What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-19 compared with 2024-05-31 · 397 added, 368 removed, 222 unchanged (78% of the section changed)

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

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

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

of clinical trials and product approvals;

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

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

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

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

of development;

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

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

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

properties, efficacy, safety and dosing regimens;

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

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

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

research organization partners;

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

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

the availability, cost, delivery and quality of clinical management services provided by our clinical research organization partners;

the availability, cost, delivery and quality of clinical and commercial-grade materials produced by our own manufacturing facility or supplied by contract manufacturers, suppliers and partners;

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

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

developed by such competitors;

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

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

existing targeted therapeutics;

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

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

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

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

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

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

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

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

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

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

of third parties;

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

our ability to develop technological capabilities, including identification of novel and clinically important targets, exploiting our existing technology platforms to develop new product candidates and expand our focus to broader markets for our existing targeted therapeutics;

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

If we are unable to raise the funds necessary to meet our long-term liquidity needs, we may have to delay or discontinue the development of one or more programs, discontinue or delay ongoing or anticipated clinical trials, discontinue or delay our commercial manufacturing efforts, discontinue or delay our efforts to expand into additional indications for our product candidates, license out programs earlier than expected, raise funds at significant discount or on other unfavorable terms, if at all, or sell all or part of our business;

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

our ability to develop and commercialize products without infringing upon the intellectual property rights of third parties;

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

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

customers, payers, suppliers or strategic partners;

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

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

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

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

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

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

impact of changes in payment mix, including increased patient financial responsibility and any shift from fee-for-service to discounted, capitated or bundled fee arrangements;

adverse actions by the government, including healthcare reform that focuses on reducing healthcare costs but does not recognize the value and importance to healthcare of clinical testing or innovative solutions, unilateral reduction of fee schedules payable to us, unilateral recoupment of amounts allegedly owed and competitive bidding;

the impact of increased prior authorization programs;

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

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

adverse results from pending or future government investigations, lawsuits or private actions, which include in particular, monetary damages, loss or suspension of licenses or criminal penalties;

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

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

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

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

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

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

and we believe they have a reasonable basis.

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

be achieved or accomplished.

statements, which speak only as of the filing date of this Quarterly Report on Form 10-Q or the date of the document incorporated by reference

into this Quarterly Report on Form 10-Q.

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

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

We have expressed our expectations,

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

However, we cannot assure you that our expectations,

beliefs or projections will result or be achieved or accomplished.

The following discussion

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

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

that are included elsewhere in this report.

and analysis of our financial condition and results of operations for the three and six months ended June 30, 2024 and 2023 should be

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

that are included elsewhere in this Quarterly Report on Form 10-Q.

We are a commercial stage

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

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

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

genetics-driven results.

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

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

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

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

bloodwork to anatomic pathology, and urine toxicology.

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

testing, urinary testing, and sexually transmitted disease testing.

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

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

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

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

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

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

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

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

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

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

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

and maintain their overall wellness.

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

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

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

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

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

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

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

which is a medical equipment

retail company.

Research and Development

In the third quarter of 2023, Lab Services MSO acquired Merlin Technologies, Inc., which is a medical equipment retail company.

and Development

We are focused on bringing

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

We completed a sponsored

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

Using the unique QTY code protein

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

respective cytokines.

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

patent submissions.

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

Using the unique QTY

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

affinity to the respective cytokines.

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

through joint patent submissions.

Product Commercialization

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

On May 31,2024, we plan to formally launch

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

We plan to sell the product through the KetoAir website

and social media.

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

sales to occur in the United States.

We plan to sell the product through the

KetoAir website and social media.

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

and expect initial sales to occur in the United States.

The KetoAir is a handheld

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

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

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

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

It helps users monitor and

manage their ketogenic diet and related programs.

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

their therapeutic programs and optimize their ketogenic dietary management.

The KetoAir is registered with the United States Food and Drug Administration as a Class

I medical device.

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

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

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

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

patients adhere to their therapeutic programs and optimize their ketogenic dietary management.

In order to preserve

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Going Concern

We are a commercial stage company dedicated to

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

We are focused on establishing

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

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

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

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

We also have income from equity method investment

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

These condensed consolidated financial statements have been prepared assuming

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

in the normal course of business.

