What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2025-03-31 compared with 2024-04-15 · 362 added, 411 removed, 173 unchanged (82% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion

17 unchanged sentences

We are a commercial-stage

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

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

genetics-driven results.

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

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

We have the following

areas of focus:

company dedicated to developing and delivering precision diagnostic consumer products.

We are currently marketing the Keto Air breathalyzer

device and plan to develop additional diagnostic uses of the breathalyzer technology.

In addition, we own commercial real estate that

houses our headquarters in Freehold, New Jersey.

We have the following areas of focus in 2024 and 2023:

Laboratory Acquisitions

We have embarked on a

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

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

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

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

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

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

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

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

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

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

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

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

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

which is a medical equipment retail company.

We had embarked on

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

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

Among other things, Lab

Services MSO provides toxicology and wellness testing services, a broad portfolio of diagnostic tests, and a broad array of test

During 2025, to preserve cash, the Company entered into discussions with Lab Services MSO for the potential redemption of

our investment and on February 26, 2025, we and Lab Services MSO entered into a Redemption and Abandonment Agreement, whereby Lab

Services MSO redeemed the 40% equity interest in Lab Services MSO held by us.

Accordingly, beginning in February 2025, we no longer

offer laboratory services.

Research and Development

1 unchanged sentence

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

We completed a sponsored

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

Using the unique QTY code protein

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

respective cytokines.

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

patent submissions.

Commercialization

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

We have begun the commercialization

4 unchanged sentences

the EU and the UK.

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

(April 21-23, 2023).

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

We are evaluating

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

product through the KetoAir website and social media.

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

for measuring ketosis.

The KetoAir is a handheld

4 unchanged sentences

(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

2 unchanged sentences

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.

We are a commercial-stage company dedicated to developing and delivering

precision diagnostic consumer products.

We are currently marketing the Keto Air breathalyzer device and plan to develop additional diagnostic

uses of the breathalyzer technology.

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

We also have income from equity method investment

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

These consolidated financial statements have been prepared assuming that

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.

These 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

3 unchanged sentences

We have a limited operating

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

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

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

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

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

business operations.

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

from the release date of this report.

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

The ability of us to continue as a going

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

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

profitable operations or to continue as a going concern.

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

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

terms and conditions, if any.

The accompanying consolidated

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

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

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.

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, or at all.

The accompanying consolidated financial statements

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

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

Accounting Policies

The preparation of the

consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S.

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

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

the reporting period.

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

accompanying notes.

The preparation of

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

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

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

revenues and expenses during the reporting period.

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

consolidated financial statements and accompanying notes.

Making estimates requires management to exercise significant judgment.

It is at least reasonably possible that the

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

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

Accordingly, the actual

results could differ significantly from those estimates.

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

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

impairment of long-term assets, the valuation of deferred tax assets and the associated valuation allowances, the valuation of stock-based

compensation, the assumptions used to determine fair value of warrants and embedded conversion features of convertible note payable, and

the fair value of the consideration given and assets acquired in the purchase of our equity interest in Lab Services MSO.

is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at

the date of the financial statements, which management considered in formulating its estimate, could change in the near term due to

one or more future confirming events.

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

Significant estimates

during the years ended December 31, 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

Investment in Unconsolidated

We use the equity method

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

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

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

If we consider any decline to be other than temporary

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

recorded to estimated fair value.

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

See Note 7 for discussion of equity method investments.

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

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

in earnings and cash distributions.

We consider whether the

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

that recorded value may not be recoverable.

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

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

of equity method investment amounted to $259,579 and $9,651,361 for the years ended December 31, 2024 and 2023, respectively.

We classify distributions

received from equity method investments using the cumulative earnings approach.

Distributions received are considered returns on the investment

and classified as cash inflows from operating activities.

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

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

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

Real Property Rental

We have determined that

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

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

4 unchanged sentences

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

We do not offer promotional

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

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

6 unchanged sentences

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.

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

5 unchanged sentences

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

Recent Accounting Standards

For details of applicable new accounting standards,

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

RESULTS OF OPERATIONS

13 unchanged sentences

For the year ended December

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

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

The increase was primarily due to an increase in property management

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

items of approximately $9,000.

