Change Agents Corporation. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995: This Quarterly Report on Form 10-Q contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 under Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, anticipations, assumptions, estimates, intentions and future performance, and involve known and unknown risks, uncertainties and other factors, which may be beyond our control, and which may cause our actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. All statements other than statements of historical fact are statements that could be forward-looking statements. You can identify these forward-looking statements through our use of words such as “may,” “will,” “can,” “anticipate,” “assume,” “should,” “indicate,” “would,” “believe,” “contemplate,” “expect,” “seek,” “estimate,” “continue,” “plan,” “point to,” “project,” “predict,” “could,” “intend,” “target,” “potential” and other similar words and expressions of the future. Accordingly, factors that may affect our results include, but are not limited to: ● 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; and ● a decline in economic conditions, including the impact of an inflationary environment and tariffs. All forward-looking statements are expressly qualified in their entirety by this cautionary notice. You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the 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, 2025 and 2024 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. Overview We are a commercial-stage company dedicated to developing and delivering precision diagnostic consumer products and the advancement of intellectual property in cellular therapy. We are currently marketing the KetoAir™ breathalyzer device and plan to develop additional diagnostic uses of the breathalyzer technology. The KetoAir TM is registered with the U.S. Food and Drug Administration as a Class I medical device. In addition, we own and operate commercial real estate at our headquarters in Freehold, NJ. We had the following areas of focus in the three months ended March 31, 2025 and 2024: Research 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. Product Commercialization We have begun the commercialization and development of a versatile breathalyzer system. We were granted exclusive distributorship rights for the KetoAir from Qi Diagnostics for the following territories: North America, South America, the EU and the UK. For our commercialization strategy, we intend to target the diabetes and obesity markets. We 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. 33 The KetoAir is a handheld device that allows the user to detect acetone levels in exhaled breath. The acetone level is in concentration units (ppm, part-per-million) such that the user will know his/her real-time ketosis status: inadequate ketosis (0-3.99 ppm), mild ketosis (4-9.99 ppm), optimal ketosis (10-40 ppm), or alarming level (> 40 ppm). The KetoAir is registered with the United States 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. Laboratory Acquisitions We had embarked on a laboratory rollup strategy focused on forming joint ventures and acquiring laboratories that were accretive to our commercial strategy. 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 services. During the first quarter of 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. Other Areas In order to preserve cash and focus on and product commercialization, we have currently suspended all research and development efforts related to cellular therapy in order to redirect our funding efforts to our core business strategies outlined above. Going Concern We are a commercial-stage company dedicated to developing and delivering 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. 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 $11,655,000 at March 31, 2025 and had incurred recurring net losses and generated negative cash flow from operating activities of approximately $2,482,000 and $1,802,000 for the three months ended March 31, 2025, 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, generating revenue for selling of Keto Air, 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, or at all. The accompanying condensed consolidated financial statements do not include any adjustments related to the recoverability or classification of asset-carrying amounts or the amounts and classification of liabilities that may result should we be unable to continue as a going concern. 34 Critical Accounting Policies Use of Estimates The preparation of the condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Changes in these estimates and assumptions may have a material impact on the condensed consolidated financial statements and accompanying notes. Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from those estimates. Significant estimates during the three months ended March 31, 2025 and 2024 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, and the assumptions used to determine fair value of warrants and embedded conversion features of convertible note payable. Real Property Rental We have determined that 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 leases is recognized on a straight-line basis under the guidance of ASC 842. Lease payments under tenant leases are recognized on a straight-line basis over the term of the related leases. The cumulative difference between lease revenue recognized under the straight-line method and contractual lease payments are included in rent receivable on the condensed consolidated balance sheets. Income Taxes We are governed by the income tax laws of China and the United States. Income taxes are accounted for pursuant to ASC 740 “Accounting for Income Taxes,” which is an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in our financial statements or tax returns. The charge for taxes is based on the results for the period as adjusted for items, which are non-assessable or disallowed. It is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. 