if their effect

would be anti-dilutive.

In a period in which the Company has a net loss, all potentially dilutive securities are excluded from the computation

of diluted shares outstanding as they would have had an anti-dilutive impact.

For the three and six months

ended June 30, 2024 and 2023, potentially dilutive common shares consist of the common shares issuable upon the conversion of convertible

preferred stock and convertible notes (using the if-converted method) and exercise of common stock options and warrants (using the treasury

stock method).

Common stock equivalents are not included in the calculation of diluted net loss per share if their effect would be anti-dilutive.

In a period in which the Company has a net loss, all potentially dilutive securities are excluded from the computation of diluted shares

outstanding as they would have had an anti-dilutive impact.

The following

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Three Months Ended

Six Months Ended

Options to purchase common stock

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Potentially dilutive securities

(*) Assumed the Series A convertible preferred stock was converted into shares of common stock of the Company at a conversion price of $ 10.00 per share.

(**) Assumed the Series B convertible preferred stock was converted into shares of common stock of the Company at a conversion price of $ 3.78 per share.

(***) Assumed the convertible notes were converted into shares of common stock of the Company at a conversion price of $ 4.50 and $ 1.50 and $ 1.00 per share for the three months ended March 31, 2024.

(*) Assumed the Series A convertible preferred stock was converted

into shares of common stock of the Company at a conversion price of $ 10.00 per share .

(**) Assumed the Series B convertible

preferred stock was converted into shares of common stock of the Company at a conversion price of $ 3.78 per share.

(***) Assumed

the convertible notes were converted into shares of common stock of the Company at a conversion price of $ 4.50 and $ 1.50 and $ 1.00 and

$ 0.75 per share for the three and six months ended June 30, 2024.

Assumed the convertible note was converted into shares of common

stock of the Company at a conversion price of $ 4.50 per share for the three and six months ended June 30, 2023.

Reclassification

Certain prior period amounts have been reclassified

to conform to the current period presentation.

These reclassifications have no effect on the previously reported financial position, results

of operations and cash flows.

AVALON GLOBOCARE CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 – SUMMARY OF SIGNIFICANT

ACCOUNTING POLICIES (continued)

Segment Reporting

7 unchanged sentences

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

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

the management of Lab Services MSO.

During the three months ended March 31, 2024 and 2023, the Company operated in two reportable business

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

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

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

The Company regularly reviews the operating

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

Reclassification

Certain prior period amounts have been reclassified to conform to the

current period presentation.

These reclassifications have no effect on the previously reported financial position, results of operations

and cash flows.

AVALON GLOBOCARE CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 – SUMMARY OF SIGNIFICANT

ACCOUNTING POLICIES (continued)

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

in the management of Lab Services MSO.

During the three and six months ended June 30, 2024 and 2023, the Company operated in two reportable

business segments:

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

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

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

The Company regularly reviews the

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

Recent Accounting Standards

2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-09, Income

Taxes (Topic 740):

In August 2020,

the FASB issued Accounting Standards Update (“ASU”) 2020-06, Debt — Debt with Conversion and Other Options (Subtopic

470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40), to simplify accounting for certain

financial instruments.

ASU 2020-06 eliminates the current models that require separation of beneficial conversion and cash conversion

features from convertible instruments and simplifies the derivative scope exception guidance pertaining to equity classification of contracts

in an entity’s own equity.

The new standard also introduces additional disclosures for convertible debt and freestanding instruments

that are indexed to and settled in an entity’s own equity.

ASU 2020-06 amends the diluted earnings per share guidance, including

the requirement to use the if-converted method for all convertible instruments.

ASU 2020-06 is effective for fiscal years beginning after

December 15, 2023, including interim periods within those fiscal years, with early adoption permitted.

The adoption of ASU 2020-06 did

not have a material effect on the Company’s consolidated financial statements and related disclosures.

2023, the FASB ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures.

This guidance is intended to enhance the transparency and decision-usefulness

of income tax disclosures.

The amendments in ASU 2023-09 address investor requests for enhanced income tax information primarily through

changes to disclosure regarding rate reconciliation and income taxes paid both in the U.S.

and in foreign jurisdictions.

ASU 2023-09 is

effective for fiscal years beginning after December 15, 2024 on a prospective basis, with the option to apply the standard retrospectively.

This guidance is intended to enhance the

transparency and decision-usefulness of income tax disclosures.

The amendments in ASU 2023-09 address investor requests for enhanced

income tax information primarily through changes to disclosure regarding rate reconciliation and income taxes paid both in the U.S.

in foreign jurisdictions.

ASU 2023-09 is effective for fiscal years beginning after December 15, 2024 on a prospective basis, with the

option to apply the standard retrospectively.

Early adoption is permitted.

The company is currently evaluating this guidance to determine the impact it may have on its condensed consolidated

financial statements disclosures.

The Company is currently evaluating this guidance to determine

the impact it may have on its condensed consolidated financial statements disclosures.

Other accounting

5 unchanged sentences

AND OTHER CURRENT ASSETS

At March 31, 2024 and December 31, 2023, prepaid

At June 30, 2024 and December 31, 2023, prepaid

expense and other current assets consisted of the following:

Advance to supplier

Prepaid professional fees

5 unchanged sentences

Due from broker

NOTE 5 – EQUITY METHOD INVESTMENTS

On February 9, 2023 (the “Closing Date”),

the Company entered into and closed an Amended and Restated Membership Interest Purchase Agreement (the “Amended MIPA”), by

and among Avalon Laboratory Services, Inc., a wholly owned subsidiary of the Company (the “Buyer”), SCBC Holdings LLC (the

“Seller”), the Zoe Family Trust, Bryan Cox and Sarah Cox as individuals (each an “Owner” and collectively, the

“Owners”), and Laboratory Services MSO, LLC.

Pursuant to the terms

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

interests of Lab Services MSO (the “Purchased Interests”).

The consideration paid by Buyer to Seller for the Purchased

Interests consisted of $ 20,666,667 , which was comprised of (i) $ 9,000,000 in cash, (ii) $ 11,000,000 pursuant to the issuance of 11,000

shares of the Company’s Series B Convertible Preferred Stock (the “Series B Preferred Stock”), stated value $ 1,000

(the “Series B Stated Value”), which approximated the fair value, and (iii) a $ 666,667 cash payment on February 9, 2024.

Series B Preferred Stock is convertible into shares of the Company’s common stock at a conversion price per share equal to $ 3.78 ,

which approximated the market price at the date of closing, or an aggregate of 2,910,053 shares of the Company’s common stock, which

are subject to a lock-up period and restrictions on sale.

AVALON GLOBOCARE CORP.

2 unchanged sentences

NOTE 5 – EQUITY METHOD INVESTMENTS

On February 9, 2023 (the “Closing Date”),

the Company entered into and closed an Amended and Restated Membership Interest Purchase Agreement (the “Amended MIPA”), by

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

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

Pursuant to the terms and conditions set forth

in the Amended MIPA, Avalon Lab acquired from the Seller, 40 % of the issued and outstanding equity interests of Lab Services MSO (the

“Purchased Interests”).

The consideration paid by Avalon Lab to Seller for the Purchased Interests consisted of $ 20,666,667 ,

which was comprised of (i) $ 9,000,000 in cash, (ii) $ 11,000,000 pursuant to the issuance of 11,000 shares of the Company’s

Series B Convertible Preferred Stock (the “Series B Preferred Stock”), stated value $ 1,000 (the “Series B

Stated Value”), which approximated the fair value, and (iii) a $ 666,667 cash payment on February 9, 2024.

The Series B Preferred

Stock is convertible into shares of the Company’s common stock at a conversion price per share equal to $ 3.78 , which approximated

the market price at the date of closing, or an aggregate of 2,910,053 shares of the Company’s common stock, which are

subject to a lock-up period and restrictions on sale.

Lab Services MSO, through

15 unchanged sentences

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

Intangible assets consist

of the valuation of identifiable intangible assets acquired, representing trade names and customers relationships, which are being amortized

on a straight-line method over the estimated useful life of 15 years.

The straight-line method of amortization represents the Company’s

best estimate of the distribution of the economic value of the identifiable intangible assets.

For the three months ended March 31, 2024

and for the period from February 9, 2023 (date of investment) through March 31, 2023, amortization expense of these intangible assets

amounted to $ 166,733 and $ 135,830 , respectively, which was included in income (loss) from equity method investment — Lab Services

MSO in the accompanying condensed consolidated statements of operations and comprehensive loss.

Goodwill represents the excess of the purchase

price paid over the fair value of net assets acquired in the business acquisition of Lab Services MSO incurred on February 9, 2023.

is not amortized but is tested for impairment at least once annually, or more frequently if events or changes in circumstances indicate

that the asset might be impaired.

assets consist of the valuation of identifiable intangible assets acquired, representing trade names and customers relationships, which

are being amortized on a straight-line method over the estimated useful life of 15 years.

The straight-line method of amortization

represents the Company’s best estimate of the distribution of the economic value of the identifiable intangible assets.

three months ended June 30, 2024 and 2023, amortization expense of these intangible assets amounted to $ 166,733 and $ 203,744 , respectively,

which was included in (loss) income from equity method investment — Lab Services MSO in the accompanying condensed consolidated

statements of operations and comprehensive loss.

For the six months ended June 30, 2024 and for the period from February 9, 2023 (date

of investment) through June 30, 2023, amortization expense of these intangible assets amounted to $ 333,466 and $ 339,574 , respectively,

which was included in (loss) income from equity method investment — Lab Services MSO in the accompanying condensed consolidated

statements of operations and comprehensive loss.

Goodwill represents the

excess of the purchase price paid over the fair value of net assets acquired in the business acquisition of Lab Services MSO incurred

on February 9, 2023.

Goodwill is not amortized but is tested for impairment at least once annually, or more frequently if events or changes

in circumstances indicate that the asset might be impaired.

For the three months

ended March 31, 2024 and for the period from February 9, 2023 (date of investment) through March 31, 2023, the Company’s share of

Lab Services MSO’s net income was $ 274,202 and $ 46,739 , respectively, which was included in income (loss) from equity method investment

ended June 30, 2024 and 2023, the Company’s share of Lab Services MSO’s net loss was $ 162,604 and the Company’s share

of Lab Services MSO’s net income was $ 104,651 , respectively, which was included in (loss) income from equity method investment —

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

In the three months ended

March 31, 2024, activity recorded for the Company’s equity method investment in Lab Services MSO is summarized in the

following table:

For the six months ended

June 30, 2024 and for the period from February 9, 2023 (date of investment) through June 30, 2023, the Company’s share of Lab Services

MSO’s net income was $ 111,598 and $ 15,560 , respectively, which was included in (loss) income from equity method investment

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

AVALON GLOBOCARE CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 – EQUITY METHOD INVESTMENTS

In the six months ended

June 30, 2024, activity recorded for the Company’s equity method investment in Lab Services MSO is summarized in the following

Equity investment carrying amount at January 1, 2024

2 unchanged sentences

Distribution of earnings from equity investment

Equity investment carrying amount at March 31, 2024

of March 31, 2024, the Company’s carrying value of the identified intangible assets and goodwill which are included in the equity

investment carrying amount was $ 9,225,911 and $ 259,579 , respectively.

As of December 31, 2023, the Company’s carrying

Equity investment carrying amount at June 30, 2024

As of June 30, 2024, the Company’s carrying

value of the identified intangible assets and goodwill which are included in the equity investment carrying amount was $ 9,059,178 and

$ 259,579 , respectively.

The tables below present the summarized financial

information, as provided to the Company by the investee, for the unconsolidated company:

As of December 31, 2023, the Company’s carrying value of the identified intangible assets and goodwill

which are included in the equity investment carrying amount was $ 9,392,644 and $ 259,579 , respectively.

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

Current assets

2 unchanged sentences

Noncurrent liabilities

AVALON GLOBOCARE CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 – EQUITY METHOD INVESTMENTS

February 9, 2023

(Date of Investment) through

Income from operation

(Date of Investment)

(Loss) income from operation

Net (loss) income

6 – CONVERTIBLE NOTE PAYABLE

2 unchanged sentences

Company entered into securities purchase agreements with Mast Hill Fund, L.P.

(“Mast Hill”) for the issuance of 13.0 % senior

secured promissory notes in the aggregate principal amount of $ 1,500,000 (collectively, the “May 2023 Convertible Note”) convertible

into shares of common stock, par value $ 0.0001 per share, of the Company, as well as the issuance of 75,000 shares of common stock as

a commitment fee and warrants for the purchase of 230,500 shares of common stock of the Company.

The Company and its subsidiaries have

also entered into a security agreement, creating a security interest in certain property of the Company and its subsidiaries to secure

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

amount and interest under the May 2023 Convertible Note are convertible into shares of common stock of the Company at a conversion price

of $ 4.50 per share unless the Company fails to make an amortization payment when due, in which case the conversion price shall be the

lower of $ 4.50 or the trading price of the shares, subject to a floor of $ 1.50 .