31, 2024, our real property operating expenses amounted to $1,065,574, as compared to $1,017,493 for the year ended December 31, 2023,

an increase of $48,081, or 4.7%.

The increase was primarily attributable to an increase in electric fee of approximately $40,000 and an

increase in other miscellaneous items of approximately $8,000.

Real Property Operating

Our real property operating

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

for the year ended December 31, 2022.

The decrease was primarily attributable to the increase in real property operating expenses

as described above.

income for the year ended December 31, 2024 was $267,829, representing an increase of $29,641, or 12.4%, as compared to $238,188 for the

year ended December 31, 2023.

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

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

from Equity Method Investment — Lab Services MSO

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

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

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

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

in our stock price and market capitalization.

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

In the third quarter of 2023,

Lab Services MSO acquired Merlin Technologies, Inc.

which is a medical equipment retail company.

Lab Services MSO has also opened a new

laboratory, Veritas Laboratories LLC (“Veritas”).

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

Arizona that offers a wide range of high-quality testing, including drug testing, genetic testing, urinary testing and COVID-19 PCR testing.

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

Loss from Equity

Method Investment – Lab Services MSO

For the year ended December

31, 2024, we had loss from our investment in Lab Services MSO of $846,588, which consists of our share of Lab Services MSO’s net

income of $79,923, and amortization of identifiable intangible assets acquired from Lab Services MSO acquisition of $666,932, and impairment

of goodwill acquired from Lab Services MSO acquisition of $259,579, which was primarily attributable to Lab Services MSO’s lower

revenues and net incomes than anticipated and the decline in our stock price and market capitalization.

For the year ended December

31, 2023, we had loss from our investment in Lab Services MSO of $8,571,647, which consists of our share of Lab Services MSO’s net

income of $1,236,391, and amortization of identifiable intangible assets acquired from Lab Services MSO acquisition of $611,356, and impairment

of goodwill acquired from Lab Services MSO acquisition of $9,196,682, which was primarily attributable to Lab Services MSO’s lower

revenues and net incomes than anticipated and the decline in our stock price and market capitalization.

Other Operating Expenses

4 unchanged sentences

Compensation and related benefits

Miscellaneous taxes

Research and development

Litigation settlement

Directors and officers’ liability insurance premium

1 unchanged sentence

Rent and related utilities

Impairment of laboratory equipment

Other general and administrative

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

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

● For the year ended December 31, 2024, advertising and marketing expenses decreased by $1,429,050, or 85.7%,

as compared to the year ended December 31, 2023.

The decrease was primarily due to decreased advertising activities in the year ended

December 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 and other fees.

● 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 year ended

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

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

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

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

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

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

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

of approximately $21,000.

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

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

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

The decrease was primarily attributable

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

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

the near future .

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

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

The decrease was mainly attributable

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

December 31, 2024, professional fees decreased by $1,254,372, or 40.8%, as compared to the year ended December 31, 2023, which was primarily

attributable to a decrease in consulting fees of approximately $352,000, 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 $174,000, due to the decreased audit services

related to our acquisition of Lab Services MSO, a decrease in accounting fees of approximately $431,000, mainly due to the decreased accounting

services related to our acquisition of Lab Services MSO, a decrease in legal service fees of approximately $385,000, mainly due to the

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

$47,000, offset by an increase in valuation fee for our equity method investment on Lab Services MSO of $135,000.

We expect that our professional

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

● For the year ended December 31, 2024, compensation and related benefits

decreased by $337,121, or 19.1%, as compared to the year ended December 31, 2023.

The decrease was primarily attributable to the decreased

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

We expect that our compensation and related benefits will remain

relatively steady, with minimal increase, in the near future .

● For the year ended December 31, 2024, miscellaneous taxes increased by $176,198, or 307.6%, as compared

to the year ended December 31, 2023.

The increase was primarily attributable to increased Delaware state franchise tax.

We expect that

our miscellaneous taxes will decrease in the near future.

● For the year ended December 31, 2024, research and development expenses

decreased by $109,618, or 100.0%, as compared to the year ended December 31, 2023.

In the year ended December 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

● For the year ended December 31,

2024, directors’ and officers’ liability insurance premium decreased by $136,847, or 39.1%, as compared to the year ended

December 31, 2023.