The Company is a commercial

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

The Company is working to establish a leading role in the innovation of diagnostic testing, utilizing proprietary technology to deliver

precise, genetics-driven results.

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

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

In addition, we own commercial

real estate that houses our headquarters in Freehold, New Jersey.

We also have income from equity method investment through our 40% interest

in Lab Services MSO.

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

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

As reflected in the accompanying

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

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

months ended March 31, 2024, respectively.

condensed consolidated financial statements, we had 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.

We have a limited operating

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

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

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

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

property in New Jersey and income from equity method investment through our 40% interest in Lab Services MSO and obtaining additional

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

In addition, the current cash

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

on Form 10-Q.

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

Our ability to continue as a going concern

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

There are no assurances

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

or to continue as a going concern.

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

However, there

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

Our ability to continue as a going

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

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

profitable operations or to continue as a going concern.

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

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

terms and conditions, or at all.

The accompanying condensed

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Significant estimates

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

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

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

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

Lab Services MSO.

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 our equity interest in Lab Services MSO.

Investment in Unconsolidated

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We have determined that

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

the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) 606 does not

apply to rental contracts, which are within the scope of other revenue recognition accounting standards.

Rental income from operating

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

We do not offer promotional

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

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

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

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

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

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

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

Deferred tax is accounted

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

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

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

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

Deferred tax is calculated

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Recent Accounting

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

financial statements accompanying this report.

For details of applicable new accounting standards, please, refer to Recent Accounting Standards

in Note 3 of our condensed consolidated financial statements accompanying this Quarterly Report on Form 10-Q.

RESULTS OF OPERATIONS

Comparison of Results of Operations for the

Three Months Ended March 31, 2024 and 2023

Three and Six Months Ended June 30, 2024 and 2023

Real Property Rental

For the three months

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

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

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

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

We expect that our revenue from real property

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

the three months ended June 30, 2024, we had real property rental revenue of $327,887, as compared to $306,905 for the three months ended

June 30, 2023, an increase of $20,982, or 6.8%.

For the six months ended June 30, 2024, we had real property rental revenue of $642,475,

as compared to $603,070 for the six months ended June 30, 2023, an increase of $39,405, or 6.5%.

The increase was primarily attributable

to the increase in the number of tenants occupying the building in the three and six months ended June 30, 2024 as compared to the three

and six months ended June 30, 2023.

We expect that our revenue from real property rent will remain at its current level with minimal increase

in the near future.

Real Property Operating

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For the three months

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

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

The increase was primarily due to an increase in

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

ended June 30, 2024, our real property operating expenses amounted to $285,488, as compared to $245,403 for the three months ended

June 30, 2023, an increase of $40,085, or 16.3%.

The increase was primarily due to an increase in repairs and maintenance fee of

approximately $11,000, and an increase in utilities of approximately $32,000, offset by a decrease in other miscellaneous items of approximately

For the six months ended

June 30, 2024, our real property operating expenses amounted to $548,614, as compared to $493,848 for the six months ended June 30,

2023, an increase of $54,766, or 11.1%.

The increase was primarily due to an increase in repairs and maintenance fee of approximately

$22,000, an increase in utilities of approximately $27,000, and an increase in other miscellaneous items of approximately $6,000.

Real Property Operating

Our real property operating

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

three months ended March 31, 2023.

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

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

Income (Loss) from

real property operating income for the three months ended June 30, 2024 was $42,399, representing a decrease of $19,103, or 31.1%, as

compared to $61,502 for the three months ended June 30, 2023.

Our real property operating income for the six months ended June 30, 2024

was $93,861, representing a decrease of $15,361, or 14.1%, as compared to $109,222 for the six months ended June 30, 2023.

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

We expect our real property operating

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

(Loss) income from

Equity Method Investment – Lab Services MSO

For the three months

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

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

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

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

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

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

Technologies, Inc.

which is a medical equipment retail company.

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

LLC (“Veritas”).

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

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

We expect to continue

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

three months ended June 30, 2024 and 2023, we had loss from our investment in Lab Services MSO of $329,337 and income from our investment

in Lab Services MSO of $104,651, respectively, which consists of our share of Lab Services MSO’s net loss of $162,604 and our share

of Lab Services MSO’s net income of $308,395, and amortization of identifiable intangible assets acquired from Lab Services MSO

acquisition of $166,733 and $203,744, respectively.

the six months ended June 30, 2024 and 2023, we had loss from our investment in Lab Services MSO of $221,868 and income from our investment

in Lab Services MSO of $15,560, respectively, which consists of our share of Lab Services MSO’s net income of $111,598 and

$355,134, and amortization of identifiable intangible assets acquired from Lab Services MSO acquisition

of $333,466 and $339,574, respectively.