(“Mast Hill”) for the issuance of 13.0 %

senior secured promissory notes in the aggregate principal amount of $ 1,500,000 (collectively, the “May 2023 Convertible Note”)

convertible into shares of the Company’s common stock, as well as the issuance of 75,000 shares of common stock as a commitment

fee and warrants for the purchase of 230,500 shares of common stock of the Company.

The Company and its subsidiaries also entered

into a security agreement, creating a security interest in certain property of the Company and its subsidiaries to secure the prompt payment,

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

Principal amount and

interest under the May 2023 Convertible Note were convertible into shares of common stock of the Company at a conversion price of $ 4.50

per share unless the Company failed to make an amortization payment when due, in which case the conversion price would be the lower of

$ 4.50 or the trading price of the shares, subject to a floor of $ 1.50 .

Mast Hill acquired the

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

of $ 75,000 .

On May 23, 2023, the Company issued (i) a warrant to purchase 125,000 shares of common stock with an exercise price of $ 4.50

exercisable until the five-year anniversary of May 23, 2023, (ii) a warrant to purchase 105,500 shares of common stock with an exercise

price of $ 3.20 exercisable until the five-year anniversary of May 23, 2023, which warrant shall be cancelled and extinguished against

payment of the May 2023 Convertible Note, and (iii) 75,000 shares of common stock as a commitment fee for the purchase of the May 2023

Convertible Note, which were earned in full as of May 23, 2023.

On May 23, 2023, the Company delivered such duly executed May 2023 Convertible

Note, warrants and common stock to Mast Hill against delivery of such purchase price.

The Company is obligated

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

Payment Date:

Payment Amount:

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

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

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

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

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

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

May 23, 2024 The entire remaining outstanding balance of the May 2023 Convertible Note

In connection

with the issuance of the May 2023 Convertible Note, the Company incurred debt issuance costs of $ 175,162 (including the issuance of 10,000

warrants as a finder’s fee) which is capitalized and will be amortized into interest expense over the term of the May 2023 Convertible

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

discount of $ 75,000 .

On May 23, 2023, the Company issued (i) a warrant to purchase 125,000 shares of common stock with an exercise

price of $ 4.50 exercisable until the five-year anniversary of May 23, 2023 (“First Warrant”), (ii) a warrant to purchase 105,500 shares

of common stock with an exercise price of $ 3.20 exercisable until the five-year anniversary of May 23, 2023 (“Second Warrant”).The

Second Warrant was never fair valued and was cancelled and extinguished against payment of the May 2023 Convertible Note, and (iii) 75,000 shares

of common stock as a commitment fee for the purchase of the May 2023 Convertible Note, which were earned in full as of May 23, 2023.

May 23, 2023, the Company delivered such duly executed May 2023 Convertible Note, warrants and common stock to Mast Hill against delivery

of such purchase price.

AVALON GLOBOCARE CORP.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6 – CONVERTIBLE

NOTE PAYABLE (continued)

6 – CONVERTIBLE NOTE PAYABLE (continued)

May 2023 Convertible

Note (continued)

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

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

The Company was obligated

to make amortization payments in cash to Mast Hill toward the repayment of the May 2023 Convertible Note, as described in the May 2023

Convertible Note.

As of June 30, 2024, the May 2023 Convertible Note was repaid in full.

In connection with the issuance of the May 2023

Convertible Note, the Company incurred debt issuance costs of $ 175,162 (including the issuance of 10,000 warrants as a

finder’s fee) which was capitalized and had been amortized into interest expense over the term of the May 2023 Convertible Note.

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

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

under certain circumstances.

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

as such the fair value of the 105,500 warrants with an exercise price of $ 3.20 exercisable until the five-year anniversary of May 23,

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

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

23, 2023 was classified as derivative liability on May 23, 2023.

The fair values of the 135,000 warrants with an exercise price of $ 4.50

exercisable until the five-year anniversary of May 23, 2023 issued on May 23, 2023 were computed using the Black-Scholes option-pricing

model with the following assumptions:

stock price of $ 1.96 , volatility of 88.80 %, risk-free rate of 3.76 %, annual dividend yield of 0 %

and expected life of 5 years.

In accordance

with ASC 470-20-25-2, proceeds from the sale of a debt instrument with stock purchase warrants are allocated to the two elements based

on the relative fair values of the debt instrument without the warrants and of the warrants themselves at time of issuance.

of the proceeds allocated to the warrants are accounted for as derivative liability.

The remainder of the proceeds are allocated to the

debt instrument portion of the transaction.

In accordance

with ASC 480-10-25-14, the Company determined that the conversion provisions contain an embedded derivative feature and the Company valued

the derivative feature separately, recording debt discount and derivative liability in accordance with the provisions of the convertible

debt (see Note 7).

However, management determined the probability of failing to make an amortization payment when due to be remote and

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

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

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

three months ended March 31, 2024, amortization of debt discount and debt issuance costs and interest expense related to the May 2023

Convertible Note amounted to $ 131,204 and $ 29,793 , respectively, which have been included in interest expense — amortization of

debt discount and debt issuance cost and interest expense — other on the accompanying condensed consolidated statements of operations

and comprehensive loss.

July 2023 Convertible

On July 6, 2023, the

Company entered into securities purchase agreements with Firstfire Global Opportunities Fund, LLC (“Firstfire”) for the issuance

of 13.0 % senior secured promissory notes in the aggregate principal amount of $ 500,000 (collectively, the “July 2023 Convertible

Note”) convertible into shares of common stock, par value $ 0.0001 per share, of the Company, as well as the issuance of 25,000 shares

of common stock as a commitment fee and warrants for the purchase of 76,830 shares of common stock of the Company.

The Company and its

subsidiaries have also entered into a security agreement, creating a security interest in certain property of the Company and its subsidiaries

to secure the prompt payment, performance and discharge in full of all of the Company’s obligations under the July 2023 Convertible

Principal amount and interest under the July 2023 Convertible Note are convertible into shares of common stock of the Company at

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

price shall be the lower of $ 4.50 or the trading price of the shares, subject to a floor of $ 1.50 .

Firstfire acquired the

July 2023 Convertible Note with principal amount of $ 500,000 and paid the purchase price of $ 475,000 after an original issue discount

of $ 25,000 .

On July 6, 2023, the Company issued (i) a warrant to purchase 41,665 shares of common stock with an exercise price of $ 4.50

exercisable until the five-year anniversary of July 6, 2023, (ii) a warrant to purchase 35,165 shares of common stock with an exercise

price of $ 3.20 exercisable until the five-year anniversary of July 6, 2023, which warrant shall be cancelled and extinguished against

payment of the July 2023 Convertible Note, and (iii) 25,000 shares of common stock as a commitment fee for the purchase of the July 2023

Convertible Note, which were earned in full as of July 6, 2023.

On July 6, 2023, the Company delivered such duly executed July 2023 Convertible

Note, warrants and common stock to Firstfire against delivery of such purchase price.

Through life of the May 2023 Convertible Note, management determined the probability of failing to make an

amortization payment when due was remote and as such the estimated fair value of the 105,500 warrants with an exercise price of $ 3.20 ,

which warrant was cancelled and extinguished against payment of the May 2023 Convertible Note, was zero .

Accordingly, the fair value of

the 135,000 warrants with an exercise price of $ 4.50 exercisable until the five-year anniversary of May 23, 2023 was classified

as derivative liability on May 23, 2023.

The fair values of the 135,000 warrants with an exercise price of $ 4.50 exercisable

until the five-year anniversary of May 23, 2023 issued on May 23, 2023 were computed using the Black-Scholes option-pricing model with

the following assumptions:

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

of 0 % and expected life of 5 years.

In accordance with ASC 470-20-25-2, proceeds from

the sale of a debt instrument with stock purchase warrants were allocated to the two elements based on the relative fair values of the

debt instrument without the warrants and of the warrants themselves at time of issuance.

The portion of the proceeds allocated to the

warrants were accounted for as derivative liability.

The remainder of the proceeds were allocated to the debt instrument portion of the

In accordance with ASC 480-10-25-14, the Company

determined that the conversion provisions contain an embedded derivative feature and the Company valued the derivative feature separately,

recording debt discount and derivative liability in accordance with the provisions of the convertible debt (see Note 7).

However, through

life of the May 2023 Convertible Note, management determined the probability of failing to make an amortization payment when due was remote

and as such the estimated fair value of the embedded conversion feature was zero.

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

issued to Mast Hill, which had been amortized over the term of the May 2023 Convertible Note.

For the three months ended June 30, 2024 and 2023,

amortization of debt discount and debt issuance costs related to the May 2023 Convertible Note amounted to $ 86,489 and $ 44,715 , respectively,

which have been included in interest expense — amortization of debt discount and debt issuance cost on the accompanying condensed

consolidated statements of operations and comprehensive loss.

For the six months ended June 30, 2024 and 2023,

amortization of debt discount and debt issuance costs related to the May 2023 Convertible Note amounted to $ 217,693 and $ 44,715 ,

respectively, which have been included in interest expense — amortization of debt discount and debt issuance cost on the accompanying

condensed consolidated statements of operations and comprehensive loss.

For the three months ended June 30, 2024 and 2023,

interest expense related to the May 2023 Convertible Note amounted to $ 6,981 and $ 20,836 , respectively, which have been included

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

For the six months ended June 30, 2024 and 2023,

interest expense related to the May 2023 Convertible Note amounted to $ 36,774 and $ 20,836 , respectively, which have been included

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

AVALON GLOBOCARE CORP.

4 unchanged sentences

July 2023 Convertible

Note (continued)

The Company is obligated

to make amortization payments in cash to Firstfire towards the repayment of the July 2023 Convertible Note, as provided in the following

Payment Date:

Payment Amount:

January 6, 2024 $50,000 plus accrued interest through January 6, 2024

February 6, 2024 $50,000 plus accrued interest through February 6, 2024

March 6, 2024 $66,000 plus accrued interest through March 6, 2024

April 6, 2024 $83,000 plus accrued interest through April 6, 2024

May 6, 2024 $83,000 plus accrued interest through May 6, 2024

June 6, 2024 $100,000 plus accrued interest through June 6, 2024

July 6, 2024 The entire remaining outstanding balance of the July 2023 Convertible Note

In connection

with the issuance of the July 2023 Convertible Note, the Company incurred debt issuance costs of $ 74,204 (including the issuance of 3,333

warrants as a finder’s fee), which is capitalized and will be amortized into interest expense over the term of the July 2023 Convertible

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

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

under certain circumstances.

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

as such the fair value of the 35,165 warrants with an exercise price of $ 3.20 exercisable until the five-year anniversary of July 6, 2023,

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

the fair value of the 44,998 warrants with an exercise price of $ 4.50 exercisable until the five-year anniversary of July 6, 2023 was

classified as a derivative liability on July 6, 2023.

The fair values of the 44,998 warrants with an exercise price of $ 4.50 exercisable

until the five-year anniversary of July 6, 2023 issued on July 6, 2023 were computed using the Black-Scholes option-pricing model with

the following assumptions:

stock price of $ 1.42 , volatility of 88.52 %, risk-free rate of 4.37 %, annual dividend yield of 0 % and expected

life of 5 years.

In accordance

with ASC 470-20-25-2, proceeds from the sale of a debt instrument with stock purchase warrants are allocated to the two elements based

on the relative fair values of the debt instrument without the warrants and of the warrants themselves at time of issuance.

of the proceeds allocated to the warrants are accounted for as derivative liability.

The remainder of the proceeds are allocated to the

debt instrument portion of the transaction.

In accordance

with ASC 480-10-25-14, the Company determined that the conversion provisions contain an embedded derivative feature and the Company valued

the derivative feature separately, recording debt discount and derivative liability in accordance with the provisions of the convertible

debt (see Note 7).

However, management determined the probability of failing to make an amortization payment when due to be remote and

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

recorded a total debt discount of $ 89,191 related to the original issue discount, common shares issued and warrants issued to Firstfire,

which will be amortized over the term of the July 2023 Convertible Note.

three months ended March 31, 2024, amortization of debt discount and debt issuance costs and interest expense related to the July 2023

Convertible Note amounted to $ 40,848 and $ 13,001 , respectively, which have been included in interest expense — amortization of debt

discount and debt issuance cost and interest expense — other on the accompanying condensed consolidated statements of operations

and comprehensive loss.

On July 6, 2023, the Company entered into securities

purchase agreements with Firstfire Global Opportunities Fund, LLC (“Firstfire”) for the issuance of 13.0 % senior secured

promissory notes in the aggregate principal amount of $ 500,000 (collectively, the “July 2023 Convertible Note”) convertible

into shares of the Company’s common stock, as well as the issuance of 25,000 shares of common stock as a commitment fee

and warrants for the purchase of 76,830 shares of common stock of the Company.