We expect that our research and development expenses will continue to

decrease in the near future as we redirect our

funding efforts to our core business strategies discussed above .

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

as compared to the year ended December 31, 2022.

The decrease was due to a settlement signed

in June 2022.

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

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

The decrease was mainly

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

the year ended December 31, 2023, travel and entertainment

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

the year ended December 31, 2023, rent and related

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

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

general and administrative expenses mainly consisted

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

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

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

at stricter controls on corporate expenditures.

from Operations

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

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

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

(Expense) Income

Other (expense) income mainly includes third party and related party interest

expense, conversion inducement expense, loss from equity method investment - Epicon, change in fair value of derivative liability, impairment

of equity method investment - Epicon, gain on debts extinguishment, and other miscellaneous (expense) income.

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

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

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

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

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

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

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

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

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

in other miscellaneous income of approximately $224,000.

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

● For the year ended December 31, 2024, travel and entertainment expense

decreased by $57,677, or 34.6%, as compared to the year ended December 31, 2023.

The decrease was mainly due to decreased business travel

activities in the year ended December 31, 2024 as compared to the year ended December 31, 2023.

● For the year ended December 31, 2024, rent and related utilities

expenses decreased by $1,855, or 2.9%, as compared to the year ended December 31, 2023.

● In December 2024, we assessed our laboratory equipment for any impairment and concluded that there were

indicators of impairment as of December 31, 2024 and we calculated that the estimated undiscounted cash flows were less than the carrying

amount of the laboratory equipment.

Based on our analysis, we recognized an impairment loss of $111,033 for the year ended December 31,

2024, which reduced the value of laboratory equipment to zero.

We did not record any impairment charge for the year ended December 31,

● Other general and administrative expenses mainly consisted of NASDAQ

listing fee, office supplies, and other miscellaneous items.

For the year ended December 31, 2024, other general and administrative expenses

decreased by $31,942, or 19.9%, as compared to the year ended December 31, 2023, which was mainly attributable to a decrease in office

supplies of approximately $12,000, and a decrease in other miscellaneous items of approximately $20,000 due to our efforts at stricter

controls on corporate expenditure.

Loss from Operations

As a result of the foregoing,

for the year ended December 31, 2024, loss from operations amounted to $4,927,732, as compared to $15,753,683 for the year ended December

31, 2023, representing a decrease of $10,825,951, or 68.7%.

Other (Expense)

Other (expense) income

mainly includes third party and related party interest expense, debt modification charge, change in fair value of derivative liability,

impairment of equity method investment on Epicon, gain on debts extinguishment, and other miscellaneous expense.

Other expense, net, totaled

$2,975,662 for the year ended December 31, 2024, as compared to $953,327 for the year ended December 31, 2023, an increase of $2,022,335,

or 212.1%, which was primarily attributable to an increase in third party interest expense of approximately $1,077,000, mainly driven

by the increase in amortization of debt discount and debt issuance costs of approximately $867,000 and the increased interest expense

of approximately $210,000 from third party debts, an increase in interest expense – related party of approximately $9,000, an increase

in debt modification charge of approximately $839,000, a decrease in gain on debts extinguishment of approximately $683,000, and an increase

in other expense of approximately $56,000, offset by an increase in gain from change in fair value of derivative liability of approximately

$186,000, a decrease in impairment of equity method investment on Epicon of approximately $455,000.

have any income taxes expense for the years ended December 31, 2024 and 2023 since we incurred losses in these periods.

a result of the factors described above, our net loss was $7,903,394 for the year ended December 31, 2024, as compared to $16,707,010

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

for the year ended December 31, 2023, a decrease of $8,803,616, or 52.7%.

Net Loss Attributable

2 unchanged sentences

net loss attributable to our common shareholders was $7,903,394, or $8.44 per share (basic and diluted), for the year ended December 31,

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

2024, as compared to $16,707,010, or $23.80 per share (basic and diluted), for the year ended December 31, 2023, a decrease of $8,803,616,

Foreign Currency

Translation Adjustment

reporting currency is the U.S.

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

Our reporting currency is the

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

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

The financial statement of our subsidiary

The financial statements of our subsidiary

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

6 unchanged sentences

respectively.