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 using tax rates that are expected to apply to the period when the asset is realized or the liability is settled. Deferred tax is charged or credited in the income statement, except when it is related to items credited or charged directly to equity, in which case the deferred tax is changed to equity. Deferred tax assets and liabilities are offset when they related to income taxes levied by the same taxation authority and we intend to settle its current tax assets and liabilities on a net basis. Recent Accounting Standards 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, 2025 and 2024 Real Property Rental Revenue For the three months ended March 31, 2025, we had real property rental revenue of $349,800, as compared to $314,588 for the three months ended March 31, 2024, an increase of $35,212, or 11.2%. The increase was primarily attributable to the increase in the number of tenants occupying the building in the three months ended March 31, 2025 as compared to the three months ended March 31, 2024. We expect that our revenue from real property rent will remain at its current level with minimal increase in the near future. 35 Real Property Operating Expenses Real property operating expenses consist of property management fees, property insurance, real estate taxes, depreciation, repairs and maintenance fees, utilities and other expenses related to our rental properties. For the three months ended March 31, 2025, our real property operating expenses amounted to $280,390, as compared to $263,126 for the three months ended March 31, 2024, an increase of $17,264, or 6.6%. The increase was primarily attributable to an increase in utilities of approximately $23,000, offset by a decrease in other miscellaneous items of approximately $6,000. Real Property Operating Income Our real property operating income for the three months ended March 31, 2025 was $69,410, representing an increase of $17,948, or 34.9%, as compared to $51,462 for the three months ended March 31, 2024. 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. Income from Equity Method Investment – Lab Services MSO For the three months ended March 31, 2025, we had income from our investment in Lab Services MSO of $392,677, which consists of our share of Lab Services MSO’s net income of $503,833 and amortization of identifiable intangible assets acquired from Lab Services MSO acquisition of $111,156. We sold our ownership of 40% of Lab Services MSO on February 26, 2025. 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. Other Operating Expenses For the three months ended March 31, 2025 and 2024, other operating expenses consisted of the following: Three Months Ended March 31, 2025 2024 Advertising and marketing expenses $ 71,150 $ 45,000 Professional fees 1,691,579 442,335 Compensation and related benefits 340,420 353,571 Miscellaneous taxes 40,245 29,341 Directors’ and officers’ liability insurance premium 35,517 69,307 Travel and entertainment 44,661 22,323 Rent and related utilities 15,327 15,592 Other general and administrative 29,963 24,524 $ 2,268,862 $ 1,001,993 ● For the three months ended March 31, 2025, advertising and marketing expenses increased by $26,150, or 58.1%, as compared to the three months ended March 31, 2024. The increase was primarily due to increased advertising activities in the three months ended March 31, 2025. We expect that our advertising and marketing expenses will likely remain at their current level with minimal increase in the near future. ● Professional fees primarily consisted of accounting fees, audit fees, legal service fees, consulting fees, investor relations service charges, fairness opinion charge, valuation service fees and other fees. For the three months ended March 31, 2025, professional fees increased by $1,249,244 or 282.4%, as compared to the three months ended March 31, 2024, which was primarily attributable to an increase in consulting fees of approximately $717,000, mainly due to the increase in use of consulting service providers related to our potential merger with YOOV Group Holding Limited, a business company incorporated in the British Virgin Islands (“YOOV”), an increase in legal service fees of approximately $498,000, mainly due to the increased legal services related to our potential merger with YOOV, an increase in fairness opinion charge of approximately $129,000 resulting from the increased fairness opinion services related to our potential merger with YOOV, offset by a decrease in other miscellaneous items of approximately $95,000. We expect that our professional fees will decrease in the near future. ● For the three months ended March 31, 2025, compensation and related benefits decreased by $13,151, or 3.7%, as compared to the three months ended March 31, 2024. The decrease was primarily attributable to the decreased compensation for our executive officer, David Jin. We expect that our compensation and related benefits will increase in the near future. 