The Company and its subsidiaries also entered

into a security agreement, creating a security interest in certain property of the Company and its subsidiaries to secure the prompt payment,

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

Principal amount and

interest under the July 2023 Convertible Note were convertible into shares of common stock of the Company at a conversion price of $ 4.50

per share unless the Company failed to make an amortization payment when due, in which case the conversion price would be the lower of

$ 4.50 or the trading price of the shares, subject to a floor of $ 1.50 .

Firstfire acquired the July 2023 Convertible Note

with principal amount of $ 500,000 and paid the purchase price of $ 475,000 after an original issue discount of $ 25,000 .

6, 2023, the Company issued (i) a warrant to purchase 41,665 shares of common stock with an exercise price of $ 4.50 exercisable

until the five-year anniversary of July 6, 2023 (“First Warrant”), (ii) a warrant to purchase 35,165 shares of common

stock with an exercise price of $ 3.20 exercisable until the five-year anniversary of July 6, 2023 (“Second Warrant”).

The Second Warrant was never fair valued and was cancelled and extinguished against payment of the July 2023 Convertible Note, and (iii) 25,000 shares

of common stock as a commitment fee for the purchase of the July 2023 Convertible Note, which were earned in full as of July 6, 2023.

On July 6, 2023, the Company delivered such duly executed July 2023 Convertible Note, warrants and common stock to Firstfire against delivery

of such purchase price.

The Company was obligated

to make amortization payments in cash to Firstfire toward the repayment of the July 2023 Convertible Note, as described in the July 2023

Convertible Note.

As of June 30, 2024, the July 2023 Convertible Note was repaid in full.

In connection with the issuance of the July 2023

Convertible Note, the Company incurred debt issuance costs of $ 74,204 (including the issuance of 3,333 warrants as a finder’s

fee), which was capitalized and had been amortized into interest expense over the term of the July 2023 Convertible Note.

Based upon the Company’s analysis of the

criteria contained in ASC 815, the Company determined that all the warrants issued to Firstfire and a third party as a finder’s

fee meet the definition of a derivative liability, as the Company cannot avoid a net cash settlement under certain circumstances.

life of the July 2023 Convertible Note, management determined the probability of failing to make an amortization payment when due was

remote and as such the estimated fair value of the 35,165 warrants with an exercise price of $ 3.20 , which warrant was cancelled

and extinguished against payment of the July 2023 Convertible Note, was zero.

Accordingly, the fair value of the 44,998 warrants

with an exercise price of $ 4.50 exercisable until the five-year anniversary of July 6, 2023 was classified as a derivative liability

on July 6, 2023.

The fair values of the 44,998 warrants with an exercise price of $ 4.50 exercisable until the five-year

anniversary of July 6, 2023 issued on July 6, 2023 were computed using the Black-Scholes option-pricing model with the following assumptions:

stock price of $ 1.42 , volatility of 88.52 %, risk-free rate of 4.37 %, annual dividend yield of 0 % and expected life of 5 years.

In accordance with ASC 470-20-25-2, proceeds from

the sale of a debt instrument with stock purchase warrants were allocated to the two elements based on the relative fair values of the

debt instrument without the warrants and of the warrants themselves at time of issuance.

The portion of the proceeds allocated to the

warrants were accounted for as derivative liability.

The remainder of the proceeds were allocated to the debt instrument portion of the

accordance with ASC 480-10-25-14, the Company determined that the conversion provisions contain an embedded derivative feature and the

Company valued the derivative feature separately, recording debt discount and derivative liability in accordance with the provisions

of the convertible debt (see Note 7).

However, through life of the July 2023 Convertible Note, management determined the probability of

failing to make an amortization payment when due was remote and as such the estimated fair value of the embedded conversion feature was

The Company recorded a total debt discount of

$ 89,191 related to the original issue discount, common shares issued and warrants issued to Firstfire, which had been amortized over

the term of the July 2023 Convertible Note.

For the three and six months ended June 30, 2024,

amortization of debt discount and debt issuance costs related to the July 2023 Convertible Note amounted to $ 43,572 and $ 84,420 ,

respectively, which have been included in interest expense — amortization of debt discount and debt issuance cost on the accompanying

condensed consolidated statements of operations and comprehensive loss.

AVALON GLOBOCARE CORP.

2 unchanged sentences

NOTE 6 – CONVERTIBLE NOTE PAYABLE

July 2023 Convertible

Note (continued)

For the three and six months ended June 30, 2024,

interest expense related to the July 2023 Convertible Note amounted to $ 5,122 and $ 18,123 , respectively, which have been included

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

Convertible Note

On October 9, 2023, the

Company entered into securities purchase agreements with Mast Hill and Firstfire for the issuance of 13.0 % senior secured promissory notes

in the aggregate principal amount of $ 700,000 (collectively, the “October 2023 Convertible Note,” and, collectively with the

May 2023 Convertible Note and the July 2023 Convertible Note, the “2023 Convertible Notes”) convertible into shares of common

stock, par value $ 0.0001 per share, of the Company, as well as the issuance of 70,000 shares of common stock as a commitment fee and warrants

for the purchase of 192,500 shares of common stock of the Company.

The Company and its subsidiaries have entered into that certain security

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

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

Principal amount and interest

under the October 2023 Convertible Note are convertible into shares of common stock of the Company at a conversion price of $ 1.50 per

share unless the Company fails to make an amortization payment when due, in which case the conversion price shall be the lower of $ 1.50 or

the market price (as defined in the October 2023 Convertible Note) of the shares.

Mast Hill acquired

the October 2023 Convertible Note with principal amount of $ 350,000 and paid the purchase price of $ 332,500 after an original issue discount

of $ 17,500 .

On October 9, 2023, the Company issued (i) a warrant to purchase 52,500 shares of common stock with an exercise price of $ 2.50

exercisable until the five-year anniversary of October 9, 2023, (ii) a warrant to purchase 43,750 shares of common stock with an exercise

price of $ 1.80 exercisable until the five-year anniversary of October 9, 2023, which warrant shall be cancelled and extinguished against

payment of the October 2023 Convertible Note, and (iii) 35,000 shares of common stock as a commitment fee for the purchase of the October

2023 Convertible Note, which were earned in full as of October 9, 2023.

On October 9, 2023, the Company delivered such duly executed October

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

The Company is obligated

to make amortization payments in cash to Mast Hill towards the repayment of the October 2023 Convertible Note, as provided in the following

Payment Date:

Payment Amount:

April 9, 2024 $35,000 plus accrued interest through April 9, 2024

May 9, 2024 $35,000 plus accrued interest through May 9, 2024

June 9, 2024 $46,667 plus accrued interest through June 9, 2024

July 9, 2024 $58,333 plus accrued interest through July 9, 2024

August 9, 2024 $58,333 plus accrued interest through August 9, 2024

September 9, 2024 $70,000 plus accrued interest through September 9, 2024

October 9, 2024 The entire remaining outstanding balance of the October 2023 Convertible Note

Firstfire acquired

the October 2023 Convertible Note with principal amount of $ 350,000 and paid the purchase price of $ 332,500 after an original issue discount

of $ 17,500 .

On October 9, 2023, the Company issued (i) a warrant to purchase 52,500 shares of common stock with an exercise price of $ 2.50

exercisable until the five-year anniversary of October 9, 2023, (ii) a warrant to purchase 43,750 shares of common stock with an exercise

price of $ 1.80 exercisable until the five-year anniversary of October 9, 2023, which warrant shall be cancelled and extinguished against

payment of the October 2023 Convertible Note, and (iii) 35,000 shares of common stock as a commitment fee for the purchase of the October

2023 Convertible Note, which were earned in full as of October 9, 2023.

On October 9, 2023, the Company delivered such duly executed October

2023 Convertible Note, warrants and common stock to Firstfire against delivery of such purchase price.

On October 9, 2023, the Company entered into securities

purchase agreements with Mast Hill and Firstfire for the issuance of 13.0 % senior secured promissory notes in the aggregate principal

amount of $ 700,000 (collectively, the “October 2023 Convertible Note”) convertible into shares of the Company’s

common stock, as well as the issuance of 70,000 shares of common stock as a commitment fee and warrants for the purchase of 192,500 shares

of common stock of the Company.

The Company and its subsidiaries also entered into that certain security agreements, creating a security

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

of the Company’s obligations under the October 2023 Convertible Note.

Principal amount and interest under the October 2023 Convertible

Note were convertible into shares of common stock of the Company at a conversion price of $ 1.50 per share unless the Company failed to

make an amortization payment when due, in which case the conversion price would be the lower of $ 1.50 or the market price (as defined

in the October 2023 Convertible Note) of the shares.

Mast Hill acquired the October 2023 Convertible

Note with principal amount of $ 350,000 and paid the purchase price of $ 332,500 after an original issue discount of $ 17,500 .

On October 9, 2023, the Company issued (i) a warrant to purchase 52,500 shares of common stock with an exercise price of $ 2.50 exercisable

until the five-year anniversary of October 9, 2023 (“First Warrant”), (ii) a warrant to purchase 43,750 shares of

common stock with an exercise price of $ 1.80 exercisable until the five-year anniversary of October 9, 2023 (“Second Warrant”).

The Second Warrant was never fair valued and was cancelled and extinguished against payment of the October 2023 Convertible Note, and

(iii) 35,000 shares of common stock as a commitment fee for the purchase of the October 2023 Convertible Note, which were earned

in full as of October 9, 2023.

On October 9, 2023, the Company delivered such duly executed October 2023 Convertible Note, warrants and

common stock to Mast Hill against delivery of such purchase price.

The Company was obligated to make amortization

payments in cash to Mast Hill toward the repayment of the October 2023 Convertible Note, as described in the October 2023 Convertible

As of June 30, 2024, the October 2023 Convertible Note was repaid in full.

Firstfire acquired the October 2023 Convertible

Note with principal amount of $ 350,000 and paid the purchase price of $ 332,500 after an original issue discount of $ 17,500 .

On October 9, 2023, the Company issued (i) a warrant to purchase 52,500 shares of common stock with an exercise price of $ 2.50 exercisable

until the five-year anniversary of October 9, 2023, (ii) a warrant to purchase 43,750 shares of common stock with an exercise

price of $ 1.80 exercisable until the five-year anniversary of October 9, 2023, which warrant was cancelled and extinguished against

payment of the October 2023 Convertible Note, and (iii) 35,000 shares of common stock as a commitment fee for the purchase of

the October 2023 Convertible Note, which were earned in full as of October 9, 2023.

On October 9, 2023, the Company delivered such duly

executed October 2023 Convertible Note, warrants and common stock to Firstfire against delivery of such purchase price.

Company was obligated to make amortization payments in cash to Firstfire toward the repayment of the October 2023 Convertible Note, as

described in the October 2023 Convertible Note.

As of June 30, 2024, the October 2023 Convertible Note was repaid in full.

In connection with the issuance of the October

2023 Convertible Note, the Company incurred debt issuance costs of $ 95,349 (including the issuance of 8,400 warrants as

a finder’s fee), which was capitalized and had been amortized into interest expense over the term of the October 2023 Convertible

AVALON GLOBOCARE CORP.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6 – CONVERTIBLE NOTE PAYABLE

NOTE 6 – CONVERTIBLE

NOTE PAYABLE (continued)

Convertible Note (continued)

The Company is obligated

to make amortization payments in cash to Firstfire towards the repayment of the October 2023 Convertible Note, as provided in the following

Payment Date:

Payment Amount:

April 9, 2024 $35,000 plus accrued interest through April 9, 2024

May 9, 2024 $35,000 plus accrued interest through May 9, 2024

June 9, 2024 $46,667 plus accrued interest through June 9, 2024

July 9, 2024 $58,333 plus accrued interest through July 9, 2024

August 9, 2024 $58,333 plus accrued interest through August 9, 2024

September 9, 2024 $70,000 plus accrued interest through September 9, 2024

October 9, 2024 The entire remaining outstanding balance of the October 2023 Convertible Note

In connection with the issuance of the October

2023 Convertible Note, the Company incurred debt issuance costs of $ 95,349 (including the issuance of 8,400 warrants as

a finder’s fee), which is capitalized and will be amortized into interest expense over the term of the October 2023 Convertible

Based upon the Company’s analysis of the

criteria contained in ASC 815, the Company determined that all the warrants issued to Mast Hill and Firstfire and a third party as a finder’s

fee meet the definition of a derivative liability, as the Company cannot avoid a net cash settlement under certain circumstances.

determined the probability of failing to make an amortization payment when due to be remote and as such the fair value of the 87,500 warrants

with an exercise price of $ 1.80 exercisable until the five-year anniversary of October 9, 2023, which warrant shall be cancelled

and extinguished against payment of the October 2023 Convertible Note, has been estimated to be zero.

Accordingly, the fair value of the 113,400 warrants

with an exercise price of $ 2.50 exercisable until the five-year anniversary of October 9, 2023 was classified as a derivative liability

on October 9, 2023.

