UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 000-38728

AVALON GLOBOCARE CORP.

(Exact name of registrant as specified in its charter)

Delaware		No. 47--1685128
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

4400 Route 9 South, Suite 3100 Freehold, New Jersey		07728
(Address of principal executive offices)		(Zip Code)

(732) 780-4400

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, par value $0.0001 per share		ALBT		The Nasdaq Capital Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

	Large accelerated filer ☐		Accelerated filer ☐
	Non-accelerated filer ☒		Smaller reporting company ☒
			Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of May 19, 2023, 10,164,307 shares of common stock, $0.0001 par value per share, were outstanding.

AVALON GLOBOCARE CORP.

FORM 10-Q

For the Quarterly Period Ended March 31, 2023

Table of Contents

		Page
Part I – Financial Information
Item 1.	Unaudited Financial Statements
	Condensed Consolidated Balance Sheets – At March 31, 2023 (Unaudited) and December 31, 2022	1
	Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited) – For the Three Months Ended March 31, 2023 and 2022	2
	Condensed Consolidated Statements of Changes in Equity (Unaudited) — For the Three Months Ended March 31, 2023 and 2022	3
	Condensed Consolidated Statements of Cash Flows (Unaudited) – For the Three Months Ended March 31, 2023 and 2022	5
	Notes to Unaudited Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33
Item 4.	Controls and Procedures	33

Part II – Other Information
Item 1.	Legal Proceedings	34
Item 1A.	Risk Factors	34
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	34
Item 3.	Defaults Upon Senior Securities	34
Item 4.	Mine Safety Disclosures	34
Item 5.	Other Information	34
Item 6.	Exhibits	34
Exhibit Index		35
Signatures		36

PART 1 - FINANCIAL INFORMATION

Item 1. Financial Statements.

AVALON GLOBOCARE CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	March 31, 2023			December 31, 2022
	(Unaudited)
ASSETS

CURRENT ASSETS:
Cash	$	887,031		$	1,990,910
Rent receivable		133,749			134,626
Prepaid expense and other current assets		370,601			247,990

Total Current Assets		1,391,381			2,373,526

NON-CURRENT ASSETS:
Operating lease right-of-use assets, net		220,247			10,885
Property and equipment, net		140,086			138,294
Investment in real estate, net		7,317,916			7,360,087
Equity method investments		21,524,364			485,008
Advances for equity interest purchase		-			8,999,722
Other non-current assets		378,248			384,383

Total Non-current Assets		29,580,861			17,378,379

Total Assets	$	30,972,242		$	19,751,905

LIABILITIES AND EQUITY

CURRENT LIABILITIES:
Accrued professional fees	$	2,086,952		$	1,673,411
Accrued research and development fees		900,473			838,001
Accrued payroll liability and directors’ compensation		236,290			223,722
Accrued litigation settlement		450,000			450,000
Accrued liabilities and other payables		279,611			283,234
Accrued liabilities and other payables - related parties		102,021			100,000
Operating lease obligation		121,124			11,437
Equity method investment payable		1,000,000			-

Total Current Liabilities		5,176,471			3,579,805

NON-CURRENT LIABILITIES:
Operating lease obligation - noncurrent portion		100,073			-
Accrued litigation settlement - noncurrent portion		450,000			450,000
Note payable, net		4,585,356			4,563,152
Loan payable - related party		750,000			-

Total Non-current Liabilities		5,885,429			5,013,152

Total Liabilities		11,061,900			8,592,957

Commitments and Contingencies (Note 13)

EQUITY:
Preferred stock, $0.0001 par value; 10,000,000 shares authorized;
Series A Convertible Preferred Stock, 9,000 shares issued and outstanding at March 31, 2023 and December 31, 2022.
Liquidation preference $9 million at March 31, 2023 and December 31, 2022		9,000,000			9,000,000
Series B Convertible Preferred Stock, 11,000 and 0 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively.
Liquidation preference $11 million at March 31, 2023		11,000,000			-
Common stock, $0.0001 par value; 490,000,000 shares authorized; 10,216,307 shares issued and 10,164,307 shares outstanding at March 31, 2023; 10,013,576 shares issued and 9,961,576 shares outstanding at December 31, 2022		1,026			1,005
Additional paid-in capital		66,481,340			65,949,723
Less: common stock held in treasury, at cost; 52,000 shares at March 31, 2023 and December 31, 2022		(522,500	)		(522,500	)
Accumulated deficit		(65,846,635	)		(63,062,721	)
Statutory reserve		6,578			6,578
Accumulated other comprehensive loss		(209,467	)		(213,137	)
Total Avalon GloboCare Corp. stockholders’ equity		19,910,342			11,158,948
Non-controlling interest		-			-

Total Equity		19,910,342			11,158,948

Total Liabilities and Equity	$	30,972,242		$	19,751,905

See accompanying notes to the condensed consolidated financial statements.

AVALON GLOBOCARE CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

	For the Three Months Ended March 31,
	2023			2022

RENTAL REVENUE	$	296,165		$	297,631

OPERATING EXPENSES		248,445			218,448

OPERATING INCOME		47,720			79,183

OTHER OPERATING EXPENSES:
Advertising and marketing expenses		691,753			526,806
Professional fees		1,226,239			821,308
Compensation and related benefits		451,555			523,045
Research and development expenses		92,350			116,684
Other general and administrative expenses		250,059			218,282

Total Other Operating Expenses		2,711,956			2,206,125

LOSS FROM OPERATIONS		(2,664,236	)		(2,126,942	)

OTHER (EXPENSE) INCOME
Interest expense		(154,205	)		-
Interest expense - related party		(2,021	)		(39,686	)
Income (loss) from equity method investments		37,285			(12,916	)
Other (expense) income		(737	)		109,006

Total Other (Expense) Income, net		(119,678	)		56,404

LOSS BEFORE INCOME TAXES		(2,783,914	)		(2,070,538	)

INCOME TAXES		-			-

NET LOSS	$	(2,783,914	)	$	(2,070,538	)

LESS: NET LOSS ATTRIBUTABLE TO NON-CONTROLLING INTEREST		-			-

NET LOSS ATTRIBUTABLE TO AVALON GLOBOCARE CORP. COMMON SHAREHOLDERS	$	(2,783,914	)	$	(2,070,538	)

COMPREHENSIVE LOSS:
NET LOSS	$	(2,783,914	)	$	(2,070,538	)
OTHER COMPREHENSIVE INCOME
Unrealized foreign currency translation gain		3,670			2,021
COMPREHENSIVE LOSS		(2,780,244	)		(2,068,517	)
LESS: COMPREHENSIVE LOSS ATTRIBUTABLE TO NON-CONTROLLING INTEREST		-			-
COMPREHENSIVE LOSS ATTRIBUTABLE TO AVALON GLOBOCARE CORP. COMMON SHAREHOLDERS	$	(2,780,244	)	$	(2,068,517	)

NET LOSS PER COMMON SHARE ATTRIBUTABLE TO AVALON GLOBOCARE CORP. COMMON SHAREHOLDERS:
Basic and diluted	$	(0.28	)	$	(0.23	)

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic and diluted		10,015,637			8,850,244

See accompanying notes to the condensed consolidated financial statements.

