What changed in this filing

/stocks — the workspaceLOADING

Item 1. Business

2026-03-30 compared with 2025-03-31 · 358 added, 577 removed, 13 unchanged (99% of the section changed)

We are a commercial-stage

company dedicated to developing and delivering precision diagnostic consumer products.

We are currently marketing the Keto Air breathalyzer

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

We also provided laboratory services in 2024 and

2023, offering a broad portfolio of diagnostic tests, including drug testing, toxicology, and a broad array of test services, from general

bloodwork to anatomic pathology, and urine toxicology.

We completed an acquisition of a 40% membership interest in Laboratory Services

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

During 2025, to preserve cash, the Company entered into discussions

with Lab Services MSO for the potential redemption of our investment and on February 26, 2025, we and Lab Services MSO entered into a

Redemption and Abandonment Agreement, whereby Lab Services MSO redeemed the 40% equity interest in Lab Services MSO held by us.

beginning in February 2025, we no longer offer laboratory services.

initiated sales of our first diagnostic consumer product, Keto Air, a device that tests ketosis levels.

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

Laboratory Acquisitions

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

commercial strategy.

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

Among other things,

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

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

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

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

Accordingly, beginning in February 2025, we no longer offer laboratory services.

Research and Development

We are focused on bringing forward intellectual property through joint

patent filings with the Massachusetts Institute of Technology (“MIT”).

We completed a sponsored research and co-development

project with MIT led by Professor Shuguang Zhang as Principal Investigator.

Using the unique QTY code protein design platform, six water-soluble

variant cytokine receptors have been successfully designed and tested to show binding affinity to the respective cytokines.

are focused on bringing forward the intellectual property associated with this program through joint patent submissions, new research

and development has been suspended.

Product Commercialization

We have begun the commercialization

and development of a versatile breathalyzer system.

We were granted

exclusive distributorship rights for the KetoAir from Qi Diagnostics for the following territories:

North America, South America,

the EU and the UK.

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

product through the KetoAir website and social media.

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

for measuring ketosis.

The KetoAir device is

a handheld device that allows the user to detect acetone levels in exhaled breath.

The acetone level is in concentration units (ppm, part-per-million)

such that the user will know his/her real-time ketosis status:

inadequate ketosis (0-3.99 ppm), mild ketosis (4-9.99 ppm), optimal ketosis

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

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

I medical device.

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

downloadable from Google Play (for Android mobile phones, approved) and iPhone It helps users monitor and manage their ketogenic diet

and related programs.

We believe the KetoAir can be an essential tool to help diabetic patients adhere to their therapeutic programs and

optimize their ketogenic dietary management.

In order to preserve

cash and focus on our core laboratory rollup strategy and product commercialization, we have currently suspended all research and development

efforts related to cellular therapy in order to redirect our funding efforts to our core business strategies outlined above.

China Operations

Due to the winding down of the medical related consulting services

segment, in November 2022, we decided to cease all operations in the People’s Republic of China (the “PRC”) with the

exception of a small administrative office, in Beijing.

We do not expect nor do we plan

that we will further operate in the PRC or generate revenue from PRC operations for the foreseeable future.

The accompanying consolidated financial statements

reflect the activities of the Company and each of the following entities:

Name of Subsidiary

Place and Date of

Incorporation

Percentage of

Principal Activities

Avalon Healthcare System, Inc.

100% held by Company

Holding company for payroll and other expenses

Avalon RT 9 Properties, LLC (“Avalon RT 9”)

New Jersey February 7, 2017

100% held by Company

Owns and operates an income-producing real property and holds and manages the corporate headquarters

Avalon (Shanghai) Healthcare Technology Co., Ltd.

(“Avalon Shanghai”)

PRC April 29, 2016

100% held by AHS

Is not considered an operating entity

Genexosome Technologies Inc.

(“Genexosome”)

Nevada July 31, 2017

60% held by Company

No current activities to report, dormant

Avactis Biosciences Inc.

July 18, 2018

60% held by Company

is in process of being dissolved

Avactis Nanjing Biosciences Ltd.

(“Avactis Nanjing”)

100% held by Avactis

is in process of being dissolved

Avalon Laboratory Services, Inc.

(“Avalon Lab”)

October 14, 2022

100% held by Company

Laboratory holding company with a 40% membership interest in Lab Services MSO as of December 31, 2024 (1)

Q&A Distribution LLC

(“Q&A Distribution”)

100% held by Company

Distributes KetoAir device

(1) On February 26, 2025, we and Lab Services MSO entered into a Redemption and Abandonment Agreement, whereby

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

Sales and Marketing

We launched sales of the KetoAir in the U.S.

We have retained a marketing expert to assist us to bring this product to market through social media, influencer promotion and

We launched this product at the 2024 “KetoCon” convention which took place May 31, 2024 in Austin Texas.

Laboratory Services

During 2024 and 2023 and until February 2025,

through our membership interest in Lab Services MSO, we were focused on delivering high quality services related to toxicology and wellness

The panels that we tested for were thyroid panel, comprehensive metabolic panel, kidney profile, liver function tests, and other

individual tests.

We offered our laboratory services in California,

Texas and Arizona.

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

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

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

Accordingly, beginning in February 2025, we no longer offer laboratory

Breathalyzer System (KetoAir)

Our current area of focus for the launch of the

KetoAir is within the U.S.

We are focused on the population within the U.S.

that is using the Keto Diet approach to weight loss and diabetic

Avalon RT 9 Properties, LLC

We own commercial property located in Freehold,

This property serves as our corporate headquarters and contains several commercial tenants that generate revenue through rental

Strategic Development

In late 2024, we launched an initiative seeking

transformational merger candidates.

The Company determined that it had limited access to cash and it was in the best interest of shareholders

to seek a strategic merger.

We are a technology-innovation company with a

strategic focus on developing innovative products and services that serve growing consumer health and technology markets.

Throughout our

operating history, we have maintained our corporate identity, management team and original mission while strategically evolving our business

in response to market conditions and commercial opportunities, with each such evolution being the product of deliberate decisions.

are actively seeking complementary bolt-on AI acquisitions that could generate near-term revenue to supplement our current operations

as both segments continue to develop.

We believe our diverse and evolving portfolio of commercial activities reflects our ongoing commitment

to identifying and building value-oriented technology businesses for the benefit of its stockholders.

Current Business Operations

We currently operates through two business segments:

(i) a consumer health technology segment, through which we distributes the Keto Air breathalyzer device — a non-invasive consumer

breathalyzer that measures ketosis levels and is sold in North America, bearing an FDA registration number;

and (ii) an artificial intelligence

content technology segment, through which we develop and commercialize an AI-driven, short-form video generation platform operated by

Avalon Quantum AI, LLC, our wholly owned subsidiary formed in connection with our acquisition of RPM Interactive, Inc.

in December 2025.