The fair values of the 113,400 warrants with an exercise price of $ 2.50 exercisable until the five-year

anniversary of October 9, 2023 issued on October 9, 2023 were computed using the Black-Scholes option-pricing model with the following

stock price of $ 0.77 , volatility of 89.70 %, risk-free rate of 4.75 %, annual dividend yield of 0 % and expected

life of 5 years.

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

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

cash settlement under certain circumstances.

Through life of the October 2023 Convertible Note, management determined the probability

of failing to make an amortization payment when due was remote and as such the estimated fair value of the 87,500 warrants with

an exercise price of $ 1.80 , which warrant was cancelled and extinguished against payment of the October 2023 Convertible Note, was zero.

Accordingly, the fair value of the 113,400 warrants with an exercise price of $ 2.50 exercisable until the five-year anniversary

of October 9, 2023 was classified as a derivative liability on October 9, 2023.

The fair values of the 113,400 warrants with

an exercise price of $ 2.50 exercisable until the five-year anniversary of October 9, 2023 issued on October 9, 2023 were computed

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

stock price of $ 0.77 , volatility of 89.70 %, risk-free

rate of 4.75 %, annual dividend yield of 0 % and expected life of 5 years.

In accordance with ASC 470-20-25-2, proceeds from

2 unchanged sentences

The portion of the proceeds allocated to

the warrants are accounted for as derivative liability.

The remainder of the proceeds are allocated to the debt instrument portion of

the warrants were accounted for as derivative liability.

The remainder of the proceeds were allocated to the debt instrument portion of

the transaction.

In accordance

with ASC 480-10-25-14, the Company determined that the conversion provisions contain an embedded derivative feature and the Company valued

the derivative feature separately, recording debt discount and derivative liability in accordance with the provisions of the convertible

debt (see Note 7).

However, management determined the probability of failing to make an amortization payment when due to be remote and

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

recorded a total debt discount of $ 128,748 related to the original issue discount, common shares issued and warrants issued to Mast

Hill and Firstfire, which will be amortized over the term of the October 2023 Convertible Note.

three months ended March 31, 2024, amortization of debt discount and debt issuance costs and interest expense related to the October 2023

Convertible Note amounted to $ 56,024 and $ 22,688 , respectively, which have been included in interest expense — amortization

of debt discount and debt issuance cost and interest expense — other on the accompanying condensed consolidated statements of operations

and comprehensive loss.

accordance with ASC 480-10-25-14, the Company determined that the conversion provisions contain an embedded derivative feature

and the Company valued the derivative feature separately, recording debt discount and derivative liability in accordance with the provisions

of the convertible debt (see Note 7).

However, through life of the October 2023 Convertible Note, management determined the probability

of failing to make an amortization payment when due was remote and as such the estimated fair value of the embedded conversion feature

The Company recorded a total debt discount of

$ 128,748 related to the original issue discount, common shares issued and warrants issued to Mast Hill and Firstfire, which had been

amortized over the term of the October 2023 Convertible Note.

For the three and six months ended June 30, 2024,

amortization of debt discount and debt issuance costs related to the October 2023 Convertible Note amounted to $ 116,717 and $ 172,741 ,

respectively, which have been included in interest expense — amortization of debt discount and debt issuance cost on the accompanying

condensed consolidated statements of operations and comprehensive loss.

For the three and six months ended June 30, 2024,

interest expense related to the October 2023 Convertible Note amounted to $ 14,036 and $ 36,724 , respectively, which have been included

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

March 2024 Convertible Note

On March 7, 2024, the

Company entered into securities purchase agreements with Mast Hill for the issuance of 13.0 % senior secured promissory notes in the aggregate

principal amount of $ 700,000 (collectively, the “March 2024 Convertible Note”) convertible into shares of the Company’s

common stock, as well as the issuance of 105,000 shares of common stock as a commitment fee and warrants for the purchase of 252,404 shares

of common stock of the Company.

The Company and its subsidiaries 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 March 2024 Convertible Note.

Principal amount and interest under the March 2024 Convertible Note

were convertible into shares of common stock of the Company at a conversion price of $ 1.00 per share unless the Company failed to make

an amortization payment when due, in which case the conversion price would be the lower of $ 1.00 or the market price (as defined in the

March 2024 Convertible Note) of the shares.

Mast Hill acquired the

March 2024 Convertible Note with principal amount of $ 700,000 and paid the purchase price of $ 665,000 after an original issue discount

of $ 35,000 .

On March 7, 2024, the Company issued (i) a warrant to purchase 131,250 shares of common stock with an exercise price of $ 2.00

exercisable until the five-year anniversary of March 7, 2024 (“First Warrant”), (ii) a warrant to purchase 121,154 shares

of common stock with an exercise price of $ 1.30 exercisable until the five-year anniversary of March 7, 2024 (“Second Warrant”).

The Second Warrant was never fair valued and was cancelled and extinguished against payment of the March 2024 Convertible Note, and (iii)

105,000 shares of common stock as a commitment fee for the purchase of the March 2024 Convertible Note, which were earned in full as of

March 7, 2024.

On March 7, 2024, the Company delivered such duly executed March 2024 Convertible Note, warrants and common stock to Mast

Hill against delivery of such purchase price.

AVALON GLOBOCARE CORP.

3 unchanged sentences

NOTE PAYABLE (continued)

March 2024 Convertible Note

On March 7, 2024, the

Company entered into securities purchase agreements with Mast Hill Fund, L.P.

for the issuance of 13.0 % senior secured promissory notes

in the aggregate principal amount of $ 700,000 (collectively, the “March 2024 Convertible Note”) convertible into shares of

common stock, par value $ 0.0001 per share, of the Company, as well as the issuance of 105,000 shares of common stock as a commitment fee

and warrants for the purchase of 252,404 shares of common stock of the Company.

The Company and its subsidiaries have also entered into

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

performance and discharge in full of all of the Company’s obligations under the March 2024 Convertible Note.

Principal amount and

interest under the March 2024 Convertible Note are convertible into shares of common stock of the Company at a conversion price of $ 1.00

per share unless the Company fails to make an amortization payment when due, in which case the conversion price shall be the lower of

$ 1.00 or the market price (as defined in the March 2024 Convertible Note) of the shares.

March 2024 Convertible Note (continued)

The Company was obligated to make amortization

payments in cash to Mast Hill toward the repayment of the March 2024 Convertible Note, as described in the March 2024 Convertible Note.

As of June 30, 2024, the March 2024 Convertible Note was repaid in full.

In connection with the issuance of the March 2024

Convertible Note, the Company incurred debt issuance costs of $ 99,379 (including the issuance of 10,500 warrants as a finder’s

fee) which was capitalized and had been amortized into interest expense over the term of the March 2024 Convertible Note.

Based upon the Company’s analysis of the

criteria contained in ASC 815, the Company determined that all the warrants issued to Mast Hill and a third party as a finder’s

fee meet the definition of a derivative liability, as the Company cannot avoid a net cash settlement under certain circumstances.

life of the March 2024 Convertible Note, management determined the probability of failing to make an amortization payment when due was

remote and as such the estimated fair value of the 121,154 warrants with an exercise price of $ 1.30 , which warrant was cancelled

and extinguished against payment of the March 2024 Convertible Note, was zero.

Accordingly, the fair value of the 141,750 warrants

with an exercise price of $ 2.00 exercisable until the five-year anniversary of March 7, 2024 was classified as derivative liability

on March 7, 2024.

The fair values of the 141,750 warrants with an exercise price of $ 2.00 exercisable until the five-year

anniversary of March 7, 2024 issued on March 7, 2024 were computed using the Black-Scholes option-pricing model with the following assumptions:

stock price of $ 0.40 , volatility of 85.24 %, risk-free rate of 4.07 %, annual dividend yield of 0 % and expected life of 5 years.

In accordance with ASC 470-20-25-2, proceeds from

the sale of a debt instrument with stock purchase warrants are allocated to the two elements based on the relative fair values of the

debt instrument without the warrants and of the warrants themselves at time of issuance.

The portion of the proceeds allocated to the

warrants were accounted for as derivative liability.

The remainder of the proceeds were allocated to the debt instrument portion of the

accordance with ASC 480-10-25-14, the Company determined that the conversion provisions contain an embedded derivative feature

and the Company valued the derivative feature separately, recording debt discount and derivative liability in accordance with the provisions

of the convertible debt (see Note 7).

However, through life of the March 2024 Convertible Note, management determined the probability

of failing to make an amortization payment when due was remote and as such the estimated fair value of the embedded conversion feature

The Company recorded a total debt discount of

$ 97,374 related to the original issue discount, common shares issued and warrants issued to Mast Hill, which had been amortized over

the term of the March 2024 Convertible Note.

For the three and six months ended June 30, 2024,

amortization of debt discount and debt issuance costs related to the March 2024 Convertible Note amounted to $ 182,440 and $ 196,753 ,

respectively, which have been included in interest expense — amortization of debt discount and debt issuance cost on the accompanying

condensed consolidated statements of operations and comprehensive loss.

For the three and six months ended June 30, 2024,

interest expense related to the March 2024 Convertible Note amounted to $ 15,855 and $ 22,088 , respectively, which have been included in

interest expense — other on the accompanying condensed consolidated statements of operations and comprehensive loss.

June 2024 Convertible Note

On June 5, 2024, the

Company entered into securities purchase agreements with Mast Hill for the issuance of 13.0 % senior secured promissory notes in the aggregate

principal amount of $ 2,845,000 (collectively, the “June 2024 Convertible Note”) convertible into shares of the Company’s

common stock, as well as the issuance of 402,000 shares of common stock as a commitment fee and warrants for the purchase of 2,200,000

shares of common stock of the Company.

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

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

of the Company’s obligations under the June 2024 Convertible Note.

Principal amount and interest under the June 2024 Convertible

Note are convertible into shares of common stock of the Company at a conversion price of $ 0.75 per share unless the Company fails to make

an amortization payment when due, in which case the conversion price shall be the lesser of $ 0.75 or the market price (as defined in the

June 2024 Convertible Note).

AVALON GLOBOCARE CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6 – CONVERTIBLE

NOTE PAYABLE (continued)

June 2024 Convertible Note (continued)

Mast Hill acquired the

March 2024 Convertible Note with principal amount of $ 700,000 and paid the purchase price of $ 665,000 after an original issue discount

June 2024 Convertible Note with principal amount of $ 2,845,000 and paid the purchase price of $ 2,702,750 after an original issue discount

of $ 142,250 .

On March 7, 2024, the Company issued (i) a warrant to purchase 131,250 shares of common stock with an exercise price of $ 2.00

exercisable until the five-year anniversary of March 7, 2024, (ii) a warrant to purchase 121,154 shares of common stock with an exercise

price of $ 1.30 exercisable until the five-year anniversary of March 7, 2024, which warrant shall be cancelled and extinguished against

payment of the March 2024 Convertible Note, and (iii) 105,000 shares of common stock as a commitment fee for the purchase of the March

2024 Convertible Note, which were earned in full as of March 7, 2024.

On March 7, 2024, the Company delivered such duly executed March

2024 Convertible Note, warrants and common stock to Mast Hill against delivery of such purchase price.

On June 5, 2024, the Company issued (i) a warrant to purchase 1,000,000 shares of common stock with an exercise price of

$ 0.65 exercisable until the five-year anniversary of June 5, 2024 (“First Warrant”), (ii) a warrant to purchase 1,200,000

shares of common stock with an exercise price of $ 0.50 exercisable until the five-year anniversary of June 5, 2024 (“Second Warrant”).

The Second Warrant will not be fair valued and shall be cancelled and extinguished against payment of the June 2024 Convertible Note,

and (iii) 402,000 shares of common stock as a commitment fee for the purchase of the June 2024 Convertible Note, which were earned in

full as of June 5, 2024.

On June 5, 2024, the Company delivered such duly executed June 2024 Convertible Note, warrants and common stock

to Mast Hill against delivery of such purchase price.

The Company received

net cash amount of $ 881,210 from the June 2024 Convertible Note financing after using the proceeds to pay off all previously issued convertible

notes to Mast Hill of $ 1,206,867 and FirstFire of $ 454,673 , respectively, and to pay finder’s fee of $ 120,000 and lender’s

costs of $ 40,000 related to this financing.

