UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended ~~September~~June 30, ~~2017~~2018

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

For the transition period from __________ to __________

COMMISSION FILE NUMBER: 000-55709

AVALON GLOBOCARE CORP.

(Exact name of Registrant as specified in its charter)

Delaware

~~47-1685128~~

(State of incorporation)

47-1685128

(I.R.S. Employer Identification No.)

4400 Route 9 South, Suite 3100, Freehold, New Jersey 07728

(Address of principal executive offices) (zip code)

(646) 762-4517

(Registrant’s telephone number, including area code)

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☐~~(Do~~ (Do not check if a smaller reporting company)	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 ☒

AsState the number of ~~November 14, 2017, 67,218,622~~ shares outstanding of each of the issuer’s classes of common ~~stock, par value $0.0001 per share, were issued and outstanding.~~equity, as of the latest practicable date.

Class		Outstanding August 14, 2018
Common Stock, $0.0001 par value per share		73,560,622 shares

AVALON GLOBOCARE CORP.

FORM 10-Q

~~September~~June 30, ~~2017~~2018

TABLE OF CONTENTS

		Page No.
PART I. - FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets as of ~~September~~June 30, ~~2017~~2018 (Unaudited) and December 31, ~~2016~~2017	1
	Unaudited Condensed Consolidated Statements of Operations and Comprehensive ~~(Loss) Income~~Loss for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2018 and ~~2016~~2017	2
	Unaudited Condensed Consolidated Statement of Changes in ~~Stockholders’~~ Equity for the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2018	3
	Unaudited Condensed Consolidated Statements of Cash Flows for the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2018 and ~~2016~~2017	4
	Notes to Unaudited Condensed Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23 31
Item 3	Quantitative and Qualitative Disclosures About Market Risk	3141
Item 4	Controls and Procedures	3141

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	3242
Item 1A.	Risk Factors	3242
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3242
Item 3.	Defaults upon Senior Securities	3443
Item 4.	Mine Safety Disclosures	3443
Item 5.	Other Information	3443
Item 6.	Exhibits	3443

FORWARD LOOKING STATEMENTS

Thisreport contains forward-looking statements regarding our business, financial condition, results of operations and prospects. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates” and similar expressions or variations of such words are intended to identify forward-looking statements, but are not deemed to represent an all-inclusive means of identifying forward-looking statements as denoted in this report. Additionally, statements concerning future matters are forward-looking statements.

Althoughforward-looking statements in this report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks and uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed in or anticipated by the forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include, without limitation, those specifically addressed under the headings “Risks Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our annual report on Form 10-K, in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Form 10-Q and information contained in other reports that we file with the SEC. You are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this report.

Wefile reports with the SEC. The SEC maintains a website (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including us. You can also read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. You can obtain additional information about the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.

Weundertake no obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this report, except as required by law. Readers are urged to carefully review and consider the various disclosures made throughout the entirety of this quarterly report, which are designed to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.

Unless otherwise indicated, references in this report to “we,” “us” or the “Company” refer to Avalon GloboCare Corp. and its subsidiaries.

PART 1 - FINANCIAL INFORMATION

~~Item 1.~~

~~Financial Statements.~~

Item 1. Financial Statements.

~~AVALON GLOBOCARE CORP. AND SUBSIDIARIES~~

~~CONDENSED CONSOLIDATED BALANCE SHEETS~~

September 30, December 31,
2017 2016
(Unaudited)
ASSETS

CURRENT ASSETS:
Cash $ 356,822 $ 2,886,189
Accounts receivable - related parties, net of allowance for doubtful accounts 166,874 70,228
Tenants receivable, net of allowance for doubtful accounts 56,239 —
Security deposit 6,012 �� —
Prepaid expenses and other 36,414 749,796

Total Current Assets 622,361 3,706,213

OTHER ASSETS:
Security deposit - noncurrent portion 24,763 —
Property, plant and equipment, net 46,365 295
Investment in real estate, net 7,655,562 —