Each segment is described in full below.

Consumer Health Technology Segment - Keto-Air

Our consumer health technology segment is centered

on the Keto Air breathalyzer device, a non-invasive consumer health product that allows users to determine whether they are in a state

of nutritional ketosis, and at what level, by exhaling into a compact, pen-like breathalyzer.

Ketosis is a metabolic state in which the

body burns fat for fuel rather than carbohydrates, and is widely associated with low-carbohydrate and ketogenic dietary regimens.

Keto Air device represents a meaningful improvement over prior methods of measuring ketosis, such as urine test strips or earlier-generation

breathalyzers that required cartridge replacements, offering users a convenient, reusable, and non-invasive testing experience.

We entered into an exclusive North American distribution

agreement for the Keto-Air technology and device in 2024.

Pursuant to this agreement, we have exclusive distribution rights in the United

States, Canada and Mexico through July of 2025 and since that time, we continue to be the only distributor in North America.

this provides us with a meaningful competitive advantage in the North American ketosis monitoring market for the duration of the agreement.

We previously had a THC breathalyzer device under development.

2026, we discontinued development of that product due to a lack of available funding.

The discontinuation of the THC breathalyzer does

not affect our Keto Air operations or sales of the Keto Air device..

Market Opportunity

Our commercial sales strategy for Keto Air utilizes

two primary channels:

social media influencer relationships and a commercial relationship with the Law Enforcement Association of America,

which was developed through one of our consultants.

We believe the Law Enforcement Association of America relationship is particularly

well-suited to the Keto Air product given the relevance of metabolic health monitoring to the wellness programs of law enforcement personnel

and their families.

We are currently in an early-stage commercial

testing phase, during which we are assessing broader market demand, refining our distribution and marketing approach, and evaluating the

most effective channels for scaling sales.

We are continuing to assess the future strategic direction of our Keto Air product line in

light of its commercial performance and our overall business portfolio.

Regulatory Status

The Keto Air device bears an FDA registration

number, which is required for the commercial sale of such devices in the United States.

The device is classified as a consumer product

and is not a regulated medical device requiring FDA pre-market approval, and accordingly may be sold directly to any consumer without

a prescription or other regulatory authorization.

We believe this regulatory profile provides us with a straightforward commercial pathway

to market in the United States and across North America.

Artificial Intelligence Content Technology

Segment — Avalon Quantum AI, LLC / RPM Interactive

Our artificial intelligence content technology segment is operated

through Avalon Quantum AI, LLC, a wholly owned subsidiary of our company organized in the State of Nevada and formed in connection with

our acquisition of RPM Interactive, Inc.

("RPM") in December 2025.

RPM merged with and into Avalon Quantum AI, LLC pursuant

to the merger, and Avalon Quantum AI, LLC continues to operate as our wholly owned subsidiary.

The RPM Platform — Phase 1

The RPM platform is an AI-driven, short-form video

generation software.

In its current Phase 1 form, the platform enables content creators — with an initial focus on the podcasting

market — to input a topic of their choosing, after which the platform automatically scrapes the internet for relevant videos, identifies

the most-viewed or most-discussed content on that topic, and generates a structured, three-minute video featuring an AI-generated avatar

of the creator that replicates their voice and likeness.

Each generated video consists of three segments:

an introduction delivered by

the creator's AI avatar, the featured video clip sourced by the platform, and a concluding statement also delivered by the AI avatar.

The core appeal of the RPM platform to content

creators is efficiency:

the software automates the time-consuming process of identifying and sourcing video content, writing scripts,

and producing recordings, enabling creators to generate daily content at scale and drive increased views, clicks, and subscriber engagement

across their platforms.

We believe the demand for automated, high-quality content generation tools among the creator economy is substantial

and growing, and that the RPM platform is well-positioned to address this demand.

The platform is currently in beta testing with

a limited number of content creators.

We are using this beta period to refine the platform's AI avatar generation capabilities, test the

content sourcing and curation algorithms, and gather user feedback in advance of a broader commercial launch.

Phase 2 Development

Phase 2 of the RPM platform is currently in development and is expected

to launch in Q3 of 2026.

Phase 2 is expected to expand the platform's user base beyond podcasters to a substantially broader range of content creators

and marketers, including social media influencers and individuals or businesses engaged in product marketing and e-commerce.

also feature a more refined AI avatar generation system, with enhanced voice and likeness replication capabilities designed to produce

higher-quality, more personalized content at scale.

We believe the expansion of the platform's addressable

market from podcasters to the broader creator and marketer economy in Phase 2 represents a significant step toward the commercial scaling

of the RPM platform, and we intend to pursue a phased commercial launch strategy following the completion of Phase 2 development.

While we continue to develop and complete Phase 2, we continue to evaluate

possible AI acquisitions that we believe could generate near-term revenue to supplement our current operations while the RPM platform

continues through its development and commercial launch phases.

We have not entered into any definitive agreement with respect to any

such acquisition as of the date of this Annual Report, and there can be no assurance that we will identify, complete, or successfully

integrate any such acquisition.

History of Operations

Wind-Down of China Operations (2022–2023)

Our initial commercial strategy was focused on

the cellular therapy sector, where we sought to advance innovative cellular therapy technologies in both the United States and China.

Beginning in 2022 and continuing through 2023, our Board of Directors determined to wind down our operations in the People's Republic

of China and to divest all assets, subsidiaries, and relationships associated with our China-based activities.

This decision reflected

both the changed commercial and regulatory landscape applicable to our cellular therapy program and our inability to secure the capital

necessary to advance the program at the scale required to achieve commercial viability.

By November 2022, we had ceased all active operations

in the PRC, and the wind-down was completed during 2023.

Laboratory Services Strategy (2023–2025)

In February 2023, through our subsidiary Avalon Lab, LLC, we acquired

a 40% equity interest in Laboratory Services MSO, LLC, a California-based clinical laboratory company, for total consideration of approximately

$20.7 million, comprised of approximately $9.0 million in cash, 11,000 shares of our Series B Convertible Preferred Stock, and an additional

$666,667 cash payment made in February 2024.

On February 26, 2025, we exited the investment entirely pursuant to a Redemption and Abandonment

Agreement, receiving cash proceeds of $1,745,000 and surrendering our Series B Preferred Stock.

Search for Strategic Acquisitions and YOOV

Merger Agreement (2024–2025)

In early 2024, our Board made a strategic determination to focus our

acquisition efforts on YOOV Group Holding Limited ("YOOV"), a Hong Kong-based company.

We conducted extensive due diligence,

engaging on-site due diligence meetings with the YOOV management team.