The Company is obligated

to make amortization payments in cash to Mast Hill towards the repayment of the March 2024 Convertible Note, as provided in the following

to make amortization payments in cash to Mast Hill toward the repayment of the June 2024 Convertible Note, as provided in the following

Payment Date:

Payment Amount:

September 7, 2024 $70,000 plus accrued interest through September 7, 2024

October 7, 2024 $70,000 plus accrued interest through October 7, 2024

November 7, 2024 $93,334 plus accrued interest through November 7, 2024

December 5, 2024 $284,500 plus accrued interest through December 5, 2024

1 unchanged sentence

February 5, 2025 $379,336 plus accrued interest through February 5, 2025

March 7, 2025 The entire remaining outstanding balance of the March 2024 Convertible Note

March 5, 2025 $474,167 plus accrued interest through March 5, 2025

April 5, 2025 $474,167 plus accrued interest through April 5, 2025

May 5, 2025 $569,000 plus accrued interest through May 5, 2025

June 5, 2025 The entire remaining outstanding balance of the June 2024 Convertible Note

In connection

with the issuance of the March 2024 Convertible Note, the Company incurred debt issuance costs of $ 74,379 (including the issuance of 10,500

warrants as a finder’s fee) which is capitalized and will be amortized into interest expense over the term of the March 2024 Convertible

with the issuance of the June 2024 Convertible Note, the Company incurred debt issuance costs of $ 224,221 (including the issuance of 80,000

warrants as a finder’s fee) which is capitalized and will be amortized into interest expense over the term of the June 2024 Convertible

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

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

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

under certain circumstances.

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

as such the fair value of the 121,154 warrants with an exercise price of $ 1.30 exercisable until the five-year anniversary of March 7,

2024, which warrant shall be cancelled and extinguished against payment of the March 2024 Convertible Note, has been estimated to be zero.

Accordingly, the fair value of the 141,750 warrants with an exercise price of $ 2.00 exercisable until the five-year anniversary of March

7, 2024 was classified as derivative liability on March 7, 2024.

as such the fair value of the 1,200,000 warrants with an exercise price of $ 0.50 exercisable until the five-year anniversary of June 5,

2024, which warrant shall be cancelled and extinguished against payment of the June 2024 Convertible Note, has been estimated to be zero.

Accordingly, the fair value of the 1,080,000 warrants with an exercise price of $ 0.65 exercisable until the five-year anniversary of June

5, 2024 was classified as derivative liability on June 5, 2024.

The fair values of the 1,080,000 warrants with an exercise price of $ 0.65

exercisable until the five-year anniversary of March 7, 2024 issued on March 7, 2024 were computed using the Black-Scholes option-pricing

exercisable until the five-year anniversary of June 5, 2024 issued on June 5, 2024 were computed using the Black-Scholes option-pricing

model with the following assumptions:

7 unchanged sentences

debt instrument portion of the transaction.

AVALON GLOBOCARE CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6 – CONVERTIBLE

NOTE PAYABLE (continued)

March 2024 Convertible

Note (continued)

In accordance

4 unchanged sentences

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

recorded a total debt discount of $ 97,374 related to the original issue discount, common shares issued and warrants issued to Mast Hill,

which will be amortized over the term of the March 2024 Convertible Note.

three months ended March 31, 2024, amortization of debt discount and debt issuance costs and interest expense related to the March 2024

Convertible Note amounted to $ 14,313 and $ 6,233 , respectively, which have been included in interest expense — amortization of debt

discount and debt issuance cost and interest expense — other on the accompanying condensed consolidated statements of operations

and comprehensive loss.

2023 Convertible Notes

and March 2024 Convertible Notes – Events of Default

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 Mast Hill and Firstfire (collectively,

the “Convertible Notes Lenders”) 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

During the 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

Convertible Notes Lenders 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 Convertible Notes Lenders, waiving this event of default on May 29, 2024.

Although this

waiver was not within the Cure Period, the Convertible Notes Lenders provided a full waiver to the event of default prior to the issuance

of this report.

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.

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 Convertible Notes Lenders on the original

due date of this report (which was reaffirmed by the waiver dated May 29, 2024) .

As a result, 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 cured either 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 the March 2024 Convertible Note were ever triggered.

In addition, the Company is in the

process of refinancing the 2023 Convertible Notes and the March 2024 Convertible Note into one new note, which will also remove the $ 5

million market capitalization covenant so that it is not an event of default in the future.

In accordance

with ASC 470-20, the Company determined that the conversion feature is beneficial and the Company valued the beneficial conversion feature

(“BCF”) separately, recording debt discount and additional paid-in capital.

AVALON GLOBOCARE CORP.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6 – CONVERTIBLE

NOTE PAYABLE (continued)

June 2024 Convertible Note (continued)

recorded a total debt discount of $ 1,040,585 related to the original issue discount, BCF, common shares issued and warrants issued to

Mast Hill, which will be amortized over the term of the June 2024 Convertible Note.

three and six months ended June 30, 2024, amortization of debt discount and debt issuance costs related to the June 2024 Convertible Note

amounted to $ 105,401 , which have been included in interest expense — amortization of debt discount and debt issuance cost on the

accompanying condensed consolidated statements of operations and comprehensive loss.

three and six months ended June 30, 2024, interest expense related to the June 2024 Convertible Note amounted to $ 26,345 , which have been

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

7 – DERIVATIVE LIABILITY

in Note 6, May 2023 Convertible Note, July 2023 Convertible Note, October 2023 Convertible Note, and March 2024 Convertible Note, the

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

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

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

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

in the fair value reported in the statements of operations.

However, on May 23, 2023, July 6, 2023, October 9, 2023, March 7, 2024, and

March 31, 2024, management determined the probability of failing to make an amortization payment when due to be remote and as such the

Company determined that these convertible notes payable contained an embedded derivative feature in the form of a conversion provision

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

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

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

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

However, on May 23, 2023, July 6, 2023, October 9, 2023, March 7,

2024, and March 31, 2024, management determined the probability of failing to make an amortization payment when due was remote and as

such the estimated fair value of the embedded conversion feature was zero.

As of June 5, 2024, these convertible notes were repaid in

in Note 6, June 2024 Convertible Note, the Company determined that the convertible note payable contains an embedded derivative feature

in the form of a conversion provision which is adjustable based on future prices of the Company’s common stock.

In accordance with

ASC 815-10-25, each derivative feature is initially recorded at its fair value using the Black-Scholes option valuation method and then

re-value at each reporting date, with changes in the fair value reported in the statements of operations.

However, on June 5, 2024 and

June 30, 2024, management determined the probability of failing to make an amortization payment when due to be remote and as such the

fair value of the embedded conversion feature has been estimated to be zero.

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

Upon evaluation, the warrants

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

Management determined the probability of failing to make an amortization payment when due to be remote and as such the fair value of the

105,500 warrants with an exercise price of $ 3.20 exercisable until the five-year anniversary of May 23, 2023, which warrant shall be cancelled

and extinguished against payment of the May 2023 Convertible Note, has been estimated to be zero.

Accordingly, the fair value of the 135,000

warrants with an exercise price of $ 4.50 exercisable until the five-year anniversary of May 23, 2023 was classified as a derivative liability

on May 23, 2023.

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

Upon evaluation,

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

certain circumstances.

Through life of the May 2023 Convertible Note, management determined the probability of failing to make

an amortization payment when due was remote and as such the estimated fair value of the 105,500 warrants with an exercise price

of $ 3.20 , which warrant was cancelled and extinguished against payment of the May 2023 Convertible Note, was zero.

Accordingly, the fair

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

was classified as a derivative liability on May 23, 2023.

30, 2024, the estimated fair value of the 135,000 warrants with an exercise price of $ 4.50 exercisable until the five-year anniversary

of May 23, 2023 as derivative liability was $ 10,409 .

The estimated fair value of the warrants was computed as of March 31, 2024 using Black-Scholes

The estimated fair value of the warrants was computed as of June 30, 2024 using Black-Scholes

option-pricing model, with the following assumptions:

1 unchanged sentence

yield of 0 % and expected life of 3.9 years.

On July 6, 2023, the Company

issued 80,163 warrants to Firstfire and a third party as a finder’s fee (see Note 6).

Upon evaluation, the warrants meet the definition

of a derivative liability under FASB ASC 815, as the Company cannot avoid a net cash settlement under certain circumstances.

determined the probability of failing to make an amortization payment when due to be remote and as such the fair value of the 35,165 warrants

with an exercise price of $ 3.20 exercisable until the five-year anniversary of July 6, 2023, which warrant shall be cancelled and extinguished

against payment of the July 2023 Convertible Note, has been estimated to be zero.

Accordingly, the fair value of the 44,998 warrants with

an exercise price of $ 4.50 exercisable until the five-year anniversary of July 6, 2023 was classified as a derivative liability on July

6, 2023, the Company issued 80,163 warrants to Firstfire and a third party as a finder’s fee (see Note 6).

Upon evaluation, the

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

circumstances.

Through life of the July 2023 Convertible Note, management determined the probability of failing to make an amortization

payment when due was remote and as such the estimated fair value of the 35,165 warrants with an exercise price of $ 3.20 , which warrant

was cancelled and extinguished against payment of the July 2023 Convertible Note, was zero.

Accordingly, the fair value of the 44,998

warrants with an exercise price of $ 4.50 exercisable until the five-year anniversary of July 6, 2023 was classified as a derivative liability

on July 6, 2023.

30, 2024, the estimated fair value of the 44,998 warrants with an exercise price of $ 4.50 exercisable until the five-year anniversary

of July 6, 2023 as derivative liability was $ 3,482 .

The estimated fair value of the warrants was computed as of March 31, 2024 using Black-Scholes

The estimated fair value of the warrants was computed as of June 30, 2024 using Black-Scholes

option-pricing model, with the following assumptions:

8 unchanged sentences

Upon evaluation,

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

certain circumstances.

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

as such the fair value of the 87,500 warrants with an exercise price of $ 1.80 exercisable until the five-year anniversary

of October 9, 2023, which warrant shall be cancelled and extinguished against payment of the October 2023 Convertible Note, has been estimated

Accordingly, the fair value of the 113,400 warrants with an exercise price of $ 2.50 exercisable until the five-year

anniversary of October 9, 2023 was classified as a derivative liability on October 9, 2023.

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

circumstances.

Through life of the October 2023 Convertible Note, management determined the probability of failing to make an amortization

payment when due was remote and as such the estimated fair value of the 87,500 warrants with an exercise price of $ 1.80 , which warrant

was cancelled and extinguished against payment of the October 2023 Convertible Note, was zero.

Accordingly, the fair value of the 113,400

warrants with an exercise price of $ 2.50 exercisable until the five-year anniversary of October 9, 2023 was classified as a derivative

liability on October 9, 2023.

30, 2024, the estimated fair value of the 113,400 warrants with an exercise price of $ 2.50 exercisable until the five-year

anniversary of October 9, 2023 as derivative liability was $ 16,700 .

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

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

30, 2024 using Black-Scholes option-pricing model, with the following assumptions:

5 unchanged sentences

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

determined the probability of failing to make an amortization payment when due to be remote and as such the fair value of the 121,154 warrants

with an exercise price of $ 1.30 exercisable until the five-year anniversary of March 7, 2024, which warrant shall be cancelled and

extinguished against payment of the March 2024 Convertible Note, has been estimated to be zero.

Accordingly, the fair value of the 141,750 warrants

with an exercise price of $ 2.00 exercisable until the five-year anniversary of March 7, 2024 was classified as a derivative liability

on March 7, 2024.

life of the March 2024 Convertible Note, management determined the probability of failing to make an amortization payment when due was

remote and as such the estimated fair value of the 121,154 warrants with an exercise price of $ 1.30 , which warrant was cancelled and extinguished

against payment of the March 2024 Convertible Note, was zero.

Accordingly, the fair value of the 141,750 warrants with an exercise price

of $ 2.00 exercisable until the five-year anniversary of March 7, 2024 was classified as a derivative liability on March 7, 2024.

30, 2024, the estimated fair value of the 141,750 warrants with an exercise price of $ 2.00 exercisable until the five-year

anniversary of March 7, 2024 as derivative liability was $ 27,699 .

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

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

30, 2024 using Black-Scholes option-pricing model, with the following assumptions:

1 unchanged sentence

risk-free rate of 4.33 %, annual dividend yield of 0 % and expected life of 4.7 years.

or decreases in fair value of the derivative liability is included as a component of total other (expenses) income in the accompanying

On June 5, 2024, the Company issued 2,280,000 warrants

to Mast Hill and a third party as a finder’s fee (see Note 6).

Upon evaluation, the warrants meet the definition of a derivative

liability under ASC 815, as the Company cannot avoid a net cash settlement under certain circumstances.

Management determined the

probability of failing to make an amortization payment when due to be remote and as such the fair value of the 1,200,000 warrants

with an exercise price of $ 0.50 exercisable until the five-year anniversary of June 5, 2024, which warrant shall be cancelled and

extinguished against payment of the June 2024 Convertible Note, has been estimated to be zero.

Accordingly, the fair value of the 1,080,000 warrants

with an exercise price of $ 0.65 exercisable until the five-year anniversary of June 5, 2024 was classified as a derivative liability

on June 5, 2024.

On June 30, 2024, the estimated fair value of

the 1,080,000 warrants with an exercise price of $ 0.65 exercisable until the five-year anniversary of June 5, 2024 as derivative

liability was $ 323,130 .