Total Other Assets 7,726,690 295

Total Assets $ 8,349,051 $ 3,706,508

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES:
Accounts payable $ 21,600 $ —
Accrued liabilities and other payables 343,002 22,334
Accrued liabilities and other payables - related parties 31,634 8,587
Deferred rental income 19,914 —
Loan payable 2,100,000 —
Income taxes payable — 20,976
VAT and other taxes payable 2,091 11,270
Tenants’ security deposit 92,288 —
Due to related parties 306,650 97,150
Refundable deposit 3,000,000 —

Total Current Liabilities 5,917,179 160,317

Commitments and Contingencies - (Note 14)

STOCKHOLDERS’ EQUITY:
Preferred stock, $0.0001 par value; 10,000,000 shares authorized; no shares issued and outstanding at September 30, 2017 and December 31, 2016 — —
Common stock, $0.0001 par value; 490,000,000 shares authorized; 64,628,622 and 61,628,622 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively 6,463 6,163
Additional paid-in capital 4,283,311 3,681,387
Accumulated deficit (1,743,939 ) (53,369 )
Statutory reserve 6,578 6,578
Accumulated other comprehensive loss - foreign currency translation adjustment (120,541 ) (94,568 )

Total Stockholders’ Equity 2,431,872 3,546,191

Total Liabilities and Stockholders’ Equity $ 8,349,051 $ 3,706,508

AVALON GLOBOCARE CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	As of
	June 30, 2018			December 31, 2017
	(Unaudited)
ASSETS

CURRENT ASSETS:
Cash	$	3,643,316		$	3,027,033
Accounts receivable, net of allowance for doubtful accounts		74,969			10,179
Accounts receivable - related party, net of allowance for doubtful accounts		144,779			—
Tenants receivable, net of allowance for doubtful accounts		38,527			38,469
Security deposit		328,615			6,916
Inventory		22,049			2,667
Prepaid expenses and other current assets		707,925			149,713

Total Current Assets		4,960,180			3,234,977

OTHER ASSETS:
Security deposit - noncurrent portion		—			25,322
Prepayment for long-term assets		67,044			153,688
Property and equipment, net		143,226			48,029
Investment in real estate, net		7,725,301			7,623,757
Intangible assets, net		1,419,474			1,583,260

Total Other Assets		9,355,045			9,434,056

Total Assets	$	14,315,225		$	12,669,033

LIABILITIES AND EQUITY

CURRENT LIABILITIES:
Accounts payable	$	1,702		$	29
Accrued liabilities and other payables		299,788			124,064
Accrued liabilities and other payables - related parties		48,694			39,927
Deferred rental income		11,182			12,769
Loan payable		1,000,000			1,500,000
Interest payable		24,931			138,110
VAT and other taxes payable		12,516			2,997
Tenants’ security deposit		73,400			92,288
Due to related party		450,000			450,000
Refundable deposit		2,000,000			3,000,000

Total Current Liabilities		3,922,213			5,360,184

Commitments and Contingencies - (Note 20)		—			—

EQUITY:
Preferred stock, $0.0001 par value; 10,000,000 shares authorized;
no shares issued and outstanding at June 30, 2018 and December 31, 2017		—			—
Common stock, $0.0001 par value; 490,000,000 shares authorized;
73,560,622 shares issued and 73,040,622 shares outstanding at June 30, 2018;
70,278,622 shares issued and outstanding at December 31, 2017		7,356			7,028
Additional paid-in capital		18,034,773			11,490,285
Less: common stock held in treasury, at cost;
520,000 and 0 shares at June 30, 2018 and December 31, 2017, respectively		(522,500	)		—
Accumulated deficit		(6,293,627	)		(3,517,654	)
Statutory reserve		6,578			6,578
Accumulated other comprehensive loss - foreign currency translation adjustment		(135,404	)		(91,994	)
Total Avalon GloboCare Corp. stockholders’ equity		11,097,176			7,894,243
Non-controlling interest		(704,164	)		(585,394	)