AVALON GLOBOCARE CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

For the Three Months Ended March 31, 2023

(Unaudited)

	Avalon GloboCare Corp. Stockholders’ Equity
	Series A Preferred Stock				Series B Preferred Stock				Common Stock				Additional		Treasury Stock											Accumulated Other			Non-
	Number of				Number of				Number of				Paid-in		Number of						Accumulated			Statutory		Comprehensive			controlling		Total
	Shares		Amount		Shares		Amount		Shares		Amount		Capital		Shares			Amount			Deficit			Reserve		Loss			Interest		Equity
Balance, January 1, 2023		9,000	$	9,000,000		-	$	-		10,013,576	$	1,005	$	65,949,723		(52,000	)	$	(522,500	)	$	(63,062,721	)	$	6,578	$	(213,137	)	$	-	$	11,158,948

Issuance of Series B Convertible Preferred Stock for equity method investment		-		-		11,000		11,000,000		-		-		-		-			-			-			-		-			-		11,000,000

Issuance of common stock for services		-		-		-		-		202,731		21		463,355		-			-			-			-		-			-		463,376

Stock-based compensation		-		-		-		-		-		-		68,262		-			-			-			-		-			-		68,262

Foreign currency translation adjustment		-		-		-		-		-		-		-		-			-			-			-		3,670			-		3,670

Net loss for the three months ended March 31, 2023		-		-		-		-		-		-		-		-			-			(2,783,914	)		-		-			-		(2,783,914	)

Balance, March 31, 2023		9,000	$	9,000,000		11,000	$	11,000,000		10,216,307	$	1,026	$	66,481,340		(52,000	)	$	(522,500	)	$	(65,846,635	)	$	6,578	$	(209,467	)	$	-	$	19,910,342

See accompanying notes to the condensed consolidated financial statements.

AVALON GLOBOCARE CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

For the Three Months Ended March 31, 2022

(Unaudited)

	Avalon GloboCare Corp. Stockholders’ Equity
	Preferred Stock				Common Stock				Additional		Treasury Stock											Accumulated Other			Non-
	Number of				Number of				Paid-in		Number of						Accumulated			Statutory		Comprehensive			controlling		Total
	Shares		Amount		Shares		Amount		Capital		Shares			Amount			Deficit			Reserve		Loss			Interest		Equity
Balance, January 1, 2022		-	$	-		88,975,169	$	8,898	$	54,888,559		(520,000	)	$	(522,500	)	$	(51,131,874	)	$	6,578	$	(165,266	)	$	-	$	3,084,395

Sale of common stock, net		-		-		170,640		17		112,311		-			-			-			-		-			-		112,328

Stock-based compensation		-		-		-		-		152,323		-			-			-			-		-			-		152,323

Foreign currency translation adjustment		-		-		-		-		-		-			-			-			-		2,021			-		2,021

Net loss for the three months ended March 31, 2022		-		-		-		-		-		-			-			(2,070,538	)		-		-			-		(2,070,538	)

Balance, March 31, 2022		-	$	-		89,145,809	$	8,915	$	55,153,193		(520,000	)	$	(522,500	)	$	(53,202,412	)	$	6,578	$	(163,245	)	$	-	$	1,280,529

See accompanying notes to the condensed consolidated financial statements.

AVALON GLOBOCARE CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	For the Three Months Ended March 31,
	2023			2022

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(2,783,914	)	$	(2,070,538	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		61,056			84,984
Change in straight-line rent receivable		13,196			4,463
Amortization of operating lease right-of-use asset		34,888			34,247
Stock-based compensation and service expense		327,190			605,626
(Income) loss from equity method investments		(37,285	)		12,916
Amortization of debt issuance costs		22,205			-
Changes in operating assets and liabilities:
Rent receivable		4,309			(19,565	)
Security deposit		409			(441	)
Deferred leasing costs		8,350			7,856
Prepaid expense and other assets		(87,328	)		30,219
Accrued liabilities and other payables		634,558			793,585
Accrued liabilities and other payables - related parties		2,021			39,687
Operating lease obligation		(34,465	)		(34,247	)

NET CASH USED IN OPERATING ACTIVITIES		(1,834,810	)		(511,208	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment		(20,185	)		(1,749	)

NET CASH USED IN INVESTING ACTIVITIES		(20,185	)		(1,749	)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from loan payable - related party		750,000			100,000
Proceeds from equity offering		-			135,567
Disbursements for equity offering costs		-			(4,067	)

NET CASH PROVIDED BY FINANCING ACTIVITIES		750,000			231,500

EFFECT OF EXCHANGE RATE ON CASH		1,116			209

NET DECREASE IN CASH		(1,103,879	)		(281,248	)

CASH - beginning of period		1,990,910			807,538

CASH - end of period	$	887,031		$	526,290

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Interest	$	132,000		$	-

NON-CASH INVESTING AND FINANCING ACTIVITIES:
Common stock issued for future services	$	54,576		$	-
Common stock issued for accrued liabilities	$	164,871		$	-
Deferred financing costs in accrued liabilities	$	-		$	20,000
Reclassification of advances for equity interest purchase to equity method investment	$	9,000,000		$	-
Series B Convertible Preferred Stock issued related to equity method investment	$	11,000,000		$	-
Accrued purchase price related to equity method investment	$	1,000,000		$	-

See accompanying notes to the condensed consolidated financial statements.

AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 1 – ORGANIZATION AND NATURE OF OPERATIONS

Avalon GloboCare Corp. (the “Company” or “ALBT”) is a Delaware corporation. The Company was incorporated under the laws of the State of Delaware on July 28, 2014. On October 19, 2016, the Company entered into and closed a Share Exchange Agreement with the shareholders of Avalon Healthcare System, Inc., a Delaware corporation (“AHS”), each of which were accredited investors (“AHS Shareholders”) pursuant to which we acquired 100% of the outstanding securities of AHS in exchange for 50,000,000 shares of the Company’s common stock (the “AHS Acquisition”). AHS was incorporated on May 18, 2015 under the laws of the State of Delaware.