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

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

a medical equipment retail company.

Lab Services MSO has also opened a new laboratory, Veritas Laboratories LLC (“Veritas”).

Veritas is a CLIA-certified and COLA-accredited laboratory located in Scottsdale, Arizona that offers a wide range of high-quality testing,

including drug testing, genetic testing, urinary testing and COVID-19 PCR testing.

We expect to continue to receive income from our investment

in Lab Services MSO in the near future.

Other Operating Expenses

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

Three Months Ended March 31,

the three and six months ended June 30, 2024 and 2023, other operating expenses consisted of the following:

Three Months Ended

Six Months Ended

Advertising and marketing expenses

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Compensation and related benefits

Miscellaneous taxes

Research and development

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Other general and administrative

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

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

The decrease was primarily due to decreased

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

We expect that our advertising and marketing expenses will decrease in

the near future as we conserve cash .

● Professional fees primarily consisted of accounting fees, audit

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

the three months ended June 30, 2024, advertising and

marketing expenses decreased by $442,557, or 87.6%, as compared to the three months ended

June 30, 2023.

For the six months ended June

30, 2024, advertising and marketing expenses decreased by $1,089,310, or 91.0%, as compared

to the six months ended June 30, 2023.

The decrease was primarily due to decreased advertising

activities in the three and six months ended June 30, 2024.

We expect that our advertising

and marketing expenses will decrease in the near future as we conserve cash .

● Professional

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

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

For the three

months ended June 30, 2024, professional fees decreased by $554,054, or 55.5%, as compared

to the three months ended June 30, 2023, which was primarily attributable to a decrease in

audit fees of approximately $104,000, due to the decreased audit services related to our

acquisition of Lab Services MSO, a decrease in accounting fees of approximately $271,000,

mainly due to the decreased accounting services related to our acquisition of Lab Services

MSO, a decrease in legal service fees of approximately $133,000, mainly due to the decreased

legal services related to our acquisition of Lab Services MSO, and a decrease in other miscellaneous

items of approximately $46,000.

For the six months ended June 30, 2024, professional fees

decreased by $1,337,958, or 60.1%, as compared to the six months ended June 30, 2023, which

was primarily attributable to a decrease in consulting fees of approximately $506,000, mainly

due to the decrease in use of consulting service providers related to our acquisition of

Lab Services MSO, a decrease in audit fees of approximately $129,000, due to the decreased

audit services related to our acquisition of Lab Services MSO, a decrease in accounting fees

of approximately $481,000, mainly due to the decreased accounting services related to our

acquisition of Lab Services MSO, a decrease in legal service fees of approximately $253,000,

mainly due to the decreased legal services related to our acquisition of Lab Services MSO,

and a decrease in other miscellaneous items of approximately $83,000, offset by an increase

in valuation fee for our Lab Services MSO acquisition of $114,000.

We expect that our professional

fees will likely remain at their current quarterly level with minimal increase in the near

the three months ended June 30, 2024, compensation and related benefits decreased by $96,890,

or 21.3%, as compared to the three months ended June 30, 2023.

For the six months ended June

30, 2024, compensation and related benefits decreased by $194,874, or 21.5%, as compared

to the six months ended June 30, 2023.

The decrease was primarily attributable to the decreased

compensation for two of our named executive officers, David Jin and Meng Li.

that our compensation and related benefits will remain relatively steady, with minimal increase,

in the near future .

the three months ended June 30, 2024, miscellaneous taxes increased by $215,837, or 2,315.8%,

as compared to the three months ended June 30, 2023.

For the six months ended June 30, 2024,

miscellaneous taxes increased by $214,167, or 531.0%, as compared to the six months ended

June 30, 2023.

The increase was primarily attributable to increased Delaware state franchise

We expect that our miscellaneous taxes will decrease in the near future.

the three months ended June 30, 2024, research and development expenses decreased by $17,810,

or 100.0%, as compared to the three months ended June 30, 2023.

