What changed in this filing

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Item 1. Financial Statements

2025-08-14 compared with 2025-05-13 · 1000 added, 762 removed, 953 unchanged (65% of the section changed)

Financial Statements.

AVALON GLOBOCARE CORP.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

CURRENT ASSETS:

Rent receivable

Receivable from sale of equity method investment, current portion

Prepaid expense and other current assets

2 unchanged sentences

Operating lease right-of-use assets, net

Receivable from sale of equity method investment, noncurrent portion

Property and equipment, net

14 unchanged sentences

Derivative liability

Stock subscription liability

Note payable, net

9 unchanged sentences

10,000,000 shares authorized;

Series A convertible preferred stock, 0 and 9,000 shares issued and outstanding at March 31, 2025 and December 31, 2024, respectively

Series B convertible preferred stock, 0 and 11,000 shares issued and outstanding at March 31, 2025 and December 31, 2024, respectively

Series C convertible preferred stock, 3,500 shares issued and outstanding at March 31, 2025 and December 31, 2024;

Liquidation preference $ 3.5 million at March 31, 2025

Series D convertible preferred stock, 5,000 and 0 shares issued and outstanding at March 31, 2025 and December 31, 2024, respectively;

Liquidation preference $ 5 million at March 31, 2025

Series A Convertible Preferred Stock, 0 and 9,000 shares issued and outstanding at June 30, 2025 and December 31, 2024, respectively

Series B Convertible Preferred Stock, 0 and 11,000 shares issued and outstanding at June 30, 2025 and December 31, 2024, respectively

Series C Convertible Preferred Stock, 3,500 shares issued and outstanding at June 30, 2025 and December 31, 2024;

liquidation preference $ 3.5 million at June 30, 2025

Series D Convertible Preferred Stock, 5,000 and 0 shares issued and outstanding at June 30, 2025 and December 31, 2024, respectively;

liquidation preference $ 5 million at June 30, 2025

Common stock, $ 0.0001 par value;

100,000,000 shares authorized;

1,655,134 shares issued and 1,651,667 shares outstanding at March 31, 2025;

2,352,551 shares issued and 2,349,084 shares outstanding at June 30, 2025;

1,445,979 shares issued and 1,442,512 shares outstanding at December 31, 2024

1 unchanged sentence

common stock held in treasury, at cost;

3,467 shares at March 31, 2025 and December 31, 2024

3,467 shares at June 30, 2025 and December 31, 2024

Accumulated deficit

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Total Liabilities and (Deficit) Equity

See accompanying notes to the condensed consolidated financial statements.

See accompanying notes to the condensed consolidated financial

AVALON GLOBOCARE CORP.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE LOSS

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

For the Three Months Ended

For the Six Months Ended

REAL PROPERTY RENTAL REVENUE

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REAL PROPERTY OPERATING INCOME

INCOME FROM EQUITY METHOD INVESTMENT - LAB SERVICES MSO

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

OTHER OPERATING EXPENSES:

2 unchanged sentences

Compensation and related benefits

Credit loss expense

Other general and administrative expenses

2 unchanged sentences

( 3,887,987 )

( 1,504,363 )

( 5,694,762 )

( 2,347,425 )

OTHER (EXPENSE) INCOME

Interest expense - amortization of debt discount and debt issuance costs

( 1,123,971 )

Interest expense - other

1 unchanged sentence

Change in fair value of derivative liability

Other expense

Loss on extinguishment of debt

( 9,076,587 )

Other income (expense)

Total Other Expense, net

( 9,570,611 )

( 10,245,947 )

( 1,152,114 )

LOSS BEFORE INCOME TAXES

3 unchanged sentences

( 3,499,539 )

$ ( 13,458,598 )

$ ( 2,132,026 )

$ ( 15,940,709 )

$ ( 3,499,539 )

NET LOSS ATTRIBUTABLE TO NONCONTROLLING INTEREST

2 unchanged sentences

( 2,132,026 )

( 15,940,709 )

( 3,499,539 )

DEEMED CONTRIBUTION ON EXCHANGE OF EQUITY INSTRUMENTS

3 unchanged sentences

$ ( 2,132,026 )

$ ( 15,778,236 )

$ ( 3,499,539 )

NET LOSS PER COMMON SHARE ATTRIBUTABLE TO AVALON GLOBOCARE CORP.

6 unchanged sentences

$ ( 2,132,026 )

$ ( 15,940,709 )

$ ( 3,499,539 )

OTHER COMPREHENSIVE INCOME (LOSS)

3 unchanged sentences

( 2,129,320 )

( 15,940,326 )

( 3,499,753 )

COMPREHENSIVE LOSS ATTRIBUTABLE TO NONCONTROLLING INTEREST

3 unchanged sentences

$ ( 2,129,320 )

See accompanying notes to the condensed consolidated financial statements.

$ ( 15,940,326 )

$ ( 3,499,753 )

See accompanying notes to

the condensed consolidated financial statements.

AVALON GLOBOCARE CORP.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN

(DEFICIT) EQUITY

For the Three Months Ended March 31, 2025

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN (DEFICIT) EQUITY

For the Three and Six Months Ended June 30, 2025

Avalon GloboCare Corp.

Stockholders' (Deficit) Equity

Series A Preferred Stock

Series B Preferred Stock

Series C Preferred Stock

Series D Preferred Stock

Series A Preferred

Series B Preferred

Series C Preferred

Series D Preferred

Treasury Stock

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( 3,891,270 )

Issuance of common stock upon cashless exercise of stock warrants

Issuance of common stock for services

Reclassification of derivative liability to equity

Stock-based compensation adjustment

Conversion of convertible note payable and accrued interest into common stock

Loss on extinguishment of debt recognized

Foreign currency translation adjustment

Net loss for the three months ended June 30, 2025

( 13,458,598 )

Balance, June 30, 2025

$ ( 522,500 )

$ ( 103,613,834 )

$ ( 231,617 )

$ ( 7,112,273 )

See accompanying notes to the condensed consolidated financial statements.

1 unchanged sentence

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN

For the Three Months Ended March 31, 2024

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

For the Three and Six Months Ended June 30, 2024

Avalon GloboCare Corp.

Stockholders' Equity

Series A Preferred Stock

Series B Preferred Stock

Series A Preferred

Series B Preferred

Treasury Stock

13 unchanged sentences

( 81,137,244 )

Issuance of common stock as convertible note payable commitment fee

Stock-based compensation

Beneficial conversion feature related to convertible note payable

Foreign currency translation adjustment

Net loss for the three months ended June 30, 2024

( 2,132,026 )

Balance, June 30, 2024

$ ( 522,500 )

$ ( 83,269,270 )

$ ( 231,941 )

See accompanying notes to the condensed consolidated financial statements.

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Three Months Ended

For the Six Months Ended

CASH FLOWS FROM OPERATING ACTIVITIES:

2 unchanged sentences

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

Credit loss provision

Change in straight-line rent receivable

1 unchanged sentence

Stock-based compensation and service expense

income from equity method investment

(Income) loss from equity method investment

Distribution of earnings from equity method investment

1 unchanged sentence

Change in fair market value of derivative liability

Loss on extinguishment of debt

Changes in operating assets and liabilities:

8 unchanged sentences

( 3,027,822 )

( 1,997,616 )

CASH FLOWS FROM INVESTING ACTIVITIES:

Payment for equity interest purchase

Proceeds from sale of equity method investment

NET CASH PROVIDED BY INVESTING ACTIVITIES

NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES

CASH FLOWS FROM FINANCING ACTIVITIES

2 unchanged sentences

Repayments of convertible debt

( 3,100,000 )

Proceeds from stock subscription liability

Advance from pending sale of noncontrolling interest in subsidiary

Payments of offering costs

NET CASH PROVIDED BY FINANCING ACTIVITIES

EFFECT OF EXCHANGE RATE ON CASH

NET (DECREASE) INCREASE IN CASH

NET DECREASE IN CASH

( 2,654,777 )

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Common stock issued as convertible note payable commitment fee

Beneficial conversion feature related to convertible note payable

Convertible debts issuance costs in accrued liabilities

Equity method investment payable paid by a related party

2 unchanged sentences

Initial ROU asset and lease liability

See accompanying notes to the condensed consolidated financial statements.

Conversion of convertible note payable and accrued interest into common stock

Deferred financing costs in accrued liabilities

See accompanying notes to

the condensed consolidated financial statements.

AVALON GLOBOCARE CORP.

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

The Company is a commercial-stage company dedicated

to developing and delivering precision diagnostic consumer products and the advancement of intellectual property in cellular therapy.

The Company is currently marketing the KetoAir™ breathalyzer device and plans to develop additional diagnostic uses of the breathalyzer

The Company is a developer of precision diagnostic

consumer products and the advancement of intellectual property in cellular therapy.

The Company is currently marketing the KetoAir™

breathalyzer device, which is owned and manufactured by Qi Diagnostics Limited, and plans 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.

The Company also continues to focus on advancing its intellectual property portfolio through existing patent applications.

In addition, we own and operate commercial real estate at our headquarters in Freehold, NJ.

On May 18, 2015, Avalon Healthcare System, Inc.

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Healthcare Technology Co., Ltd.

(“Avalon Shanghai”), which is a wholly foreign-owned enterprise organized under the laws of

the People’s Republic of China (“PRC”).

(“Avalon Shanghai”), which is a wholly foreign-owned enterprise organized under the laws

of the People’s Republic of China (“PRC”).

Avalon Shanghai was incorporated on April 29, 2016, and was engaged in medical

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In addition, the property generates rental income.

Avalon RT 9 owns this office building.

Avalon RT 9 owns this office

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

March 31, 2025, the occupancy rate of the building is 96.2 %.

On July 18, 2018, the Company formed a wholly

owned subsidiary, Avactis Biosciences Inc.

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

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

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

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

Currently, Avactis and Avactis Nanjing

are dormant and are in process of being dissolved.

As of June 30, 2025, the occupancy rate of the building is 96.2 %.

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

(“Avactis”), a Nevada corporation,

which is a patent holding company.

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

Biotherapeutics”) owns 40 % of Avactis.

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

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

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

On October 14, 2022, the Company formed a wholly

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Q&A Distribution is engaged in distribution of KetoAir device.

February 21, 2025, the Company formed a wholly owned subsidiary, Nexus MergerSub Limited

(“Nexus”), a British Virgin Islands (“BIV”) company.

There was no activity for the subsidiary since its incorporation

through June 30, 2025.

AVALON GLOBOCARE CORP.

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Details of the Company’s subsidiaries which

are included in these condensed consolidated financial statements as of March 31, 2025 are as follows:

are included in these condensed consolidated financial statements as of June 30, 2025 are as follows:

Name of Subsidiary Place and Date of Incorporation Percentage of Ownership Principal Activities

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Q&A Distribution LLC (“Q&A Distribution”) Texas May 1, 2024 100 % held by ALBT Distributes KetoAir device

Nexus MergerSub Limited (“Nexus”) BVI February 21, 2025 100 % held by ALBT No current activities to report

2 – BASIS OF PRESENTATION AND GOING CONCERN CONDITION

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Going Concern

The Company is a commercial-stage

company dedicated to developing and delivering precision diagnostic consumer products.

The Company is currently marketing the Keto Air

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

In addition, the Company owns commercial

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

These condensed consolidated financial statements have been prepared

assuming that the Company will continue as a going concern, which contemplates, among other things, the realization of assets and the

satisfaction of liabilities in the normal course of business.

These condensed consolidated

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

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

As reflected in the accompanying

condensed consolidated financial statements, the Company had a working capital deficit of approximately $ 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.

condensed consolidated financial statements, the Company had a working capital deficit of approximately $ 14,132,000 at June 30, 2025 and

had incurred recurring net losses and generated negative cash flow from operating activities of approximately $ 15,941,000 and $ 3,028,000

for the six months ended June 30, 2025, respectively.

The Company has a limited

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Accordingly, the actual results could differ significantly from those

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, the valuation of Series D convertible preferred stock (“Series D Preferred Stock”),

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

estimates during the three and six months ended June 30, 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 allowance for

credit loss, the valuation of deferred tax assets and the associated valuation allowances, the valuation of stock-based compensation,

the valuation of Series D convertible preferred stock (“Series D Preferred Stock”), and the assumptions used to determine

fair value of warrants and embedded conversion features of convertible note payable .

AVALON GLOBOCARE CORP.

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

Level 1-Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.

Level 2-Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.

Level 3-Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.

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

at the measurement date.

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

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

and inputs derived from or corroborated by observable market data.

● Level 3-Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what

assumptions the market participants would use in pricing the asset or liability based on the best available information.

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

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

The table below reflects the activity of derivative liability measured at fair value for the three months ended March 31, 2025:

The table below reflects the activity of derivative liability measured at fair value for the six months ended June 30, 2025:

Significant Unobservable Inputs

Balance of derivative liability as of January 1, 2025

Initial fair value of derivative liability attributable

to Second Warrant (as hereinafter defined) issuance with June 2024 fund raise (see Note 6)

Gain from change in the fair value of derivative liability

Reclassification of additional paid-in capital upon conversion

Loss from change in the fair value of derivative liability

Balance of derivative liability as of March 31, 2025

Balance of derivative liability as of June 30, 2025

825-10 “Financial Instruments”, allows entities to voluntarily choose to measure certain financial assets and liabilities

at fair value (fair value option).

The fair value option may be elected on an instrument -by-instrument

basis and is irrevocable, unless a new election date occurs.

If the fair value option is elected for an instrument, unrealized gains and

losses for that instrument should be reported in earnings at each subsequent reporting date.

The Company did not elect to apply the fair

value option to any outstanding instruments.

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

a new election date occurs.

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

be reported in earnings at each subsequent reporting date.

The Company did not elect to apply the fair value option to

any outstanding instruments.

Cash and Cash Equivalents

March 31, 2025 and December 31 , 2024, the Company’s cash balances by geographic area were as follows:

June 30, 2025 and December 31 , 2024, the Company’s cash balances by geographic area were as follows:

United States

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purchased and money market accounts to be cash equivalents.

The Company had no cash equivalents at March 31, 2025 and December 31, 2024.

The Company had no cash equivalents at June 30, 2025 and December 31, 2024.

AVALON GLOBOCARE CORP.

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Credit Risk and Uncertainties

Company maintains a portion of its cash on deposits with bank and financial institution within the U.S.

that at times may exceed federally-insured

limits of $ 250,000 .

The Company manages this credit risk by concentrating its cash balances

in high quality financial institutions and by periodically evaluating the credit quality of the primary financial institutions holding

such deposits.