For accounting purposes, AHS was the surviving entity. The transaction was accounted for as a recapitalization of AHS pursuant to which AHS was treated as the accounting acquirer, surviving and continuing entity although the Company is the legal acquirer. The Company did not recognize goodwill or any intangible assets in connection with this transaction. Accordingly, the Company’s historical financial statements are those of AHS and its wholly-owned subsidiary, Avalon (Shanghai) Healthcare Technology Co., Ltd. (“Avalon Shanghai”) immediately following the consummation of this reverse merger transaction. AHS owns 100% of the capital stock of 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, had limited assets and was engaged in medical related consulting services for customers. Due to the winding down of the medical related consulting services in 2022, the Company decided to cease all operations of Avalon Shanghai and no longer has any material revenues or expenses in Avalon Shanghai. As a result, Avalon Shanghai is no longer an operating entity.

The Company is a clinical-stage biotechnology company dedicated to developing and delivering innovative, transformative cellular therapeutics, precision diagnostics, and clinical laboratory services. Through its subsidiary structure with unique integration of verticals from innovative research and development to automated bioproduction and accelerated clinical development, the Company is establishing a leading role in the fields of cellular immunotherapy (including CAR-T/NK).

On February 7, 2017, the Company formed Avalon RT 9 Properties, LLC (“Avalon RT 9”), a New Jersey limited liability company. On May 5, 2017, Avalon RT 9 purchased a real property located in Township of Freehold, County of Monmouth, State of New Jersey, having a street address of 4400 Route 9 South, Freehold, NJ 07728. This property was purchased to serve as the Company’s world-wide headquarters for all corporate administration and operations. In addition, the property generates rental income. Avalon RT 9 owns this office building. Avalon RT 9’s business consists of the ownership and operation of the income-producing real estate property in New Jersey. As of March 31, 2023, the occupancy rate of the building is 82.7%.

On July 18, 2018, the Company formed a wholly owned subsidiary, Avactis Biosciences Inc. (“Avactis”), a Nevada corporation, which will focus on accelerating commercial activities related to cellular therapies as well as cellular immunotherapy including CAR-T, CAR-NK, TCR-T and others. The subsidiary is designed to integrate and optimize our global scientific and clinical resources to further advance the use of cellular therapies to treat certain cancers. 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 People’s Republic of China on May 8, 2020 (“Avactis Nanjing”), which only owns a patent and is not considered an operating entity.

On October 14, 2022, the Company formed a wholly owned subsidiary, Avalon Laboratory Services, Inc. (“Avalon Lab”), a Delaware company. On February 9, 2023, Avalon Lab purchased forty percent (40%) of all the issued and outstanding equity interests of Laboratory Services MSO, LLC, a private limited company formed under the laws of the State of Delaware on September 6, 2019 (“Lab Services MSO”) and its subsidiaries. Lab Services MSO, through its two subsidiaries, Laboratory Services, LLC (“Lab Services LLC”) and Laboratory Services DME, LLC (“Lab Services DME”), is engaged in providing laboratory testing services.

AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 1 – ORGANIZATION AND NATURE OF OPERATIONS (continued)

The accompanying condensed consolidated financial statements reflect the activities of ALBT and each of the following entities:

Name of Subsidiary	Place and date of Incorporation	Percentage of Ownership	Principal Activities
Avalon Healthcare System, Inc. (“AHS”)	Delaware May 18, 2015	100% held by ALBT	Developing Avalon Cell and Avalon Rehab in United States of America (“USA”)

Avalon RT 9 Properties LLC (“Avalon RT 9”)	New Jersey February 7, 2017	100% held by ALBT	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	Ceased operations and is not considered an operating entity

Genexosome Technologies Inc. (“Genexosome”)	Nevada July 31, 2017	60% held by ALBT	No current activities to report

Avactis Biosciences Inc. (“Avactis”)	Nevada July 18, 2018	60% held by ALBT	Integrate and optimize global scientific and clinical resources to further advance cellular therapies, including regenerative medicine with stem/progenitor cells as well as cellular immunotherapy including CAR-T, CAR-NK, TCR-T and others to treat certain cancers

Avactis Nanjing Biosciences Ltd. (“Avactis Nanjing”)	PRC May 8, 2020	100% held by Avactis	Owns a patent and is not considered an operating entity

International Exosome Association LLC (“Exosome”)	Delaware June 13, 2019	100% held by ALBT	Promotes standardization related to exosome industry

Avalon Laboratory Services, Inc. (“Avalon Lab”)	Delaware October 14, 2022	100% held by ALBT	Purchases a membership interest

NOTE 2 – BASIS OF PRESENTATION AND GOING CONCERN CONDITION

Basis of Presentation

These interim condensed consolidated financial statements of the Company and its subsidiaries are unaudited. In the opinion of management, all adjustments (consisting of normal recurring accruals) and disclosures necessary for a fair presentation of these interim condensed consolidated financial statements have been included. The results reported in the condensed consolidated financial statements for any interim periods are not necessarily indicative of the results that may be reported for the entire year. The accompanying condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission and do not include all information and footnotes necessary for a complete presentation of financial statements in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”). The Company’s condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

Certain information and footnote disclosures normally included in the annual consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 filed with the Securities and Exchange Commission on March 30, 2023.

AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 2 – BASIS OF PRESENTATION AND GOING CONCERN CONDITION (continued)

Going Concern

In addition, the Company owns commercial real estate that houses its headquarters in Freehold, New Jersey. The Company also has income from equity method investment through its forty percent (40%) interest in Lab Services MSO. 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 $3,785,000 at March 31, 2023 and had incurred recurring net losses and generated negative cash flow from operating activities of approximately $2,784,000 and $1,835,000 for the three months ended March 31, 2023, respectively.

The Company has a limited operating history and its continued growth is dependent upon the continuation of generating rental revenue from its income-producing real estate property in New Jersey and obtaining additional financing to fund future obligations and pay liabilities arising from normal business operations. In addition, the current cash balance cannot be projected to cover the operating expenses for the next twelve months from the release date of this report. These matters raise substantial doubt about the Company’s ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company’s ability to raise additional capital, implement its business plan, and generate significant revenues. There are no assurances that the Company will be successful in its efforts to generate significant revenues, maintain sufficient cash balance or report profitable operations or to continue as a going concern. The Company plans on raising capital through the sale of equity to implement its business plan. However, there is no assurance these plans will be realized and that any additional financings will be available to the Company on satisfactory terms and conditions, if any.

The accompanying condensed consolidated financial statements do not include any adjustments related to the recoverability or classification of asset-carrying amounts or the amounts and classification of liabilities that may result should the Company be unable to continue as a going concern.

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Significant Accounting Policies

There have been no changes to the Company’s significant accounting policies described in the Company’s 2022 Annual Report on Form 10-K filed with the SEC that have had a material impact on the Company’s financial condition, and operating results.