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

This non-cash loss had the effect of increasing our reported comprehensive loss in each respective period.

Comprehensive Loss

3 unchanged sentences

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

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

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

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

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

The ability of us to continue as a going

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

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

profitable operations or to continue as a going concern.

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

and debt and our plans on raising additional capital in the future through the sale of equity or debt to implement its business plan.

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

terms and conditions, if at all.

real estate property in New Jersey, as well as obtaining additional financing to fund future obligations and pay liabilities arising from

ordinary course business operations.

In addition, the current cash balance cannot be projected to cover our operating expenses for the

next twelve months from the release date of this report.

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

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 and otherwise operate on an ongoing

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

These funds are kept

in financial institutions located as follows:

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 December 31, 2024 and 2023, we had a cash balance of approximately $2,856,000 and $285,000, respectively.

funds are kept in financial institutions located as follows:

December 31, 2024

5 unchanged sentences

Total current assets

$ (1,522,659 )

Total current liabilities

3 unchanged sentences

$ (4,734,238 )

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

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

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

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

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

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

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

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

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

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

Our working capital deficit increased

by $4,734,238 to $10,646,057 at December 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 $117,000 driven by collection efforts in the year ended December 31, 2024,

an increase in accrued liabilities and other payables of $161,000 mainly due to the increase in accrued Delaware state franchise tax in

the year ended December 31, 2024, an increase in accrued liabilities and other payables – related parties of approximately $526,000

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 $2,622,000 resulting from advance received in connection with the

membership interest purchase agreement entered into in November 2023 in the year ended December 31, 2024, an increase in derivative liability

of approximately $103,000, an increase in note payable, net, of approximately $5,715,000, which was attributable to the reclassification

of note payable from non-current to current, and an increase in convertible note payable, net, of approximately $189,000, offset by n

increase in cash of approximately $2,571,000, a decrease in accrued professional fees of approximately $1,193,000 resulting from payments

made to our professional service providers in the year ended December 31, 2024, a decrease in operating lease obligation of approximately

$119,000, and 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 year ended December 31, 2024.

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

2 unchanged sentences

Flows for the Year Ended December 31, 2024 Compared to the Year Ended December 31, 2023

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

following table summarizes the key components of our cash flows for the years ended December 31, 2024 and 2023:

Years Ended December 31,

5 unchanged sentences

Effect of exchange rate on cash

Net (decrease) increase in cash

Net increase (decrease) in cash

$ (1,705,510 )

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

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

cash flow used in operating activities for the year ended December 31, 2024 was $4,969,205, which primarily reflected our

consolidated net loss of approximately $7,903,000, and the non-cash item adjustment, consisting of change in fair market value of

derivative liability of approximately $374,000, and the changes in operating assets and liabilities, primarily consisting of a

decrease in accrued liabilities and other payables of approximately $1,165,000 resulting from payments made to our vendors in the

year ended December 31, 2024, and a decrease in operating lease obligation of approximately $123,000, offset by a decrease in rent

receivable of approximately $131,000 driven by our collection efforts, and the non-cash items adjustment, primarily consisting of

depreciation of approximately $178,000, amortization of operating lease right-of-use asset of approximately $123,000, stock-based

compensation and service expense of approximately $522,000, loss from equity method investments of approximately $847,000 which was

mainly attributable to the amortization of identifiable intangible assets acquired from Lab Services MSO acquisition of

approximately $667,000 and the impairment of goodwill acquired from Lab Services MSO acquisition of approximately $260,000,

resulting from Lab Services MSO’s lower revenues and net incomes than anticipated and the decline in our stock price and

market capitalization, distribution of earnings from equity method investment of approximately $612,000, amortization of debt

issuance costs and debt discount of approximately $1,411,000, impairment of laboratory equipment of approximately $111,000, and debt

modification charge of approximately $689,000.

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

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

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

5 unchanged sentences

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

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

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

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

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

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

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

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

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

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

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

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

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

$3,311,000 mainly resulting from the conversion of convertible debt in July 2022, and conversion inducement expense of approximately

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

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

development and commercialization of new products;

increase in professional staff and services;

increase in public relations

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

or enter new markets.

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

December 31, 2022.