The Company has not experienced any losses in such bank accounts and believes it is not exposed to any risks on its cash

in bank accounts.

At March 31, 2025, the Company’s cash balances in United States bank accounts had approximately $ 840,000 in excess

of the federally-insured limits.

Company maintains a portion of its cash on deposits with bank and financial institution within

that at times may exceed federally-insured limits of $ 250,000 .

The Company manages this credit risk by concentrating its cash

balances in high quality financial institutions and by periodically evaluating the credit quality of the primary financial institutions

holding such deposits.

The Company has not experienced any losses in such bank accounts and believes it is not exposed to any risks on

its cash in bank accounts.

At June 30, 2025, there were no balances in excess of the federally-insured limits.

The Company’s

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

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

in circumstances indicate that recorded value may not be recoverable.

If the Company considers any decline to be other than temporary

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

recorded to estimated fair value.

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

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

If the Company considers any decline to be other than

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

would be recorded to estimated fair value.

See Note 5 for discussion of equity method investment.

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Receivable from Sale of Equity Method Investment

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, the Company and Lab Services MSO entered into a Redemption and Abandonment Agreement (the “Redemption

Agreement”), whereby Lab Services MSO redeemed the 40 % equity interest in Lab Services MSO held by the Company for cash and the

surrender of its Series B convertible preferred stock (“Series B Preferred Stock”) having a carrying value of $ 11,000,000 .

The aggregate cash amount to the Company for the redemption was $ 1,745,000 , to be paid as follows:

one payment of $ 95,000 at the closing

of the redemption and, beginning in March 2025, monthly payments of $ 75,000 until December 2026.

In addition, pursuant to the terms of

the Redemption Agreement, all shares of the Company’s Series B Preferred Stock previously issued to SCBC Holdings LLC as partial

consideration for the equity interests of Laboratory Services MSO, were permanently surrendered and relinquished to the Company for no

additional consideration.

The difference of $ 2,348,695 between the carrying value of the extinguished Series B Preferred Stock, the aggregate

cash amount to the Company for the redemption, net of the payables due to Lab Services MSO of $ 632,916 , totaling $ 13,377,916 , and the

carrying value of the equity method investment of $ 11,029,221 was accounted for as an increase to additional paid-in capital (See Note

10 - Series B Convertible Preferred Stock Extinguished Related to Sale of Equity Method Investment).

Accordingly, beginning in February

2025, the Company no longer offers laboratory services.

As of March 31, 2025, the receivable from sale of equity method investment amounted

to $ 1,650,000 , of which $ 975,000 was included in current assets and $ 675,000 was included in non-current assets.

Management believes

that the receivable is fully collectable.

Therefore, no material allowance for doubtful accounts was deemed to be required on the receivable

at March 31, 2025.

Per Share Data

Topic 260 “Earnings per Share,” requires presentation of both basic and diluted earnings per share (“EPS”) with

a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation.

Basic EPS excludes dilution.

Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common

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

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,

the Company and Lab Services MSO entered into a Redemption and Abandonment Agreement (the “Redemption Agreement”), whereby

Lab Services MSO redeemed the 40 % equity interest in Lab Services MSO held by the Company for cash and the surrender of its Series B convertible

preferred stock (“Series B Preferred Stock”) having a carrying value of $ 11,000,000 .

The aggregate cash amount to the Company

for the redemption was $ 1,745,000 , to be paid as follows:

one payment of $ 95,000 at the closing of the redemption and, beginning in March

2025, monthly payments of $ 75,000 until December 2026.

In addition, pursuant to the terms of the Redemption Agreement, all shares of the

Company’s Series B Preferred Stock previously issued to SCBC Holdings LLC as partial consideration for the equity interests of Laboratory

Services MSO, were permanently surrendered and relinquished to the Company for no additional consideration.

The difference of $ 2,348,695

between the carrying value of the extinguished Series B Preferred Stock, the aggregate cash amount to the Company for the redemption,

net of the payables due to Lab Services MSO of $ 632,916 , totaling $ 13,377,916 , and the carrying value of the equity method investment

of $ 11,029,221 was accounted for as an increase to additional paid-in capital (See Note 10 - Series B Convertible Preferred Stock Extinguished

Related to Sale of Equity Method Investment).

Accordingly, beginning in February 2025, the Company no longer offers laboratory services.

Receivable from sale of equity method

investment is presented net of reserve for credit loss.

The Company maintains a reserve for credit loss for estimated loss.

Company reviews the receivable from sale of equity method investment on a periodic basis and makes general and specific reserve when

there is doubt as to the collectability of the balance.

In the evaluation of Lab Services MSO’s receivable, the Company

considered the age of the balance, its historical payment history and current economic trends.

After unsuccessful collection efforts

during the period, management has decided to write off the receivable.

As a result, for the three months ended June 30, 2025, a

receivable in the amount of $ 1,650,000 was written off.

At June 30, 2025, the Company established a reserve for credit loss in the

amount of $ 1,650,000 .

AVALON GLOBOCARE CORP.

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ACCOUNTING POLICIES (continued)

Per Share Data (continued)

Per Share Data

Topic 260 “Earnings per Share,” requires presentation of both basic and diluted earnings per share (“EPS”) with

a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation.

Basic EPS excludes dilution.

Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue

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

of the entity.

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

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The Company had $ 162,473 in

deemed contribution during the three months ended March 31, 2025, which increases the numerator in the net loss per share calculation.

For the three months ended March 31, 2025 and 2024, potentially dilutive common shares consisted of the common shares issuable upon the

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

warrants (using the treasury stock method).

deemed contribution during the six months ended June 30, 2025, which increases the numerator in the net loss per share calculation.

the three and six months ended June 30, 2025 and 2024, potentially dilutive common shares consisted of the common shares issuable upon

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

and warrants (using the treasury stock method).

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

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of basic and diluted net loss per common share attributable to the Company common shareholders includes 150,000 of the pre-funded warrants

that remained outstanding as of March 31, 2025.

that remained outstanding as of June 30, 2025.

following table summarizes the securities that were excluded from the diluted per share calculation

because the effect of including these potential shares was antidilutive:

Three Months Ended March 31,

Three Months Ended

Six Months Ended

Options to purchase common stock

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A Preferred Stock”) was converted into shares of common stock of the Company at a conversion price of $ 150.00 per share .

(**) Assumed the Series B convertible

preferred stock was converted into shares of common stock of the Company at a conversion price of $ 56.70 per share.

(***) Assumed the Series C convertible

preferred stock (“Series C Preferred Stock”) was converted into shares of common stock of the Company at a conversion price

of $ 2.41 per share.

(****) Assumed the Series D convertible

preferred stock was converted into shares of common stock of the Company at a conversion price of $ 2.41 per share.

(**) Assumed the Series

B convertible preferred stock was converted into shares of common stock of the Company at a conversion price of $ 56.70 per share.

(***) Assumed the Series

C convertible preferred stock (“Series C Preferred Stock”) was converted into shares of common stock of the Company at a

conversion price of $ 2.41 per share.

(****) Assumed the Series

D convertible preferred stock was converted into shares of common stock of the Company at a conversion price of $ 2.41 per share.

(*****) Assumed

the convertible notes were converted into shares of common stock of the Company at a conversion price of $ 1.00 per share for the three

months ended March 31, 2025.

Assumed the convertible notes were converted into shares of

common stock of the Company at a conversion price of $ 67.50 and $ 22.50 and $ 15.00 per share for the three months ended March 31, 2024.

and six months ended June 30, 2025.

Assumed the convertible notes were converted into shares of common stock of the Company at a conversion

price of $ 67.50 and $ 22.50 and $ 15.00 and $ 11.25 per share for the three and six months

ended June 30, 2024.

AVALON GLOBOCARE CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 – SUMMARY OF SIGNIFICANT

ACCOUNTING POLICIES (continued)

Stock Subscription Liability

On June 4, 2025, the Company entered into a

subscription agreement with an investor, whereby 141,643 shares of common stock of the Company were subscribed for at $ 3.53 per

As of June 30, 2025, the Company received proceeds of $ 150,000 .

As of June 30, 2025, these shares have not yet been issued and the proceeds of $ 150,000 were recorded as a share subscription liability until such time as the common shares are issued.

Real Property Rental Revenue

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

AVALON GLOBOCARE

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 – SUMMARY OF SIGNIFICANT

ACCOUNTING POLICIES (continued)

Commitments and Contingencies

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internally and was mainly organized by services.

During the three months ended March 31, 2025 and 2024, the Company is organized into

two services-oriented strategic business units:

real property rental services and laboratory testing services (which ended on the redemption

date, February 26, 2025) — which are led by our strategic business unit managers.

Operating segments are defined as components of

an enterprise for which separate financial information is available and evaluated regularly by the chief operating decision maker (“CODM”)

in deciding how to make operating decisions, allocate resources and assess performance.

During the three months ended June 30, 2025, the Company was organized into one services-oriented

strategic business unit:

real property rental services — which is led by our strategic business unit manager.

During the six months

ended June 30, 2025, the Company was organized into two services-oriented strategic business units:

real property rental services and

laboratory testing services (which ended on the redemption date, February 26, 2025) — which are led by our strategic business unit

During the three and six months ended June 30, 2024, the Company was organized into two services-oriented strategic business

real property rental services and laboratory testing services — which were led by our strategic business unit managers.

segments are defined as components of an enterprise for which separate financial information is available and evaluated regularly by the

chief operating decision maker (“CODM”) in deciding how to make operating decisions, allocate resources and assess performance.

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

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date, February 26, 2025, the Company was active in the management of Lab Services MSO.

During the three months ended March 31, 2025 and

2024, the Company operated in two reportable business segments:

(1) the real property operating segment, and (2) laboratory testing services

segment (which ended on the redemption date, February 26, 2025) since Lab Services MSO’s operating results are regularly reviewed

by the Company’s chief operating decision maker to determine the resources to be allocated to the segment and assess its performance.

Prior to February 26, 2025, the Company regularly reviewed the operating results and performance of Lab Services MSO, for which the Company

accounted for under the equity method.

Company’s President and Chief Executive Officer is its CODM.

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data to its CODM at the segment level, which he uses to evaluate performance and allocate resources based on real property operating income

and income from equity method investment – Lab Services MSO.

and loss/income from equity method investment – Lab Services MSO.

AVALON GLOBOCARE CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 – SUMMARY OF SIGNIFICANT

ACCOUNTING POLICIES (continued)

Reverse Stock Split

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split of its outstanding shares of common stock on October 28, 2024.

The reverse split did not change the par value of common stock.

references in these condensed consolidated financial statements to shares, share prices, exercise prices, and other per share information

The reverse stock split did not change the par value of common stock.

All references in these condensed consolidated financial statements to shares, share prices, exercise prices, and other per share information

in all periods have been adjusted, on a retroactive basis, to reflect the reverse stock split.

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The Company’s results of operations, cash flows, and financial condition were not impacted by the adoption

AVALON GLOBOCARE CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 – SUMMARY OF SIGNIFICANT

ACCOUNTING POLICIES (continued)

Recent Accounting Standards (continued)

In December 2023, the

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consolidated financial statements and related disclosures.

In November 2024, the

FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40):

Disaggregation

of Income Statement Expenses.

In January 2025, the FASB issued ASU No.

2025-01, Income Statement - Reporting Comprehensive Income - Expense

Disaggregation Disclosures (Subtopic 220-40), Clarifying the Effective Date.

ASU 2024-03 requires public companies to disclose, in interim

and reporting periods, additional information about certain expenses in the financial statements.

ASU 2024-03, as clarified by ASU 2025-01,

is effective for public entities for annual periods beginning after December 15, 2026, and interim reporting periods beginning after December

Early adoption is permitted and is effective on either a prospective basis or retrospective basis.

The Company is currently

evaluating the impact that the updated standard will have on the Company’s disclosures within the condensed consolidated financial

Other accounting

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or disclosures.

AVALON GLOBOCARE CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 – PREPAID EXPENSE

AND OTHER CURRENT ASSETS

March 31, 2025 and December 31, 2024, prepaid expense and other current assets consisted of the following:

June 30, 2025 and December 31, 2024, prepaid expense and other current assets consisted of the following:

Prepaid professional fees

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Recoverable value-added tax

NOTE 5 – EQUITY METHOD INVESTMENT

On February 9, 2023, the Company entered into

and closed an Amended and Restated Membership Interest Purchase Agreement (the “Amended MIPA”), by and among Avalon Lab, SCBC

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

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

Pursuant to the terms and conditions set forth

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

“Purchased Interests”).

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

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

B Preferred Stock, stated value $ 1,000 (the “Series B Stated Value”), which approximated the fair value, and (iii) a $ 666,667

cash payment on February 9, 2024.

The Series B Preferred Stock was convertible into shares of the Company’s common stock at a conversion

price per share equal to $ 56.70 , which approximated the market price at the date of closing, or an aggregate of 194,004 shares of the

Company’s common stock, which were subject to a lock-up period and restrictions on sale.

During the first quarter

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

investment and on February 26, 2025, the Company 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 the Company (See Note 3 - Receivable from Sale of Equity Method

AVALON GLOBOCARE CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Deferred offering costs

NOTE 5 – EQUITY METHOD INVESTMENT

As of June 30, 2025 and December 31, 2024, the

equity method investments, net, amounted to $0 and $ 10,636,544 , respectively.

February 9, 2023, the Company entered into and closed an Amended and Restated Membership Interest Purchase Agreement (the “Amended

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

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

Pursuant to the terms

and conditions set forth in the Amended MIPA, Avalon Lab acquired from the Seller, 40 % of the issued and outstanding equity interests

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

The consideration paid by Avalon Lab to Seller for the Purchased Interests

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

the Company’s Series B Preferred Stock, stated value $ 1,000 (the “Series B Stated Value”), which approximated the fair

value, and (iii) a $ 666,667 cash payment on February 9, 2024.

The Series B Preferred Stock was convertible into shares of the Company’s

common stock at a conversion price per share equal to $ 56.70 , which approximated the market price at the date of closing, or an aggregate

of 194,004 shares of the Company’s common stock, which were subject to a lock-up period and restrictions on sale.

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

the Company’s investment and on February 26, 2025, the Company 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 the Company (See Note 3 - Receivable

from Sale of Equity Method Investment).

Lab Services MSO, through

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February 26, 2025 (date of sale), Avalon Lab and an unrelated company, had an ownership interest in Lab Services MSO of 40 % and 60 %, respectively.

In accordance with ASC

810, the Company determined that Lab Services MSO did not qualify as a variable interest entity, nor did it have a controlling financial

interest over the legal entity.