The estimated fair value of the warrants was computed as of June 30, 2024 using Black-Scholes option-pricing

model, with the following assumptions:

stock price of $ 0.47 , volatility of 85.15 %, risk-free rate of 4.33 %, annual dividend

yield of 0 % and expected life of 4.9 years.

or decreases in fair value of the derivative liability are included as a component of total other (expenses) income in the accompanying

condensed consolidated statements of operations and comprehensive loss.

The changes to the derivative liability resulted in a decrease

of $ 31,212 in the derivative liability and the corresponding increase in other income as a gain for the three months ended March

of $ 180,337 and $ 41,721 in the derivative liability and the corresponding increase in other income as a gain for the three months

ended June 30, 2024 and 2023, respectively.

The changes to the derivative liability resulted in a decrease of $ 211,549 and $ 41,721

in the derivative liability and the corresponding increase in other income as a gain for the six months ended June 30, 2024 and 2023,

respectively.

NOTE 8 – NOTE PAYABLE, NET

2 unchanged sentences

of $ 4,800,000 , which carries interest of 11.0 % per annum.

Interest is due in monthly payments of $ 44,000 beginning November 1, 2022 and

payable monthly thereafter until September 1, 2025 when the principal outstanding and all remaining interest is due.

The principal of

$ 4,800,000 can be extended for an additional 36 months, provided that the Company has not defaulted.

The Company may not prepay the principal

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

The principal of $ 4,800,000 is secured by a first mortgage on the Company’s real property

located in Township of Freehold, County of Monmouth, State of New Jersey, having a street address of 4400 Route 9 South, Freehold, NJ

Interest is due in monthly payments of $ 44,000 beginning November

1, 2022 and payable monthly thereafter until September 1, 2025 when the principal outstanding and all remaining interest is due.

The principal

of $ 4,800,000 can be extended for an additional 36 months, provided that the Company has not defaulted.

The Company may not prepay

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

The principal of $ 4,800,000 is secured by a first mortgage on the Company’s

real property located in Township of Freehold, County of Monmouth, State of New Jersey, having a street address of 4400 Route 9 South,

Freehold, NJ 07728.

AVALON GLOBOCARE CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 – NOTE PAYABLE, NET

In May 2023, the Company

borrowed $ 1,000,000 from the same lender.

The principal of $ 1,000,000 accrues interest at an annual rate of 13.0 % and is payable in monthly

installments of interest-only in the amount of $ 10,833 , commencing in June 2023 and continuing through October 2025 (at which point any

unpaid balance of principal, interest and other charges are due and payable).

The loan is secured by a second-lien mortgage on certain

real property and improvements located at 4400 Route 9, Freehold, Monmouth County, New Jersey.

The principal of $ 1,000,000 accrues interest at an annual rate of 13.0 % and is

payable in monthly installments of interest-only in the amount of $ 10,833 , commencing in June 2023 and continuing through October 2025

(at which point any unpaid balance of principal, interest and other charges are due and payable).

The loan is secured by a second-lien

mortgage on certain real property and improvements located at 4400 Route 9, Freehold, Monmouth County, New Jersey.

The note payable as of

March 31, 2024 and December 31, 2023 is as follows:

June 30, 2024 and December 31, 2023 was as follows:

Principal amount

1 unchanged sentence

Note payable, net

AVALON GLOBOCARE CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 – NOTE PAYABLE, NET

For the three months ended March 31, 2024 and

For the three months ended June 30, 2024 and 2023,

amortization of debt issuance costs related to note payable amounted to $ 29,807 and $ 24,738 , respectively, which have been included

1 unchanged sentence

of operations and comprehensive loss.

For the three months ended March 31, 2024 and 2023, interest expense related to note payable amounted

to $ 164,500 and $ 132,000 , respectively, which have been included in interest expense - other on the accompanying condensed consolidated

statements of operations and comprehensive loss.

For the six months ended June 30, 2024 and 2023, amortization of debt issuance costs related to

note payable amounted to $ 59,614 and $ 46,943 , respectively, which have been included in interest expense — amortization of debt

discount and debt issuance cost on the accompanying condensed consolidated statements of operations and comprehensive loss.

For the three months ended June 30, 2024 and 2023,

interest expense related to note payable amounted to $ 164,500 and $ 145,722 , respectively, which have been included in interest expense

- other on the accompanying condensed consolidated statements of operations and comprehensive loss.

For the six months ended June 30,

2024 and 2023, interest expense related to note payable amounted to $ 329,000 and $ 277,722 , respectively, which have been included

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

NOTE 9 – RELATED PARTY TRANSACTIONS

Revenue from Related Party and Rent Receivable – Related Party

The Company leases space of its commercial real

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

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

shareholder and chairman of the Board of Directors.

The term of the related party lease agreement is five years commencing on May 1, 2021

and will expire on April 30, 2026.

both the three months ended March 31, 2024 and 2023, the related party rental revenue amounted to $ 12,600 and has been included in

rental revenue on the accompanying condensed consolidated statements of operations and comprehensive loss.

At March 31, 2024 and

December 31, 2023, the related party rent receivable totaled $ 12,100 and $ 124,500 , respectively, which has been included in rent receivable

on the accompanying condensed consolidated balance sheets, and no allowance for doubtful accounts was deemed to be required on the receivable.

Company leases space of its commercial real property located in New Jersey to D.P.

Capital Investments LLC, which is controlled

by Wenzhao Lu, the Company’s largest shareholder and chairman of the Board of Directors.

The term of the related party lease agreement

is five years commencing on May 1, 2021 and will expire on April 30, 2026.

For both the three months ended June 30, 2024

and 2023, the related party rental revenue amounted to $ 12,600 and has been included in rental revenue on the accompanying condensed

consolidated statements of operations and comprehensive loss.

For both the six months ended June 30, 2024 and 2023, the related party

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

of operations and comprehensive loss.

At June 30, 2024 and December 31, 2023, the related party rent receivable totaled $ 0 and

$ 124,500 , respectively, which has been included in rent receivable on the accompanying condensed consolidated balance sheets.

Provided by Related Party

From time to time, Wilbert

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

As compensation for professional services provided,

the Company recognized consulting expenses of $ 16,731 and $ 26,457 for the three months ended March 31, 2024 and 2023, respectively, which

have been included in professional fees on the accompanying condensed consolidated statements of operations and comprehensive loss.

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

As compensation for professional

services provided, the Company recognized consulting expenses of $ 20,535 and $ 22,185 for the three months ended June 30, 2024

and 2023, respectively, which have been included in professional fees on the accompanying condensed consolidated statements of operations

and comprehensive loss.

As compensation for professional services provided, the Company recognized consulting expenses of $ 37,266 and

$ 48,642 for the six months ended June 30, 2024 and 2023, respectively, which have been included in professional fees on the accompanying

condensed consolidated statements of operations and comprehensive loss.

As of both June 30, 2024 and December 31, 2023, the accrued

and unpaid services charge related to this director’s son amounted to $ 15,000 , which have been included in accrued professional

fees on the accompanying condensed consolidated balance sheets.

AVALON GLOBOCARE CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9 – RELATED PARTY TRANSACTIONS (continued)

Accrued Liabilities and Other Payables –

Related Parties

In 2017, the Company

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

As of March 31, 2024 and December 31, 2023, the unpaid acquisition consideration

of $ 100,000 , was payable to Dr.

Yu Zhou, former director and former co-chief executive officer and 40 % owner of Genexosome, and has been

included in accrued liabilities and other payables — related parties on the accompanying condensed consolidated balance sheets.

From time to time, Lab

Services MSO paid shared expense on behalf of the Company.

In addition, Lab Services MSO made a payment of $ 666,667 for equity method

investment payable on behalf of the Company in the first quarter of 2024.

As of March 31, 2024 and December 31, 2023, the balance due

to Lab Services MSO amounted to $ 666,666 and $ 72,746 , respectively, which has been included in accrued liabilities and other payables

— related parties on the accompanying condensed consolidated balance sheets.

As of March 31, 2024

and December 31, 2023, $ 44,308 and $ 33,712 of accrued and unpaid interest related to borrowings from Wenzhao Lu, the Company’s largest

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

related parties on the accompanying condensed consolidated balance sheets.

In 2017, the Company acquired Beijing Genexosome

for a cash payment of $ 450,000 .

As of June 30, 2024 and December 31, 2023, the unpaid acquisition consideration of $ 100,000 , was payable

Yu Zhou, former director and former co-chief executive officer and 40 % owner of Genexosome, and has been included in accrued

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

From time to time, Lab Services MSO paid shared

expense on behalf of the Company.

In addition, Lab Services MSO made a payment of $ 666,667 for equity method investment payable on

behalf of the Company in the first quarter of 2024.

As of June 30, 2024 and December 31, 2023, the balance due to Lab Services MSO amounted

to $ 566,666 and $ 72,746 , respectively, which has been included in accrued liabilities and other payables — related parties

on the accompanying condensed consolidated balance sheets.

As of June 30, 2024 and December 31, 2023, $ 54,904 and

$ 33,712 of accrued and unpaid interest related to borrowings from Wenzhao Lu, the Company’s largest shareholder and chairman

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

condensed consolidated balance sheets.

Borrowing from Related Party

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

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

and Chairman of the Board of Directors of the Company.

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

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

The loans are

unsecured and are not convertible into equity of the Company.

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

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

The Company has a right to draw down on the line of credit

and not at the discretion of the related party Lender.

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

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

The Line of Credit Agreement includes customary events

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

On August 29, 2019, the Company entered into a

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

“Line of Credit”) from Mr.

Lu, the Company’s largest shareholder and Chairman of the Board of Directors of the Company.

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

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

The loans are unsecured and are not convertible into equity of

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

years from the date of issuance.

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

Lu, the related

party lender.

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

maturity, without premium or penalty.

The Line of Credit Agreement includes customary events of default.

If any such event of default

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

was no Line of Credit activity during the six months ended June 30, 2024.

As of both June 30, 2024 and December 31, 2023,

the outstanding principal balance was $ 850,000 .

For the three months ended June 30, 2024 and 2023,

the interest expense related to related party borrowing amounted to $ 10,596 and $ 10,267 , respectively, and has been reflected as

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

For the six months ended June 30, 2024 and 2023,

the interest expense related to related party borrowing amounted to $ 21,192 and $ 12,288 , respectively, and has been reflected as interest

expense — related party on the accompanying condensed consolidated statements of operations and comprehensive loss.

As of June 30, 2024 and December 31, 2023, the

related accrued and unpaid interest for Line of Credit was $ 54,904 and $ 33,712 , respectively, and has been included in accrued liabilities

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

of June 30, 2024, the Company has used approximately $ 6.8 million of the credit facility, and has approximately $ 13.2 million

remaining available under the Line of Credit.

AVALON GLOBOCARE CORP.

2 unchanged sentences

NOTE 9 – RELATED PARTY TRANSACTIONS (continued)

Borrowing from Related Party (continued)

was no Line of Credit activity during the three months ended March 31, 2024.

As of both March

31, 2024 and December 31, 2023, the outstanding principal balance was $ 850,000 .

three months ended March 31, 2024 and 2023, the interest expense related to related party borrowing amounted to $ 10,596 and $ 2,021 , respectively,

and has been reflected as interest expense — related party on the accompanying condensed consolidated statements of operations and

comprehensive loss.

31, 2024 and December 31, 2023, the related accrued and unpaid interest for Line of Credit was $ 44,308 and $ 33,712 , respectively, and

has been included in accrued liabilities and other payables — related parties on the accompanying condensed consolidated balance

31, 2024, the Company has used approximately $ 6.8 million of the credit facility, and has approximately $ 13.2 million remaining available

under the Line of Credit.

Membership Interest

Purchase Agreement

On November 17, 2023,

the Company entered into a Membership Interest Purchase Agreement (the “Purchase Agreement”) with Wenzhao Lu (the “Purchaser”),

the largest shareholder and Chairman of the Board of Directors of the Company, pursuant to which (i) the Purchaser will acquire from the

Company 30 % of the total outstanding membership interests of Avalon RT 9, a wholly owned subsidiary of the Company for a cash purchase

price of $ 3,000,000 (the “Acquisition”), and (ii) for a period of twelve months following the closing of the Acquisition,

the Purchaser shall have the option to purchase from the Company up to an additional 70 % of the outstanding membership interests of Avalon

RT 9 for a purchase price of up to $ 7,000,000 (the “Option”), subject to the terms and conditions of a membership interest

purchase agreement to be negotiated and entered into between the Purchaser and the Company at such time that the Purchaser desires to

exercise the Option The Company received $ 1,696,186 and $ 485,714 from Wenzhao Lu as of March 31, 2024 and December 31, 2023, respectively,

which was recorded as advance from sale of noncontrolling interest – related party on the accompanying condensed consolidated balance

As of the date of this report, the Acquisition has not been consummated and the performance of the Company’s obligations

under the Purchase Agreement is subject to the Company obtaining written consent from Mast Hill and Firstfire under the 2023 Convertible

Notes, so the consummation of the Acquisition would not constitute an event of default under such notes.