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Changes in these estimates and assumptions may have a material impact on the condensed consolidated financial statements and accompanying notes. Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from those estimates.

Significant estimates during the three months ended March 31, 2023 and 2022 include the valuation of deferred tax assets and the associated valuation allowances, the valuation of stock-based compensation, and the fair value of the consideration given in the purchase of 40% of Lab Services MSO.

AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Fair Value of Financial Instruments and Fair Value Measurements

The Company adopted the guidance of Accounting Standards Codification (“ASC”) 820 for fair value measurements which clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes 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.

The fair value of the Company’s assets and liabilities, which qualify as financial instruments under ASC Topic 820, “Fair Value Measurement,” approximates the carrying amounts represented in the accompanying condensed consolidated financial statements, primarily due to their short-term nature.

ASC 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.

Cash and Cash Equivalents

At March 31, 2023 and December 31, 2022, the Company’s cash balances by geographic area were as follows:

Country:	March 31, 2023				December 31, 2022
United States	$	787,978	88.8	%	$	1,806,083	90.7	%
China		99,053	11.2	%		184,827	9.3	%
Total cash	$	887,031	100.0	%	$	1,990,910	100.0	%

For purposes of the condensed consolidated statements of cash flows, the Company considers all highly liquid instruments with a maturity of three months or less when purchased and money market accounts to be cash equivalents. The Company had no cash equivalents at March 31, 2023 and December 31, 2022.

AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Credit Risk and Uncertainties

A portion of the Company’s cash is maintained with state-owned banks within the PRC. Balances at state-owned banks within the PRC are covered by insurance up to RMB 500,000 (approximately $73,000) per bank. Any balance over RMB 500,000 per bank in PRC will not be covered. At March 31, 2023, cash balances held in the PRC are RMB 680,408 (approximately $99,000), of which, RMB 149,955 (approximately $22,000) was not covered by such limited insurance. The Company has not experienced any losses in such accounts and believes it is not exposed to any risks on its cash in bank accounts.

The 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, 2023, the Company’s cash balances in United States bank accounts had approximately $154,000 in excess of the federally-insured limits.

The Company’s concentrations of credit risk with respect to its rent receivable is limited due to short-term payment terms. The Company also performs ongoing credit evaluations of its tenants to help further reduce credit risk.

Investment in Unconsolidated Companies

The Company uses the equity method of accounting for its investments in, and earning or loss of, companies that it does not control but over which it does exert significant influence. The Company considers whether the fair values of its equity method investments have declined below their carrying values whenever adverse events or changes in circumstances indicate that recorded values may not be recoverable. If 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 investments.

Real Property Rental Revenue

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

Rental income from operating leases is recognized on a straight-line basis under the guidance of ASC 842. Lease payments under tenant leases are recognized on a straight-line basis over the term of the related leases. The cumulative difference between lease revenue recognized under the straight-line method and contractual lease payments are included in account receivable on the consolidated balance sheets.

The Company does not offer promotional payments, customer coupons, rebates or other cash redemption offers to its customers.

Commitments and Contingencies

In the normal course of business, the Company is subject to contingencies, such as legal proceedings and claims arising out of its business, that cover a wide range of matters. Liabilities for such contingencies are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated.

Per Share Data

ASC 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.

AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Per Share Data (continued)

Basic net loss per share is computed by dividing net loss available to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share is computed by dividing net loss by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during each period. For the three months ended March 31, 2023 and 2022, potentially dilutive common shares consist of the common shares issuable upon the conversion of convertible preferred stock (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 if their effect would be anti-dilutive. In a period in which the Company has a net loss, all potentially dilutive securities are excluded from the computation of diluted shares outstanding as they would have had an anti-dilutive impact.

The 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,
	2023		2022
Options to purchase common stock		767,303		818,500
Warrants to purchase common stock		123,964		-
Series A convertible preferred stock (*)		900,000		-
Series B convertible preferred stock (**)		2,910,053		-
Potentially dilutive securities		4,701,320		818,500

(*)	Assumed the Series A convertible preferred stock was converted into shares of common stock of the Company at a conversion price of $10.0 per share.

(**)	Assumed the Series B convertible preferred stock was converted into shares of common stock of the Company at a conversion price of $3.78 per share.

Segment Reporting

The Company uses “the management approach” in determining reportable operating segments. The management approach considers the internal organization and reporting used by the Company’s chief operating decision maker for making operating decisions and assessing performance as the source for determining the Company’s reportable segments. The Company’s chief operating decision maker is the Chief Executive Officer (“CEO”) and president of the Company, who reviews operating results to make decisions about allocating resources and assessing performance for the entire Company.

During the three months ended March 31, 2022, the Company operated in two reportable business segments - (1) the real property operating segment, and (2) the medical related consulting services segment. These reportable segments offer different services and products, have different types of revenue, and are managed separately as each requires different operating strategies and management expertise. Due to the winding down of the medical related consulting services segment in 2022, the Company decided to cease all operations of this segment and no longer has any material revenues or expenses in this segment. As a result, commencing from the first quarter of 2023, the Company’s chief operating decision maker no longer reviews medical related consulting services operating results.

During the three months ended March 31, 2023, the Company operated in one reportable business segment: the real property operating segment.

Reclassification

Certain prior period amounts have been reclassified to conform to the current period presentation. These reclassifications have no effect on the previously reported financial position, results of operations and cash flows.

AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Reverse Stock Split

The Company effected a one-for-ten reverse stock split of its outstanding shares of common stock on January 5, 2023. The reverse split did not change the number of authorized shares of common stock or par value. 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.

Recent Accounting Standards

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (“Topic 326”). The ASU introduces a new accounting model, the Current Expected Credit Losses model (“CECL”), which requires earlier recognition of credit losses and additional disclosures related to credit risk. The CECL model utilizes a lifetime expected credit loss measurement objective for the recognition of credit losses at the time the financial asset is originated or acquired. ASU 2016-13 is effective for annual period beginning after December 15, 2022, including interim reporting periods within those annual reporting periods. The adoption of this new guidance did not have any material impact on the Company’s condensed consolidated financial statements.

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which amends the accounting related to contract assets and liabilities acquired in business combinations. ASU 2021-08 requires that entities recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC Topic 606, Revenue from Contracts with Customers. ASU 2021-08 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, and should be applied prospectively to businesses combinations occurring on or after the effective date of the amendment. Early adoption is permitted, including adoption in an interim period. The adoption of this new guidance did not have any material impact on the Company’s condensed consolidated financial statements.

Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its consolidated financial condition, results of operations, cash flows or disclosures.