However, the Company determined that it does have significant influence as a result of its board representation.

Therefore, the Company treats the equity investment in the condensed consolidated financial statements under the equity method.

the equity method, the investment is initially recorded at cost, adjusted for any excess of the Company’s share of the purchased-date

fair values of the investee’s identifiable net assets over the cost of the investment (if any).

At February 9, 2023 (date of investment),

the excess of the Company’s share of the fair values of the investee’s identifiable net assets over the cost of the investment

was approximately $ 19,460,000 which was attributable to intangible assets and goodwill.

Thereafter, the investment was adjusted for the

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

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

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

The straight-line method of amortization

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

period from January 1, 2025 through February 26, 2025 (date of sale) and for the three months ended March 31, 2024, amortization expense

of these intangible assets amounted to $ 111,156 and $ 166,733 , respectively, which was included in income from equity method investment

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

accordance with ASC 810, the Company determined that Lab Services MSO did not qualify as a variable interest entity, nor did it

have a controlling financial interest over the legal entity.

However, the Company determined that it does have significant influence as

a result of its board representation.

Therefore, the Company treats the equity investment in the condensed consolidated financial statements

under the equity method.

Under the equity method, the investment is initially recorded at cost, adjusted for any excess of the Company’s

share of the purchased-date fair values of the investee’s identifiable net assets over the cost of the investment (if any).

9, 2023 (date of investment), the excess of the Company’s share of the fair values of the investee’s identifiable net assets

over the cost of the investment was approximately $ 19,460,000 which was attributable to intangible assets and goodwill.

Thereafter, the

investment was adjusted for the post purchase change in the Company’s share of the investee’s net assets and any impairment

loss relating to the investment.

AVALON GLOBOCARE CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 – EQUITY METHOD INVESTMENT

Intangible assets consisted

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

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

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

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

the three months ended June 30, 2024, amortization expense of these intangible assets amounted to $ 166,733 which was included in

loss from equity method investment — Lab Services MSO in the accompanying condensed consolidated statements of operations and comprehensive

For the period from January 1, 2025 through February 26, 2025 (date of sale) and for the six months ended June 30, 2024, amortization

expense of these intangible assets amounted to $ 111,156 and $ 333,466 , respectively, which was included in income (loss) from equity method

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

Goodwill represents the

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in circumstances indicate that the asset might be impaired.

the period from January 1, 2025 through February 26, 2025 (date of sale) and for the three months ended March 31, 2024, the Company’s

share of Lab Services MSO’s net income was $ 503,833 and $ 274,202 , respectively, which was included in income from equity method

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

the three months ended June 30, 2024, the Company’s share of Lab Services MSO’s net loss was $ 162,604 , which was included

in loss from equity method investment — Lab Services MSO in the accompanying condensed consolidated statements of operations and

comprehensive loss.

the period from January 1, 2025 through February 26, 2025 (date of sale) and for the six months ended June 30, 2024, the Company’s

share of Lab Services MSO’s net income was $ 503,833 and $ 111,589 , respectively, which was included in income (loss) from equity

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

The Company classifies

2 unchanged sentences

returns on the investment and classified as cash inflows from operating activities.

For the period from January 1, 2025 through February

26, 2025 (date of sale) and for the three months ended March 31, 2024, distribution of earnings from the Company’s investment on

Lab Services MSO amounted to $ 0 and $ 160,788 , respectively.

the three months ended March 31, 2025, activity recorded for the Company’s equity method investment in Lab Services MSO is

summarized in the following table:

Equity investment carrying amount at January 1, 2025

Lab Services MSO’s net income attributable to the Company

Intangible assets amortization amount

Sale of equity investment

( 11,029,221 )

Equity investment carrying amount at March 31, 2025

As of December 31, 2024, the Company’s carrying

value of the identified intangible assets and goodwill which are included in the equity investment carrying amount was $ 8,725,712 and

$ 0 , respectively.

AVALON GLOBOCARE CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 – EQUITY METHOD INVESTMENT

For the three months ended June 30, 2024, distribution

of earnings from the Company’s investment on Lab Services MSO amounted to $ 312,465 .

For the period from January 1, 2025 through

February 26, 2025 (date of sale) and for the six months ended June 30, 2024, distribution of earnings from the Company’s investment

on Lab Services MSO amounted to $ 0 and $ 473,253 , respectively.

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

For the Period

from January 1,

(Date of Sale)

For the Three

Income from operation

(Loss) income from operation

Net (loss) income

6 – CONVERTIBLE NOTE PAYABLE

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$ 11.25 or the market price (as defined in the June 2024 Convertible Note).

AVALON GLOBOCARE CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

6 – CONVERTIBLE NOTE PAYABLE (continued)

June 2024 Convertible Note (continued)

Mast Hill acquired the

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fee for the purchase of the June 2024 Convertible Note, which were earned in full as of June 5, 2024.

The Second Warrant is not fair valued

and shall be cancelled and extinguished against payment of the June 2024 Convertible Note.

On June 5, 2024, the Company delivered such

duly executed June 2024 Convertible Note, warrants and common stock to Mast Hill against delivery of the purchase price.

As of March 31, 2025, the Second

Warrant was not fair valued since the Company believed the Second Warrant would be cancelled and extinguished against payment of the June

2024 Convertible Note on June 5, 2025.

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

and common stock to Mast Hill against delivery of the purchase price.

The Company received

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

In connection

with the issuance of the June 2024 Convertible Note, the Company incurred debt issuance costs of $ 224,221 (including the issuance of 5,333

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

AVALON GLOBOCARE CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

6 – CONVERTIBLE NOTE PAYABLE (continued)

June 2024 Convertible Note (continued)

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

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

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

of 5,333 warrants as a finder’s fee) which was capitalized and had been amortized into

interest expense over the term of the June 2024 Convertible Note.

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

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

under certain circumstances.

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

as such the fair value of the 80,000 warrants with an exercise price of $ 7.50 exercisable until June 5, 2029, which warrant shall be cancelled

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

Accordingly, the fair value of the

72,000 warrants with an exercise price of $ 9.75 exercisable until June 5, 2029 was classified as derivative liability on June 5, 2024.

The fair values of the 72,000 warrants with an exercise price of $ 9.75 exercisable until June 5, 2029 issued on June 5, 2024 were computed

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

stock price of $ 10.39 , volatility of 85.72 %, risk-free rate

of 4.31 %, annual dividend yield of 0 % and expected life of 5 years.

On March 31, 2025 and June 5, 2024, management determined the probability of failing to make an amortization

payment when due to be remote and as such the fair value of the 80,000 warrants with an exercise price of $ 7.50 exercisable

until June 5, 2029 , which warrant shall be cancelled and extinguished against payment of the June 2024 Convertible Note, had been estimated

Accordingly, the fair value of the 72,000 warrants with an exercise price of $ 9.75 exercisable until June 5,

2029 was classified as derivative liability on June 5, 2024.

The fair values of the 72,000 warrants with an exercise price of

$ 9.75 exercisable until June 5, 2029 issued on June 5, 2024 were computed using the Black-Scholes option-pricing model with the following

stock price of $ 10.39 , volatility of 85.72 %, risk-free rate of 4.31 %, annual dividend yield of 0 % and expected

life of 5 years.

In accordance

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debt instrument portion of the transaction.

In accordance

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

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

debt (see Note 7).

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

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

recorded a total debt discount of $ 838,990 related to the original issue discount, common shares issued and warrants issued to Mast Hill,

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

15, 2024, the Company and Mast Hill entered into that certain consent, acknowledgement, and waiver agreement, pursuant to which Mast Hill

waived all amortization payments required to be made under the June 2024 Convertible Note, the Company paid a waiver fee of $ 150,000 to

Mast Hill, and the Company issued to Mast Hill a common stock purchase warrant for the purchase of up to 150,000 shares of the Company’s

common stock (“Pre-Funded Warrants”).

The Pre-Funded Warrants are immediately exercisable at issuance and until the Pre-Funded

Warrants are exercised in full and have an exercise price of $ 0.01 per share.

The Pre-Funded Warrants were classified as a component of

permanent equity on the accompanying consolidated balance sheets as they are freestanding financial instruments that are immediately exercisable,

do not embody an obligation for the Company to repurchase its own shares and permit the holder to receive a fixed number of shares of

common stock upon exercise.

All of the shares underlying the Pre-Funded Warrants have been included in the weighted-average number of

shares of common stock used to calculate net loss per share, basic and diluted, attributable to the Company’s common stockholders

because the shares may be issued for little or no consideration, are fully vested and are exercisable after the original issuance date

of the Pre-Funded Warrants.

Based on the Company’s assess, this arrangement was accounted for as a modification of debt and, as

such, $ 838,794 related to the waiver fee and Pre-Fund Warrants issued to Mast Hill were expensed.

convertible note payable as of March 31, 2025 and December 31, 2024 was as follows:

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

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

the convertible debt (see Note 7).

However, on June 5, 2024 and December 14, 2024, management determined the probability of failing to

make an amortization payment when due to be remote and as such the fair value of the embedded conversion feature had been estimated to

On December 15, 2024, Mast Hill waived all amortization payments required to be

made under the June 2024 Convertible Note.

On June 5, 2025, the Second W arrant was not cancelled

and was retained by Mast Hill.

Accordingly, the initial fair value of the Second Warrant of $ 621,353 was classified as derivative liability

on June 5, 2025 and recorded as interest expense – amortization of debt discount.

AVALON GLOBOCARE CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

6 – CONVERTIBLE NOTE PAYABLE (continued)

June 2024 Convertible Note (continued)

Company recorded a total debt discount of $ 1,460,343 related to the original issue discount,

common shares issued and warrants issued to Mast Hill, which had been amortized over the term of the June 2024 Convertible Note.

December 15, 2024, the Company and Mast Hill entered into that certain consent, acknowledgement, and waiver agreement, pursuant to which

Mast Hill waived all amortization payments required to be made under the June 2024 Convertible Note ,

the Company paid a waiver fee of $ 150,000 to Mast Hill, and the Company issued to Mast Hill a common stock purchase warrant for the purchase

of up to 150,000 shares of the Company’s common stock (“Pre-Funded Warrants”).

The Pre-Funded Warrants are immediately

exercisable at issuance and until the Pre-Funded Warrants are exercised in full and have an exercise price of $ 0.01 per share.

The Pre-Funded

Warrants were classified as a component of permanent equity on the accompanying consolidated balance sheets as they are freestanding financial

instruments that are immediately exercisable, do not embody an obligation for the Company to repurchase its own shares and permit the

holder to receive a fixed number of shares of common stock upon exercise.

All of the shares underlying the Pre-Funded Warrants have been

included in the weighted-average number of shares of common stock used to calculate net loss per share, basic and diluted, attributable

to the Company’s common stockholders because the shares may be issued for little or no consideration, are fully vested and are exercisable

after the original issuance date of the Pre-Funded Warrants.

Based on the Company’s assess, this arrangement was accounted for as

a modification of debt and, as such, $ 838,794 related to the waiver fee and Pre-Fund Warrants issued to Mast Hill were expensed.

May 29, 2025, the Company and Mast Hill entered into that certain waiver (the “Waiver”),

pursuant to which Mast Hill will retain all related dilutive issuance rights under Section 1.6(e) of the June 2024 Convertible Note, provided

that any adjustment under Section 1.6(e) of the June 2024 Convertible Note shall be subject to a per share floor price equal to $ 1.00 .

The Company recorded a loss on extinguishment of debt of $ 9,076,587 as a result of the Waiver, representing the value of common stock

to be issued upon conversion in excess of the common stock issuable under the original terms of the June 2024 Convertible Note.

2025, Mast Hill converted its June 2024 Convertible Note in the principal amount of $ 120,402 into 120,402 shares of common stock of the

Company at a per share price of $ 1.00 .

convertible note payable as of June 30, 2025 and December 31, 2024 was as follows:

Principal amount

2 unchanged sentences

Convertible note payable, net

three months ended March 31, 2025 and 2024, amortization of debt discount and debt issuance costs related to convertible note payable

amounted to $ 283,755 and $ 242,389 , respectively, which have been included in interest expense — amortization of debt discount and

debt issuance costs on the accompanying condensed consolidated statements of operations and comprehensive loss.

three months ended March 31, 2025 and 2024, interest expense related to convertible note payable amounted to $ 81,956 and $ 71,715 , respectively,

which have been included in interest expense — other on the accompanying condensed consolidated statements of operations and comprehensive

Subsequent to June 30, 2025,

Mast Hill converted its June 2024 Convertible Note in the principal amount of $1,015,052 into 1,015,052 shares of common stock of the

Company at a per share price of $ 1.00 (See Note 16 – Subsequent Events - Common Shares Issued for Debt Conversion).

three months ended June 30, 2025 and 2024, amortization of debt discount and debt issuance costs related to convertible note payable amounted

to $ 780,602 (including the initial fair value of the Second Warrant of $ 621,353 ) and $ 534,619 , respectively, which have been included

in interest expense — amortization of debt discount and debt issuance costs on the accompanying condensed consolidated statements

of operations and comprehensive loss.

For the six months ended June 30, 2025 and 2024, amortization of debt discount and debt issuance

costs related to convertible note payable amounted to $ 1,064,357 (including the initial fair value of the Second Warrant of $ 621,353 )

and $ 777,008 , respectively, which have been included in interest expense — amortization of debt discount and debt issuance costs

on the accompanying condensed consolidated statements of operations and comprehensive loss.

the three months ended June 30, 2025 and 2024, interest expense related to convertible note payable amounted to $ 82,755 and

$ 68,339 , respectively, which have been included in interest expense — other on the accompanying condensed consolidated statements

of operations and comprehensive loss.

For the six months ended June 30, 2025 and 2024, interest expense related to convertible note payable

amounted to $ 164,711 and $ 140,054 , respectively, which have been included in interest expense — other on the accompanying condensed

consolidated statements of operations and comprehensive loss.

AVALON GLOBOCARE CORP.

2 unchanged sentences

7 – DERIVATIVE LIABILITY

stated in Note 6, June 2024 Convertible Note, the Company determined that the convertible

note payable contains an embedded derivative feature in the form of a conversion provision which is adjustable based on future prices

of the Company’s common stock.

In accordance with ASC 815-10-25, each derivative feature is initially recorded at its fair value

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

statements of operations.

However, on June 5, 2024 and March 31, 2025, management determined the probability of failing to make an amortization

payment and repayment, respectively, when due to be remote and as such the fair value of the embedded conversion feature has been estimated

May 23, 2023, the Company issued 9 ,000 warrants with an exercise price of $ 67.50 exercisable

until May 23, 2028 to Mast Hill and a third party as a finder’s fee.