Total Equity		10,393,012			7,308,849

Total Liabilities and Equity	$	14,315,225		$	12,669,033

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

~~AVALON GLOBOCARE CORP. AND SUBSIDIARIES~~

~~UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME~~

AVALON GLOBOCARE CORP. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

For the Three Months Ended For the Nine Months Ended
September 30, September 30,
2017 2016 2017 2016

REVENUES
Real property rental revenue $ 315,284 $ — $ 537,538 $ —
Consulting services revenue - related parties 2,166 326,667 220,949 326,667
Total Revenues 317,450 326,667 758,487 326,667

COSTS AND EXPENSES
Real property operating expenses 180,722 — 342,576 —
Consulting services costs - related parties 47,033 33,548 271,845 33,548
Total Costs and Expenses 227,755 33,548 614,421 33,548

REAL PROPERTY OPERATING INCOME 134,562 — 194,962 —
GROSS (LOSS) PROFIT FROM CONSULTING SERVICES (44,867 ) 293,119 (50,896 ) 293,119

OTHER OPERATING EXPENSES:
Selling expense 148 121 15,138 121
Compensation and related benefits 468,837 — 857,237 —
Professional fees 186,208 84,038 566,131 161,113
Other general and administrative 92,421 1,127 245,080 29,583

Total Other Operating Expenses 747,614 85,286 1,683,586 190,817

(LOSS) INCOME FROM OPERATIONS (657,919 ) 207,833 (1,539,520 ) 102,302

OTHER INCOME (EXPENSE)
Interest income 122 41 1,126 101
Interest expense (52,932 ) — (94,932 ) —
Foreign currency transaction loss — — (57,244 ) —

Total Other (Expense) Income, net (52,810 ) 41 (151,050 ) 101

(LOSS) INCOME BEFORE INCOME TAXES (710,729 ) 207,874 (1,690,570 ) 102,403

INCOME TAXES — — — —

NET (LOSS) INCOME $ (710,729 ) $ 207,874 $ (1,690,570 ) $ 102,403

COMPREHENSIVE (LOSS) INCOME
NET (LOSS) INCOME (710,729 ) 207,874 (1,690,570 ) 102,403
OTHER COMPREHENSIVE INCOME (LOSS)
Unrealized foreign currency translation gain (loss) 6,151 216 (25,973 ) 431
COMPREHENSIVE (LOSS) INCOME $ (704,578 ) $ 208,090 $ (1,716,543 ) $ 102,834

NET (LOSS) INCOME PER COMMON SHARES:
Basic and diluted $ (0.011 ) $ 0.004 $ (0.026 ) $ 0.002

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic and diluted 64,628,622 50,000,000 63,958,292 50,000,000

	For the Three Months Ended			For the Three Months Ended			For the Six Months Ended			For the Six Months Ended
	June 30, 2018			June 30, 2017			June 30, 2018			June 30, 2017

REVENUES
Real property rental	$	278,872		$	222,254		$	575,495		$	222,254
Medical related consulting services - related parties		141,996			152,497			141,996			218,783
Development services and sales of developed products		75,225			—			86,515			—
Total Revenues		496,093			374,751			804,006			441,037

COSTS AND EXPENSES
Real property operating expenses		195,941			161,854			406,215			161,854
Medical related consulting services - related parties		124,715			125,231			124,715			224,812
Development services and sales of developed products		42,093			—			58,613			—
Total Costs and Expenses		362,749			287,085			589,543			386,666

REAL PROPERTY OPERATING INCOME		82,931			60,400			169,280			60,400
GROSS PROFIT (LOSS) FROM MEDICAL RELATED CONSULTING SERVICES		17,281			27,266			17,281			(6,029	)
GROSS PROFIT FROM DEVELOPMENT SERVICES AND SALES OF DEVELOPED PRODUCTS		33,132			—			27,902			—

OTHER OPERATING EXPENSES:
Selling expenses		—			6,279			—			14,990
Compensation and related benefits		487,452			205,473			1,026,266			388,400
Professional fees		593,025			172,705			1,164,797			379,923
Other general and administrative		266,121			91,927			551,373			152,659