On March 7, 2025, we entered into an Agreement and Plan of Merger

with YOOV and Nexus MergerSub Limited, pursuant to which YOOV would have become a direct, wholly owned subsidiary of our company.

our continued review of YOOV's financial statements for the fiscal year ended December 31, 2024, our Board of Directors determined that

it was not in the best interests of our stockholders to proceed with the transaction.

We terminated the merger agreement with YOOV effective

January 21, 2026.

Acquisition of RPM Interactive, Inc.

Formation of Avalon Quantum AI, LLC (December 2025)

On December 15, 2025, we completed the acquisition of RPM Interactive,

("RPM"), a generative artificial intelligence software company, through a subsidiary merger whereby RPM merged with and

into Avalon Quantum AI, LLC, a newly formed, wholly owned subsidiary of our company organized in the State of Nevada.

Avalon Quantum AI,

LLC is the surviving entity and continues as our wholly owned subsidiary.

We, as the surviving listed parent entity, continue to operate

under our existing Nasdaq listing, and neither our corporate identity, our Nasdaq listing, nor our principal executive offices were altered

as a result of the acquisition.

The acquisition was effected as an all-stock transaction pursuant to which we issued 19,500 shares of

our Series E Non-Voting Convertible Preferred Stock to RPM's former stockholders at a stated value of $1,000 per share, for a total stated

purchase price of $19.5 million.

Each share of Series E Preferred Stock is convertible into shares of our common stock at a conversion

price of $1.50 per share, subject to:

(i) a beneficial ownership cap of 4.99% per holder;

(ii) an exchange cap preventing issuance in

excess of applicable Nasdaq thresholds (the "Exchange Cap");

and (iii) stockholder approval required under Nasdaq Listing Rule

5635, which we intend to seek at our 2026 annual meeting of stockholders.

The Series E Preferred Stock is non-voting prior to conversion.

In connection with the acquisition, we appointed Michael Mathews to our Board of Directors.

A full description of our RPM platform and

Phase 2 development plans is set forth in Item 1.B above.

Intellectual Property

Our goal is to obtain, maintain and enforce

patent rights for our products, formulations, processes, methods of use and other proprietary technologies, preserve our trade

secrets, and operate without infringing on the proprietary rights of other parties, both in the United States and abroad.

is to actively seek to obtain, where appropriate, the broadest intellectual property protection possible for our current product

candidates and any future product candidates, proprietary information and proprietary technology through a combination of

contractual arrangements and patents, both in the United States and abroad.

Even patent protection, however, may not always afford

us with complete protection against competitors who seek to circumvent our patents.

If we fail to adequately protect or enforce our

intellectual property rights or secure rights to patents of others, the value of our intellectual property rights would diminish.

this end, we require all of our employees, consultants, advisors and other contractors to enter into confidentiality agreements that

prohibit the disclosure and use of confidential information and, where applicable, require disclosure and assignment to us of the

ideas, developments, discoveries and inventions relevant to our technologies and important to our business.

Many of our existing and potential future competitors

have significantly greater financial resources and expertise in operations, research and development, manufacturing, obtaining marketing

approvals and marketing approved products than we do.

Mergers and acquisitions may result in even more resources being concentrated among

a smaller number of our competitors.

Smaller, or early stage, companies may also prove to be significant competitors, particularly through

collaborative arrangements with large and established companies.

These competitors also compete with us in recruiting and retaining qualified

scientific and management personnel, as well as in acquiring technologies complementary to, or necessary for, our programs.

We expect that our ability to compete effectively

will depend upon our ability to:

● maintain a proprietary position

for our manufacturing processes and other technology;

● produce our products in accordance

with FDA and international regulatory guidelines;

● attract and retain key personnel;

● build or access an adequate

sales and marketing infrastructure for any approved products.

Failure to do one or more of these activities

could have an adverse effect on our business, financial condition or results of operations.

Avalon RT 9 Properties, LLC

We own commercial property located in Freehold,

This property serves as our corporate headquarters and contains several commercial tenants that generate revenue through rental

The property is located on a major highway and is one of the largest buildings in the surrounding areas.

It is centrally located

and maintains high occupancy.

There are other commercial properties in the vicinity that offer similar amenities.

However, premier executive

offices are limited and as such, we expect to continue to maintain high occupancy in the near term.

As of March 31, 2025, we employed five employees,

four of which are full time employees.

Cellular Therapy Patent Portfolio

We hold a portfolio of patents developed during

our cellular therapy operating period.

This portfolio includes patents that are co-owned with the Massachusetts Institute of Technology

("MIT"), arising from a prior joint research agreement between our company and MIT, as well as patents co-owned with Arbelli,

a Hong Kong-based company that collaborated with us during our cellular therapy research activities.

We regard the MIT co-ownership as

a material component of our patent portfolio, and we disclose it accordingly.

Although we have ceased all active research and

development activities related to cellular therapy, we have made a deliberate decision to continue actively maintaining, or "prosecuting,"

these patents rather than allowing them to lapse or be abandoned.

We believe the patents may have potential future value — whether

through licensing, sale, or the resumption of activity in the cellular therapy space — and we intend to continue maintaining them

for so long as we consider it commercially reasonable to do so.

Any decisions regarding the licensing or enforcement of co-owned patents

are subject to the terms of our co-ownership arrangements with MIT and Arbelli, which may limit our ability to license or enforce such

patents unilaterally without the consent of our co-owners.

Artificial Intelligence Platform —

Provisional Patent Applications

In connection with our acquisition of RPM Interactive,

and the development of our generative AI content platform operated through Avalon Quantum AI, LLC, we have filed three provisional

patent applications relating to aspects of the RPM platform's technology.

Provisional applications establish an early filing date and

provide a twelve-month period during which we may file corresponding non-provisional patent applications.

We intend to evaluate the commercial

and strategic value of converting these provisional applications into non-provisional applications during the applicable filing window.

There can be no assurance that any patents will issue from these applications, or that any issued patents will provide meaningful competitive

General Intellectual Property Policy

Our general policy is to seek, where appropriate,

broad intellectual property protection for our current and future products, technologies, and proprietary information through a combination

of patents, trade secrets, contractual arrangements, and other available means, both in the United States and internationally.

all employees, consultants, advisors, and contractors to enter into confidentiality agreements that prohibit the disclosure and unauthorized

use of our confidential information and, where applicable, require the disclosure and assignment to us of ideas, developments, discoveries,

and inventions relevant to our technologies and important to our business.

We also rely on trade secret protection for certain aspects

of our proprietary technology and business processes, including aspects of the RPM platform's content sourcing and curation algorithms

that we have determined are better protected as trade secrets than through patent disclosure.