Upon evaluation, the warrants meet the definition of a derivative

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

Accordingly, the fair value of

the 9,000 warrants was classified as a derivative liability on May 23, 2023.

In March 2025, 8,333 warrants held by Mast Hill were cashless

On March 31, 2025, the estimated fair value of the rest of 667 warrants was $ 701 .

The estimated fair value of the warrants

was computed as of March 31, 2025 using Black-Scholes option-pricing model, with the following assumptions:

stock price of $ 4.80 , volatility

of 108.28 %, risk-free rate of 3.89 %, annual dividend yield of 0 % and expected life of 3.1 years.

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

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

In accordance with

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

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

However, on June 5, 2024 and

December 14, 2024, management determined the probability of failing to make an amortization payment when due was remote and as such the

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

On December 15, 2024, Mast Hill waived all amortization payments

required to be made under the June 2024 Convertible Note.

2023, the Company issued 9,000 warrants with an exercise price of $ 67.50 exercisable until May 23, 2028 to Mast Hill and a third party

as a finder’s fee.

Upon evaluation, the warrants meet the definition of a derivative liability under ASC 815, as the Company cannot

avoid a net cash settlement under certain circumstances.

Accordingly, the fair value of the 9,000 warrants was classified as a derivative

liability on May 23, 2023.

In March 2025, 8,333 warrants held by Mast Hill were cashless exercised.

On June 30, 2025, the estimated fair

value of the rest of 667 warrants was $ 217 .

The estimated fair value of the warrants was computed as of June 30, 2025 using Black-Scholes

option-pricing model, with the following assumptions:

stock price of $ 2.78 , volatility of 107.08 %, risk-free rate of 3.68 %, annual dividend

yield of 0 % and expected life of 2.9 years.

6, 2023, the Company issued 222 warrants with an exercise price of $ 67.50 exercisable until July 6, 2028 to a third party as a finder’s

2 unchanged sentences

Accordingly, the fair value of the 222 warrants was classified as a derivative liability on July

On March 31, 2025, the estimated fair value of the 222 warrants was $ 237 .

On June 30, 2025, the estimated fair value of the 222 warrants was $ 78 .

The estimated fair value of the warrants was computed

as of March 31, 2025 using Black-Scholes option-pricing model, with the following assumptions:

as of June 30, 2025 using Black-Scholes option-pricing model, with the following assumptions:

stock price of $ 2.78 , volatility of 106.70 %,

risk-free rate of 3.68 %, annual dividend yield of 0 % and expected life of 3.0 years.

On October 9, 2023, the

Company issued 4,060 warrants with an exercise price of $ 37.50 exercisable until October 9, 2028 to Mast Hill and a third party as a finder’s

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

settlement under certain circumstances.

Accordingly, the fair value of the 4,060 warrants was classified as a derivative liability on

October 9, 2023.

On March 26, 2025, 3,500 warrants held by Mast Hill were cashless exercised.

On March 31, 2025, the estimated fair value

of the rest of 560 warrants was $ 866 .

The estimated fair value of the warrants was computed as of March 31, 2025 using Black-Scholes option-pricing

model, with the following assumptions:

stock price of $ 4.80 , volatility of 103.38 %, risk-free rate of 3.89 %, annual dividend yield of

0 % and expected life of 3.5 years.

March 7, 2024, the Company issued 9,450 warrants with an exercise price of $ 30.00 exercisable until March 7, 2029 to Mast Hill and a third

October 9, 2023, the Company issued 4,060 warrants with an exercise price of $ 37.50 exercisable until October 9,

2028 to Mast Hill and a third party as a finder’s fee.

Upon evaluation, the warrants meet the definition of a derivative liability

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

Accordingly, the fair value of the 4,060 warrants

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

On March 26, 2025, 3,500 warrants held by Mast Hill were cashless

On June 30, 2025, the estimated fair value of the rest of 560 warrants was $ 350 .

The estimated fair value of the

warrants was computed as of June 30, 2025 using Black-Scholes option-pricing model, with the following assumptions:

stock price of $ 2.78 ,

volatility of 106.06 %, risk-free rate of 3.68 %, annual dividend yield of 0 % and expected life of 3.3 years.

On March 7, 2024, the

Company issued 9,450 warrants with an exercise price of $ 30.00 exercisable until March 7, 2029 to Mast Hill and a third

party as a finder’s fee.

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Company cannot avoid a net cash settlement under certain circumstances.

Accordingly, the fair value of the 9,450 warrants was classified

as a derivative liability on March 7, 2024.

On March 31, 2025, the estimated fair value of the 9,450 warrants was $ 17,134 .

The estimated

fair value of the warrants was computed as of March 31, 2025 using Black-Scholes option-pricing model, with the following assumptions:

stock price of $ 4.80 , volatility of 99.62 %, risk-free rate of 3.89 %, annual dividend yield of 0 % and expected life of 3.9 years.

Accordingly, the fair value of the 9,450 warrants was

classified as a derivative liability on March 7, 2024.

On April 3, 2025, 8,750 warrants held by Mast Hill were exercised on

a cashless basis.

On June 30, 2025, the estimated fair value of the 700 warrants was $ 526 .

The estimated fair value of the warrants

was computed as of June 30, 2025 using Black-Scholes option-pricing model, with the following assumptions:

stock price of $ 2.78 , volatility

of 101.32 %, risk-free rate of 3.68 %, annual dividend yield of 0 % and expected life of 3.7 years .

June 5, 2024, the Company issued 152,000 warrants to Mast Hill and a third party as a finder’s fee (see Note 6).

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circumstances.

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

fair value of the 80,000 warrants with an exercise price of $ 7.50 exercisable until June 5, 2029, which warrant shall be cancelled and

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

On March 31, 2025 and June 5, 2024, management determined the probability of failing to make an amortization payment when

due to be remote and as such the fair value of the Second Warrant had been estimated to be zero.

Accordingly, the fair value of the 72,000

warrants with an exercise price of $ 9.75 exercisable until June 5, 2029 was classified as a derivative liability on June 5, 2024.

31, 2025, the estimated fair value of the 72,000 warrants with an exercise price of $ 9.75 exercisable until the five-year anniversary

of June 5, 2024 as derivative liability was $ 204,114 .

The estimated fair value of the warrants was computed as of March 31, 2025 using

warrants with an exercise price of $ 9.75 exercisable until June 5, 2029 was classified as derivative liability on June 5, 2024.

5, 2025, the Second Warrant was not cancelled and was retained by Mast Hill.

Accordingly, the initial fair value of the Second Warrant

of $ 621,353 was classified as derivative liability on June 5, 2025 and recorded as interest expense – amortization of debt discount.

In April 2025, 66,667 warrants held by Mast Hill were cashless exercised.

On June 30, 2025, the

estimated fair value of the 85,333 warrants was $ 124,382 .

The estimated fair value of the warrants was computed as of June 30, 2025 using

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

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annual dividend yield of 0 % and expected life of 3.9 years.

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

condensed consolidated statements of operations and comprehensive loss.

The changes to the derivative liability resulted in an increase

of $ 114,360 in the derivative liability and the corresponding increase in other expense as a loss for the three months ended March 31,

The changes to the derivative liability resulted in a decrease of $ 31,212 in the derivative liability and the corresponding increase

in other income as a gain for the three months ended Marc h 31, 2024.

AVALON GLOBOCARE CORP.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

7 – DERIVATIVE LIABILITY (continued)

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

condensed consolidated statements of operations and comprehensive loss.

The changes to the derivative liability resulted in a decrease

of $ 561,176 and $ 180,337 in the derivative liability and the corresponding increase in other income as a gain for the three months

ended June 30, 2025 and 2024, respectively.

The changes to the derivative liability resulted in a decrease of $ 446,816 and

$ 211,549 in the derivative liability and the corresponding increase in other income as a gain for the six months ended June 30, 2025

and 2024, respectively.

NOTE 8 – NOTE PAYABLE, NET

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located at 4400 Route 9 South, Freehold, Monmouth County, New Jersey.

In May 2023, the Company

borrowed $ 1,000,000 from the same lender.

The principal of $ 1,000,000 accrues interest at an annual rate of 13.0 % and is payable in monthly

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

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

The loan is secured by a second-lien mortgage on certain

real property and improvements located at 4400 Route 9 South, Freehold, Monmouth County, New Jersey.

note payable as of March 31, 2025 and December 31, 2024 was as follows:

May 2023, the Company borrowed $ 1,000,000 from the same lender.

The principal of $ 1,000,000 accrues interest at an annual

rate of 13.0 % and is payable in monthly installments of interest-only in the amount of $ 10,833 , commencing in June 2023 and continuing

through October 2025 (at which point any unpaid balance of principal, interest and other charges are due and payable).

The loan is secured

by a second-lien mortgage on certain real property and improvements located at 4400 Route 9 South, Freehold, Monmouth County, New Jersey.

note payable as of June 30, 2025 and December 31, 2024 was as follows:

Principal amount

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Note payable, net

For the three months ended March 31, 2025 and

2024, amortization of debt issuance costs related to note payable amounted to $ 29,807 and $ 29,807 , respectively, which have been included

in interest expense — amortization of debt discount and debt issuance costs on the accompanying condensed consolidated statements

of operations and comprehensive loss.

For the three months ended March 31, 2025 and

2024, interest expense related to note payable amounted to $ 164,500 and $ 164,500 , respectively, which have been included in interest expense

- other on the accompanying condensed consolidated statements of operations and comprehensive loss.

both the three months ended June 30, 2025 and 2024, amortization of debt issuance costs related to note payable amounted to $ 29,807 ,

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

consolidated statements of operations and comprehensive loss.

both the six months ended June 30, 2025 and 2024, amortization of debt issuance costs related to note payable amounted to $ 59,614 ,

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

consolidated statements of operations and comprehensive loss.

both the three months ended June 30, 2025 and 2024, interest expense related to note payable amounted to $ 164,500 which have been

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

both the six months ended June 30, 2025 and 2024, interest expense related to note payable amounted to $ 329,000 which have been

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

NOTE 9 – RELATED PARTY TRANSACTIONS

Revenue from Related Party and Rent Receivable – Related Party

The Company leases space of its commercial real

property located in New Jersey to D.P.

Capital Investments LLC, which is controlled by Wenzhao Lu, the Company’s chairman of the

Board of Directors.

The term of the related party lease agreement is five years commencing on May 1, 2021 and will expire on April 30,

For both the three months ended March 31, 2025

and 2024, the related party rental revenue amounted to $ 12,600 and has been included in real property rental revenue on the accompanying

condensed consolidated statements of operations and comprehensive loss.

Provided by Related Party

time to time, Wilbert Tauzin, a director of the Company, and his son provide consulting services to the Company.

As compensation for professional

services provided, the Company recognized consulting expenses of $ 15,597 and $ 16,731 for the three months ended March 31, 2025 and 2024,

respectively, which have been included in professional fees on the accompanying condensed consolidated statements of operations and comprehensive

As of March 31, 2025 and December 31, 2024, the accrued and unpaid services charge related to this director’s son amounted

to $ 2,615 and $ 15,000 , respectively, which have been included in accrued professional fees on the accompanying condensed consolidated

balance sheets.

Company leases space of its commercial real property located in New Jersey to D.P.

Capital Investments LLC, which is controlled

by Wenzhao Lu, the Company’s chairman of the Board of Directors.

The term of the related party lease agreement is five years commencing

on May 1, 2021 and will expire on April 30, 2026.

For both the three months ended June 30, 2025 and 2024, the related party rental revenue

amounted to $ 12,600 and has been included in real property rental revenue on the accompanying condensed consolidated statements of

operations and comprehensive loss.

For both the six months ended June 30, 2025 and 2024, the related party rental revenue amounted to

$ 25,200 and has been included in real property rental revenue on the accompanying condensed consolidated statements of operations

and comprehensive loss.

AVALON GLOBOCARE CORP.

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NOTE 9 – RELATED PARTY TRANSACTIONS (continued)

Provided by Related Party

time to time, Wilbert Tauzin, a director of the Company, and his son provide consulting services to the Company.

As compensation

for professional services provided, the Company recognized consulting expenses of $ 15,197 and $ 20,535 for the three months ended

June 30, 2025 and 2024, respectively, which have been included in professional fees on the accompanying condensed consolidated statements

of operations and comprehensive loss.

As compensation for professional services provided, the Company recognized consulting expenses of

$ 30,794 and $ 37,266 for the six months ended June 30, 2025 and 2024, respectively, which have been included in professional

fees on the accompanying condensed consolidated statements of operations and comprehensive loss.

of June 30, 2025 and December 31, 2024, the accrued and unpaid services charge related to this director’s son amounted to $ 2,733

and $ 15,000 , respectively, which have been included in accrued professional fees on the accompanying condensed consolidated

balance sheets.

Accrued Liabilities and Other Payables –

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(“Beijing GenExosome”) for a cash payment of $ 450,000 .

As of both March 31, 2025 and December

As of both June 30, 2025 and December

31, 2024, the unpaid acquisition consideration of $ 100,000 , was payable to Dr.

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time to time, Lab Services MSO paid shared expense on behalf of the Company.

In addition, Lab Services MSO made a payment of $ 566,667

for equity method investment payable on behalf of the Company in 2024.

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, the Company 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 the Company for cash and the surrender of its Series B Preferred Stock having a carrying value of $ 11,000,000 .

aggregate cash amount to the Company for the redemption was $ 1,745,000 , to be paid as follows:

one payment of $ 95,000 at the closing of

the redemption and, beginning in March 2025, monthly payments of $ 75,000 until December 2026.

In addition, Lab Services MSO made a payment of $ 566,667 for

equity method investment payable on behalf of the Company in 2024.

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, the Company 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 the Company for cash and the surrender of its Series B Preferred Stock having a carrying value of $ 11,000,000 .

The aggregate

cash amount to the Company for the redemption was $ 1,745,000 , to be paid as follows:

one payment of $ 95,000 at the closing of the

redemption and, beginning in March 2025, monthly payments of $ 75,000 until December 2026.

In addition, pursuant to the terms of the

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for the equity interests of Laboratory Services MSO, were permanently surrendered and relinquished to the Company for no additional consideration.

The difference of $ 2,348,695 between the carrying value of the extinguished Series B Preferred Stock, the aggregate cash amount to the

Company for the redemption, net of payables due to Lab Services MSO of $ 632,916 , totaling $ 13,377,916 , and the carrying value of the equity

method investment of $ 11,029,221 was accounted for as an increase to additional paid-in capital (See Note 10 - Series B Convertible

Preferred Stock Extinguished Related to Sale of Equity Method Investment).