NOTE 4 – PREPAID EXPENSE AND OTHER CURRENT ASSETS

At March 31, 2023 and December 31, 2022, prepaid expense and other current assets consisted of the following:

	March 31, 2023		December 31, 2022
Prepaid professional fees	$	156,802	$	93,817
Prepaid directors and officers liability insurance premium		37,838		29,301
Prepaid NASDAQ listing fee		67,313		-
Deferred financing costs		34,821		34,821
Deferred leasing costs		33,402		33,402
Security deposit		-		19,084
Others		40,425		37,565
Total	$	370,601	$	247,990

AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 5 – EQUITY METHOD INVESTMENTS

Investment in Epicon Biotech Co., Ltd.

As of March 31, 2023 and December 31, 2022, the equity method investment in Epicon Biotech Co., Ltd. (“Epicon”) amounted to $477,625 and $485,008, respectively. The investment represents the Company’s subsidiary, Avalon Shanghai’s interest in Epicon. Epicon was incorporated on August 14, 2018 in PRC. Avalon Shanghai and the other unrelated company, Jiangsu Unicorn Biological Technology Co., Ltd. (“Unicorn”), accounted for 40% and 60% of the total ownership, respectively. Epicon is focused on cell preparation, third party testing, biological sample repository for commercial and scientific research purposes and the clinical transformation of scientific achievements.

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 incorporated-date fair values of the investee’s identifiable net assets over the cost of the investment (if any). Thereafter, the investment is adjusted for the post incorporation change in the Company’s share of the investee’s net assets and any impairment loss relating to the investment.

For the three months ended March 31, 2023 and 2022, the Company’s share of Epicon’s net loss was $9,454 and $12,916, respectively, which was included in loss from equity method investment in the accompanying condensed consolidated statements of operations and comprehensive loss.

In the three months ended March 31, 2023, activity recorded for the Company’s equity method investment in Epicon is summarized in the following table:

Equity investment carrying amount at January 1, 2023	$	485,008
Epicon’s net loss attributable to the Company		(9,454	)
Foreign currency fluctuation		2,071
Equity investment carrying amount at March 31, 2023	$	477,625

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

	March 31, 2023		December 31, 2022
Current assets	$	785	$	1,051
Noncurrent assets		130,617		143,984
Current liabilities		53,206		43,723
Equity		78,196		101,312

	For the Three Months Ended March 31,
	2023		2022
Net revenue	$	-	$	-
Gross profit		-		-
Loss from operation		23,636		32,323
Net loss		23,635		32,291

Investment in Laboratory Services MSO, LLC

On February 9, 2023 (the “Closing Date”), the Company entered into and closed an Amended and Restated Membership Interest Purchase Agreement (the “Amended MIPA”), by and among Avalon Laboratory Services, Inc., a wholly-owned subsidiary of the Company (the “Buyer”), SCBC Holdings LLC (the “Seller”), the Zoe Family Trust, Bryan Cox and Sarah Cox as individuals (each an “Owner” and collectively, the “Owners”), and Laboratory Services MSO, LLC.

AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 5 – EQUITY METHOD INVESTMENTS (continued)

Investment in Laboratory Services MSO, LLC (continued)

Pursuant to the terms and conditions set forth in the Amended MIPA, Buyer acquired from the Seller, forty percent (40%) of all the issued and outstanding equity interests of Lab Services MSO (the “Purchased Interests”). The consideration paid by Buyer to Seller for the Purchased Interests consisted of $21,000,000, which 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 Convertible Preferred Stock (the “Series B Preferred Stock”), stated value $1,000 (the “Series B Stated Value”), and (iii) a $1,000,000 cash payment on February 9, 2024. The Series B Preferred Stock will be convertible into shares of Avalon’s common stock at a conversion price per share equal to $3.78 or an aggregate of 2,910,053 shares of the Company’s common stock and are subject to the Lock Up Period and the restrictions on sale (See Note 8 – Series B Convertible Preferred Stock Issued for Equity Method Investment). The Seller is also eligible, under the terms set forth in the Amended MIPA, to receive certain earnout payments upon achievement of certain operating results, which may be comprised of up to $10,000,000 of which (x) up to $5,000,000 will be paid in cash and (y) up to $5,000,000 will be paid pursuant to the issuance of the number of shares of the Company’s common stock valued at $5,000,000, calculated using the closing price of Avalon’s common stock on December 31, 2023, rounded down to the nearest whole share (collectively, the “Earnout Payments”). At February 9, 2023, the estimated earnout liability amounted to $0 since the minimum thresholds as defined in the agreement are currently unlikely to be met. The estimated earnout is a level 3 valuation which will be measured at the end of reporting period.

Lab Services MSO, through its two subsidiaries, Lab Services LLC and Lab Services DME, is engaged in providing laboratory testing services. Avalon Lab and the other unrelated company, accounted for 40% and 60% of the total ownership, respectively. As of March 31, 2023, the equity method investment in Lab Services MSO amounted to $21,046,739.

In accordance with ASC 810, the Company determined that Lab Services MSO does not qualify as a Variable Interest Entity, nor does it have a controlling financial interest over the legal entity. However, it determined 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). Thereafter, the investment is 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.

For the period from February 9, 2023 (date on investment) through March 31, 2023, the Company’s share of Lab Services MSO’s net income was $46,739, which was included in income (loss) from equity method investments in the accompanying condensed consolidated statements of operations and comprehensive loss.

In the three months ended March 31, 2023, 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, 2023	$	-
Payment for equity method investment		21,000,000
Lab Services MSO’s net income attributable to the Company		46,739
Equity investment carrying amount at March 31, 2023	$	21,046,739

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

	March 31, 2023
Current assets	$	3,759,918
Noncurrent assets		2,325,044
Current liabilities		1,258,470
Noncurrent liabilities		1,961,178
Equity		2,865,314

	For the Period from February 9, 2023 (Date of Investment) through March 31, 2023
Net revenue	$	2,174,524
Gross profit		776,778
Income from operation		116,846
Net income		116,846

AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 5 – EQUITY METHOD INVESTMENTS (continued)

On February 9, 2023, the Company entered into an Amended and Restated Membership Interest Purchase Agreement (the “Amended MIPA”), by and among Avalon Laboratory Services, Inc., a wholly-owned subsidiary of the Company, SCBC Holdings LLC, the Zoe Family Trust, Bryan Cox and Sarah Cox as individuals, and Laboratory Services MSO.

Investment in Laboratory Services MSO, LLC (continued)

According to the Amended MIPA, at any time during the period beginning on February 9, 2023 and ending on the date nine (9) months after February 9, 2023, Avalon Laboratory Services, Inc., or its designated affiliates under the Amended MIPA, may purchase from SCBC Holdings LLC twenty percent (20%) of the total issued and outstanding equity interests of Laboratory Services MSO for the purchase price of (i) $6,000,000 in cash and (ii) the issuance of an additional 4,000 shares of Series B Preferred Stock valued at $4,000,000, in accordance with the terms and conditions set forth in the Amended MIPA.