36 ● For the three months ended March 31, 2025, miscellaneous taxes increased by $10,904, or 37.2%, as compared to the three months ended March 31, 2024. The increase was primarily attributable to increased Delaware state franchise tax. We expect that our miscellaneous taxes will remain relatively steady, with minimal increase, in the near future. ● For the three months ended March 31, 2025, directors’ and officers’ liability insurance premium decreased by $33,790, or 48.8%, as compared to the three months ended March 31, 2024. 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, 2025, travel and entertainment expense increased by $22,338, or 100.1%, as compared to the three months ended March 31, 2024. The increase was mainly due to increased business travel activities in the three months ended March 31, 2025 as compared to the three months ended March 31, 2024. ● For the three months ended March 31, 2025, rent and related utilities expenses decreased by $265, or 1.7%, as compared to the three months ended March 31, 2024. ● Other general and administrative expenses mainly consisted of NASDAQ listing fee, office supplies, and other miscellaneous items. For the three months ended March 31, 2025, other general and administrative expenses increased by $5,439, or 22.2%, as compared to the three months ended March 31, 2024, which was mainly attributable to an increase in service fee related to setting up our British Virgin Islands company for our potential merger with YOOV of approximately $4,000, and an increase in other miscellaneous items of approximately $1,000. Loss from Operations As a result of the foregoing, for the three months ended March 31, 2025, loss from operations amounted to $1,806,775, as compared to $843,062 for the three months ended March 31, 2024, representing an increase of $963,713, or 114.3%. Other (Expense) Income Other (expense) income mainly includes third party and related party interest expense, change in fair value of derivative liability, and other miscellaneous expense. Other expense, net, totaled $675,336 for the three months ended March 31, 2025, as compared to $524,451 for the three months ended March 31, 2024, an increase of $150,885, or 28.8%, which was primarily attributable to an increase in third party interest expense of approximately $52,000, mainly driven by the increase in amortization of debt discount and debt issuance costs of approximately $42,000 and the increased interest expense of approximately $10,000 from third party debts, a decrease in gain from change in fair value of derivative liability of approximately $146,000, offset by a decrease in interest expense – related party of approximately $11,000, and a decrease in other expense of approximately $36,000. Income Taxes We did not have any income taxes expense for the three months ended March 31, 2025 and 2024 since we incurred losses in these periods. Net Loss As a result of the factors described above, our net loss was $2,482,111 for the three months ended March 31, 2025, as compared to $1,367,513 for the three months ended March 31, 2024, an increase of $1,114,598, or 81.5%. Net Loss Attributable to Avalon GloboCare Corp. Common Shareholders The net loss attributable to our common shareholders (after taking into effect $162,473 in deemed contribution) was $2,319,638, or $1.43 per share (basic and diluted), for the three months ended March 31, 2025, as compared to $1,367,513, or $1.86 per share (basic and diluted), for the three months ended March 31, 2024, an increase of $952,125, or 69.6%. 37 Foreign Currency Translation Adjustment Our reporting currency is the U.S. dollar. The functional currency of our parent company, AHS, Avalon RT 9, Avalon Lab, and Q&A Distribution is the U.S. 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 $279 and a foreign currency translation loss of $2,920 for the three months ended March 31, 2025 and 2024, 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 $2,481,832 and $1,370,433 for the three months ended March 31, 2025 and 2024, 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, generating revenue for selling of Keto Air, as well as obtaining additional financing to fund future obligations and pay liabilities arising from ordinary course business operations. In addition, the current cash balance cannot be projected to cover our operating expenses for the next twelve months from the release date of this report. These matters raise substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern is dependent on our ability to raise additional capital, implement our business plan, and generate sufficient revenues. There are no assurances that we will be successful in our efforts to generate sufficient revenues, maintain sufficient cash balance or report profitable operations or to continue as a going concern. We plan to raise 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, 2025 and December 31, 2024, we had a cash balance of approximately $1,370,000 and $2,856,000, respectively. These funds are kept in financial institutions located as follows: Country: March 31, 2025 December 31, 2024 United States $ 1,351,923 98.7 % $ 2,844,522 99.6 % China 17,663 1.3 % 11,787 0.4 % Total cash $ 1,369,586 100.0 % $ 2,856,309 100.0 % The following table sets forth a summary of changes in our working capital deficit from December 31, 2024 to March 31, 2025: March 31, December 31, Changes in 2025 2024 Amount Percentage Working capital deficit: Total current assets $ 2,794,258 $ 3,236,498 $ (442,240 ) (13.7 )% Total current liabilities 14,449,353 13,882,555 566,798 4.1 % Working capital deficit $ (11,655,095 ) $ (10,646,057 ) $ (1,009,038 ) 9.5 % Our working capital deficit increased by $1,009,038 to $11,655,095 at March 31, 2025 from $10,646,057 at December 31, 2024. The increase in working capital deficit was primarily attributable to a decrease in cash of approximately $1,487,000, an