As of March 31, 2025 and December 31, 2024, the balance due

to Lab Services MSO amounted to $0 and $ 632,916 , respectively, which has been included in accrued liabilities and other payables —

related parties on the accompanying condensed consolidated balance sheets.

The difference of $ 2,348,695 between the carrying value of the extinguished Series B Preferred Stock, the aggregate cash amount to

the Company for the redemption, net of payables due to Lab Services MSO of $ 632,916 , totaling $13, 377,916, and the carrying value

of the equity method investment of $ 11,029,221 was accounted for as an increase to additional paid-in capital (See Note 10 - Series

B Convertible Preferred Stock Extinguished Related to Sale of Equity Method Investment).

As of June 30, 2025 and December 31, 2024, the

balance due to Lab Services MSO amounted to $0 and $ 632,916 , respectively, which has been included in accrued liabilities and

other payables — related parties on the accompanying condensed consolidated balance sheets.

Membership Interest

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Lu desires to exercise the Option.

The Company received $ 3,328,078 and $ 3,108,106 from Mr.

Lu as of March 31, 2025

and December 31, 2024, respectively, which was recorded as advance from pending sale of noncontrolling interest – related party

on the accompanying condensed consolidated balance sheets.

Company received $ 3,258,078 and $ 3,108,106 from Mr.

Lu as of June 30, 2025 and December 31, 2024, respectively, which was recorded as

advance from pending sale of noncontrolling interest – related party on the accompanying

condensed consolidated balance sheets.

The Acquisition is expected to close in the fourth quarter of 2025.

D Convertible Preferred Stock Issued in Exchange of Series A Convertible Preferred Stock

January 9, 2025, the Company entered into an exchange agreement with Wenzhao Lu, the Company’s

chairman of the Board of Directors, pursuant to which Mr.

Lu exchanged 9,000 shares

of Series A Preferred Stock of the Company, having a carrying value of $ 9,000,000 , for 5,000 shares

of Series D Preferred Stock of the Company.

The Company determined that the exchange of the Series A Preferred Stock for the Series

D Preferred Stock resulted in the extinguishment of the Series A Preferred Stock.

As a result, the difference between the carrying amount

of the Series A Preferred Stock and the fair value of the Series D Preferred Stock of $ 162,473 was recognized as a deemed contribution

in the three months ended March 31, 2025 that increased additional paid-in capital and income available to common shareholders in calculating

earnings per share (See Note 10 - Series D Convertible Preferred Stock Issued in Exchange of Series A Convertible Preferred Stock).

AVALON GLOBOCARE CORP.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9 – RELATED PARTY TRANSACTIONS (continued)

D Convertible Preferred Stock Issued in Exchange of Series A Convertible Preferred Stock

January 9, 2025, the Company entered into an exchange agreement with Wenzhao Lu, the Company’s chairman of the Board

of Directors, pursuant to which Mr.

Lu exchanged 9,000 shares of Series A Preferred Stock of the Company, having a carrying

value of $ 9,000,000 , for 5,000 shares of Series D Preferred Stock of the Company.

The Company determined that the exchange

of the Series A Preferred Stock for the Series D Preferred Stock resulted in the extinguishment of the Series A Preferred Stock.

result, the difference between the carrying amount of the Series A Preferred Stock and the fair value of the Series D Preferred Stock

of $ 162,473 was recognized as a deemed contribution in the six months ended June 30, 2025 that increased additional paid-in capital

and income available to common shareholders in calculating earnings per share (See Note 10 - Series D Convertible Preferred Stock Issued

in Exchange of Series A Convertible Preferred Stock).

NOTE 10 – EQUITY

Company is authorized to issue an aggregate of 100 ,000,000 shares of common stock and 10,000,000 shares of “blank check”

preferred stock.

Company is authorized to issue an aggregate of 100 ,000,000 shares of common stock and 10,000,000 shares of “blank

check” preferred stock.

Series A Convertible

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up to 15,000 shares of its previously undesignated preferred stock as Series A Preferred Stock.

Each share of Series A Preferred

Stock has a par value of $ 0.0001 per share and a stated value equal to $ 1,000 .

The shares of Series

A Preferred Stock have identical terms and include the terms as set forth below.

Each share of Series A Preferred Stock

has a par value of $ 0.0001 per share and a stated value equal to $ 1,000 .

shares of Series A Preferred Stock have identical terms and include the terms as set forth below .

of Series A Preferred Stock (each, a “Series A Holder” and collectively, the “Series A Holders”) are entitled

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issuable upon conversion of the Series A Preferred Stock then held by such Series A Holder.

AVALON GLOBOCARE CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 – EQUITY (continued)

Series A Convertible

Preferred Stock (continued)

Conversion Price Adjustment:

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shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

AVALON GLOBOCARE CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 – EQUITY (continued)

Series A Convertible

Preferred Stock (continued)

If, at any time while the Series A Preferred Stock is outstanding, (i) the Company, directly or indirectly,

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agreement with respect to any of the foregoing.

AVALON GLOBOCARE CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 – EQUITY (continued)

Series A Convertible

Preferred Stock (continued)

No fractional shares or scrip representing fractional shares shall be issued upon the conversion of the Series

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any Series A Holder from converting fractional shares of Series A Preferred Stock.

As of December 31, 2024, 9,000 shares

of Series A Preferred Stock were issued and outstanding.

On January 9, 2025, the Company entered into an exchange agreement with Wenzhao

Lu, the Company’s chairman of the Board of Directors, pursuant to which Mr.

Lu exchanged 9,000 shares of Series A Preferred Stock

of the Company for 5,000 shares of Series D Preferred Stock of the Company (See Note 10 - Series D Convertible Preferred Stock Issued

in Exchange of Series A Convertible Preferred Stock).

As of March 31, 2025, there were no shares of Series A Preferred Stock remain outstanding.

of December 31, 2024, 9, 000 shares of Series A Preferred Stock were issued and outstanding.

On January 9, 2025, the Company

entered into an exchange agreement with Wenzhao Lu, the Company’s chairman of the Board of Directors, pursuant to which Mr.

Lu exchanged 9,000 shares

of Series A Preferred Stock of the Company for 5,000 shares of Series D Preferred Stock of the Company (See Note 10 - Series

D Convertible Preferred Stock Issued in Exchange of Series A Convertible Preferred Stock).

As of June 30, 2025, there were no shares of

Series A Preferred Stock remain outstanding.

Series B Convertible

Preferred Stock

The Company designated

up to 15,000 shares of its previously undesignated preferred stock as Series B Preferred Stock.

Each share of Series B Preferred

Stock has a par value of $ 0.0001 per share and a stated value equal to $ 1,000 .

AVALON GLOBOCARE CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 – EQUITY (continued)

Series B Convertible

Preferred Stock (continued)

The shares of Series

B Preferred Stock have identical terms and include the terms as set forth below.

Company designated up to 15,000 shares of its previously undesignated preferred stock as Series B Preferred Stock.

share of Series B Preferred Stock has a par value of $ 0.0001 per share and a stated value equal to $ 1,000 .

shares of Series B Preferred Stock have identical terms and include the terms as set forth below .

holders of Series B Preferred Stock (each, a “Series B Holder” and collectively, the “Series B Holders”) shall

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the Series B Holder agrees that it and any of its Affiliate transferees shall not be entitled to in any calendar month, sell a number

of shares of Company common stock into the open market in an amount exceeding more than ten percent (10%) of the total number of shares

of Company common stock issuable upon conversion of the Company common stock then held by the Seller and its Affiliates.

Conversion Price Adjustment:

Dividends and Stock Splits.

If the Company, at any time while the Series B Preferred Stock is outstanding:

stock dividend or otherwise makes a distribution or distributions payable in shares of common stock on shares of common stock or any

other common stock equivalents (which, for avoidance of doubt, shall not include any shares of common stock issued by the Company upon

conversion of, or payment of a dividend on, the Series B Preferred Stock), (ii) subdivides outstanding shares of common stock into a

larger number of shares, (iii) combines (including by way of a reverse stock split) outstanding shares of common stock into a smaller

number of shares, or (iv) issues, in the event of a reclassification of shares of the common stock, any shares of capital stock of the

Company, then the conversion price of the Series B Preferred Stock shall be multiplied by a fraction of which the numerator shall be

the number of shares of common stock (excluding any treasury shares of the Company) outstanding immediately before such event, and of

which the denominator shall be the number of shares of common stock outstanding immediately after such event.

Any of the foregoing adjustments

shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution

and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

of shares of Company common stock into the open market in an amount exceeding more than ten percent ( 10 %) of the total number

of shares of Company common stock issuable upon conversion of the Company common stock then held by the Seller and its Affiliates.

AVALON GLOBOCARE CORP.

4 unchanged sentences

Preferred Stock (continued)

Conversion Price Adjustment:

Dividends and Stock Splits.

If the Company, at any time while the Series B Preferred Stock is outstanding:

stock dividend or otherwise makes a distribution or distributions payable in shares of common stock on shares of common stock or any other

common stock equivalents (which, for avoidance of doubt, shall not include any shares of common stock issued by the Company upon conversion

of, or payment of a dividend on, the Series B Preferred Stock), (ii) subdivides outstanding shares of common stock into a larger number

of shares, (iii) combines (including by way of a reverse stock split) outstanding shares of common stock into a smaller number of shares,

or (iv) issues, in the event of a reclassification of shares of the common stock, any shares of capital stock of the Company, then the

conversion price of the Series B Preferred Stock shall be multiplied by a fraction of which the numerator shall be the number of shares

of common stock (excluding any treasury shares of the Company) outstanding immediately before such event, and of which the denominator

shall be the number of shares of common stock outstanding immediately after such event.

Any of the foregoing adjustments shall become

effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and

shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

If, at any time while the Series B Preferred Stock is outstanding, (i) the Company, directly or indirectly,

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converting fractional shares of Series B Preferred Stock.

AVALON GLOBOCARE CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 – EQUITY (continued)

Series B Convertible

Preferred Stock (continued)

of December 31, 2024, 11,000 shares of Series B Preferred Stock were issued and outstanding.

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, the Company 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 the Company for cash and the surrender of its Series B Preferred Stock having a carrying

value of $ 11,000,000 .

Pursuant to the terms of the Redemption Agreement, all shares of the Company’s Series B Preferred Stock previously

issued to SCBC Holdings LLC as partial consideration for the equity interests of Laboratory Services MSO, were permanently surrendered

and relinquished to the Company for no additional consideration (See Note 10 - Series B Convertible Preferred Stock Extinguished Related

to Sale of Equity Method Investment).

As of March 31, 2025, there were no shares of Series B Preferred Stock remain outstanding.

to preserve cash, the Company entered into discussions with Lab Services MSO for the potential redemption of our investment and

on February 26, 2025, the Company 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 the Company for cash and the surrender of its Series B Preferred Stock having

a carrying value of $ 11,000,000 .

Pursuant to the terms of the Redemption Agreement, all shares of the Company’s Series B Preferred

Stock previously issued to SCBC Holdings LLC as partial consideration for the equity interests of Laboratory Services MSO, were permanently

surrendered and relinquished to the Company for no additional consideration (See Note 10 - Series B Convertible Preferred Stock Extinguished

Related to Sale of Equity Method Investment).

As of June 30, 2025, there were no shares of Series B Preferred Stock remain outstanding.

Series C Convertible

Preferred Stock

On December 13, 2024,

the Company filed a certificate of designations of preferences, rights, and limitations of Series C Preferred Stock (the “Series

C Certificate of Designations”) with the Department of State, Division of Corporations, of the State of Delaware, which provides

for the designation of 10,000 shares of Series C Preferred Stock of the Company, par value $ 0.0001 per share.

Each share of Series C Preferred

Stock has a stated value of $ 1,000 .

December 13, 2024, the Company filed a certificate of designations of preferences, rights, and limitations of Series C Preferred Stock

(the “Series C Certificate of Designations”) with the Department of State, Division of Corporations, of the State of Delaware,

which provides for the designation of 10,000 shares of Series C Preferred Stock of the Company, par value $ 0.0001 per

Each share of Series C Preferred Stock has a stated value of $ 1,000 .

Series C Preferred Stock shall rank (i) senior to the Company’s common stock and any other class or series of capital stock of the

Company created hereafter, the terms of which specifically provide that such class or series shall rank junior to the Series C Preferred

Stock, (ii) pari passu with any class or series of capital stock of the Company created hereafter specifically ranking, by its terms,

on par with the Series C Preferred Stock, (iii) pari passu with Series B Preferred Stock of the Company with respect to its rights, preferences

and restrictions, and (iv) subordinate to the Series A Preferred Stock of the Company .

Holders of the Series

C Preferred Stock shall be entitled to receive, and the Company shall pay, dividends on shares of Series C Preferred Stock equal (on an

as-if-converted-to-common-stock basis, disregarding for such purpose any conversion limitations hereunder) to and in the same form as

dividends actually paid on shares of the common stock when, as and if such dividends are paid on shares of the common stock .

Holders of the Series

C Preferred Stock have no voting power except as otherwise required by the Delaware General Corporation Law .

Upon any liquidation,

dissolution or winding-up of the Company, whether voluntary or involuntary (a “Liquidation”), the holders of the Series C

Preferred Stock shall be entitled to receive out of the assets available for distribution to stockholders, (i) after and subject to the

payment in full of all amounts required to be distributed to the holders of another class or series of stock of the Company ranking on

liquidation prior and in preference to the Series C Preferred Stock, including the Series A Preferred Stock, (ii) ratably with any class

or series of stock ranking on liquidation on parity with the Series C Preferred Stock and (iii) in preference and priority to the holders

of the shares of common stock, an amount equal to 100 % of the Stated Value of the Series C Preferred Stock, in proportion to the

full and preferential amount that all shares of the Series C Preferred Stock are entitled to receive .

share of Series C Preferred Stock shall be convertible into common stock (the “Series C 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 Series C Conversion Shares pursuant to the rules of the Nasdaq Stock Market and (ii) the one year anniversary of the date

of the first issuance of any shares of the Series C Preferred Stock.

In addition, the holder shall not have the right to convert any portion

of the Series C Preferred Stock if, after giving effect to the conversion, such holder (together with its affiliates) would beneficially

own in excess of 19.99 % of the number of shares of the common stock outstanding immediately after giving effect to the issuance of the

respective Series C Conversion Share s.