NOTE 6 – NOTE PAYABLE, NET

On September 1, 2022, the Company issued a balloon promissory note in the form of a mortgage on our headquarters to a third party company in the principal amount of $4,800,000 which carries interest of 11.0% per annum (the “2022 Note Payable”). Interest is due in monthly payments of $44,000 beginning November 1, 2022 and payable monthly thereafter until September 1, 2025 when the principal outstanding and all remaining interest is due. The 2022 Note Payable can be extended for an additional 36 months provided that the Company has not defaulted. The Company may not prepay the 2022 Note Payable for a period of 12 months. The 2022 Note Payable is secured by a first mortgage on the Company’s real property located in Township of Freehold, County of Monmouth, State of New Jersey, having a street address of 4400 Route 9 South, Freehold, NJ 07728.

As of March 31, 2023 and December 31, 2022, the carrying balance of the 2022 Note Payable was $4,585,356 and $4,563,152 and the remaining unamortized debt issuance costs balance was $214,644 and $236,848, respectively.

For the three months ended March 31, 2023, amortization of debt issuance costs and interest expense related to the 2022 Note Payable amounted to $22,205 and $132,000, respectively, which have been included in interest expense on the accompanying condensed consolidated statements of operations and comprehensive loss.

NOTE 7 – RELATED PARTY TRANSACTIONS

Rental Revenue from Related Party and Rent Receivable – Related Party

The Company leases space of its commercial real property located in New Jersey to a company, D.P. Capital Investments LLC, which is controlled by Wenzhao Lu, the Company’s largest shareholder and 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 the three months ended March 31, 2023 and 2022, the related party rental revenue amounted to $12,600 and has been included in real property rental on the accompanying condensed consolidated statements of operations and comprehensive loss.

The related party rent receivable totaled $61,700 and $74,100, respectively, which has been included in rent receivable on the accompanying condensed consolidated balance sheets, and no allowance for doubtful accounts was deemed to be required on the receivable at March 31, 2023 and December 31, 2022.

Services Provided by Related Parties

From 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 $26,457 and $51,138 for the three months ended March 31, 2023 and 2022, respectively, which have been included in professional fees on the accompanying condensed consolidated statements of operations and comprehensive loss.

Accrued Liabilities and Other Payables – Related Parties

In 2017, the Company acquired Beijing Genexosome for a cash payment of $450,000. As of March 31, 2023 and December 31, 2022, the unpaid acquisition consideration of $100,000, was payable to Dr. Yu Zhou, former director and former co-chief executive officer and 40% owner of Genexosome, and has been included in accrued liabilities and other payables – related parties on the accompanying condensed consolidated balance sheets.

As of March 31, 2023 and December 31, 2022, $2,021 and $0 of accrued and unpaid interest related to borrowings from Wenzhao Lu, the Company’s largest shareholder and chairman of the Board of Directors, respectively, have been included in accrued liabilities and other payables – related parties on the accompanying condensed consolidated balance sheets.

AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 7 – RELATED PARTY TRANSACTIONS (continued)

Borrowings from Related Party

Line of Credit

On August 29, 2019, the Company entered into a Line of Credit Agreement (the “Line of Credit Agreement”) providing the Company with a $20 million line of credit (the “Line of Credit”) from Wenzhao Lu (the “Lender”), the largest shareholder and Chairman of the Board of Directors of the Company. The Line of Credit allows the Company to request loans thereunder and to use the proceeds of such loans for working capital and operating expense purposes until the facility matures on December 31, 2024. The loans are unsecured and are not convertible into equity of the Company. Loans drawn under the Line of Credit bears interest at an annual rate of 5% and each individual loan will be payable three years from the date of issuance. The Company has a right to draw down on the line of credit and not at the discretion of the related party Lender. The Company may, at its option, prepay any borrowings under the Line of Credit, in whole or in part at any time prior to maturity, without premium or penalty. The Line of Credit Agreement includes customary events of default. If any such event of default occurs, the Lender may declare all outstanding loans under the Line of Credit to be due and payable immediately.

In the three months ended March 31, 2023, activity recorded for the Line of Credit is summarized in the following table:

Outstanding principal under the Line of Credit at January 1, 2023	$	-
Draw down from Line of Credit		750,000
Outstanding principal under the Line of Credit at March 31, 2023	$	750,000

For the three months ended March 31, 2023 and 2022, the interest expense related to related party borrowings amounted to $2,021 and $39,686, respectively, and has been reflected as interest expense – related party on the accompanying condensed consolidated statements of operations and comprehensive loss.

As of March 31, 2023 and December 31, 2022, the related accrued and unpaid interest for Line of Credit was $2,021 and $0, respectively, and has been included in accrued liabilities and other payables – related parties on the accompanying condensed consolidated balance sheets.

NOTE 8 – EQUITY

Series A Convertible Preferred Stock

The Company designated 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.

As of March 31, 2023, 9,000 shares of Series A Preferred Stock were issued and outstanding. The Series A Preferred Stock is convertible into shares of the Company’s common stock at a conversion price per share equal to the greater of (i) ten dollars ($10.00), and (ii) ninety percent (90%) of the closing price of the Company’s common stock on the Nasdaq Stock Market (“Nasdaq”) on the day prior to receipt of the conversion notice from the Series A Preferred stock-holder, subject to adjustment for stock splits and similar matters. Conversion of the Series A Preferred Stock is subject to restriction pursuant to the Nasdaq Stock Market Listing Rules.

Series B Convertible Preferred Stock Issued for Equity Method Investment

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.

On February 9, 2023, the Company issued 11,000 shares of its Series B Convertible Preferred Stock as a part of consideration for the purchase of 40% of equity interest of Lab Services MSO. The Series B Preferred Stock will be convertible into shares of the Company’s common stock at a conversion price per share equal to $3.78 or an aggregate of 2,910,053 shares of the Company’s common stock and are subject to the Lock Up Period and the restrictions (See Note – 5 - Investment in Laboratory Services MSO, LLC).

AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 8 – EQUITY (continued)

Common Shares Issued for Services

During the three months ended March 31, 2023, the Company issued a total of 202,731 shares of its common stock for services rendered and to be rendered. These shares were valued at $463,375, 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 $243,928 for the three months ended March 31, 2023 and reduced accrued liabilities of $164,871 and recorded prepaid expense of $54,576 as of March 31, 2023 which will be amortized over the rest of corresponding service periods.