We operate in two distinct and competitive markets,

each with its own competitive dynamics.

We face competition in both our consumer health technology segment and our artificial intelligence

content technology segment, as described below.

Consumer Health Technology — Keto

Air Breathalyzer

The market for consumer ketosis monitoring products

is competitive and includes a range of products at varying price points and technology levels.

Our primary competitors in this space include

manufacturers and distributors of urine-based ketone test strips, which represent the most widely used and lowest-cost method of ketosis

measurement and are available through a broad range of retail and online channels.

We also compete with other breath-based ketone monitoring

devices, including earlier-generation breathalyzers that required consumable cartridge replacements and more recent reusable breath ketone

monitors that have been introduced to the market by consumer health technology companies.

We believe the Keto Air device competes favorably

on the basis of its reusable design, ease of use, and the convenience of non-invasive breath-based testing relative to urine strip alternatives.

As we are currently the only one selling the device in North America, we believe this provides us with a meaningful structural advantage

relative to other distributors of similar products in our territory..

However, many of our actual and potential competitors in this space

have significantly greater financial resources, brand recognition, established retail distribution networks, and marketing infrastructure

than we do, and we may not be able to compete effectively with them over the long term.

Artificial Intelligence Content Technology

— Avalon Quantum AI, LLC / RPM Platform

The market for AI-driven content creation tools

is rapidly evolving, highly competitive, and characterized by continuous technological development and the frequent entry of new participants.

We compete with a broad range of companies offering AI-powered video generation, content automation, and creator economy tools, including

both established technology companies with significant resources and early-stage companies developing competing generative AI platforms.

Key competitive factors in this market include

the quality and realism of AI-generated content, the breadth of the platform's addressable user base, the speed and automation of content

generation workflows, the sophistication of voice and likeness replication technology, integration with major social media and content

distribution platforms, and the ability to scale rapidly to meet growing creator demand.

We believe our RPM platform competes on the basis

of its end-to-end automation of the video content creation process — from topic input through content sourcing, curation, avatar

generation, and final video production — which we believe meaningfully reduces the time and technical burden on content creators

relative to less automated alternatives.

However, many of our actual and potential competitors

in the generative AI space have substantially greater financial resources, research and development capabilities, engineering talent,

data assets, and market presence than we do.

Several large technology companies are actively investing in AI-generated content tools and

avatar technology, and we expect competition in this market to intensify significantly as the technology matures and the creator economy

continues to grow.

Smaller and early-stage companies may also prove to be significant competitors, particularly those that secure strategic

partnerships with established platform operators or content networks.

As of March 25, 2026, we employed two full time

employees and several independent contractors.

None of our employees is represented by a collective bargaining arrangement.

Government Regulation

The healthcare industry in the U.S.

regulated and subject to changing political, legislative, regulatory, and other influences.

Further, the healthcare industry is currently

undergoing rapid change.

We are uncertain how, when or in what context these new changes will be adopted or implemented.

These new regulations

could create unexpected liabilities for us, could cause us or our members to incur additional costs and could restrict our or our clients’

Many of the laws are complex and their application to us, our clients, or the specific services and relationships we have

with our members are not always clear.

Our failure to anticipate accurately the application of these laws and regulations, or our other

failure to comply, could create liability for us, result in adverse publicity, and otherwise negatively affect our business.

Holding Foreign Companies Accountable Act

The Holding Foreign Companies Accountable Act,

or the HFCA Act, was enacted on December 18, 2020.

According to the HFCA Act, if the SEC determines that Avalon has filed audit reports

issued by a registered public accounting firm that has not been subject to inspection by the PCAOB for three consecutive years beginning

in 2021, the SEC will prohibit Avalon’s securities from being traded on a national securities exchange or in the over-the-counter

trading market in the United States.

On December 16, 2021, the PCAOB issued a Determination

Report which reported that the PCAOB is unable to inspect or investigate completely registered public accounting firms headquartered in:

(1) mainland China of the People’s Republic of China, because of a position taken by one or more authorities in mainland China;

and (2) Hong Kong, a Special Administrative Region of the PRC, because of a position taken by one or more authorities in Hong Kong.

Avalon’s auditor is M&K CPAS PLLC (M&K”), based

M&K is registered with the PCAOB and is subject to laws in the United States pursuant to which the PCAOB conducts regular

inspections to assess their compliance with the applicable professional standards.

Since M&K is located in the United States, the

PCAOB has been able to conduct inspections of M&K.

In addition, M&K is not among the PCAOB registered public accounting firms

registered in mainland China or Hong Kong that are subject to PCAOB’s determination on December 16, 2021.

Other Healthcare Fraud and Abuse Laws

In the U.S., our activities are potentially subject

to regulation by various federal, state and local authorities in addition to the FDA, including but not limited to, the Centers for Medicare

and Medicaid Services, or CMS, other divisions of the U.S.

Department of Health and Human Services (such as the Office of Inspector General

and the Health Resources and Service Administration), the U.S.

Department of Justice, or the DOJ, and individual U.S.

Attorney offices

within the DOJ, and state and local governments.

For example, sales, marketing and scientific/educational grant programs may have to comply

with the anti-fraud and abuse provisions of the Social Security Act, the false claims laws, the privacy and security provisions of the

Health Insurance Portability and Accountability Act, or HIPAA, and similar state laws, each as amended, as applicable.

The federal Anti-Kickback Statute prohibits, among

other things, any person or entity from knowingly and willfully offering, paying, soliciting or receiving any remuneration, directly or

indirectly, overtly or covertly, in cash or in kind, to induce or in return for purchasing, leasing, ordering or arranging for the purchase,

lease or order of any item or service reimbursable, in whole or in part, under Medicare, Medicaid or other federal healthcare programs.

The term remuneration has been interpreted broadly to include anything of value.

The Anti-Kickback Statute has been interpreted to apply

to arrangements between therapeutic product manufacturers on one hand and prescribers, purchasers, and formulary managers on the other.

There are a number of statutory exceptions and regulatory safe harbors protecting some common activities from prosecution.

The exceptions

and safe harbors are drawn narrowly and practices that involve remuneration that may be alleged to be intended to induce prescribing,

purchasing or recommending may be subject to scrutiny if they do not qualify for an exception or safe harbor.

Failure to meet all of the

requirements of a particular applicable statutory exception or regulatory safe harbor does not make the conduct per se illegal under the

Anti-Kickback Statute.

Instead, the legality of the arrangement will be evaluated on a case-by-case basis based on a cumulative review

of all of its facts and circumstances.

Additionally, the intent standard under the Anti-Kickback Statute was amended by the ACA to a stricter

standard such that a person or entity no longer needs to have actual knowledge of the statute or specific intent to violate it in order

to have committed a violation.