On May 29, 2025, the Company filed a certificate of

amendment to the Series C Certificate of Designations, pursuant to which the beneficial ownership limitation of 19.99 % was amended to

of both June 30, 2025 and December 31, 2024, 3,500 shares of Series C Preferred Stock were issued and outstanding .

AVALON GLOBOCARE CORP.

2 unchanged sentences

NOTE 10 – EQUITY (continued)

Series C Convertible

Preferred Stock (continued)

The Series C Preferred

Stock shall rank (i) senior to the Company’s common stock and any other class or series of capital stock of the Company created

hereafter, the terms of which specifically provide that such class or series shall rank junior to the Series C Preferred Stock, (ii) pari

passu with any class or series of capital stock of the Company created hereafter specifically ranking, by its terms, on par with the Series

C Preferred Stock, (iii) pari passu with Series B Preferred Stock of the Company with respect to its rights, preferences and restrictions,

and (iv) subordinate to the Series A Preferred Stock of the Company.

of the Series C Preferred Stock shall be entitled to receive, and the Company shall pay, dividends on shares of Series C Preferred Stock

equal (on an as-if-converted-to-common-stock basis, disregarding for such purpose any conversion limitations hereunder) to and in the

same form as dividends actually paid on shares of the common stock when, as and if such dividends are paid on shares of the common stock.

of the Series C Preferred Stock have no voting power except as otherwise required by the Delaware General Corporation Law.

any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary (a “Liquidation”), the holders

of the Series C Preferred Stock shall be entitled to receive out of the assets available for distribution to stockholders, (i) after and

subject to the payment in full of all amounts required to be distributed to the holders of another class or series of stock of the Company

ranking on liquidation prior and in preference to the Series C Preferred Stock, including the Series A Preferred Stock, (ii) ratably with

any class or series of stock ranking on liquidation on parity with the Series C Preferred Stock and (iii) in preference and priority to

the holders of the shares of common stock, an amount equal to 100 %

of the Stated Value of the Series C Preferred Stock, in proportion to the full and preferential amount that all shares of the Series C

Preferred Stock are entitled to receive.

share of Series C Preferred Stock shall be convertible into common stock (the “Series C 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 Series C Conversion

Shares pursuant to the rules of the Nasdaq Stock Market and (ii) the one year anniversary of the date of the first issuance of any shares

of the Series C Preferred Stock.

In addition, the holder shall not have the right to convert any portion of the Series C Preferred Stock

if, after giving effect to the conversion, such holder (together with its affiliates) would beneficially own in excess of 19.99 %

of the number of shares of the common stock outstanding immediately after giving effect to the issuance of the respective Series C Conversion

of both March 31, 2025 and December 31, 2024, 3,500 shares

of Series C Preferred Stock were issued and outstanding.

Series D Convertible

2 unchanged sentences

“Series D Certificate of Designations”) with the Department of State, Division of Corporations, of the State of Delaware,

which provides for the designation of 5,000 shares

of Series D Preferred Stock of the Company, par value $ 0.0001 per share, upon the terms

and conditions as set forth in the Series D Certificate of Designations.

Each share of Series D Preferred Stock has a stated value of

The Series D Preferred

Stock shall rank (i) senior to the Company’s common stock and any other class or series of capital stock of the Company created

hereafter, the terms of which specifically provide that such class or series shall rank junior to the Series D Preferred Stock, (ii) pari

passu with any class or series of capital stock of the Company created hereafter specifically ranking, by its terms, on par with the Series

D Preferred Stock, (iii) pari passu with the Series B Preferred Stock of the Company with respect to its rights, preferences and restrictions,

and (iv) pari passu with the Series C Preferred Stock of the Company.

of the Series D Preferred Stock have no voting power except as otherwise required by the Delaware General Corporation Law.

which provides for the designation of 5,000 shares of Series D Preferred Stock of the Company, par value $ 0.0001 per

share, upon the terms and conditions as set forth in the Series D Certificate of Designations.

Each share of Series D Preferred Stock

has a stated value of $ 1,000 .

Series D Preferred Stock shall rank (i) senior to the Company’s common stock and any other class or series of capital stock of the

Company created hereafter, the terms of which specifically provide that such class or series shall rank junior to the Series D Preferred

Stock, (ii) pari passu with any class or series of capital stock of the Company created hereafter specifically ranking, by its terms,

on par with the Series D Preferred Stock, (iii) pari passu with the Series B Preferred Stock of the Company with respect to its rights,

preferences and restrictions, and (iv) pari passu with the Series C Preferred Stock of the Company .

Holders of the Series

D Preferred Stock have no voting power except as otherwise required by the Delaware General Corporation Law .

Upon any liquidation,

dissolution or winding-up of the Company, whether voluntary or involuntary (a “Liquidation”), the holders of the Series D

Preferred Stock shall be entitled to receive out of the assets available for distribution to stockholders, (i) after and subject to the

payment in full of all amounts required to be distributed to the holders of another class or series of stock of the Company ranking on

liquidation prior and in preference to the Series D Preferred Stock, including the Series A Preferred Stock, (ii) ratably with any class

or series of stock ranking on liquidation on parity with the Series D Preferred Stock and (iii) in preference and priority to the holders

of the shares of common stock, an amount equal to 100 % of the Stated Value of the Series D Preferred Stock, in proportion to the

full and preferential amount that all shares of the Series D Preferred Stock are entitled to receive .

share of Series D Preferred Stock shall be convertible into common stock (the “Series D Conversion Shares”) at a conversion

per share equal to $ 2.41 , at the option of the holder, at any time after the Company has obtained shareholder approval for the issuance

of the Series D Conversion Shares pursuant to the rules of the Nasdaq Stock Market.

In addition, the holder shall not have the right to

convert any portion of the Series D Preferred Stock if, after giving effect to the conversion, such holder (together with its affiliates)

would beneficially own in excess of 4.99 % of the number of shares of the common stock outstanding immediately after giving

effect to the issuance of the respective Series D Conversion Shares .

of June 30, 2025, 5,000 shares of Series D Preferred Stock were issued and outstanding .

D Convertible Preferred Stock Issued in Exchange of Series A Convertible Preferred Stock

January 9, 2025, the Company entered into an exchange agreement with Wenzhao Lu, the Company’s chairman of the Board of Directors,

pursuant to which Mr.

Lu exchanged 9,000 shares of Series A Preferred Stock of the Company, having a carrying value of

$ 9,000,000 , for 5,000 shares of Series D Preferred Stock of the Company.

The Company determined that the exchange of the Series

A Preferred Stock for the Series D Preferred Stock resulted in the extinguishment of the Series A Preferred Stock.

As a result, the difference

between the carrying amount of the Series A Preferred Stock and the fair value of the Series D Preferred Stock of $ 162,473 was recognized

as a deemed contribution in the six months ended June 30, 2025 that increased additional paid-in capital and income available to common

shareholders in calculating earnings per share .

Each share of Series

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

equal to $ 2.41 , which approximated the market price at the date of transaction, at the option of the holder, at any time after the Company

has obtained shareholder approval for the issuance of the Series D Conversion Shares pursuant to the rules of the Nasdaq Stock Market .

Company evaluated the features of the Series D Preferred Stock under ASC 480, and classified them as permanent equity because the Series

D Preferred Stock is not mandatorily or contingently redeemable at the stockholder’s option and the liquidation preference that

exists does not fall within the guidance of SEC Accounting Series Release No.

268 – Presentation in Financial Statements

of “Redeemable Preferred Stocks” (“ASR 268”) .

AVALON GLOBOCARE CORP.

2 unchanged sentences

NOTE 10 – EQUITY (continued)

Series D Convertible

Preferred Stock (continued)

any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary (a “Liquidation”), the holders

of the Series D Preferred Stock shall be entitled to receive out of the assets available for distribution to stockholders, (i) after and

subject to the payment in full of all amounts required to be distributed to the holders of another class or series of stock of the Company

ranking on liquidation prior and in preference to the Series D Preferred Stock, including the Series A Preferred Stock, (ii) ratably with

any class or series of stock ranking on liquidation on parity with the Series D Preferred Stock and (iii) in preference and priority to

the holders of the shares of common stock, an amount equal to 100 %

of the Stated Value of the Series D Preferred Stock, in proportion to the full and preferential amount that all shares of the Series D

Preferred Stock are entitled to receive.

share of Series D Preferred Stock shall be convertible into common stock (the “Series D Conversion Shares”) at a conversion

per share equal to $ 2.41 ,

at the option of the holder, at any time after the Company has obtained shareholder approval for the issuance of the Series D Conversion

Shares pursuant to the rules of the Nasdaq Stock Market.

In addition, the holder shall not have the right to convert any portion of the

Series D Preferred Stock if, after giving effect to the conversion, such holder (together with its affiliates) would beneficially own

in excess of 4.99 % of the number of shares of the common stock outstanding immediately

after giving effect to the issuance of the respective Series D Conversion Shares.

of March 31, 2025, 5,000 shares of Series D Preferred Stock were issued and outstanding.

D Convertible Preferred Stock Issued in Exchange of Series A Convertible Preferred Stock

January 9, 2025, the Company entered into an exchange agreement with Wenzhao Lu, the Company’s

chairman of the Board of Directors, pursuant to which Mr.

Lu exchanged 9,000 shares

of Series A Preferred Stock of the Company, having a carrying value of $ 9,000,000 , for 5,000 shares

of Series D Preferred Stock of the Company.

The Company determined that the exchange of the Series A Preferred Stock for the Series D

Preferred Stock resulted in the extinguishment of the Series A Preferred Stock.

As a result, the difference between the carrying amount

of the Series A Preferred Stock and the fair value of the Series D Preferred Stock of $ 162,473 was recognized as a deemed contribution

in the three months ended March 31, 2025 that increased additional paid-in capital and income available to common shareholders in calculating

earnings per share.

share of Series D Preferred Stock is convertible into common stock of the Company (the “Series D Conversion Shares”) at a

conversion per share equal to $ 2.41 ,

which approximated the market price at the date of transaction, at the option of the holder, at any time after the Company has obtained

shareholder approval for the issuance of the Series D Conversion Shares pursuant to the rules of the Nasdaq Stock Market.

The Company evaluated

the features of the Series D Preferred Stock under ASC 480, and classified them as permanent equity because the Series D Preferred Stock

is not mandatorily or contingently redeemable at the stockholder’s option and the liquidation preference that exists does not fall

within the guidance of SEC Accounting Series Release No.

268 – Presentation in Financial Statements of “Redeemable

Preferred Stocks” (“ASR 268”).

B Convertible Preferred Stock Extinguished Related to Sale of Equity Method Investment

5 unchanged sentences

$ 1,745,000 , to be paid as follows:

one payment of $ 95,000 at the closing of the redemption and, beginning in March 2025, monthly payments of

$ 75,000 until December 2026.

In addition, pursuant to the terms of the Redemption Agreement, all shares of the Company’s Series

B Preferred Stock previously issued to SCBC Holdings LLC as partial consideration for the equity interests of Laboratory Services MSO,

were permanently surrendered and relinquished to the Company for no additional consideration.

The difference of $ 2,348,695 between the

carrying value of the extinguished Series B preferred stock, the aggregate cash amount to the Company for the redemption, net of payables

due to Lab Services MSO of $ 632,916 , totaling $ 13,377,916 , and the carrying value of the equity method investment of $ 11,029,221 was accounted

for as an increase to additional paid-in capital.

AVALON GLOBOCARE CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 – EQUITY (continued)

one payment of $ 95,000 at the closing of the redemption and, beginning in March 2025, monthly

payments of $ 75,000 until December 2026.

In addition, pursuant to the terms of the Redemption Agreement, all shares of the Company’s

Series B Preferred Stock previously issued to SCBC Holdings LLC as partial consideration for the equity interests of Laboratory Services

MSO, were permanently surrendered and relinquished to the Company for no additional consideration.

The difference of $ 2,348,695 between

the carrying value of the extinguished Series B preferred stock, the aggregate cash amount to the Company for the redemption, net of payables

due to Lab Services MSO of $ 632,916 , totaling $ 13,377,916 , and the carrying value of the equity method investment of $ 11,029,221 was

accounted for as an increase to additional paid-in capital.

Common Shares Issued

the three months ended March 31, 2025, the Company issued a total of 22,278 shares of its common stock for services rendered and to be

These shares were valued at $ 111,232 , the fair market values on the grant dates using the reported closing share prices on the

dates of grant, and the Company recorded stock-based compensation expense of $ 17,212 for the three months ended March 31, 2025

and reduced accrued liabilities of $ 42,385 and recorded prepaid expense of $ 51,635 as of March 31, 2025 which will be amortized over the

rest of corresponding service periods.

Shares Issued for Warrant Exercise

In March 2025, pursuant to the terms of related

warrant agreements, the Company issued 186,877 shares of its common stock upon cashless exercise of warrants.

The following table summarizes

the shares of the Company’s common stock issuable upon exercise of options outstanding at March 31, 2025:

the six months ended June 30, 2025, the Company issued a total of 192,278 shares of its common stock for services rendered

and to be rendered.

These shares were valued at $ 857,432 , the fair market values on the grant dates using the reported closing share prices

on the dates of grant, and the Company recorded stock-based compensation expense of $ 780,624 for the six months ended June 30,

2025 and reduced accrued liabilities of $ 42,385 and recorded prepaid expense of $ 34,423 as of June 30, 2025 which will be amortized

over the rest of corresponding service periods.

Common Shares Issued for Warrant Exercise

March and April 2025, pursuant to the terms of related warrant agreements, the Company issued an aggregate of 429,181 shares

of its common stock upon cashless exercise of warrants.

Common Shares Issued for Debt Conversion

29, 2025, the Company and the June 2024 Convertible Note holder entered into that certain waiver, pursuant to which, in June 2025,

the investor converted its June 2024 Convertible Note in the principal amount of $ 120,402 and unpaid interest of $ 164,711 into

285,113 shares of common stock of the Company at a per share price of $ 1.00 (see Note 6).

following table summarizes the shares of the Company’s common stock issuable upon exercise of options outstanding at June

Options Outstanding Options Exercisable

Exercise Price Number

Outstanding at

2025 Weighted

Average Remaining

Contractual Life

(Years) Weighted

Average Exercise

Exercisable at

2025 Weighted

Average Exercise

$ 2.93 – 31.20 15,419 3.33 $ 6.49 14,089 $ 6.80

2 unchanged sentences

$ 2.93 – 264.00 44,501 2.66 $ 83.54 43,171 $ 86.01

Stock option activity

for the three months ended March 31, 2025 was as follows:

Outstanding at January 1, 2025

Expired / cancelled

Outstanding at March 31, 2025

Options exercisable at March 31, 2025

Options expected to vest

The aggregate intrinsic value of stock options

outstanding and stock options exercisable at March 31, 2025 was approximately $ 17,000 an $ 10,000 , respectively.