increase in accrued professional fees of approximately $373,000 which was mainly attributable to the increase in professional services related to our potential merger with YOOV, an increase in advance from pending sale of noncontrolling interest – related party of approximately $220,000 resulting from advance received in connection with the membership interest purchase agreement entered into in November 2023 in three months ended March 31, 2025, and an increase in convertible note payable, net, of approximately $284,000 driven by the amortization of debt discount and debt issuance costs of approximately $284,000 in the three months ended March 31, 2025, offset by an increase in current portion of receivable from sale of equity method investment of $975,000 resulting from execution of the Redemption Agreement signed on February 26, 2025 as described elsewhere in this report, and a decrease in accrued liabilities and other payables – related parties of approximately $633,000 which was extinguished upon our sale of equity method investment in the first quarter of 2025. Because the exchange rate conversion is different for the condensed consolidated balance sheets and the condensed consolidated statements of cash flows, the changes in assets and liabilities reflected on the condensed consolidated statements of cash flows are not necessarily identical with the comparable changes reflected on the condensed consolidated balance sheets. 38 Cash Flows for the Three Months Ended March 31, 2025 Compared to the Three Months Ended March 31, 2024 The following summarizes the key components of our cash flows for the three months ended March 31, 2025 and 2024: Three Months Ended March 31, 2025 2024 Net cash used in operating activities $ (1,801,926 ) $ (915,709 ) Net cash provided by investing activities 95,000 - Net cash provided by financing activities 219,972 936,772 Effect of exchange rate on cash 231 (995 ) Net (decrease) increase in cash $ (1,486,723 ) $ 20,068 Net cash flow used in operating activities for the three months ended March 31, 2025 was $1,801,926, which primarily reflected our consolidated net loss of approximately $2,482,000, and the non-cash item adjustments, primarily consisting of income from equity method investment of approximately $393,000, offset by amortization of debt issuance costs and debt discount of approximately $314,000, and change in fair market value of derivative liability of approximately $114,000, and the changes in operating assets and liabilities, primarily consisting of an increase in accrued liabilities and other payables of approximately $556,000, mainly due to the increase in services related to our potential merger with YOOV in the three months ended March 31, 2025. 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. 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; and ● 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. Net cash flow provided by investing activities was $95,000 for the three months ended March 31, 2025, as compared to $0 for the three months ended March 31, 2024. During the three months ended March 31, 2025, we received proceeds from sale of equity method investment of $95,000. There was no investing activity during the three months ended March 31, 2024. Net cash flow provided by financing activities was $219,972 for the three months ended March 31, 2025, as compared to $936,772 for the three months ended March 31, 2024. During the three months ended March 31, 2025, we received advance from sale of noncontrolling interest in subsidiary of approximately $220,000. 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. 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; and ● the cost of being a public company. In addition, the impact that the imposition of tariffs and changes to global trade policies could have on our results of operations is uncertain. 39 We estimate that, based 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, there can be no assurance that financing will be available in amounts or on terms acceptable to the Company. Additionally, the trading price of our common stock and a downturn in the U.S. equity and debt markets could make it more difficult to obtain financing through the issuance of equity or debt securities. Even if we are able to raise the funds required, it is possible that we could incur unexpected costs and expenses or experience unexpected cash requirements that would force us to seek alternative financing. Furthermore, if we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our common stock. The inability to obtain additional capital may restrict our ability to grow and may reduce our ability to continue to conduct business operations. If we are unable to obtain additional financing, we will be required to cease our operations. To date, we have not considered this alternative, nor do we view it as a likely occurrence. Foreign Currency Exchange Rate Risk We ceased all operations in China in 2022, with the exception of a small administrative office. We did not during the three months ended March 31, 2025, 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 three months ended March 31, 2025 and 2024, we had an unrealized foreign currency translation gain of approximately $300 and an unrealized foreign currency translation loss of approximately $3,000, respectively, because of changes in the exchange rate. Inflation The effect of inflation on our revenues and operating results was not significant for the three months ended March 31, 2025 and 2024. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. 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.