In addition, the ACA codified case law that a claim including items or services resulting from a violation

of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal False Claims Act, or FCA.

The federal false claims and civil monetary penalty

laws, including the FCA, which imposes significant penalties and can be enforced by private citizens through civil qui tam actions, prohibit

any person or entity from, among other things, knowingly presenting, or causing to be presented, a false or fraudulent claim for payment

to, or approval by, the federal healthcare programs, including Medicare and Medicaid, or knowingly making, using, or causing to be made

or used a false record or statement material to a false or fraudulent claim to the federal government.

A claim includes “any request

or demand” for money or property presented to the U.S.

For instance, historically, pharmaceutical and other healthcare

companies have been prosecuted under these laws for allegedly providing free product to customers with the expectation that the customers

would bill federal programs for the product.

Other companies have been prosecuted for causing false claims to be submitted because of

the companies’ marketing of the product for unapproved, off-label, and thus generally non-reimbursable, uses.

HIPAA created additional federal criminal statutes

that prohibit, among other things, knowingly and willfully executing, or attempting to execute, a scheme to defraud or to obtain, by means

of false or fraudulent pretenses, representations or promises, any money or property owned by, or under the control or custody of, any

healthcare benefit program, including private third-party payors, willfully obstructing a criminal investigation of a healthcare offense,

and knowingly and willfully falsifying, concealing or covering up by trick, scheme or device, a material fact or making any materially

false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services.

the Anti-Kickback Statute, the ACA amended the intent standard for certain healthcare fraud statutes under HIPAA such that a person or

entity no longer needs to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation.

Many states have similar, and typically more prohibitive,

fraud and abuse statutes or regulations that apply to items and services reimbursed under Medicaid and other state programs, or, in several

states, apply regardless of the payor.

Additionally, to the extent that our product candidates may in the future be sold in a foreign

country, we may be subject to similar foreign laws.

We may be subject to data privacy and security

regulations by both the federal government and the states in which we conduct our business.

HIPAA, as amended by the Health Information

Technology for Economic and Clinical Health Act, or HITECH, and its implementing regulations, imposes requirements relating to the privacy,

security and transmission of individually identifiable health information.

Among other things, HITECH makes HIPAA’s privacy and

security standards directly applicable to business associates, independent contractors, or agents of covered entities that receive or

obtain protected health information in connection with providing a service on behalf of a covered entity.

HITECH also created four new

tiers of civil monetary penalties, amended HIPAA to make civil and criminal penalties directly applicable to business associates, and

gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce HIPAA and seek

attorneys’ fees and costs associated with pursuing federal civil actions.

In addition, many state laws govern the privacy and security

of health information in specified circumstances, many of which differ from each other in significant ways, are often not pre-empted by

HIPAA, and may have a more prohibitive effect than HIPAA, thus complicating compliance efforts.

We expect our product, after approval, may be

eligible for coverage under Medicare, the federal health care program that provides health care benefits to the aged and disabled, and

covers outpatient services and supplies, including certain pharmaceutical products, that are medically necessary to treat a beneficiary’s

health condition.

In addition, the product may be covered and reimbursed under other government programs, such as Medicaid and the 340B

Drug Pricing Program.

The Medicaid Drug Rebate Program requires pharmaceutical manufacturers to enter into and have in effect a national

rebate agreement with the Secretary of the Department of Health and Human Services as a condition for states to receive federal matching

funds for the manufacturer’s outpatient drugs furnished to Medicaid patients.

Under the 340B Drug Pricing Program, the manufacturer

must extend discounts to entities that participate in the program.

As part of the requirements to participate in certain government programs,

many pharmaceutical manufacturers must calculate and report certain price reporting metrics to the government, such as average manufacturer

price, or AMP, and best price.

Penalties may apply in some cases when such metrics are not submitted accurately and timely.

Additionally, the federal Physician Payments Sunshine

Act, or the Sunshine Act, within the ACA, and its implementing regulations, require that certain manufacturers of drugs, devices, biological

and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain

exceptions) report annually to CMS information related to certain payments or other transfers of value made or distributed to physicians

and teaching hospitals, or to entities or individuals at the request of, or designated on behalf of, the physicians and teaching hospitals

and to report annually certain ownership and investment interests held by physicians and their immediate family members.

Failure to report

accurately could result in penalties.

In addition, many states also govern the reporting of payments or other transfers of value, many

of which differ from each other in significant ways, are often not pre-empted, and may have a more prohibitive effect than the Sunshine

Act, thus further complicating compliance efforts.

New Legislation and Regulations

From time to time, legislation is drafted, introduced

and passed in Congress that could significantly change the statutory provisions governing the testing, approval, manufacturing and marketing

of products regulated by the FDA.

In addition to new legislation, FDA regulations and policies are often revised or interpreted by the

agency in ways that may significantly affect our business and our products.

It is impossible to predict whether further legislative changes

will be enacted or whether FDA regulations, guidance, policies or interpretations will be changed or what the effect of such changes,

if any, may be.

Recent Developments

Mortgage and Security

On March 27, 2024, the Company entered into a Mortgage and Security

Agreement (the “Mast Hill Mortgage”) with Mast Hill Fund L.P.

(“Mast Hill”) to secure the payment performance

and obligation under certain follow-up financing agreements described below.

In March 2024, the Company entered into follow-up financing agreements

with Mast Hill, which included the issuance of 13% senior secured promissory notes totaling $700,000 convertible into common stock, as

well as the issuance of up to 7,000 shares of common stock as a commitment fee, and warrants for the purchase of up to 8,750 shares of

common stock at an initial price per share of $30.00, and common share purchase warrants for the purchase of up to 8,077 shares of common

stock at an initial price per share of $19.50, with a total purchase price of $665,000 (the “2024 Financing Agreements”).

These agreements were made under the same terms and conditions of the prior rounds of convertible note financing in October 2023 and May

2023 (the “2023 Financing Agreements”).

On March 27, 2024, the Company also entered into a Mortgage and Security

Agreement (the “Firstfire Mortgage”) with Firstfire Global Opportunities Fund, LLC (“Firstfire”) to secure the

payment performance and obligation under the 2023 Financing Agreements.

Convertible Note

Financing and Mortgage and Security Agreement

On June 5, 2024, the Company entered into securities purchase agreements

(the “ Securities Purchase Agreements ”) with Mast Hill for the issuance of 13% senior secured promissory notes in the

aggregate principal amount of $2,845,000 (collectively, the “Notes”) convertible into shares of the Company’s common

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

shares of common stock (the “Convertible Note Financing”).

The Company and its subsidiaries entered into those certain security

agreements (the “Security Agreements”), creating a security interest in certain property of the Company and its subsidiaries

to secure the prompt payment, performance and discharge in full of all of the Company’s obligations under the Notes.