The fair values of options granted during the

three months ended March 31, 2025 were estimated at the date of grant using the Black-Scholes option-pricing model with the following

volatility of 105.10 %, risk-free rate of 4.29 %, annual dividend yield of 0 %, and expected life of 3.00 years.

The aggregate

fair value of the options granted during the three months ended March 31, 2025 was $ 6,115 .

The fair values of options granted during the

three months ended March 31, 2024 were estimated at the date of grant using the Black-Scholes option-pricing model with the following

volatility of 91.17 %, risk-free rate of 3.93 %, annual dividend yield of 0 %, and expected life of 5.00 years.

The aggregate

fair value of the options granted during the three months ended March 31, 2024 was $ 12,137 .

AVALON GLOBOCARE CORP.

3 unchanged sentences

Options (continued)

For the three months ended March 31, 2025 and

2024, stock-based compensation expense associated with stock options granted amounted to $ 9,159 and $ 13,533 , of which, $ 4,858 and $ 5,103

was recorded as compensation and related benefits, $ 4,301 and $ 8,430 was recorded as professional fees, respectively.

A summary of the status of the Company’s

nonvested stock options granted as of March 31, 2025 and changes during the three months ended March 31, 2025 is presented below:

option activity for the six months ended June 30, 2025 was as follows:

Number of Options

Average Exercise

Outstanding at January 1, 2025

Expired / cancelled / forfeited

Outstanding at June 30, 2025

Options exercisable at June 30, 2025

Options expected to vest

aggregate intrinsic value of both stock options outstanding and stock options exercisable at June 30, 2025 was $ 0 .

fair values of options granted during the six months ended June 30, 2025 were estimated at the date of grant using the Black-Scholes option-pricing

model with the following assumptions:

volatility of 105.10 %, risk-free rate of 4.29 %, annual dividend yield of 0 %,

and expected life of 3.00 years.

The aggregate fair value of the options granted during the six months ended June 30, 2025 was

fair values of options granted during the six months ended June 30, 2024 were estimated at the date of grant using the Black-Scholes

option-pricing model with the following assumptions:

volatility of 83.10 % - 91.17 %, risk-free rate of 3.93 % - 4.79 %,

annual dividend yield of 0 %, and expected life of 3.00 - 5.00 years.

The aggregate fair value of the options

granted during the six months ended June 30, 2024 was $ 15,483 .

the three months ended June 30, 2025 and 2024, stock-based compensation expense (adjustment) associated with stock options

granted amounted to $( 28,085 ) and $ 12,256 , of which, $ 4,454 and $ 4,488 was recorded as compensation and related

benefits, and $( 32,539 ) and $ 7,768 was recorded as professional fees, respectively.

For the six months ended June 30, 2025 and 2024, stock-based compensation

expense (adjustment) associated with stock options granted amounted to $( 18,926 ) and $ 25,789 , of which, $ 9,312 and $ 9,591 , respectively, was

recorded as compensation and related benefits, and $( 28,238 ) and $ 16,198 was recorded as professional fees, respectively.

summary of the status of the Company’s nonvested stock options granted as of June 30, 2025 and changes during the six months ended

June 30, 2025 is presented below :

Number of Options

Average Exercise

Nonvested at January 1, 2025

Nonvested at March 31, 2025

Nonvested at June 30, 2025

AVALON GLOBOCARE CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 – EQUITY (continued)

Warrants (Except Pre-Funded Warrants)

The following table summarizes the shares of the

Company’s common stock issuable upon exercise of warrants outstanding at March 31, 2025:

following table summarizes the shares of the Company’s common stock issuable upon exercise of warrants outstanding at June

Warrants Outstanding Warrants Exercisable

Outstanding at

2025 Weighted

7 unchanged sentences

$ 7.50 – 187.50 95,746 3.74 $ 24.06 95,746 $ 24.06

Stock warrant activity

for the three months ended March 31, 2025 was as follows:

warrant activity for the six months ended June 30, 2025 was as follows :

Outstanding at January 1, 2025

Outstanding at March 31, 2025

Warrants exercisable at March 31, 2025

Warrants expected to vest

aggregate intrinsic value of both stock warrants outstanding and stock warrants exercisable at March 31, 2025 was $ 0 .

Outstanding and exercisable at June 30, 2025

The aggregate intrinsic

value of both stock warrants outstanding and stock warrants exercisable at June 30, 2025 was $ 0 .

Warrants Exercised

in March 2025

March 2025, pursuant to the terms of related warrant agreements, the Company issued 186,877 shares of its common stock upon cashless

exercise of warrants.

AVALON GLOBOCARE CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 – EQUITY (continued)

Warrants (Except Pre-Funded Warrants) (continued)

A summary of the status

of the Company’s nonvested stock warrants issued as of March 31, 2025 and changes during the three months ended March 31, 2025 is

presented below:

in March and April 2025

March and April 2025, pursuant to the terms of related warrant agreements, the Company issued an aggregate of

429,181 shares of its common stock upon cashless exercise of warrants.

summary of the status of the Company’s nonvested stock warrants issued as of June 30, 2025 and changes during the six months ended

June 30, 2025 is presented below :

Nonvested at January 1, 2025

Nonvested at March 31, 2025

Nonvested at June 30, 2025

Pre-Funded Warrants

As of March 31, 2025,

there were 150,000 pre-funded warrants outstanding with an exercise price of $ 0.01 per share.

There was no activity related to these warrants

during the three months ended March 31, 2025.

of June 30, 2025, there were 150,000 pre-funded warrants outstanding with an exercise price of $ 0.01 per share.

There was no activity related to these warrants during the six months ended June 30, 2025.

NOTE 11 – STATUTORY

RESERVE AND RESTRICTED NET ASSETS

The Company’s PRC subsidiary, Avalon Shanghai,

is restricted in its ability to transfer a portion of its net asset to the Company.

The payment of dividends by entities organized in

China is subject to limitations, procedures and formalities.

Regulations in the PRC currently permit payment of dividends only out of

accumulated profits as determined in accordance with accounting standards and regulations in China.

The Company is required to make appropriations

to certain reserve funds, comprising the statutory surplus reserve and the discretionary surplus reserve, based on after-tax net income

determined in accordance with generally accepted accounting principles of the PRC (“PRC GAAP”).

Appropriations to the statutory

surplus reserve are required to be at least 10 % of the after-tax net income determined in accordance with PRC GAAP until the reserve is

equal to 50 % of the entity’s registered capital.

Appropriations to the discretionary surplus reserve are made at the discretion

of the Board of Directors.

The statutory reserve may be applied against prior year losses, if any, and may be used for general business

expansion and production or increase in registered capital, but are not distributable as cash dividends.

The Company did not make any

appropriation to statutory reserve for Avalon Shanghai during the three months ended March 31, 2025 as it incurred net loss in the period.

As of both March 31, 2025 and December 31, 2024, the restricted amount as determined pursuant to PRC statutory laws totaled $ 6,578 .

Relevant PRC laws and regulations restrict the

Company’s PRC subsidiary, Avalon Shanghai, from transferring a portion of its net assets, equivalent to its statutory reserve and

its share capital, to the Company’s shareholders in the form of loans, advances or cash dividends.

Only PRC entity’s accumulated

profit may be distributed as dividend to the Company’s shareholders without the consent of a third party.

As of both March 31, 2025

and December 31, 2024, total restricted net assets amounted to $ 1,206,578 .

12 – CONDENSED FINANCIAL INFORMATION OF THE PARENT COMPANY

Pursuant to the requirements of Rule 12-04(a),

5-04(c) and 4-08(e)(3) of Regulation S-X, the condensed financial information of the parent company shall be filed when the restricted

net assets of consolidated subsidiary exceed 25 % of consolidated net assets as of the end of the most recently completed fiscal year.

For purposes of this test, restricted net assets of consolidated subsidiary shall mean that amount of the Company’s proportionate

share of net assets of consolidated subsidiary (after intercompany eliminations) which as of the end of the most recent fiscal year may

not be transferred to the parent company by subsidiary in the form of loans, advances or cash dividends without the consent of a third

The Company performed a test on the restricted

net assets of consolidated subsidiary in accordance with such requirement and concluded that it was not applicable to the Company as the

restricted net assets of the Company’s PRC subsidiary did not exceed 25 % of the consolidated net assets of the Company, therefore,

the condensed financial statements for the parent company have not been required.

Company’s PRC subsidiary, Avalon Shanghai, is restricted in its ability to transfer a portion of its net asset to the Company.

The payment of dividends by entities organized in China is subject to limitations, procedures and formalities.

Regulations in the PRC

currently permit payment of dividends only out of accumulated profits as determined in accordance with accounting standards and regulations

AVALON GLOBOCARE CORP.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11 – STATUTORY

RESERVE AND RESTRICTED NET ASSETS (continued)

Company is required to make appropriations to certain reserve funds, comprising the statutory surplus reserve and the discretionary surplus

reserve, based on after-tax net income determined in accordance with generally accepted accounting principles of the PRC (“PRC

Appropriations to the statutory surplus reserve are required to be at least 10 % of the after-tax net income determined

in accordance with PRC GAAP until the reserve is equal to 50 % of the entity’s registered capital.

Appropriations to the discretionary

surplus reserve are made at the discretion of the Board of Directors.

The statutory reserve may be applied against prior year losses,

if any, and may be used for general business expansion and production or increase in registered capital, but are not distributable as

cash dividends.

The Company did not make any appropriation to statutory reserve for Avalon Shanghai during the six months ended June 30,

2025 as it incurred net loss in the period.

As of both June 30, 2025 and December 31, 2024, the restricted amount as determined pursuant

to PRC statutory laws totaled $ 6,578 .

PRC laws and regulations restrict the Company’s PRC subsidiary, Avalon Shanghai, from transferring a portion of its net assets,

equivalent to its statutory reserve and its share capital, to the Company’s shareholders in the form of loans, advances or cash

Only PRC entity’s accumulated profit may be distributed as dividend to the Company’s shareholders without the consent

of a third party.

As of both June 30, 2025 and December 31, 2024, total restricted net assets amounted to $ 1,206,578 .

12 – CONDENSED FINANCIAL INFORMATION OF THE PARENT COMPANY

to the requirements of Rule 12-04(a), 5-04(c) and 4-08(e)(3) of Regulation S-X, the condensed financial information of the parent company

shall be filed when the restricted net assets of consolidated subsidiary exceed 25 % of consolidated net assets as of the end

of the most recently completed fiscal year.

For purposes of this test, restricted net assets of consolidated subsidiary shall mean that

amount of the Company’s proportionate share of net assets of consolidated subsidiary (after intercompany eliminations) which as

of the end of the most recent fiscal year may not be transferred to the parent company by subsidiary in the form of loans, advances or

cash dividends without the consent of a third party.

Company performed a test on the restricted net assets of consolidated subsidiary in accordance with such requirement and concluded

that it was not applicable to the Company as the restricted net assets of the Company’s PRC subsidiary did not exceed 25 % of

the consolidated net assets of the Company, therefore, the condensed financial statements for the parent company have not been required.

NOTE 13 – CONCENTRATIONS

The following

table sets forth information as to each customer that accounted for 10 % or more of the Company’s revenue for the three months ended

March 31, 2025 and 2024.

Three Months Ended March 31,

customer, which is a third party, whose outstanding receivable accounted for 10 %

or more of the Company’s total outstanding rent receivable at March 31, 2025, accounted for 79.8 %

of the Company’s total outstanding rent receivable at March 31, 2025.

customer, which is a third party, whose outstanding receivable accounted for 10 %

or more of the Company’s total outstanding rent receivable at December 31, 2024, accounted for 76.9 %

following table sets forth information as to each customer that accounted for 10 % or more of the Company’s revenue for

the three and six months ended June 30, 2025 and 2024 .

Three Months Ended

Six Months Ended

One customer, which is a third party, whose outstanding

receivable accounted for 10% or more of the Company’s total outstanding rent receivable at June 30, 2025, accounted for 86.0 %

of the Company’s total outstanding rent receivable at June 30, 2025.

One customer, which is a third party, whose outstanding

receivable accounted for 10% or more of the Company’s total outstanding rent receivable at December 31, 2024, accounted for 76.9 %

of the Company’s total outstanding rent receivable at December 31, 2024.

supplier accounted for 10 % or more of the Company’s purchase during the three months ended March 31, 2025 and 2024.

supplier accounted for 10% or more of the Company’s purchase during the three and six months ended June 30, 2025 and 2024 .

AVALON GLOBOCARE CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14 – SEGMENT INFORMATION

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structure uses the Company’s management reporting structure as its foundation to reflect how the Company manages the businesses

During the three months ended March 31, 2025 and 2024, the management reporting structure was composed of two strategic business

units, mainly organized by services, led by the Company’s President and Chief Executive Officer, who is its Chief Operating Decision

Using the accounting guidance on segment reporting, the Company determined that its two operating segments were aligned with its

two reportable segments corresponding to its strategic business units.

During the three months

ended June 30, 2025, the management reporting structure was composed of one strategic business unit, mainly organized by service, led

by the Company’s President and Chief Executive Officer, who is its CODM.

Using the accounting guidance on segment reporting, the

Company determined that its one operating segment was aligned with its one reportable segment corresponding to its strategic business

During the six months

ended June 30, 2025, the management reporting structure was composed of two strategic business units, mainly organized by services, led

by the Company’s President and Chief Executive Officer , who is its CODM.

Using the accounting guidance on segment reporting, the

Company determined that its two operating segments were aligned with its two reportable segments corresponding to its strategic business

During the three and

six months ended June 30, 2024, the management reporting structure was composed of two strategic business units, mainly organized by

services, led by the Company’s President and Chief Executive Officer, who is its CODM.

Using the accounting guidance on segment

reporting, the Company determined that its two operating segments were aligned with its two reportable segments corresponding

to its strategic business units.

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

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entered into discussions with Lab Services MSO for the potential redemption of our investment and on February 26, 2025, the Company 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 the Company.

During the three months ended March 31, 2025 and 2024, the Company operated in two reportable

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 the Company.

During the three months ended June 30, 2025, the Company operated in one reportable business

the real property operating segment.

During the six months ended June 30, 2025, the Company operated in two reportable

business segments:

2 unchanged sentences

decisions about resources to be allocated to the segment and assess its performance.

The Company regularly reviewed the operating results

and performance of Lab Services MSO, which was the Company’s equity method investee.