Total Other Operating Expenses		1,346,598			476,384			2,742,436			935,972

LOSS FROM OPERATIONS		(1,213,254	)		(388,718	)		(2,527,973	)		(881,601	)

OTHER INCOME (EXPENSE)
Interest income		1,300			210			1,708			1,004
Interest expense		(24,932	)		(42,000	)		(261,918	)		(42,000	)
Foreign currency transaction loss		(106,929	)		—			(106,929	)		(57,244	)
Other income		—			—			328			—

Total Other Expense, net		(130,561	)		(41,790	)		(366,811	)		(98,240	)

LOSS BEFORE INCOME TAXES		(1,343,815	)		(430,508	)		(2,894,784	)		(979,841	)

INCOME TAXES		—			—			—			—

NET LOSS	$	(1,343,815	)	$	(430,508	)	$	(2,894,784	)	$	(979,841	)

LESS: NET LOSS ATTRIBUTABLE TO NON-CONTROLLING INTEREST		(49,421	)		—			(118,811	)		—

NET LOSS ATTRIBUTABLE TO AVALON GLOBOCARE CORP. COMMON SHAREHOLDERS	$	(1,294,394	)	$	(430,508	)	$	(2,775,973	)	$	(979,841	)

COMPREHENSIVE LOSS:
NET LOSS		(1,343,815	)		(430,508	)		(2,894,784	)		(979,841	)
OTHER COMPREHENSIVE (LOSS) INCOME
Unrealized foreign currency translation (loss) gain		(96,207	)		7,647			(43,369	)		(32,124	)
COMPREHENSIVE LOSS	$	(1,440,022	)	$	(422,861	)	$	(2,938,153	)	$	(1,011,965	)
LESS: COMPREHENSIVE LOSS ATTRIBUTABLE TO NON-CONTROLLING INTEREST		(49,540	)		—			(118,770	)		—
COMPREHENSIVE LOSS ATTRIBUTABLE TO AVALON GLOBOCARE CORP. COMMON SHAREHOLDERS	$	(1,390,482	)	$	(422,861	)	$	(2,819,383	)	$	(1,011,965	)

NET LOSS PER COMMON SHARE ATTRIBUTABLE TO AVALON GLOBOCARE CORP. COMMON SHAREHOLDERS:
Basic and diluted	$	(0.02	)	$	(0.01	)	$	(0.04	)	$	(0.02	)

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic and diluted		71,979,678			64,628,622			71,122,356			63,617,572

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

~~AVALON GLOBOCARE CORP. AND SUBSIDIARIES~~

~~UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY~~

~~For the Nine Months Ended September 30, 2017~~

AVALON GLOBOCARE CORP. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the Six Months Ended June 30, 2018

Preferred Stock Common Stock Additional Accumulated Total
Number of Number of Paid-in Accumulated Statutory Other Stockholders’
Shares Amount Shares Amount Capital Deficit Reserve Comprehensive Loss Equity

Balance, December 31, 2016 — $ — 61,628,622 $ 6,163 $ 3,681,387 $ (53,369 ) $ 6,578 $ (94,568 ) $ 3,546,191

Common shares issued in connection with Share Subscription Agreement — — 3,000,000 300 (300 ) — — — —

Options granted for service — — — — 602,224 — — — 602,224

Foreign currency translation adjustment — — — — — — — (25,973 ) (25,973 )

Net loss for the nine months ended September 30, 2017 — — — — — (1,690,570 ) — — (1,690,570 )

Balance, September 30, 2017 — $ — 64,628,622 $ 6,463 $ 4,283,311 $ (1,743,939 ) $ 6,578 $ (120,541 ) $ 2,431,872