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

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

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

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

Net cash flow provided by financing

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

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

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

costs of approximately $327,000), and net proceeds from issuance of balloon promissory note of approximately $936,000 (net of cash

paid for promissory note issuance costs of approximately $64,000), and net proceeds from equity offering of approximately $616,000 (net

of cash paid for commission and other offering costs of approximately $19,000), and advance from sale of noncontrolling interest in subsidiary

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

During the year ended December 31, 2022,

we received proceeds from related party borrowings of $100,000, and proceeds from issuance of convertible debt and warrants of approximately

$3,719,000, and net proceeds from issuance of balloon promissory note of approximately $4,534,000 (net of cash paid for debt issuance

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

other offering costs of approximately $24,000), and proceeds from issuance of Series A Preferred Stock of $9,000,000 to fund our working

capital needs and equity interest purchase, offset by repayments made for note payable – related party of $390,000 and repayments

made for loan payable – related party of $410,000.

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

increase in working capital requirements to finance our current business;

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

cost of being a public company.

2019 Credit Facility

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

The unsecured

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

As of December 31, 2023,

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

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

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

price of up to $3.5 million.

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

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

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

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

Balloon Mortgage Note

In May 2023, we, through

Avalon RT 9, executed a balloon mortgage note in favor of a lender (the “Lender”) in the original principal amount of $1,000,000

(the “Balloon Mortgage Note”).

The Balloon Mortgage Note accrues interest at the annual rate of 13.0% and is paid in monthly

installments of interest-only in the amount of $10,833 commencing in June 2023 and continuing through October 2025 (at which point any

unpaid balance of principal, interest and other charges become due and payable).

The Balloon Mortgage Note is secured by a second-lien

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

Mortgage Note.

May 2023 Convertible Note Financing

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

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

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

up to 230,000 shares of our common stock.

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

2023 Note, creating a security interest in certain property of the Company and its subsidiaries to secure the prompt payment,

performance and discharge in full of all of our obligations under the May 2023 Note.

The May 2023 Lenders acquired the May 2023 Note

for $1,425,000 after an original issue discount of $75,000.

The May 2023 Note matures on May 23, 2024 and accrues interest at a rate

of 13.0% per annum.

The May 2023 Note contains certain negative covenants.

If the May 2023 Note is accelerated following the

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

under the May 2023 Note.

The principal amount and interest under the May 2023 Note is convertible into shares of our common stock at

a conversion price of $4.50 per share, unless we fail to make an amortization payment when due in accordance with the terms of the

May 2023 Note, in which case the conversion price shall be the lower of (i) $4.50 or (ii) 85% of the lowest VWAP of our common stock

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

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

exercisable until May 23, 2028 and (ii) a warrant to purchase 105,500 shares of our common stock at an exercise price of $3.20 and

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

conversion price of the May 2023 Note and the exercise price of the warrants issued thereunder contain certain price protection

anti-dilution adjustments if an event of default occurs under the May 2023 Note.

July 2023 Convertible

Note Financing

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

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

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

up to 76,830 shares of our common stock.

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

2023 Note, creating a security interest in certain property of the Company and its subsidiaries to secure the prompt payment,

performance and discharge in full of all of our obligations under the July 2023 Note.

The July 2023 Lenders acquired the July 2023

Note for $475,000 after an original issue discount of $25,000.

The July 2023 Note matures on July 6, 2024 and accrues interest at a

rate of 13.0% per annum.

The July 2023 Note contains certain negative covenants.

If the July 2023 Note is accelerated following the

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

under the July 2023 Note.

The principal amount and interest under the July 2023 Note is convertible into shares of our common stock

at a conversion price of $4.50 per share, unless we fail to make an amortization payment when due which commences in January 2024 in

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

the lowest VWAP of our common stock on any trading day during the five (5) trading days prior to the respective conversion date,

subject to a floor of $1.50 per share.

The warrants are comprised of (i) a warrant to purchase 41,665 shares of our common stock at

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

exercise price of $3.20 and exercisable until July 6, 2028 (which warrant shall be cancelled and extinguished upon the payment of

the July 2023 Notes).