The accounting policies

for the segments are the same as those described in Note 3.

Our reportable segments are aligned principally around the differences in

Real property operating income is calculated by subtracting real property operating expenses from real property rental revenue;

income from equity method investment – Lab Services MSO is calculated by subtracting amortization of intangible assets acquired

from acquisition and distribution of earnings from equity investment from the Company’s share of Lab Services MSO’s net income.

The assets and certain expenses related to corporate activities are not allocated to the segments.

Information with respect to these reportable

business segments for the three months ended March 31, 2025 and 2024 was as follows:

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

the Company operated in two reportable business segments:

(1) the real property operating segment, and (2) laboratory testing

services segment since Lab Services MSO’s operating results were regularly reviewed by the Company’s chief operating decision

maker to make decisions about resources to be allocated to the segment and assess its performance.

The Company regularly reviewed the

operating results and performance of Lab Services MSO, which was the Company’s equity method investee.

accounting policies for the segments are the same as those described in Note 3.

Our reportable segments are aligned principally around

the differences in services.

Real property operating income is calculated by subtracting real property operating expenses from real property

rental revenue;

income from equity method investment – Lab Services MSO is calculated by subtracting amortization of intangible

assets acquired from acquisition from the Company’s share of Lab Services MSO’s net income.

The assets and certain expenses

related to corporate activities are not allocated to the segments.

with respect to these reportable business segments for the three and six months ended June 30, 2025 and 2024 was as follows:

Three Months Ended June 30, 2025

Real Property Operations

Corporate / Other

Real property rental revenue

Real property operating expenses

Real property operating income

Other operating expenses

( 3,908,516 )

( 3,987,316 )

Other (expense) income:

Interest expense

( 1,057,664 )

Loss on extinguishment of debt

( 9,076,587 )

Other (expense) income

$ ( 173,987 )

$ ( 13,284,611 )

$ ( 13,458,598 )

AVALON GLOBOCARE CORP.

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NOTE 14 – SEGMENT INFORMATION

Three Months Ended March 31, 2025

Three Months Ended June 30, 2024

Real Property Operations

4 unchanged sentences

Real property operating income

Income from equity method investment - Lab Services MSO

Loss from equity method investment - Lab Services MSO

Other operating expenses

3 unchanged sentences

Interest expense

Other income (expense)

Net (loss) income

Other (expense) income

$ ( 246,110 )

1 unchanged sentence

$ ( 1,556,579 )

Three Months Ended March 31, 2024

$ ( 2,132,026 )

Six Months Ended June 30, 2025

Real Property Operations

7 unchanged sentences

( 6,086,616 )

( 6,256,178 )

Other (expense) income:

Interest expense

Other income (expense)

( 1,229,068 )

( 1,617,682 )

Loss on extinguishment of debt

( 9,076,587 )

Net (loss) income

2 unchanged sentences

$ ( 15,940,709 )

Identifiable long-lived tangible assets at March 31, 2025 and December 31, 2024

Six Months Ended June 30, 2024

Real Property Operations

Lab Services MSO

Corporate / Other

Identifiable long-lived tangible assets at March 31, 2025 and December 31, 2024

United States

Real property rental revenue

Real property operating expenses

Real property operating income

Loss from equity method investment - Lab Services MSO

Other operating expenses

( 2,011,077 )

( 2,219,418 )

Other (expense) income:

Interest expense

( 1,326,868 )

Other (expense) income

$ ( 503,238 )

$ ( 221,868 )

$ ( 2,774,433 )

$ ( 3,499,539 )

AVALON GLOBOCARE CORP.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14 – SEGMENT INFORMATION

Identifiable long-lived tangible assets at June 30, 2025 and December 31, 2024

Real property operations

Corporate/Other

Identifiable long-lived tangible assets at June 30, 2025 and December 31, 2024

United States

NOTE 15 – COMMITMENTS

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to, any material legal proceedings, except as set forth below.

October 25, 2017, Genexosome entered into and closed a Stock Purchase Agreement with Beijing Genexosome and Yu Zhou, MD, PhD, the sole

shareholder of Beijing Genexosome, pursuant to which Genexosome acquired all of the issued and outstanding securities of Beijing Genexosome

in consideration of a cash payment in the amount of $ 450,000 , of which $ 100,000 is still owed.

Further, on October 25, 2017,

Genexosome entered into and closed an Asset Purchase Agreement with Dr.

Zhou, pursuant to which the Company acquired all assets, including

all intellectual property and exosome separation systems, held by Dr.

Zhou pertaining to the business of researching, developing and commercializing

exosome technologies.

In consideration of the assets, Genexosome paid Dr.

Zhou $ 876,087 in cash, transferred 3,333 shares

of common stock of the Company to Dr.

Zhou and issued Dr.

Zhou 400 shares of common stock of Genexosome.

Zhou was terminated

as Co-CEO of Genexosome on August 14, 2019.

Further, on October 28, 2019, Research Institute at Nationwide Children’s Hospital (“Research

Institute”) filed a Complaint in the United States District Court for the Southern District of Ohio Eastern Division against Dr.

Zhou, Li Chen, the Company and Genexosome with various claims against the Company and Genexosome.

The Company, Genexosome and the Research

Institute entered into a Settlement Agreement dated June 7, 2022 (the “Settlement Date”) whereby the Company agreed to pay

the Research Institute $ 450,000 on each of the sixty-day, one year and two-year anniversaries of the Settlement Date.

the Company agreed to pay the Research Institute 30 % of the Company’s initial pre-tax profit of $ 3,333,333 , 20 % of the

Company’s second pre-tax profit of $ 3,333,333 and 10 % of the Company’s third pre-tax profit of $ 3,333,333 .

provided a mutual release as well.

As of both March 31, 2025 and December 31, 2024, the accrued litigation settlement amounted to $ 373,450 .

On October 28, 2019, Research Institute at Nationwide Children’s

Hospital (“Research Institute”) filed a Complaint in the United States District Court for the Southern District of Ohio Eastern

Division against Dr.

Zhou, Li Chen, the Company and Genexosome with various claims against the Company and Genexosome including misappropriation

of trade secrets in violation of the Defend Trade Secrets Act of 2016 and violation of Ohio Uniform Trade Secrets Act.

The Company, Genexosome

and the Research Institute entered into a Settlement Agreement dated June 7, 2022 (the “Settlement Date”) whereby the Company

agreed to pay the Research Institute $ 450,000 on each of the sixty-day, one year and two-year anniversaries of the Settlement Date.

In addition, the Company agreed to pay the Research Institute 30 % of the Company’s initial pre-tax profit of $ 3,333,333 , 20 %

of the Company’s second pre-tax profit of $ 3,333,333 and 10 % of the Company’s third pre-tax profit of $ 3,333,333 .

The parties provided a mutual release as well.

As of both June 30, 2025 and December 31, 2024, the accrued litigation settlement amounted

to $ 373,450 .

AVALON GLOBOCARE CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 15 – COMMITMENTS

AND CONTINGENCIES (continued)

Operating Leases Commitment

Company is a party to leases for office space.

The Company is a party

to leases for office space.

These lease agreements expire through December 2026.

Rent expense under all operating leases

amounted to approximately $ 32,000 for both the three months ended March 31, 2025 and 2024.

cash flow information related to leases for the three months ended March 31, 2025 and 2024 is as follows:

Three Months Ended March 31,

Rent expense under all operating leases amounted to approximately

$ 59,000 and $ 64,000 for the six months ended June 30, 2025 and 2024, respectively.

Supplemental cash flow

information related to leases for the six months ended June 30, 2025 and 2024 is as follows:

Six Months Ended

Cash paid for amounts included in the measurement of lease liabilities:

2 unchanged sentences

Operating lease

The following table summarizes the lease term

and discount rate for the Company’s operating lease as of March 31, 2025:

following table summarizes the lease term and discount rate for the Company’s operating lease as of June 30, 2025:

Operating Lease

Weighted average remaining lease term (in years) 1.50

Weighted average discount rate 13.0 %

AVALON GLOBOCARE CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 15 – COMMITMENTS

AND CONTINGENCIES (continued)

Operating Leases Commitment (continued)

The following table summarizes the maturity of lease liabilities under

operating lease as of March 31, 2025:

For the Twelve-month Period Ending March 31:

operating lease as of June 30, 2025:

For the Twelve-month Period Ending June 30:

Operating Lease

2028 and thereafter

5 unchanged sentences

Joint Venture – Avactis Biosciences Inc.

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

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

(“Avactis”), a Nevada corporation, which

5 unchanged sentences

with respect to cellular immunotherapy and CAR-T, in particular.

Commencing on April 6, 2022, the Company owns 60 % of Avactis and Arbele

Biotherapeutics Limited (“Arbele Biotherapeutics”) owns 40 % of Avactis.

Avactis owns 100 % of the capital stock of Avactis

Nanjing Biosciences Ltd., a company incorporated in the PRC on May 8, 2020 (“Avactis Nanjing”), which only owns a patent and

is not considered an operating entity.

is required to contribute $ 10 million (or equivalent in RMB) in cash and/or services, which shall be contributed in tranches based on

milestones to be determined jointly by Avactis and the Company in writing subject to the Company’s cash reserves.

Within 30 days,

Arbele Biotherapeutics shall make contribution of $ 6.66 million in the form of entering into a License Agreement with Avactis granting

Avactis an exclusive right and license in China to its technology and intellectual property pertaining to CAR-T/CAR-NK/TCR-T/universal

Commencing on April 6, 2022, the Company owns 60 % of Avactis

and Arbele Biotherapeutics Limited (“Arbele Biotherapeutics”) owns 40 % of Avactis.

Avactis owns 100 % of the capital

stock of Avactis Nanjing Biosciences Ltd., a company incorporated in the PRC on May 8, 2020 (“Avactis Nanjing”), which only

owns a patent and is not considered an operating entity and is in the process of being dissolved.

AVALON GLOBOCARE CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 15 – COMMITMENTS

AND CONTINGENCIES (continued)

Joint Venture – Avactis Biosciences Inc.

Company is required to contribute $ 10 million (or equivalent in RMB) in cash and/or services, which shall be contributed in

tranches based on milestones to be determined jointly by Avactis and the Company in writing subject to the Company’s cash reserves.

Within 30 days, Arbele Biotherapeutics shall make contribution of $ 6.66 million in the form of entering into a License Agreement

with Avactis granting Avactis an exclusive right and license in China to its technology and intellectual property pertaining to CAR-T/CAR-NK/TCR-T/universal

cellular immunotherapy technology and any additional technology developed in the future with terms and conditions to be mutually agreed

1 unchanged sentence

As of the date hereof, the License Agreement has not been finalized by the parties .

addition, the Company is responsible for contributing registered capital of RMB 5,000,000 (approximately

$ 0.7 million) for working capital purposes as required by local regulation, which is

not required to be contributed immediately and will be contributed subject to the Company’s discretion.

As of the date hereof, Avactis’

activities have been limited to that of a patent holding company and there is no other activity or planned contributions in the rest of

2025 or into the foreseeable future.

In addition, the Company is responsible for contributing registered

capital of RMB 5,000,000 (approximately $ 0.7 million) for working capital purposes as required by local regulation, which

is not required to be contributed immediately and will be contributed subject to the Company’s discretion.

As of the date hereof,

Avactis’ activities have been limited to that of a patent holding company and there is no other activity or planned contributions

in the rest of 2025 or into the foreseeable future .

Avactis Biosciences, Inc and Avactis Nanjing

are not considered operating entities and are in the process of being dissolved.

NOTE 16 – SUBSEQUENT

The Company evaluated

subsequent events and transactions that occurred after the balance sheet date up to the date that the financial statements were issued.

Based upon this review, other than as described below, the Company did not identify any subsequent events that would have required adjustment

or disclosure in the financial statements.

Common Shares Issued for Warrant Exercise

In April 2025, the Company issued 242,304 shares

of its common stock upon the exercise of warrants on a cashless basis.

Company evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that the financial statements

Based upon this review, other than as described below, the Company did not identify any subsequent events that would have

required adjustment or disclosure in the financial statements .

Convertible Promissory Notes Issuance

On July 3, 2025, the Company

issued two c onvertible promissory notes to two accredited investors on identical terms.

note had a principal amount of $ 100,000 , bears a one-time interest charge of $ 30,000 , and matures nine months from the date of issuance.

In addition, the Company issued an aggregate of 10,000 shares of its common stock to these two investors as a commitment fee.

Common Stock Sold

On July 14, 2025, the

Company entered into that certain securities purchase agreement with an accredited investor, Brown Stone Capital Ltd.

(“Brown Stone”),

pursuant to which the Company agreed to issue and sell to Brown Stone 121,200 shares of the Company’s common stock and pre-funded

warrants to purchase 354,300 shares of the Company’s common stock in exchange for $ 475,500 .

The total number of shares of the Company’s

common stock issuable pursuant to the pre-funded warrants is 354,300 shares.

The closing of the transaction occurred on July 17, 2025,

which is when the Company received net proceeds of $ 450,500 after deducting offering expenses.

Series C Convertible

Preferred Stock Sold for Cash

On July 21, 2025, the

Company entered into that certain securities purchase agreement with Mast Hill, pursuant to which the Company agreed to issue and sell

to Mast Hill 300 shares of Series C Convertible Preferred Stock for up to an aggregate of $ 300,000 , which is equal to $ 1,000 per share.

The Company received net proceeds of $ 290,000 at the closing after deducting offering expenses.

July 28, 2025, the Company entered into a waiver with Mast Hill with respect to June 2024 Convertible Note.

The waiver provides for an

extension of the maturity date of the June 2024 Convertible Note to August 31, 2025.

Shares Issued for Services

During the period from July 1,

2025 through August 13, 2025, the Company issued a total of 314,216 shares of its common stock for services rendered and to

Shares Issued for Debt Conversion

During the period from July 1,

2025 through August 13, 2025, an investor converted its convertible note in the principal amount of $ 1,015,052 and unpaid interest of

$ 25,557 into 1,040,609 shares of common stock of the Company at a per share price of $ 1.00 .

July 22, 2025, the Company filed a lawsuit in the Court of Chancery of the State of Delaware against Laboratory Services MSO, LLC and

certain affiliates.

The Company has asserted a variety of claims, including breach of contract, arising out of its prior transactions

with the defendants, including the Redemption and Abandonment Agreement, dated as of February 26, 2025.

The time for the defendants to

respond to the Complaint has not yet expired.

The parties have agreed to a settlement in principle and the Company expects the lawsuit to be dismissed.

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

What changed 10-Q

Item 1. Financial Statements