	Avalon GloboCare Corp. Stockholders’ Equity
	Preferred Stock				Common Stock				Additional										Accumulated Other
	Number of				Number of				Paid-in		Treasury			Accumulated			Statutory		Comprehensive			Non-controlling			Total
	Shares		Amount		Shares		Amount		Capital		Stock			Deficit			Reserve		Loss			Interest			Equity

Balance, December 31, 2017		—	$	—		70,278,622	$	7,028	$	11,490,285	$	—		$	(3,517,654	)	$	6,578	$	(91,994	)	$	(585,394	)	$	7,308,849

Treasury stock purchase		—		—		—		—		—		(522,500	)		—			—		—			—			(522,500	)

Common shares issued in equity raise, net of fees associated with equity raise		—		—		3,107,000		311		5,056,332		—			—			—		—			—			5,056,643

Common shares issued for services		—		—		175,000		17		466,983		—			—			—		—			—			467,000

Stock-based compensation		—		—		—		—		1,021,173		—			—			—		—			—			1,021,173

Foreign currency translation adjustment		—		—		—		—		—		—			—			—		(43,410	)		41			(43,369	)

Net loss for the six months ended June 30, 2018		—		—		—		—		—		—			(2,775,973	)		—		—			(118,811	)		(2,894,784	)

Balance, June 30, 2018		—	$	—		73,560,622	$	7,356	$	18,034,773	$	(522,500	)	$	(6,293,627	)	$	6,578	$	(135,404	)	$	(704,164	)	$	10,393,012

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

~~AVALON GLOBOCARE CORP. AND SUBSIDIARIES~~

~~UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS~~

AVALON GLOBOCARE CORP. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Nine Months Ended
September 30,
2017 2016

CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (1,690,570 ) $ 102,403
Adjustments to reconcile net (loss) income from operations to
net cash (used in) provided by operating activities:
Depreciation expense 58,478 —
Options granted for service 602,224 —
Changes in operating assets and liabilities:
Accounts receivable - related parties (91,463 ) —
Tenants receivable (56,239 ) —
Prepaid expenses and other 14,151 (5,125 )
Security deposit (30,081 ) —
Accounts payable 21,600 —
Accrued liabilities and other payables 320,505 (2,790 )
Accrued liabilities and other payables - related parties 22,990 6,226
Deferred rental income 19,914 —
Advance from customers - related parties — 227,184
Income taxes payable (21,400 ) —
VAT and other taxes payable (9,453 ) —
Tenants’ security deposit 92,288 —

NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (747,056 ) 327,898

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Avalon GloboCare Corp.’s shares — (230,000 )
Purchase of property, plant and equipment (50,994 ) (395 )
Purchase of commercial real estate (7,008,571 ) —

NET CASH USED IN INVESTING ACTIVITIES (7,059,565 ) (230,395 )

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds received from loan payable 2,100,000 —
Proceeds received from related parties’ advance 210,000 9,000
Repayment for related parties’ advance (500 ) —
Proceeds received from AHS’s founders’ contribution — 141,000
Refundable deposit in connection with Share Subscription Agreement 3,000,000 —

NET CASH PROVIDED BY FINANCING ACTIVITIES 5,309,500 150,000

EFFECT OF EXCHANGE RATE ON CASH (32,246 ) (1,262 )

NET (DECREASE) INCREASE IN CASH (2,529,367 ) 246,241

CASH - beginning of period 2,886,189 109,586

CASH - end of period $ 356,822 $ 355,827

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Interest $ — $ —
Income taxes $ 21,400 $ —

NON-CASH INVESTING AND FINANCING ACTIVITIES:
Stock issued in connection with Share Subscription Agreement $ 300 $ —
Distribution of Avalon GloboCare Corp.’s shares to owners $ — $ 230,000
Acquisition of real estate by decreasing prepayment for property $ 700,000 $ —

	For the Six Months Ended			For the Six Months Ended
	June 30, 2018			June 30, 2017