In addition, the Company received

a waiver from Mast Hill and First Fire on May 29, 2024 stating that the consummation of this transaction in the future will not be considered

an event of default under the provisions of the Convertible Notes.

17, 2023, the Company entered into a Membership Interest Purchase Agreement (the “Purchase Agreement”) with Mr.

Lu, the Company’s

largest shareholder and Chairman of the Board of Directors of the Company, pursuant to which (i) Mr.

Lu will acquire from the Company 30 %

of the total outstanding membership interests of Avalon RT 9, a wholly owned subsidiary of the Company, for a cash purchase price of $ 3,000,000 (the

“Acquisition”), and (ii) for a period of twelve months following the closing of the Acquisition, Mr.

Lu shall have the option

to purchase from the Company up to an additional 70 % of the outstanding membership interests of Avalon RT 9 for a purchase price

of up to $ 7,000,000 (the “Option”), subject to the terms and conditions of a membership interest purchase agreement to

be negotiated and entered into between the Purchaser and the Company at such time that the Purchaser desires to exercise the Option.

Company received $ 2,486,241 and $ 485,714 from Wenzhao Lu as of June 30, 2024 and December 31, 2023, respectively, which was

recorded as advance from pending sale of noncontrolling interest – related party on the accompanying condensed consolidated balance

NOTE 10 – EQUITY

1 unchanged sentence

as Convertible Note Payable Commitment Fee

During the three months

ended March 31, 2024, the Company issued a total of 105,000 shares of its common stock as commitment fee for the purchase of

March 2024 Convertible Note.

These shares were valued at $ 42,000 , the fair market value on the grant date using the reported closing share

price on the date of grant, and the Company recorded it as debt discount.

The following table summarizes the shares of the

Company’s common stock issuable upon exercise of options outstanding at March 31, 2024:

During the six months ended June 30, 2024, the

Company issued a total of 507,000 shares of its common stock as commitment fee for the purchase of March 2024 Convertible

Note and June 2024 Convertible Note.

These shares were valued at $ 320,546 , the fair market value on the grant dates using the reported

closing share prices on the dates of grant, and the Company recorded it as debt discount.

The following table summarizes

the shares of the Company’s common stock issuable upon exercise of options outstanding at June 30, 2024:

Options Outstanding Options Exercisable

12 unchanged sentences

$ 0.27 – 19.30 711,303 3.14 $ 6.63 633,283 $ 7.31

Stock option activity

for the six months ended June 30, 2024 was as follows:

Average Exercise Price

Outstanding at January 1, 2024

Outstanding at June 30, 2024

Options exercisable at June 30, 2024

Options expected to vest

The aggregate intrinsic value of stock options

outstanding and stock options exercisable at June 30, 2024 was $ 3,626 an $ 7 , respectively.

The fair values of options granted during the

six months ended June 30, 2024 were estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions:

volatility of 83.10 % - 91.17 %, risk-free rate of 3.93 % - 4.79 %, annual dividend yield of 0 %, and expected life of 3.00

- 5.00 years.

The aggregate fair value of the options granted during the six months ended June 30, 2024 was $ 15,483 .

AVALON GLOBOCARE CORP.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 – EQUITY

NOTE 10 – EQUITY (continued)

Options (continued)

Stock option activity

for the three months ended March 31, 2024 was as follows:

Exercise Price

Outstanding at January 1, 2024

Outstanding at March 31, 2024

Options exercisable at March 31, 2024

Options expected to vest

The aggregate

intrinsic value of both stock options outstanding and stock options exercisable at March 31, 2024 was $ 0 .

values of options granted during the three months ended March 31, 2024 were estimated at the date of grant using the Black-Scholes option-pricing

fair values of options granted during the six months ended June 30, 2023 were estimated at the date of grant using the Black-Scholes option-pricing

model with the following assumptions:

volatility of 91.17 %, risk-free rate of 3.93 %, annual dividend yield of 0 %, and expected life of

The aggregate fair value of the options granted during the three months ended March 31, 2024 was $ 12,137 .

The fair values of options granted during the

three months ended March 31, 2023 were estimated at the date of grant using the Black-Scholes option-pricing model with the following

volatility of 143.99 % - 145.73 %, risk-free rate of 3.58 % - 3.94 %, annual dividend yield of 0 %, and

expected life of 5.00 years.

The aggregate fair value of the options granted during the three months ended March 31, 2023 was

For the three months

ended March 31, 2024 and 2023, stock-based compensation expense associated with stock options granted amounted to $ 13,533 and $ 68,262 ,

of which, $ 5,103 and $ 51,336 was recorded as compensation and related benefits, $ 8,430 and $ 11,457 was recorded as

professional fees, and $ 0 and $ 5,469 was recorded as research and development expenses, respectively.

volatility of 79.76 % - 96.37 %, risk-free rate of 3.58 % - 3.96 %, annual dividend

yield of 0 %, and expected life of 3.00 - 5.00 years.

The aggregate fair value of the options granted during the

six months ended June 30, 2023 was $313 ,144.

For the three months ended June 30, 2024 and 2023,

stock-based compensation expense associated with stock options granted amounted to $ 12,256 and $ 112,015 , of which $ 4,488 and

$ 38,191 was recorded as compensation and related benefits, $ 7,768 and $ 73,824 was recorded as professional fees, and $ 0 and

$ 0 was recorded as research and development expenses, respectively.

For the six months ended June 30, 2024 and 2023,

stock-based compensation expense associated with stock options granted amounted to $ 25,789 and $ 180,277 , of which, $ 9,591 and

$ 89,527 was recorded as compensation and related benefits, $ 16,198 and $ 85,281 was recorded as professional fees, and $ 0 and

$ 5,469 was recorded as research and development expenses, respectively.

A summary of the status of the Company’s

nonvested stock options granted as of March 31, 2024 and changes during the three months ended March 31, 2024 is presented below:

Exercise Price

nonvested stock options granted as of June 30, 2024 and changes during the six months ended June 30, 2024 is presented below:

Nonvested at January 1, 2024

Nonvested at March 31, 2024

Nonvested at June 30, 2024

The following table summarizes the shares of the

Company’s common stock issuable upon exercise of warrants outstanding at March 31, 2024:

Company’s common stock issuable upon exercise of warrants outstanding at June 30, 2024:

Warrants Outstanding Warrants Exercisable

18 unchanged sentences

Stock warrant activity

for the three months ended March 31, 2024 was as follows:

for the six months ended June 30, 2024 was as follows:

Exercise Price

Outstanding at January 1, 2024

Outstanding at March 31, 2024

Warrants exercisable at March 31, 2024

Cancelled (*)

Outstanding at June 30, 2024

Warrants exercisable at June 30, 2024

Warrants expected to vest

* Second Warrant, which was issued on May 23, 2023, July 6, 2023,

October 9, 2023, and March 7, 2024, was cancelled in June 2024.

First Warrant, which was issued on May 23, 2023, July 6, 2023, October

9, 2023, and March 7, 2024, is still outstanding as of June 30, 2024.

First Warrant and Second Warrant, which are issued on June 5, 2024,

are still outstanding as of June 30, 2024.

The aggregate intrinsic

value of both stock warrants outstanding and stock warrants exercisable at March 31, 2024 was $ 0 .

value of both stock warrants outstanding and stock warrants exercisable at June 30, 2024 was $ 0 .

Warrants Issued in

In connection with the

issuance of March 2024 Convertible Note (See Note 6), the Company issued (i) a warrant to purchase 131,250 shares of common stock with

an exercise price of $2.00 exercisable until the five-year anniversary of March 7, 2024, (ii) a warrant to purchase 121,154 shares of

common stock with an exercise price of $1.30 exercisable until the five-year anniversary of March 7, 2024, which warrant shall be cancelled

and extinguished against payment of the March 2024 Convertible Note, to Mast Hill;

issuance of March 2024 Convertible Note (See Note 6), the Company issued (i) a warrant to purchase 131,250 shares of common stock

with an exercise price of $2.00 exercisable until the five-year anniversary of March 7, 2024, (ii) a warrant to purchase 121,154 shares

of common stock with an exercise price of $1.30, which warrant was cancelled and extinguished against payment of the March 2024 Convertible

Note, to Mast Hill;

and issued a warrant to purchase 10,500 shares of common stock with an exercise price of $2.00 exercisable until the

five-year anniversary of March 7, 2024 to a third party as a finder’s fee.

Based upon the Company’s

analysis of the criteria contained in ASC 815, the Company determined that all the warrants issued to Mast Hill and a third party as a

finder’s fee meet the definition of a derivative liability, as the Company cannot avoid a net cash settlement under certain circumstances.

The 121,154 warrants with an exercise price of $ 1.30 were cancelled and extinguished against payment of the March 2024

Convertible Note.

The fair value of the 141,750 warrants with an exercise price of $ 2.00 exercisable until the five-year

anniversary of March 7, 2024 was classified as a derivative liability on March 7, 2024.

The fair values of the 141,750 warrants

with an exercise price of $ 2.00 exercisable until the five-year anniversary of March 7, 2024 issued on March 7, 2024 were computed

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

stock price of $ 0.40 , volatility of 85.24 %, risk-free

rate of 4.07 %, annual dividend yield of 0 % and expected life of 5 years.

The warrants with an

exercise price of $ 2.00 exercisable until the five-year anniversary of March 7, 2024 issued to Mast Hill to purchase 131,250 shares

of the Company’s common stock were treated as a discount on the convertible note payable and were valued at $ 20,374 and were

amortized over the term of the March 2024 Convertible Note.

The warrants with an

exercise price of $ 2.00 exercisable until the five-year anniversary of March 7, 2024 issued to a third party as a finder’s

fee to purchase 10,500 shares of the Company’s common stock were treated as convertible debt issuance costs and were valued

at $ 1,679 and were amortized over the term of the March 2024 Convertible Note.

Warrants Issued in

In connection with the

issuance of June 2024 Convertible Note (See Note 6), the Company issued (i) a warrant to purchase 1,000,000 shares of common stock with

an exercise price of $0.65 exercisable until the five-year anniversary of June 5, 2024, (ii) a warrant to purchase 1,200,000 shares of

common stock with an exercise price of $0.50 exercisable until the five-year anniversary of June 5, 2024, which warrant shall be cancelled

and extinguished against payment of the June 2024 Convertible Note, to Mast Hill;

and issued a warrant to purchase 80,000 shares of common

stock with an exercise price of $2.00 exercisable until the five-year anniversary of March 7, 2024 to a third party as a finder’s

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

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

stock with an exercise price of $0.65 exercisable until the five-year anniversary of June 5, 2024 to a third party as a finder’s

AVALON GLOBOCARE CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 – EQUITY

Warrants (continued)

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

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

under certain circumstances.

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

as such the fair value of the 121,154 warrants with an exercise price of $ 1.30 exercisable until the five-year anniversary of March 7,

2024, which warrant shall be cancelled and extinguished against payment of the March 2024 Convertible Note, has been estimated to be zero.

Accordingly, the fair value of the 141,750 warrants with an exercise price of $ 2.00 exercisable until the five-year anniversary of March

7, 2024 was classified as a derivative liability on March 7, 2024.

as such the fair value of the 1,200,000 warrants with an exercise price of $ 0.50 exercisable until the five-year anniversary of June 5,

2024, which warrant shall be cancelled and extinguished against payment of the June 2024 Convertible Note, has been estimated to be zero.

Accordingly, the fair value of the 1,080,000 warrants with an exercise price of $ 0.65 exercisable until the five-year anniversary of June

5, 2024 was classified as a derivative liability on June 5, 2024.

The fair values of the 1,080,000 warrants with an exercise price of

exercisable until the five-year anniversary of March 7, 2024 issued on March 7, 2024 were computed using the Black-Scholes option-pricing

$ 0.65 exercisable until the five-year anniversary of June 5, 2024 issued on June 5, 2024 were computed using the Black-Scholes option-pricing

model with the following assumptions:

1 unchanged sentence

and expected life of 5 years.

The warrants with an exercise price of $ 2.00 exercisable

until the five-year anniversary of March 7, 2024 issued to Mast Hill to purchase 131,250 shares of the Company’s common stock were

treated as a discount on the convertible note payable and were valued at $ 20,374 and will be amortized over the term of the March 2024

Convertible Note.

The warrants with an exercise price of $ 2.00 exercisable

until the five-year anniversary of March 7, 2024 issued to a third party as a finder’s fee to purchase 10,500 shares of the Company’s

common stock were treated as convertible debt issuance costs and were valued at $ 1,679 and will be amortized over the term of the March

2024 Convertible Note.

A summary of the status of the Company’s

nonvested stock warrants issued as of March 31, 2024 and changes during the three months ended March 31, 2024 is presented below:

The warrants with an

exercise price of $ 0.65 exercisable until the five-year anniversary of June 5, 2024 issued to Mast Hill to purchase 1,000,000 shares of

the Company’s common stock were treated as a discount on the convertible note payable and were valued at $ 418,194 and will be amortized

over the term of the June 2024 Convertible Note.