For the three months ended

June 30, 2024, research and development expenses decreased by $110,160, or 100.0%, as compared

to the three months ended June 30, 2023.

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

we did not incur any activity with respect to research and development projects as we redirected

our funding efforts to our core business strategies discussed above.

the three months ended June 30, 2024, Directors and Officers’ Liability Insurance premium

decreased by $34,496, or 33.2%, as compared to the three months ended June 30, 2023.

the six months ended June 30, 2024, Directors and Officers’ Liability Insurance premium

decreased by $68,990, or 33.2%, as compared to the six months ended June 30, 2023.

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

three months ended June 30, 2024, travel and entertainment expense decreased by $33,492,

or 60.3%, as compared to the three months ended June 30, 2023.

six months ended June 30, 2024, travel and entertainment expense decreased by $73,543, or

62.3%, as compared to the six months ended June 30, 2023.

The decrease was mainly due

to decreased business travel activities in the first half of 2024.

the three months ended June 30, 2024, rent and related

utilities expenses decreased by $559, or 3.5%, as compared to the three months ended June

For the six months ended June 30,

2024, rent and related utilities expenses decreased by $2,255, or 6.8%, as compared to the

six months ended June 30, 2023.

The decrease was attributable to decreased rental rate in

the first half of 2024.

general and administrative expenses mainly consisted

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

For the three months

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

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

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

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

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

of approximately $17,000.

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

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

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

The decrease was primarily attributable

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

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

on April 15, 2024) .

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

current level with minimal increase in the near future .

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

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

In the three months ended March 31, 2024,

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

strategies discussed above.

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

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

The decrease was mainly

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

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

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

The decrease was mainly due to decreased

business travel activities in the first quarter of 2024.

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

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

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

ended March 31, 2024 .

● Other general and administrative expenses mainly consisted of NASDAQ

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

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

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

at stricter controls on corporate expenditures.

ended June 30, 2024, other general and administrative expenses decreased by $53,075, or 71.5%,

as compared to the three months ended June 30, 2023, which was mainly attributable to a decrease

in fees paid to government agencies and Financial Industry Regulatory Authority of approximately

$31,000, and a decrease in other miscellaneous items of approximately $22,000 due to our

efforts at stricter controls on corporate expenditure.

For the six months ended June 30,

2024, other general and administrative expenses decreased by $64,136, or 58.4%, as compared

to the six months ended June 30, 2023, which was mainly attributable to a decrease in fees

paid to government agencies and Financial Industry Regulatory Authority of approximately

$31,000, a decrease in office supplies of approximately $11,000, and a decrease in other

miscellaneous items of approximately $22,000 due to our efforts at stricter controls on corporate

Loss from Operations

As a result of the foregoing,

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

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

for the three months ended June 30, 2024, loss from operations amounted to $1,504,363, as compared to $2,068,368 for the three months

ended June 30, 2023, representing a decrease of $564,005, or 27.3%.

As a result of the foregoing,

for the six months ended June 30, 2024, loss from operations amounted to $2,347,425, as compared to $4,821,695 for the six months ended

June 30, 2023, representing a decrease of $2,474,270, or 51.3%.

Other (Expense)

Other (expense) income

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

Other expense, net, totaled

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

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

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

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

mainly includes third party and related party interest expense, change in fair value of derivative liability, impairment of equity method

investment on Epicon, and other miscellaneous expense.

expense, net, totaled $627,663 for the three months ended June 30, 2024, as compared to $678,689 for the three months ended June

30, 2023, a decrease of $51,026, or 7.5%, which was primarily attributable to an increase in gain from change in fair value of

derivative liability of approximately $139,000, a decrease in impairment of equity method investment on Epicon of approximately $464,000,

a decrease in other expense of approximately $9,000, offset by an increase in third party interest expense of approximately $561,000,

mainly driven by the increase in amortization of debt discount and debt issuance costs of approximately $495,000 and the increased interest

expense of approximately $66,000 from third party debts.

expense, net, totaled $1,152,114 for the six months ended June 30, 2024, as compared to $845,106 for the six months ended June 30,

2023, an increase of $307,008, or 36.3%, which was primarily attributable to an increase in third party interest expense of approximately

$915,000, mainly driven by the increase in amortization of debt discount and debt issuance costs of approximately $745,000 and the increased

interest expense of approximately $170,000 from third party debts, an increase in interest expense – related party of approximately

$9,000, and an increase in other expense of approximately $17,000, offset by an increase in gain from change in fair value of derivative

liability of approximately $170,000, a decrease in impairment of equity method investment on Epicon of approximately $464,000.