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

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

October 2023 Convertible

Note Financing

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

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

“October 2023 Note”), as well as the issuance of 70,000 shares of our common stock as a commitment fee and warrants for

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

We and our subsidiaries also entered into security agreements in

connection with the October 2023 Note, creating a security interest in certain property of the Company and its subsidiaries to

secure the prompt payment, performance and discharge in full of all of our obligations under the October 2023 Note.

The October 2023

Lenders acquired the October 2023 Note for $665,000 after an original issue discount of $35,000.

The October 2023 Note matures on

October 9, 2024 and accrues interest at a rate of 13.0% per annum.

The October 2023 Note contains certain negative covenants.

October 2023 Note is accelerated following the occurrence of an event of default as described in such note, we are required to pay

120% of the principal and interest outstanding under the October 2023 Note.

The principal amount and interest under the October 2023

Note is convertible into shares of our common stock at a conversion price of $1.50 per share, unless we fail to make an amortization

payment when due which commences in April 2024 in accordance with the terms of the October 2023 Note, in which case the conversion

price shall be the lower of (i) $1.50 or (ii) 85% of the lowest VWAP of our common stock on any trading day during the five (5)

trading days prior to the respective conversion date.

The warrants are comprised of (i) a warrant to purchase 105,000 shares of our

common stock at an exercise price of $2.50 and exercisable until October 9, 2028 and (ii) a warrant to purchase 87,500 shares of our

common stock at an exercise price of $1.80 and exercisable until October 9, 2028 and which warrant shall be cancelled and

extinguished upon the payment of the October 2023 Note.

The conversion price of the October 2023 Note and the exercise price of the

warrants issued thereunder contain certain price protection anti-dilution adjustments if an event of default occurs under the

October 2023 Note.

We expect our cash used

in operating activities to increase in the next 12 months due to the following:

● the development and

commercialization of new products;

● an increase

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

cash flow used in investing activities was $100,000 for the year ended December 31, 2024, as compared to $22,159 for the year ended December

During the year ended December 31, 2024, we paid $100,000 for the acquisition of a 40% interest in Lab Services MSO.

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

cash flow provided by financing activities was $7,638,667 for the year ended December 31, 2024, as compared to $4,825,337 for the year

ended December 31, 2023.

During the year ended December 31, 2024, we received net proceeds from the issuance of convertible debts and

warrants of approximately $3,085,000 (net of original issue discount of approximately $177,000 and cash paid for convertible note issuance

costs of approximately $283,000), an advance from the pending sale of a noncontrolling interest in a subsidiary of approximately $2,122,000,

net proceeds from equity offering of approximately $2,719,000 (net of cash paid for commission and other offering costs of approximately

$138,000), and proceeds from issuance of convertible preferred stock of $3,500,000, offset by repayments made for loan payable –

related party of $400,000, and made for convertible debts of approximately $3,388,000.

During the year ended December 31, 2023, we received

proceeds from related party borrowings of $850,000, and net proceeds from issuance of convertible debt and warrants of approximately $2,238,000

(net of original issue discount of $135,000 and cash paid for convertible note issuance costs of approximately $327,000), and net proceeds

from issuance of balloon promissory note of approximately $936,000 (net of cash paid for promissory note issuance costs of approximately

$64,000), and net proceeds from equity offering of approximately $616,000 (net of cash paid for commission and other offering costs of

approximately $19,000), and advance from pending sale of noncontrolling interest in subsidiary of approximately $486,000, offset by repayments

made for convertible debt of $300,000.

The following trends

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

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

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

● the cost of being a public company.

August 2019 Credit

In the third quarter

of 2019, we entered 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 allowed us to request loans thereunder and to use the proceeds

of such loans for working capital and operating expense purposes until the facility matured on December 31, 2024.

At-the-Market Offering

In June 2023, we entered

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

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

From July 1, 2023 to August

16, 2024, we sold an aggregate of 312,285 shares of our common stock at an average price of $11.19 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

1 unchanged sentence

In March 2024, we entered

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

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

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

We and our subsidiaries

also entered into security agreements in connection with the March 2024 Note, creating a security interest in certain property of the

Company and its subsidiaries to secure the prompt payment, performance and discharge in full of all of our obligations under the March

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

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

of 7,000 shares of common stock as a commitment fee and warrants for the purchase of up to 16,827 shares of our common stock.