The warrants with an

exercise price of $ 0.65 exercisable until the five-year anniversary of June 5, 2024 issued to a third party as a finder’s fee to

purchase 80,000 shares of the Company’s common stock were treated as convertible debt issuance costs and were valued at $ 39,221

and will be amortized over the term of the June 2024 Convertible Note.

Warrants Cancelled

As of June 5, 2024, the

Company paid in full of its outstanding May 2023 Convertible Note, July 2023 Convertible Note, October 2023 Convertible Note, and March

2024 Convertible Note and cancelled 349,319 warrants since these convertible notes were fully extinguished.

A summary of the status

of the Company’s nonvested stock warrants issued as of June 30, 2024 and changes during the six months ended June 30, 2024 is presented

Exercise Price

Nonvested at January 1, 2024

Nonvested at March 31, 2024

AVALON GLOBOCARE CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

( 1,221,750 )

Nonvested at June 30, 2024

NOTE 11 - STATUTORY

8 unchanged sentences

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

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

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

Appropriations to the discretionary surplus reserve

are made at the discretion of the Board of Directors.

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

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

The Company did not make any appropriation to statutory reserve for Avalon Shanghai during the three months ended March 31, 2024 as it

incurred net loss in the period.

As of March 31, 2024 and December 31, 2023, the restricted amount as determined pursuant to PRC statutory

laws totaled $ 6,578 .

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

with PRC GAAP until the reserve is equal to 50 % of the entity’s registered capital.

Appropriations to the discretionary surplus

reserve are made at the discretion of the Board of Directors.

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

and may be used for general business expansion and production or increase in registered capital, but are not distributable

as cash dividends.

The Company did not make any appropriation to statutory reserve for Avalon Shanghai during the six months ended June

30, 2024 as it incurred net loss in the period.

As of June 30, 2024 and December 31, 2023, the restricted amount as determined pursuant

to PRC statutory laws totaled $ 6,578 .

AVALON GLOBOCARE CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11 - STATUTORY

RESERVE AND RESTRICTED NET ASSETS (continued)

Relevant PRC laws and regulations restrict the

3 unchanged sentences

profit may be distributed as dividend to the Company’s shareholders without the consent of a third party.

As of both March 31, 2024

As of both June 30, 2024

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

1 unchanged sentence

to the requirements of Rule 12-04(a), 5-04(c) and 4-08(e)(3) of Regulation S-X, the condensed financial information of the parent company

shall be filed when the restricted net assets of consolidated subsidiary exceed 25 percent of consolidated net assets as of the end of

the most recently completed fiscal year.

shall be filed when the restricted net assets of consolidated subsidiary exceed 25 % of consolidated net assets as of the end of the

most recently completed fiscal year.

For purposes of this test, restricted net assets of consolidated subsidiary shall mean that amount

of the Company’s proportionate share of net assets of consolidated subsidiary (after intercompany eliminations) which as of the

end of the most recent fiscal year may not be transferred to the parent company by subsidiary in the form of loans, advances or cash dividends

without the consent of a third party.

performed a test on the restricted net assets of consolidated subsidiary in accordance with such requirement and concluded that it was

not applicable to the Company as the restricted net assets of the Company’s PRC subsidiary did not exceed 25 % of the consolidated

net assets of the Company, therefore, the condensed financial statements for the parent company have not been required.

end of the most recent fiscal year may not be transferred to the parent company by subsidiary in the form of loans, advances or

cash dividends without the consent of a third party.

The Company performed a test on the restricted

net assets of consolidated subsidiary in accordance with such requirement and concluded that it was not applicable to the Company as the

restricted net assets of the Company’s PRC subsidiary did not exceed 25 % of the consolidated net assets of the Company, therefore,

the condensed financial statements for the parent company have not been required.

NOTE 13 - CONCENTRATIONS

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

months ended March 31, 2024 and 2023 .

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

for the three and six months ended June 30, 2024 and 2023.

Three Months Ended

Two customers, which are third party, whose outstanding

receivable accounted for 10 % or more of the Company’s total outstanding rent receivable at March 31, 2024, accounted for 72.7 % of

the Company’s total outstanding rent receivable at March 31, 2024.

Six Months Ended

Two customers, which are third parties, whose

outstanding receivable accounted for 10% or more of the Company’s total outstanding rent receivable at June 30, 2024, accounted

for 69.8 % of the Company’s total outstanding rent receivable at June 30, 2024.

Two customers, of which one is a related party

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

at December 31, 2023, accounted for 80.6 % of the Company’s total outstanding rent receivable at December 31, 2023.

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

receivable at December 31, 2023, accounted for 80.6 % of the Company’s total outstanding rent receivable at December 31, 2023.

No supplier accounted for 10% or more of the Company’s

purchase during the three and six months ended June 30, 2024 and 2023.

NOTE 14 – SEGMENT INFORMATION

On February 9, 2023,

the Company purchased 40 % of Lab Services MSO.

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

management of Lab Services MSO.

During the three and six months ended June 30, 2024 and 2023, the Company operated in two reportable business

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

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

maker to make decisions about resources to be allocated to the segment and assess its performance.

The Company regularly reviews the operating

results and performance of Lab Services MSO, which is the Company’s equity method investee.

AVALON GLOBOCARE CORP.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13 - CONCENTRATIONS (continued)

No supplier accounted for 10% or more of the Company’s

purchase during the three months ended March 31, 2024 and 2023.

NOTE 14 – SEGMENT INFORMATION

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

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

is active in the management of Lab Services MSO.

During the three months ended March 31, 2024 and 2023, the Company operated in two reportable

business segments:

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

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

decision maker to make decisions about resources to be allocated to the segment and assess its performance.

The Company regularly reviews

the operating results and performance of Lab Services MSO, which is the Company’s equity method investee.

with respect to these reportable business segments for the three months ended March 31, 2024 and 2023 was as follows:

Three Months Ended March 31, 2024

Information with respect

to these reportable business segments for the three and six months ended June 30, 2024 and 2023 was as follows:

Three Months Ended June 30, 2024

Real Property

Real property rental revenue

1 unchanged sentence

Real property operating income

Loss from equity method investment - Lab Services MSO

Other operating expenses

( 1,123,371 )

( 1,217,425 )

Other (expense) income:

Interest expense

Other (expense) income

$ ( 246,110 )

$ ( 329,337 )

$ ( 1,556,579 )

$ ( 2,132,026 )

Three Months Ended June 30, 2023

Real Property

Real property rental revenue

Real property operating expenses

Real property operating income

Income from equity method investment - Lab Services MSO

1 unchanged sentence

( 2,154,891 )

( 2,234,521 )

Other (expense) income:

4 unchanged sentences

$ ( 2,747,057 )

$ ( 1,367,513 )

Three Months Ended March 31, 2023

Six Months Ended June 30, 2024

Real Property

Real property rental revenue

7 unchanged sentences

Interest expense

Other income (expense)

( 1,326,868 )

Other (expense) income

$ ( 503,238 )

Identifiable long-lived tangible assets at March 31, 2024 and December 31, 2023

Real property operations

Corporate/Other

$ ( 221,868 )

$ ( 2,774,433 )

$ ( 3,499,539 )

AVALON GLOBOCARE CORP.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14 – SEGMENT

INFORMATION (continued)

Identifiable long-lived tangible assets at March 31, 2024 and December 31, 2023

NOTE 14 – SEGMENT INFORMATION

Six Months Ended June 30, 2023

Real Property

Real property rental revenue

Real property operating expenses

Real property operating income

Income from equity method investment - Lab Services MSO

Other operating expenses

( 4,753,136 )

( 4,946,477 )

Other (expense) income:

Interest expense

Other income (expense)

Net (loss) income

$ ( 5,598,249 )

$ ( 5,666,801 )

Identifiable long-lived tangible assets at June 30, 2024 and December 31, 2023 June 30,

2024 December 31,

Real property operations $ 7,122,988 $ 7,211,641

Corporate/Other 17,492 17,846

Total $ 7,140,480 $ 7,229,487

Identifiable long-lived tangible assets at June 30, 2024 and December 31, 2023

United States

2 unchanged sentences

Operating Leases Commitment

The Company is a party

to leases for office space.

Company is a party to leases for office space.

These lease agreements will expire through February 2025.

Rent expense under all operating leases amounted

to approximately $ 32,000 and $ 33,000 for the three months ended March 31, 2024 and 2023, respectively.

Rent expense under all

operating leases amounted to approximately $ 64,000 and $ 66,000 for the six months ended June 30, 2024 and 2023, respectively.

Supplemental cash flow

information related to leases for the three months ended March 31, 2024 and 2023 is as follows:

Three Months Ended

information related to leases for the six months ended June 30, 2024 and 2023 is as follows:

Six Months Ended

Cash paid for amounts included in the measurement of lease liabilities:

2 unchanged sentences

Operating lease

AVALON GLOBOCARE CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 15 – COMMITMENTS

AND CONTINGENCIES (continued)

Operating Leases Commitment (continued)

The following table summarizes the lease term

and discount rate for the Company’s operating lease as of March 31, 2024:

and discount rate for the Company’s operating lease as of June 30, 2024:

Weighted average remaining lease term (in years) 0.58

1 unchanged sentence

The following table summarizes the maturity of lease liabilities under

operating lease as of March 31, 2024:

For the Twelve-month Period Ending March 31:

operating lease as of June 30, 2024:

For the Twelve-month Period Ending June 30:

2026 and thereafter

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Total present value of operating lease liabilities (current liability)

AVALON GLOBOCARE CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 15 – COMMITMENTS

AND CONTINGENCIES (continued)

Joint Venture – Avactis Biosciences Inc.

6 unchanged sentences

with respect to cellular immunotherapy and CAR-T, in particular.

As of April 6, 2022, the Company owns 60 % of Avactis and Arbele Biotherapeutics

Limited (“Arbele Biotherapeutics”) owns 40 % of Avactis.

Avactis owns 100 % of the capital stock of Avactis Nanjing Biosciences

Ltd., a company incorporated in the PRC on May 8, 2020 (“Avactis Nanjing”), which only owns a patent and is not considered

an operating entity.

is required to contribute $ 10 million (or equivalent in RMB) in cash and/or services, which shall be contributed in tranches based on

milestones to be determined jointly by Avactis and the Company in writing subject to the Company’s cash reserves.

As of April 6, 2022, the Company owns 60 % of Avactis and Arbele

Biotherapeutics Limited (“Arbele Biotherapeutics”) owns 40 % of Avactis.

Avactis owns 100 % of the capital stock of

Avactis Nanjing Biosciences Ltd., a company incorporated in the PRC on May 8, 2020 (“Avactis Nanjing”), which only owns a

patent and is not considered an operating entity.

is required to contribute $ 10 million (or equivalent in RMB) in cash and/or services, which shall be contributed in tranches based

on milestones to be determined jointly by Avactis and the Company in writing subject to the Company’s cash reserves.

Within 30 days,

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As of the date hereof, the License Agreement has not been finalized by the parties.

the Company is responsible for contributing registered capital of RMB 5,000,000 (approximately $ 0.7 million) for working capital purposes

as required by local regulation, which is not required to be contributed immediately and will be contributed subject to the Company’s

As of the date hereof, Avactis’ activities have been limited to that of a patent holding company and there is no other

activity or planned contributions in the rest of 2024.

the Company is responsible for contributing registered capital of RMB 5,000,000 (approximately $ 0.7 million) for working

capital purposes as required by local regulation, which is not required to be contributed immediately and will be contributed subject

to the Company’s discretion.

As of the date hereof, Avactis’ activities have been limited to that of a patent holding company

and there is no other activity or planned contributions in the rest of 2024.

NOTE 16 – SUBSEQUENT

Management has evaluated subsequent events through the date of the

issuance date of these financial statements.

Management is not aware of any significant events that occurred subsequent to the balance

sheet date that would have a material effect on the financial statements and would require adjustment or disclosure thereto.

The Company evaluated

subsequent events and transactions that occurred after the balance sheet date up to the date that the financial statements were issued.

Based upon this review, other than as described below, the Company did not identify any subsequent events that would have required adjustment

or disclosure in the financial statements.

In June 2023, the Company

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

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

2024 to August 16, 2024, Roth sold an aggregate of 4,227,651 shares of common stock at an average price of $ 0.68 per share to investors.

The Company received net cash proceeds of $ 2,771,992 , net of commission paid for sales agent and other fees of $ 85,860 .

Common Shares Issued for

In August 2024, the Company

issued 250,000 shares of its common stock for services rendered and to be rendered.

These shares were valued at $112,500, the fair market

value on the grant date using the reported closing share price on the date of grant, and the Company recorded stock-based compensation

expense of $112,500.

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

What changed 10-Q

Item 1. Financial Statements