We did not have any income

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

As a result of the factors

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

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

taxes expense for the three and six months ended June 30, 2024 and 2023 since we incurred losses in these periods.

a result of the factors described above, our net loss was $2,132,026 for the three months ended June 30, 2024, as compared to $2,747,057

for the three months ended June 30, 2023, a decrease of $615,031, or 22.4%.

a result of the factors described above, our net loss was $3,499,539 for the six months ended June 30, 2024, as compared to $5,666,801

for the six months ended June 30, 2023, a decrease of $2,167,262, or 38.2%.

Net Loss Attributable to Avalon GloboCare

Common Shareholders

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

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

loss attributable to our common shareholders was $2,132,026, or $0.19 per share (basic and diluted), for the three months ended June 30,

2024, as compared to $2,747,057, or $0.27 per share (basic and diluted), for the three months ended June 30, 2023, a decrease of $615,031,

loss attributable to our common shareholders was $3,499,539, or $0.31 per share (basic and diluted), for the six months ended June 30,

2024, as compared to $5,666,801, or $0.56 per share (basic and diluted), for the six months ended June 30, 2023, a decrease of $2,167,262,

Foreign Currency Translation Adjustment

Our reporting

currency is the U.S.

Our reporting currency

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

dollar and the

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

The financial statement of our subsidiary whose functional

currency is the RMB are translated to U.S.

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

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

Net gains and losses resulting from foreign

exchange transactions are included in the results of operations.

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

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

March 31, 2024 and 2023, respectively.

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

in each respective period.

Comprehensive Loss

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

dollar and the functional

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

The financial statements of our subsidiary whose functional currency

is the RMB are translated to U.S.

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

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

Net gains and losses resulting from foreign exchange transactions

are included in the results of operations.

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

a foreign currency translation gain of $2,706 and a foreign currency translation loss of $11,011 for the three months ended June 30, 2024

and 2023, respectively.

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

translation loss of $214 and $7,341 for the six months ended June 30, 2024 and 2023, respectively.

This non-cash gain/loss had the effect

of decreasing/increasing our reported comprehensive loss in each respective period.

Comprehensive Loss

As a result of our foreign

currency translation adjustment, we had comprehensive loss of $2,129,320 and $2,758,068 for the three months ended June 30, 2024 and 2023,

respectively.

As a result of our foreign

currency translation adjustment, we had comprehensive loss of $3,499,753 and $5,674,142 for the six months ended June 30, 2024 and 2023,

respectively.

Liquidity and Capital Resources

We have a limited operating

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

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

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

In addition, the

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

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

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

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

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

Quarterly Report on Form 10-Q.

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

Our ability to continue as a going concern is

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

There are no assurances

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

or to continue as a going concern.

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

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

However, there is no assurance

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

Liquidity is the ability

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

on an ongoing basis.

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

Our ability to

continue as a going concern is dependent on our ability to raise additional capital, implement our business plan, and generate sufficient

There are no assurances that we will be successful in our efforts to generate sufficient revenues, maintain sufficient cash

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

As described below, we have raised additional capital through

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

business plan.

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

on satisfactory terms and conditions, if at all.

is the ability of a company to generate funds to support its current and future operations, satisfy its obligations as they come due and

otherwise operate on an ongoing basis.

At June 30, 2024 and December 31, 2023, we had a cash balance of approximately $201,000 and $285,000,

respectively.

These funds are kept in financial institutions located as follows:

March 31, 2024

June 30, 2024

December 31, 2023

1 unchanged sentence

The following table sets

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

forth a summary of changes in our working capital deficit from December 31, 2023 to June 30, 2024:

Working capital deficit:

6 unchanged sentences

Our working capital deficit

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

The increase in working capital deficit

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

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

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

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

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

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

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

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

increased by $1,968,486 to $7,880,305 at June 30, 2024 from $5,911,819 at December 31, 2023.