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(2,894,784	)	$	(979,841	)
Adjustments to reconcile net loss from operations to
net cash used in operating activities:
Depreciation and amortization		247,975			34,156
Stock-based compensation expense		1,082,923			266,467
Changes in operating assets and liabilities:
Accounts receivable		(67,542	)		—
Accounts receivable - related parties		(150,516	)		(160,964	)
Tenants receivable		(58	)		(25,433	)
Inventory		(19,892	)		—
Prepaid expenses and other current assets		(153,785	)		21,653
Security deposit		(308,694	)		(29,786	)
Accounts payable		1,740			22,646
Accrued liabilities and other payables		176,584			146,680
Accrued liabilities and other payables - related parties		9,811			32,135
Deferred rental income		(1,587	)		4,178
Interest payable		(113,179	)		—
Income taxes payable		—			(21,191	)
VAT and other taxes payable		9,850			(3,841	)
Tenants’ security deposit		(18,888	)		92,288

NET CASH USED IN OPERATING ACTIVITIES		(2,200,042	)		(600,853	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment		(10,192	)		(27,784	)
Prepayment for purchase of long-term assets		(22,606	)		—
Purchase of commercial real estate		—			(7,008,571	)
Improvement of commercial real estate		(165,155	)		—

NET CASH USED IN INVESTING ACTIVITIES		(197,953	)		(7,036,355	)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds received from loan payable		—			2,100,000
Repayments of loan		(500,000	)		—
Proceeds received from related parties’ advance		—			70,000
Repayment of related parties’ advance		—			(500	)
Repurchase of common stock		(522,500	)		—
Refundable deposit in connection with Share Subscription Agreement		—			3,000,000
Refund for refundable deposit in connection with Share Subscription Agreement		(1,000,000	)		—
Proceeds received from equity offering		5,437,250			—
Disbursements for equity offering costs		(380,607	)		—

NET CASH PROVIDED BY FINANCING ACTIVITIES		3,034,143			5,169,500

EFFECT OF EXCHANGE RATE ON CASH		(19,865	)		(36,527	)

NET INCREASE (DECREASE) IN CASH		616,283			(2,504,235	)

CASH - beginning of period		3,027,033			2,886,189

CASH - end of period	$	3,643,316		$	381,954

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Interest	$	375,096		$	—
Income taxes	$	—		$	21,190

NON-CASH INVESTING AND FINANCING ACTIVITIES:
Common stock issued in connection with Share Subscription Agreement	$	—		$	300
Acquisition of equipment by decreasing prepayment for long-term assets	$	109,889		$	—
Acquisition of real estate by decreasing prepayment for property	$	—		$	700,000
Common stock issued for future services	$	405,250		$	—

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

AVALON GLOBOCARE CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
~~SEPTEMBER~~JUNE 30, ~~2017~~2018

NOTE 1 –ORGANIZATION AND NATURE OF OPERATIONS

Avalon GloboCare Corp. (f/k/a Global Technologies Corp.) (the “Company” or “AVCO”) is a Delaware corporation. The Company was incorporated under the laws of the State of Delaware on July 28, 2014. On October 18, 2016, the Company changed its name to Avalon GloboCare Corp. and completed a reverse split its shares of common stock at a ratio of 1:4. 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 are accredited investors (“AHS Shareholders”) pursuant to which we acquired 100% of the outstanding securities of AHS in exchange for 50,000,000 shares of our common stock (the “AHS Acquisition”). AHS was incorporated on May 18, 2015 under the laws of the State of Delaware. As a result of such acquisition, the Company’s operations now are focused on integrating and managing global healthcare services and resources, as well as empowering high-impact biomedical innovations and technologies to accelerate their clinical applications. Operating through two major platforms, namely “Avalon Cell”, and “Avalon Rehab”, our “technology + service” ecosystem covers the areas of regenerative medicine, cell-based immunotherapy, exosome technology, as well as ~~fertility and~~ rehabilitation medicine. We plan to integrate these services through joint ventures and acquisitions that bring shareholder value both in the short term, through operational entities as part of Avalon Rehab and in the long term, through biomedical innovations as part of Avalon Cell. AHS owns 100% of the capital stock of Avalon (Shanghai) Healthcare Technology Co., Ltd. (“Avalon Shanghai”), which is a wholly foreign-owned enterprise organized under the laws of the People’s Republic of China (“PRC”). Avalon Shanghai was incorporated on April 29, 2016 and is engaged in medical related consulting services for customers.