The transaction

closed on June 5, 2024.

Mast Hill acquired the Notes with principal amount of $2,845,000

and paid the purchase price of $2,702,750 after an original issue discount of $142,250, with a conversion price of $11.25, subject to

adjustment as provided in Notes.

Also on June 5, 2024, the Company issued (i) a warrant to purchase 66,667 shares of common stock with

an exercise price of $9.75 exercisable until June 5, 2029 (the “First Warrant”), (ii) a warrant to purchase 80,000 shares

of common stock with an exercise price of $7.50 exercisable until June 5, 2029, which warrant shall be cancelled and extinguished against

payment of the Notes (the “Second Warrant” and collectively with the First Warrant, the “Warrants”), and (iii)

26,800 shares of common stock to Mast Hill as additional consideration for the purchase of the Note ( the “Commitment Shares”),

which were earned in full as of June 5, 2024.

On the closing date, the Company delivered such duly executed Notes, warrants and common

stock to Mast Hill against delivery of such purchase price.

The Company used the

proceeds from the Convertible Note Financing to pay off all previously issued convertible notes to Mast Hill and Firstfire.

On June 5, 2024, the Company also entered into a Mortgage and Security

Agreement (the “Mortgage”) with Mast Hill to secure the payment, performance, and obligations under the above-mentioned Convertible

Note Financing.

As of June 5, 2024, the Company was indebted to Mast Hill in the combined principal sum of $2,845,000.

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 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.

At-the-Market

In June 2023, the Company entered

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

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

July 1, 2023 to August 16, 2024, we sold an aggregate of 312,285 shares of our common stock at an average price of $11.19 per share to

investors pursuant to the Sales Agreement, and received net cash proceeds of $3,388,251, net of cash paid for Roth’s commissions

and other fees of $104,992.

Reverse Stock Split & Decrease in Authorized

On October 23, 2024,

the Company filed a certificate of amendment (the “Amendment”) to its Certificate of Incorporation with the Secretary of State

of the State of Delaware to effectuate a reverse stock split of the Company’s common stock at a ratio of 1-for-15 (the “Reverse

Stock Split”), as well as the decrease in the number of shares of common stock authorized for issuance from 490,000,000 to 100,000,000.

The Amendment became effective at 5:00 p.m.

ET on October 25, 2024.

Series C Convertible Preferred Stock

On December 13, 2024,

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

C Certificate of Designations”) with 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, upon the terms and conditions as set forth in the Series C Certificate of Designations.

Each share of Series C Preferred Stock has a stated value of $1,000 (the “Stated Value”).

The Series C Preferred

Stock shall rank (i) senior to the Company’s common stock (the “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 Convertible Preferred Stock of the Company (the “Series

B Preferred Stock”) with respect to its rights, preferences and restrictions, and (iv) subordinate to the Series A Convertible Preferred

Stock of the Company (the “Series A Preferred Stock”).

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.

Each share of Series

C Preferred Stock shall be convertible into common stock (the “Conversion Shares”) at a conversion per share equal to $2.41,

at the option of the holder, at any time after the later of (i) the date of the shareholder approval of the issuance of the Conversion

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

York Sun Securities

Purchase Agreement

On December 19, 2024,

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

investor, York Sun Investment Holding Limited (the “Investor”), pursuant to which the Company agreed to issue and sell to

the Investor, upon the terms and conditions set forth in the Securities Purchase Agreement, up to 7,000 shares of Series C Convertible

Preferred Stock for up to an aggregate of $7,000,000 (the “Purchase Price”), which is equal to $1,000 per share.

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

Stock in exchange for $3,500,000.

The Investor shall also

have a right of first refusal during the period beginning on the date of the Securities Purchase Agreement and continuing until such shareholder

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

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

of convertible preferred stock.

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

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

The Investor’s

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

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

satisfaction of customary closing conditions.

Series D Convertible Preferred Stock

On January 6, 2025, the

Company filed a certificate of designations of preferences, rights, and limitations of Series D Convertible Preferred Stock (the “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 $1,000 (the “Stated

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 Convertible Preferred Stock of the Company (the “Series B Preferred Stock”)

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

(the “Series C Preferred Stock”).

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.

Each share of Series

D Preferred Stock shall be convertible into common stock (the “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 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 Conversion

Wenzhao Lu Exchange Agreement

9, 2025, the Company entered into an exchange agreement with Wenzhao Lu, the Chairman of the Board of Directors of the Company, pursuant

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 pursuant to an exemption from registration under Section 3(a)(9) of the Securities Act of 1933, as amended (the “Exchange”).

Upon consummation of the Exchange, there were no shares of Series A Preferred Stock of the Company outstanding.

Redemption Agreement

During 2025, to preserve

cash, the Company entered into discussions with Lab Services MSO for the potential redemption of our investment and on February 26, 2025,

the Company, Avalon Lab, Laboratory Services MSO, and the other parties signatory thereto, entered into a Redemption and Abandonment Agreement

(the “Redemption Agreement”), whereby Laboratory Services MSO redeemed the 40% equity interest in Laboratory Services MSO

held by Avalon Lab for cash and the surrender of its Series B Convertible Preferred Stock having a carrying value of $11,000,000 (the

“Redemption”).

The aggregate cash amount to Avalon Lab for the Redemption was $1,745,000, to be paid as follows:

of $95,000 at the closing of the Redemption and, beginning in March 2025, monthly payments of $75,000 until December 2026.

pursuant to the terms of the Redemption Agreement, all shares of Avalon’s Series B Convertible 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 Avalon for no additional consideration.

As a result of the Redemption, beginning in February 2025, we no longer offer laboratory services.

Agreement and Plan

On March 7, 2025, the

Company, Nexus MergerSub Limited, a wholly owned subsidiary of the Company (“Merger Sub”), and YOOV Group Holding Limited

(“YOOV”) entered into an Agreement and Plan of Merger (the “Merger Agreement”) pursuant to which Merger Sub will

merge with and into YOOV, with YOOV surviving the merger and becoming a direct, wholly owned subsidiary of the Company (the “Merger”).

The Merger is expected to be completed in the third quarter of 2025, subject to customary closing conditions.

Subject to the terms

and conditions of the Merger Agreement, immediately prior to the effective time of the Merger (the “Effective Time”), each

then-outstanding share of YOOV preferred shares, par value $0.10 per share, will either automatically be converted into shares of YOOV

ordinary shares, par value $0.10 per share (the “YOOV Ordinary Shares”) or canceled and cease to exist in accordance with

At the Effective Time, each then-outstanding YOOV Ordinary Share (other than any shares held in treasury and Dissenting Shares

(as defined in the Merger Agreement)) will be automatically converted into a number of shares of the Company’s common stock equal

to the Exchange Ratio.