The increase in working capital deficit was

primarily attributable to a decrease in rent receivable of approximately $108,000 driven by collection efforts in the six months ended

June 30, 2024, an increase in accrued liabilities and other payables of approximately $177,000 mainly due to the increase in accrued Delaware

state franchise tax in the six months ended June 30, 2024, an increase in accrued liabilities and other payables – related parties

of approximately $515,000 mainly due to our equity method investment payable paid by a related party on our behalf, a significant increase

in advance from pending sale of noncontrolling interest – related party of approximately $2,001,000 resulting from advance received

in connection with the membership interest purchase agreement entered into in November 2023 in the six months ended June 30, 2024, and

an increase in derivative liability of approximately $268,000 mainly due to warrants issued with convertible debts financing in the six

months ended June 30, 2024, offset by a decrease in accrued professional fees of approximately $177,000 resulting from payments made to

our professional service providers in the six months ended June 30, 2024, a decrease in equity method investment payable of approximately

$667,000 resulting from payment of $100,000 made to investee and payment of approximately $567,000 made by a related party on our behalf

in the first half of 2024, and a decrease in convertible note payable, net, of approximately $240,000 mainly due to the repayments made

to lenders of $3,100,000 in the first half of 2024 which were netted off against the amortization of debt issuance costs and debt discount

of approximately $475,000, offset by the issuances of March 2024 Convertible Note and June 2024 Convertible Note with principal of $3,545,000

in the first half of 2024 (as described below) which were netted off against the remaining balances of debt issuance costs and debt discount

of approximately $1,160,000.

Because the exchange

2 unchanged sentences

the comparable changes reflected on the condensed consolidated balance sheets.

Cash Flows for the Three Months Ended March

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

The following summarizes the key components of

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

Months Ended March 31,

Cash Flows for the Six Months Ended June 30,

2024 Compared to the Six Months Ended June 30, 2023

The following table summarizes the key components

of our cash flows for the six months ended June 30, 2024 and 2023:

Six Months Ended

Net cash used in operating activities

$ (1,997,616 )

$ (4,359,759 )

Net cash used in investing activities

1 unchanged sentence

Effect of exchange rate on cash

Net increase (decrease) in cash

Net decrease in cash

$ (1,337,719 )

Net cash flow used in

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

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

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

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

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

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

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

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

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

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

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

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

of approximately $99,000.

We expect our cash used

in operating activities to increase due to the following:

cash flow used in operating activities for the six months ended June 30, 2024 was $1,997,616, which primarily reflected our consolidated

net loss of approximately $3,500,000, and the non-cash items adjustment, primarily consisting of change in fair market value of derivative

liability of approximately $212,000, and the changes in operating assets and liabilities, primarily consisting of a decrease in accrued

liabilities and other payables of approximately $151,000 resulting from payments made to our vendors in the first half of 2024, offset

by a decrease in rent receivable of approximately $113,000 driven by our collection efforts, and the

non-cash items adjustment, primarily consisting of stock-based compensation and service expense of approximately $150,000, loss from equity

method investment of approximately $222,000, distribution of earnings from equity method investment of approximately $473,000, and amortization

of debt issuance costs and debt discount of approximately $837,000.

cash flow used in operating activities for the six months ended June 30, 2023 was $4,359,759, which primarily reflected our consolidated

net loss of approximately $5,667,000, and the changes in operating assets and liabilities, primarily consisting of a decrease in accrued

liabilities and other payables of approximately $231,000, due to payments made to vendors in the six months ended June 30, 2023, offset

by the non-cash items adjustment, primarily consisting of depreciation of approximately $123,000, stock-based compensation and service

expense of approximately $867,000, and impairment of equity method investment of approximately $464,000.

expect our cash used in operating activities to increase in the next 12 months due to the following:

development and commercialization of new products;

an increase in professional staff and services;

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

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

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

During the three months ended March 31,

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

Net cash flow provided

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

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

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

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

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

increase in public relations and/or sales promotions for existing and/or new brands as we

expand within existing markets or enter new markets.

cash flow used in investing activities was $100,000 for the six months ended June 30, 2024, as compared to $22,201 for the six months

ended June 30, 2023.

During the six months ended June 30, 2024, we paid

$100,000 for the acquisition of a 40% interest in Lab Ser vices MSO.