Options

The following table summarizes the shares of the Company’s common stock issuable upon exercise of options outstanding at March 31, 2023:

Options Outstanding								Options Exercisable
Range of Exercise Price		Number Outstanding at March 31, 2023		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price		Number Exercisable at March 31, 2023		Weighted Average Exercise Price
$	3.25 – 8.20		307,803		3.79	$	5.26		269,137	$	5.34
	10.20 – 20.00		432,500		2.59		16.50		432,500		16.50
	23.00 – 28.00		27,000		0.61		26.91		27,000		26.91
$	3.25 – 28.00		767,303		3.00	$	12.36		728,637	$	12.76

Stock option activities for the three months ended March 31, 2023 were as follows:

	Number of Options			Weighted Average Exercise Price
Outstanding at January 1, 2023		800,500		$	13.03
Granted		37,803			4.85
Expired		(71,000	)		(15.97	)
Outstanding at March 31, 2023		767,303		$	12.36
Options exercisable at March 31, 2023		728,637		$	12.76
Options expected to vest		38,666		$	4.69

The aggregate intrinsic value of both stock options outstanding and stock options exercisable at March 31, 2023 was $0.

The fair values of options granted during the three months ended March 31, 2023 were estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions: volatility of 143.99% - 145.73%, risk-free rate of 3.58% - 3.94%, 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, 2023 was $176,786.

The fair values of options granted during the three months ended March 31, 2022 were estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions: volatility of 117.46%, risk-free rate of 1.37% - 1.53%, 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, 2022 was $315,145.

AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 8 – EQUITY (continued)

Options (continued)

For the three months ended March 31, 2023 and 2022, stock-based compensation expense associated with stock options granted amounted to $68,262 and $152,323, of which, $51,336 and $104,913 was recorded as compensation and related benefits, $11,457 and $36,138 was recorded as professional fees, and $5,469 and $11,272 was recorded as research and development expenses, respectively.

A summary of the status of the Company’s nonvested stock options granted as of March 31, 2023 and changes during the three months ended March 31, 2023 is presented below:

	Number of Options			Weighted Average Exercise Price
Nonvested at January 1, 2023		20,000		$	4.29
Granted		37,803			4.85
Vested		(19,137	)		(4.58	)
Nonvested at March 31, 2023		38,666		$	4.69

Warrants

There was no stock warrant activity during the three months ended March 31, 2023.

The following table summarizes the shares of the Company’s common stock issuable upon exercise of warrants outstanding at March 31, 2023:

Warrants Outstanding						Warrants Exercisable
Exercise Price		Number Outstanding at March 31, 2023		Weighted Average Remaining Contractual Life (Years)		Number Exercisable at March 31, 2023		Exercise Price
$	12.5		123,964		4.06		123,964	$	12.5

The aggregate intrinsic value of both stock warrants outstanding and stock warrants exercisable at March 31, 2023 was $0.

NOTE 9 - 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, 2023 and 2022 as it incurred net loss in the periods. As of March 31, 2023 and December 31, 2022, 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 their statutory reserves and their 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, 2023 and December 31, 2022, total restricted net assets amounted to $1,006,578.

AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 10 – 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 percent 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.

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.

NOTE 11 - CONCENTRATIONS

Customers

The following table sets forth information as to each customer that accounted for 10% or more of the Company’s revenues for the three months ended March 31, 2023 and 2022.

	Three Months Ended March 31,
Customer	2023			2022
A		31	%		28	%
B		20	%		18	%
C		13	%		12	%

*	Less than 10%

Two customers, of which, one is a related party and the other is a third party, whose outstanding receivable accounted for 10% or more of the Company’s total outstanding rent receivable at March 31, 2023, accounted for 79.6% of the Company’s total outstanding rent receivable at March 31, 2023.

Two customers, of which, one is a related party and the other is a third party, whose outstanding receivable accounted for 10% or more of the Company’s total outstanding rent receivable at December 31, 2022, accounted for 81.4% of the Company’s total outstanding rent receivable at December 31, 2022.

Suppliers

No supplier accounted for 10% or more of the Company’s purchase during the three months ended March 31, 2023 and 2022.

NOTE 12 – SEGMENT INFORMATION

For the three months ended March 31, 2022, the Company operated in two reportable business segments - (1) the real property operating segment, and (2) the medical related consulting services segment. The Company’s reportable segments are strategic business units that offer different services and products. They are managed separately based on the fundamental differences in their operations.

Due to the winding down of the medical related consulting services segment in 2022, the Company decided to cease all operations of this segment and no longer has any material revenues or expenses in this segment. As a result, commencing from the first quarter of 2023, the Company’s chief operating decision maker no longer reviews medical related consulting services operating results.

For the three months ended March 31, 2023, the Company operated in one reportable business segments: the real property operating segment.

AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 12 – SEGMENT INFORMATION (continued)

Information with respect to these reportable business segments for the three months ended March 31, 2023 and 2022 was as follows:

	Three Months Ended March 31, 2023
	Real property rental			Corporate/Other			Total
Real property rental revenue	$	296,165		$	-		$	296,165
Real property operating expenses		(248,445	)		-			(248,445	)
Real property operating income		47,720			-			47,720
Other operating expenses		(113,711	)		(2,598,245	)		(2,711,956	)
Other (expense) income:
Interest expense		-			(156,226	)		(156,226	)
Other income		4			36,544			36,548
Net loss	$	(65,987	)	$	(2,717,927	)	$	(2,783,914	)

	Three Months Ended March 31, 2022
	Real property rental			Medical related consulting services			Corporate/Other			Total
Real property rental revenue	$	297,631		$	-		$	-		$	297,631
Real property operating expenses		(218,448	)		-			-			(218,448	)
Real property operating income		79,183			-			-			79,183
Other operating expenses		(107,053	)		(87,115	)		(2,011,957	)		(2,206,125	)
Other (expense) income:
Interest expense		-			-			(39,686	)		(39,686	)
Other income		4			96,086			-			96,090
Net (loss) income	$	(27,866	)	$	8,971		$	(2,051,643	)	$	(2,070,538	)

Identifiable long-lived tangible assets at March 31, 2023 and December 31, 2022	March 31, 2023		December 31, 2022
Real property operations	$	7,344,620	$	7,367,360
Medical related consulting services		-		408
Corporate/Other		113,382		130,613
Total	$	7,458,002	$	7,498,381

Identifiable long-lived tangible assets at March 31, 2023 and December 31, 2022	March 31, 2023		December 31, 2022
United States	$	7,365,540	$	7,393,307
China		92,462		105,074
Total	$	7,458,002	$	7,498,381

AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 13 – COMMITMENTS AND CONTINGENCIES