The “Exchange Ratio” will be the ratio (rounded to four decimal places), determined as follows:

the closing price of the Company’s common stock on Nasdaq on the second trading day immediately preceding the Effective Time is

(x) less than or equal to $5.00, the Exchange Ratio shall be 60,000,000 divided by the Company Outstanding Shares (as defined in the Merger

or (y) greater than $5.00, the Exchange Ratio shall be 54,000,000 divided by the Company Outstanding Shares.

Pursuant to the terms

of the Merger Agreement, (i) each then-outstanding share of the Company’s common stock will remain issued and outstanding after

the Effective Time and (ii) each then-outstanding option to purchase Company common stock, whether or not vested, will remain issued and

outstanding after the Effective Time.

The then-outstanding shares of Series C Convertible Preferred Stock and Series D Convertible Preferred

Stock will remain outstanding in accordance with their terms.

Additionally, at the Effective Time, the Company’s name will be changed

to “YOOV, Inc.”

In connection with the

Merger, the Company will seek approval of its stockholders to, among other things, (i) approve the issuance of the shares of the Company’s

common stock to be issued to YOOV shareholders in connection with the Merger pursuant to the rules of Nasdaq and (ii) amend the Company’s

certificate of incorporation to effect a reverse stock split of the Company’s common stock to the extent the Company and YOOV mutually

agree implementing such reverse stock split is necessary to meet Nasdaq’s listing requirements (collectively, the “Avalon

Stockholder Matters”).

Each of the Company

and YOOV have made customary representations, warranties and covenants in the Merger Agreement, including, among other things,

covenants relating to (i) obtaining the requisite approval of its respective stockholders, (ii) non-solicitation or facilitation of

any Takeover Proposal or Superior Proposal (as each is defined in the Merger Agreement), (iii) the conduct of its respective

business during the period between the signing of the Merger Agreement and the closing of the Merger, and (iv) the Company filing

with the SEC and causing to become effective a registration statement on Form S-4 (the “Registration Statement”) to

Consummation of the Merger

is subject to certain closing conditions, including, among other things, (i) approval of the Avalon Stockholder Matters by the requisite

stockholders of the Company, (ii) adoption and approval of the Merger Agreement, and the transactions contemplated thereby, by the requisite

YOOV shareholders, (iii) the effectiveness of the Registration Statement and (iv) the listing of the Company’s common stock issuable

in connection with the Merger on Nasdaq.

Each party’s obligation to consummate the Merger is also subject to other specified customary

conditions, including regarding the accuracy of the representations and warranties of the other party, subject to the applicable materiality

standard, and the performance in all material respects by the other party of its obligations under the Merger Agreement required to be

performed on or prior to the Effective Time.

The Merger Agreement

contains certain termination rights for both the Company and YOOV, including the right to terminate the Merger Agreement at any time before

the Effective Time, whether before or after the Avalon Stockholder Matters have been approved, by mutual written consent of the parties.

In addition, the Merger Agreement may be terminated at any time by either party if the Merger is not consummated on or before March 7,

2026 (the “End Date”), provided that the End Date may be extended by either party for up to 60 days in the event that the

SEC has not declared effective the Registration Statement by the date which is 60 days prior to the End Date.

Upon termination of the

Merger Agreement under specified circumstances, the Company may be required to pay YOOV a termination fee of $1.0 million;

however, YOOV

is not required to pay the Company a termination fee.

At the Effective Time,

the Company’s board of directors (the “Avalon Board”) is expected to consist of seven members, five of whom will be

designated by YOOV and two of whom will be designated by the Company, as provided in the Merger Agreement.

Voting and Support

Concurrently with the

execution of the Merger Agreement, (i) the officers, directors and certain shareholders of YOOV (solely in their respective capacities

as YOOV shareholders) have entered into voting and support agreements with the Company and YOOV, pursuant to which such YOOV shareholders

agree, among other things to, (a) not transfer their capital stock of YOOV, subject to certain limited exceptions and (b) vote all of

their shares of capital stock of YOOV in favor of the adoption and approval of the Merger Agreement and the transactions contemplated

thereby and against, among other things, any Takeover Proposals (the “YOOV Voting Agreement”) and (ii) the officers, directors

and certain stockholders of the Company (solely in their respective capacities as the Company stockholders) have entered into voting and

support agreements with the Company and YOOV, pursuant to which such Company stockholders agree, among other things to, (a) not transfer

their capital stock of the Company, subject to certain limited exceptions and (b) vote all of their shares of Company capital stock in

favor of, among other things, the Avalon Stockholder Matters and against, among other things, any Takeover Proposals (the “Avalon

Voting Agreement”).

Lock-Up Agreements

Concurrently with the

execution of the Merger Agreement, certain directors, officers and stockholders of each of the Company and YOOV have entered into lock-up

agreements (the “Lock-Up Agreement”), pursuant to which, subject to specified exceptions, they have agreed not to transfer

their shares of the Company’s common stock during the 180-day period following the Effective Time.

Certificates of Elimination

On March 7, 2025, the

Company filed a Certificate of Elimination relating to each of the Series A Preferred Stock and the Series B Preferred Stock (the “Eliminations

of Designation”) with the Secretary of State of the State of Delaware, thereby terminating the designations of the Series A Preferred

Stock and the Series B Preferred Stock.

The Eliminations of Designation were effective upon filing and eliminated from the Company’s

Amended and Restated Certificate of Incorporation all matters set forth in the previously-filed Certificates of Designations with respect

to the previously designated Series A Preferred Stock and Series B Preferred Stock.

Bylaws Amendment

On March 7, 2025, the

Board approved and adopted an amendment (the “Amendment”) to the Company’s Amended and Restated Bylaws (the “Bylaws”).

Amendment reduces the quorum at any meeting of stockholders, except as otherwise required by law or by the Company’s Amended and

Restated Certificate of Incorporation or the Bylaws, to one-third of the voting power of the shares of capital stock outstanding and entitled

to vote at the meeting, present in person, present by remote communication, if applicable, or represented by proxy.

Regulatory Environment

Our business is subject to a variety of laws and

regulations in the United States and, to the extent we expand internationally, abroad.

The principal regulatory frameworks applicable

to our two current operating segments are described below.

We anticipate that the regulatory environment applicable to our business —

particularly with respect to artificial intelligence and consumer data privacy — will continue to evolve rapidly, and we intend

to monitor legislative and regulatory developments and adapt our compliance programs accordingly.

Consumer Health Technology — FDA Regulatory

Framework Applicable to Keto Air

The Keto Air breathalyzer device is subject to

the regulatory authority of the U.S.