During the six months ended June 30, 2023, we paid approximately

$22,000 for the purchase of property and equipment.

cash flow provided by financing activities was $2,010,577 for the six months ended June 30, 2024, as compared to $3,046,564 for the six

months ended June 30, 2023.

During the six months ended June 30, 2024, we received net proceeds from the issuance of convertible

debts and warrants of approximately $3,110,000 (net of original issue discount of approximately $177,000 and cash paid for convertible

note issuance costs of approximately $258,000), and an advance from the pending sale of a noncontrolling interest in a subsidiary of approximately

$2,001,000, offset by repayments made for convertible debt of $3,100,000.

During the six months ended June 30, 2023, we received proceeds

from related party borrowings of $850,000 and net proceeds from issuance of convertible debt and warrants of $1,261,000 (net of original

issue discount of $75,000 and cash paid for convertible note issuance costs of $164,000), and net proceeds from issuance of a balloon

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

The following trends

5 unchanged sentences

In the third quarter

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

The unsecured credit facility

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

As of March 31, 2024, we have used approximately

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

of 2019, we entered into a $20 million credit facility (the “Line of Credit”) provided by our Chairman of the Board and a

significant (and our largest) stockholder, Wenzhao Lu.

The Line of Credit bears interest at a rate of 5% and provides for maturity on

drawn loans 36 months after funding.

As of June 30, 2024, we had used approximately $6.8 million of the Line of Credit and had approximately

$13.2 million remaining available under the Line of Credit.

In June 2023, we entered

1 unchanged sentence

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

From July 1, 2023 to May

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

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

From July 1, 2023 to August

16, 2024, we sold an aggregate of 4,684,278 shares of our common stock at an average price of $0.75 per share to investors pursuant to

the Sales Agreement, and received net cash proceeds of $3,388,251, net of cash paid for Roth’s commissions and other fees of $104,992.

March 2024 Convertible

4 unchanged sentences

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

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

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

obligations under the March 2024 Convertible Note.

2023 Convertible Notes

and March 2024 Convertible Notes – Events of Default

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

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

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

Convertible Note Payable”

(collectively, the “2023 Convertible Notes”).

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

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

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

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

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

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

2024 Convertible Note) and part in cash.

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

the 2023 Convertible Notes and the March 2024 Convertible Note.

Pursuant to Section 3.22

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

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

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

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

The Company did not receive any notice from the

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

The Company first had actual knowledge of the existence

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

on May 29, 2024.

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

to the issuance of this report.

In addition, the Company failed to file this report

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

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

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

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

Furthermore, on May 23, 2024, the Company received

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

Pursuant to the waiver, the Company received an extension

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

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

The events of default

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

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

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

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

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

of our obligations under the March 2024 Convertible Note.

June 2024 Convertible

Note Financing

In June 2024, we entered

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

convertible promissory note in the principal amount of $2,845,000 (the “June 2024 Convertible Note”), as well as the issuance

of 402,000 shares of common stock as a commitment fee and warrants for the purchase of up to 2,200,000 shares of our common stock.

and our subsidiaries also entered into security agreements in connection with issuance of the June 2024 Convertible Note, creating a security

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

of our obligations under the June 2024 Convertible Note.

We estimate that, based

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

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

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

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

expectations through cash flow provided by operations, and cash available under our ATM, the Line of Credit and sales of equity.

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

source of working capital.

20 unchanged sentences

Exchange Rate Risk

We ceased all operations

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

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

generated from PRC operations in the foreseeable future.

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

a material effect on us.

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

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

the exchange rate.

The effect of inflation

on our revenue and operating results was not significant.

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

We did not during the six months ended June

30, 2024, and do not expect in the foreseeable future, to generate any additional revenue from PRC operations.

Thus, exchange rate fluctuations

between the RMB and the U.S.

dollar do not have a material effect on us.

For the three months ended June 30, 2024 and 2023, we had an

unrealized foreign currency translation gain of approximately $2,700 and an

unrealized foreign currency translation loss of approximately $11,000, respectively, because

of changes in the exchange rate.

For the six months ended June 30, 2024 and 2023, we had an unrealized foreign currency translation loss

of approximately $200 and $7,300, respectively, because of changes in the exchange rate.

effect of inflation on our revenues and operating results was not significant for the six months ended June 30, 2024 and 2023.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

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

As a smaller reporting

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

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 2. Management’s Discussion and Analysis