Operating Leases Commitment

The Company is a party to leases for office space. These lease agreements will expire through February 2025. Rent expense under all operating leases amounted to approximately $33,000 and $36,000 for the three months ended March 31, 2023 and 2022, respectively. Supplemental cash flow information related to leases for the three months ended March 31, 2023 and 2022 is as follows:

	Three Months Ended March 31,
	2023		2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows paid for operating lease	$	33,209	$	35,759
Right-of-use assets obtained in exchange for lease obligation:
Operating lease	$	244,577	$	-

The following table summarizes the lease term and discount rate for the Company’s operating lease as of March 31, 2023:

	Operating Lease
Weighted average remaining lease term (in years)		1.84
Weighted average discount rate		11.0	%

The following table summarizes the maturity of lease liabilities under operating lease as of March 31, 2023:

For the Twelve-month Period Ending March 31:	Operating Lease
2024	$	138,597
2025		104,497
2026 and thereafter		-
Total lease payments		243,094
Amount of lease payments representing interest		(21,897	)
Total present value of operating lease liabilities	$	221,197

Current portion	$	121,124
Long-term portion		100,073
Total	$	221,197

Equity Investment Commitment

On May 29, 2018, Avalon Shanghai entered into a Joint Venture Agreement with Jiangsu Unicorn Biological Technology Co., Ltd. (“Unicorn”), pursuant to which a company named Epicon Biotech Co., Ltd. (“Epicon”) was formed on August 14, 2018. Epicon is owned 60% by Unicorn and 40% by Avalon Shanghai. Within five years of execution of the Joint Venture Agreement, Unicorn shall invest cash into Epicon in an amount not less than RMB 8,000,000 (approximately $1.2 million) and the premises of the laboratories of Nanjing Hospital of Chinese Medicine for exclusive use by Epicon, and Avalon Shanghai shall invest cash into Epicon in an amount not less than RMB 10,000,000 (approximately $1.5 million). Epicon is focused on cell preparation, third party testing, biological sample repository for commercial and scientific research purposes and the clinical transformation of scientific achievements. As of March 31, 2023, Avalon Shanghai has contributed RMB 5,110,000 (approximately $0.7 million) that was included in equity method investment on the accompanying condensed consolidated balance sheets. The Company intends to use its present working capital together with borrowings from related party and equity raises to fund the project cost.

AVALON GLOBOCARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 13 – COMMITMENTS AND CONTINGENCIES (continued)

Joint Venture – Avactis Biosciences Inc.

On July 18, 2018, the Company formed Avactis Biosciences Inc. (“Avactis”), a Nevada corporation, as a wholly owned subsidiary. On October 23, 2018, Avactis and Arbele Limited (“Arbele”) agreed to the establishment of AVAR BioTherapeutics (China) Co. Ltd. (“AVAR”), a Sino-foreign equity joint venture, pursuant to an Equity Joint Venture Agreement (the “AVAR Agreement”), which was to be owned 60% by Avactis and 40% by Arbele.

On April 6, 2022, the Company, Acactis, Arbele and Arbele Biotherapeutics Limited (“Arbele Biotherapeutics”), a wholly owned subsidiary of Arbele, entered into an Amendment No. 1 to the Equity Joint Venture Agreement pursuant to which Arbele Biotherapeutics acquired 40% of Avactis for the purpose of the Company and Arbele establishing a joint venture in the United States and the parties agreed that they would no longer pursue AVAR as a joint venture. Further, all rights and obligations under the AVAR Agreement were assigned by Avactis to Avalon and by Arbele to Arbele Biotherapeutics. Avactis established Avactis Nanjing Biosciences Ltd., a wholly owned foreign entity in the PRC. Further, the parties agreed that the Exclusive Patent License Agreement dated January 3, 2019 entered between Arbele, as licensor, and AVAR, as licensee (the “Arbele License Agreement”), was assigned to Avactis and Avalon and Arbele agreed to enter into a new Arbele License Agreement with Avactis on the same/similar terms as the Arbele License Agreement. Further, Dr. Anthony Chan was appointed to the Board of Directors of Avactis and as the Chief Scientific Officer of Avactis. Avactis purpose and business scope is to research, research, develop, produce, sell, distribute and generally commercialize CAR-T/CAR-NK/TCR-T/universal cellular immunotherapy globally.

The 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 with 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 upon the Company and Avactis and services. As of the date hereof, the License Agreement has not been finalized.

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, this company has been limited to a patent holding company and there no activity or planned contributions in 2023.

Line of Credit Agreement

On August 29, 2019, the Company entered into a Line of Credit Agreement (the “Line of Credit Agreement”) providing the Company with a $20 million line of credit (the “Line of Credit”) from Wenzhao Lu (the “Lender”), a significant shareholder and director of the Company. The Line of Credit allows the Company to request loans thereunder and to use the proceeds of such loans for working capital and operating expense purposes until the facility matures on December 31, 2024. The loans are unsecured and are not convertible into equity of the Company. Loans drawn under the Line of Credit bears interest at an annual rate of 5% and each individual loan will be payable three years from the date of issuance. The Company has a right to draw down on the Line of Credit and not at the discretion of the related party Lender. The Company may, at its option, prepay any borrowings under the Line of Credit, in whole or in part at any time prior to maturity, without premium or penalty. The Line of Credit Agreement includes customary events of default. If any such event of default occurs, the Lender may declare all outstanding loans under the Line of Credit to be due and payable immediately. As of March 31, 2023, $750,000 was outstanding under the Line of Credit.

Amended and Restated Membership Interest Purchase Agreement

NOTE 14 – SUBSEQUENT EVENTS

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.

Line of Credit

As disclosed above, the Company entered into the Line of Credit Agreement with Mr. Lu, as the Lender and a significant shareholder and director of the Company, providing the Company with the Line of Credit from the Lender. Under the Line of Credit, the Company received a loan from the Lender of $100,000 in April 2023.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995: This Quarterly Report on Form 10-Q contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 under Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, anticipations, assumptions, estimates, intentions and future performance, and involve known and unknown risks, uncertainties and other factors, which may be beyond our control, and which may cause our actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. All statements other than statements of historical fact are statements that could be forward-looking statements. You can identify these forward-looking statements through our use of words such as “may,” “will,” “can,” “anticipate,” “assume,” “should,” “indicate,” “would,” “believe,” “contemplate,” “expect,” “seek,” “estimate,” “continue,” “plan,” “point to,” “project,” “predict,” “could,” “intend,” “target,” “potential” and other similar words and expressions of the future. Accordingly, factors that may affect our results include, but are not limited to:

●

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

●

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

●

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

●

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

SEC Form 10-Q filed by Avalon GloboCare Corp.