Food and Drug Administration ("FDA") under the Federal Food, Drug, and Cosmetic Act ("FD&C

The device is currently classified as a consumer product bearing an FDA registration number, which is required for the lawful

commercial sale of such devices in the United States.

The Keto Air device is not classified as a regulated medical device requiring FDA

pre-market approval or clearance under Section 510(k) of the FD&C Act, and accordingly may be sold directly to consumers without a

prescription or other regulatory authorization.

We are required to maintain the device's FDA registration

on an annual basis and to comply with applicable FDA general controls, including labeling requirements and prohibitions on the promotion

of the device for uses beyond its registered classification.

We do not make any medical claims with respect to the Keto Air device, and

our marketing materials are reviewed to ensure compliance with FDA labeling and advertising standards.

We are also subject to applicable

Consumer Product Safety Commission regulations governing the safety of consumer products sold in the United States.

We note that the regulatory classification of

consumer health and wellness devices is subject to ongoing FDA review and interpretation, and there can be no assurance that the FDA will

not, in the future, subject the Keto Air device or similar products to more stringent regulatory requirements, including pre-market approval

or clearance obligations.

Any such reclassification could materially affect our ability to sell the Keto Air device in the United States.

See Item 1A — Risk Factors for a further discussion of regulatory risks applicable to our consumer health technology segment.

Artificial Intelligence Content Technology

— AI-Specific Regulatory Landscape

The regulatory environment applicable to our artificial

intelligence content technology segment is rapidly evolving and subject to significant uncertainty.

The RPM platform generates AI-driven

short-form video content featuring AI-generated avatars that replicate the voice and likeness of content creators.

This functionality

implicates a range of existing and emerging regulatory frameworks, each of which is described below.

Right of Publicity and Name and Likeness Laws

The RPM platform's AI avatar feature — which

replicates the voice and likeness of a content creator based on input data provided by or about that creator — implicates state

right of publicity laws in the United States, which protect individuals against the unauthorized commercial use of their name, image,

voice, and likeness.

Right of publicity laws vary significantly across states, with particularly robust statutory frameworks in California,

New York, and Texas, among others.

Several states have recently enacted or are actively considering legislation specifically addressing

the use of artificial intelligence to generate synthetic media replicating an individual's voice or likeness.

We are actively monitoring

developments in this area and have structured our platform's onboarding process to require content creators to affirmatively authorize

the creation of their AI avatar as a condition of use.

There can be no assurance, however, that our current practices will be sufficient

to satisfy the requirements of all applicable state laws as they continue to evolve.

Federal Trade Commission Regulation

The Federal Trade Commission ("FTC")

has broad authority to regulate unfair or deceptive acts and practices under Section 5 of the FTC Act, and has increasingly focused its

enforcement activity on the use of artificial intelligence in commercial contexts.

The FTC has issued guidance requiring clear and conspicuous

disclosure of AI-generated content in advertising and commercial communications, and has signaled that the use of AI-generated endorsements,

testimonials, or representations of real individuals without adequate disclosure may constitute an unfair or deceptive trade practice.

We intend to comply with applicable FTC disclosure guidance in connection with the commercial deployment of the RPM platform and will

include appropriate disclosures in our platform's terms of service and content labeling practices.

Platform Content Policies

The RPM platform is designed to generate content

for distribution across major social media and content platforms, including YouTube, TikTok, Instagram, and others.

Each of these platforms

maintains its own content policies governing the disclosure and permissibility of AI-generated content, synthetic media, and avatar-based

representations of real individuals.

These policies are subject to frequent revision and vary across platforms.

Failure to comply with

applicable platform content policies could result in the removal of content generated through the RPM platform, the suspension or termination

of creator accounts on those platforms, or other restrictions that could adversely affect the utility and commercial appeal of our platform

to content creators.

Evolving Federal AI Regulation

Congress and various federal agencies

are actively considering comprehensive federal legislation and regulatory frameworks governing the development, deployment, and commercial

use of artificial intelligence technologies.

While no comprehensive federal AI law has been enacted as of the date of this Annual Report,

we anticipate that federal AI regulation will develop in the near to medium term and may impose disclosure, transparency, accountability,

or other obligations on companies operating AI-powered content generation platforms such as ours.

We are monitoring these legislative

and regulatory developments and intend to engage with applicable regulatory processes as they evolve.

International Regulatory Considerations

To the extent the RPM platform is accessed by

users located outside the United States, we may become subject to international AI regulatory frameworks, including the European Union

Artificial Intelligence Act (the "EU AI Act"), which entered into force in 2024 and establishes a tiered risk-based regulatory

framework for AI systems deployed in the European Union.

AI systems that generate synthetic audio or video content depicting real individuals

may be subject to specific transparency and disclosure obligations under the EU AI Act.

We are evaluating the extent to which our current

and planned platform activities may implicate obligations under the EU AI Act and other international AI regulatory frameworks.

Data Privacy and Security

Our business activities involve the collection,

storage, and processing of certain personal information, including consumer data collected through Keto Air device sales and email communications,

and content creator data — including voice and likeness data — collected through the RPM platform's beta program.

We are subject

to a range of federal, state, and international data privacy and security laws and regulations governing the collection, use, sharing,

protection, and retention of personal data.

At the federal level, the FTC continues to apply

its general consumer protection authority under Section 5 of the FTC Act to commercial data practices, including data security failures

and unfair or deceptive privacy practices.

At the state level, we are subject to the California Consumer Privacy Act, as amended by the

California Privacy Rights Act ("CPRA"), which establishes transparency obligations, restricts certain uses of personal information

of California residents, and provides California residents with rights to access, correct, and delete their personal information and to

opt out of the sale or sharing of their personal information.

Similar state privacy laws have been enacted in a growing number of states,

and we are monitoring and evaluating our compliance obligations under each applicable framework.

states have enacted data breach

notification laws requiring notification to affected individuals and state regulators in the event of certain unauthorized access to or

disclosure of personal information.

The collection and processing of voice and likeness

data through the RPM platform's avatar generation feature may implicate additional obligations under state biometric data privacy laws,

including the Illinois Biometric Information Privacy Act ("BIPA") and similar statutes in other states, which impose specific

consent, retention, and data security requirements on the collection and use of biometric identifiers, including voiceprints.

We are actively

evaluating our obligations under applicable biometric data privacy laws in connection with the commercial deployment of the RPM platform.

The scope and interpretation of applicable data

privacy laws continue to evolve rapidly, and we anticipate that our compliance obligations will increase as our platform scales and as

new laws are enacted.

See Item 1A — Risk Factors and Item 1C — Cybersecurity for a further discussion of data privacy and

cybersecurity risks.

Corporate and Available Information

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What changed 10-K

Item 1. Business