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 26,800 shares of common stock as a commitment fee and warrants for the purchase of up to 146,667 shares of our common stock.

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.

Series C Convertible

Preferred Stock Sold Pursuant to Securities Purchase Agreement

On December 19, 2024,

the Company entered into that certain securities purchase agreement (the “Securities Purchase Agreement”), with an accredited

investor, York Sun Investment Holding Limited, a British Virgin Islands company (the “Investor”), pursuant to which the Company

agreed to issue and sell to the Investor, upon the terms and conditions set forth in the Securities Purchase Agreement, up to 7,000 shares

of Series C Convertible Preferred Stock for up to an aggregate of $7,000,000 (the “Purchase Price”), which is equal to $1,000

The first closing occurred on December 24, 2024, with respect to the Investor’s purchase of 3,500 shares of Series C

Convertible Preferred Stock in exchange for $3,500,000.

Each share of Series

C Convertible Preferred Stock is convertible into common stock of the Company (the “Conversion Shares”) at a conversion per

share equal to $2.41, at the option of the holder, at any time after the later of (i) the date of the shareholder approval of the issuance

of the Conversion Shares pursuant to the rules of the Nasdaq Stock Market (the “Shareholder Approval”) and (ii) the one year

anniversary of the date of the first issuance of any shares of the Series C Convertible Preferred Stock.

The Company shall not be required

to issue any Conversion Shares until the Shareholder Approval is obtained by the Company.

The Investor shall also have a right of first

refusal during the period beginning on the date of the Securities Purchase Agreement and continuing until such shareholder approval is

obtained, on all issuances of convertible preferred stock of the Company, excluding agreements that are in place prior to the date of

the Securities Purchase Agreement and issuances of new classes of convertible preferred stock in exchange for existing classes of convertible

preferred stock.

Additionally, the Investor has the right, pursuant to the Securities Purchase Agreement to appoint one member to, or

to replace one member of, the Company’s board of directors, subject to all applicable Nasdaq rules.

The Investor’s

purchase of the remaining 3,500 shares of Series C Convertible Preferred Stock under the Securities Purchase Agreement in exchange for

an additional $3,500,000 is required to occur within 120 calendar days of the date of the Securities Purchase Agreement, subject to the

satisfaction of customary closing conditions.

We estimate that, based

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

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

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

source of working capital.

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

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

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

Financing transactions may include the issuance

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

However, the trading price of our common stock

and a downturn in the U.S.

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

debt securities.

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

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

Furthermore, if we issue additional equity

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

senior to those of existing holders of our common stock.

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

may reduce our ability to continue to conduct business operations.

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

to cease our operations.

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

Off-balance Sheet

We presently do not have

off-balance sheet arrangements.

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 sales of equity.

Other than funds received as described above and cash resources

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

We have used these funds

to fund our operating expenses, pay our obligations and grow our company.

We will need to raise significant additional capital to fund

our operations and to provide working capital for our ongoing operations and obligations.

Therefore, our future operation is dependent

on our ability to secure additional financing.

Financing transactions may include the issuance of equity or debt securities, obtaining

credit facilities, or other financing mechanisms.

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

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

Even if we are able to

raise the funds required, it is possible that we could incur unexpected costs and expenses or experience unexpected cash requirements

that would force us to seek alternative financing.

Furthermore, if we issue additional equity or debt securities, stockholders may experience

additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our

common stock.

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

business operations.

If we are unable to obtain additional financing, we will be required to cease our operations.

To date, we have not

considered this alternative, nor do we view it as a likely occurrence.

Foreign Currency Exchange Rate Risk

In November of 2022,

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

We do not expect nor

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

Thus, exchange rate fluctuations

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

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

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

We ceased all operations

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

We did not during the year ended December 31, 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, and are not expected to, have a material effect on us.

For the years ended December 31, 2024 and 2023,

we had an unrealized foreign currency translation loss of approximately $300 and $18,600, respectively, because of changes in the exchange

The effect of inflation

on our revenue and operating results was not significant.

on our revenues and operating results was not significant for the years ended December 31, 2024 and 2023.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

5 unchanged sentences

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

What changed 10-K

Item 7. Management’s Discussion and Analysis