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 immediately following the consummation of this reverse merger transaction.

On January 23, 2017, the Company incorporated Avalon (BVI) Ltd, a British Virgin Island ~~company.~~company (dormant, will be dissolved in 2018). There was no activity for the subsidiary since its incorporation through ~~September~~June 30, ~~2017.~~2018.

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 ~~9S,~~9 South, Freehold, NJ 07728. This property was purchased to serve as the Company’s world-wide headquarters for all corporate administration and operation. In addition, the property generates rental income. Avalon RT 9 owns this office building. Currently, Avalon RT 9’s business consists of the ownership and operation of the income-producing real estate property ~~in New Jersey. Avalon RT 9 owns an office building~~ in New Jersey.

On July 31, 2017, the Company formed GenExosome Technologies Inc. (“GenExosome”) in Nevada.

On October 25, 2017, GenExosome and the Company entered into a Securities Purchase Agreement pursuant to which the Company acquired 600 shares of GenExosome in consideration of $1,326,087 in cash and 500,000 shares of common stock of the Company.

On October 25, 2017, GenExosome entered into and closed an Asset Purchase Agreement with Yu Zhou, MD, PhD, pursuant to which the Company acquired all assets, including all intellectual property, held by Dr. Zhou pertaining to the business of researching, developing and commercializing exosome technologies including, but not limited to, patent application number CN 2016 1 0675107.5 (application of an Exosomal MicroRNA in plasma as biomaker to diagnosis liver cancer), patent application number CN 2016 1 0675110.7 (clinical application of circulating exosome carried miRNA-33b in the diagnosis of liver cancer), patent application number CN 2017 1 0330847.X (saliva exosome based methods and composition for the diagnosis, staging and prognosis of oral cancer) and patent application number CN 2017 1 0330835.7 (a novel exosome-based therapeutics against proliferative oral diseases). In consideration of the assets, GenExosome agreed to pay Dr. Zhou $876,087 in cash, transfer 500,000 shares of common stock of the Company to Dr. Zhou and issue Dr. Zhou 400 shares of common stock of GenExosome.

As a result of the above transactions, effective October 25, 2017, the Company holds 60% of ~~the total equity ownership~~GenExosome and Dr. Zhou holds 40% of GenExosome. ~~There were no operations~~GenExosome is engaged in developing proprietary diagnostic and therapeutic products leveraging its exosome technology and marketing and distributing its proprietary Exosome Isolation Systems.

AVALON GLOBOCARE CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2018

NOTE 1 – ORGANIZATION AND NATURE OF OPERATIONS (continued)

On October 25, 2017, GenExosome entered into and closed a Stock Purchase Agreement with Beijing Jieteng (GenExosome) Biotech Co. Ltd., a corporation incorporated in the People’s Republic of China on August 7, 2015 (“Beijing GenExosome”) and Dr. Zhou, the sole shareholder of Beijing GenExosome, pursuant to which GenExosome acquired all of the issued and outstanding securities of Beijing GenExosome in consideration of a cash payment in the amount of $450,000, which shall be paid upon Beijing GenExosome recording the change in ownership with the Ministry of Commerce of the People’s Republic of China in accordance with the Interim Measures for Record Management regarding the Establishment and Change of Foreign-invested Enterprises (revised).

Beijing GenExosome ~~since its incorporation through September~~is engaged in the development of exosome technology to improve diagnosis and management of diseases. Exosomes are tiny, subcellular, membrane-bound vesicles in diameter of 30-150 nm that are released by almost all cell types and that can carry membrane and cellular proteins, as well as genetic materials that are representative of the cell of origin. Profiling various bio-molecules in exosomes may serve as useful biomarkers for a wide variety of diseases. Beijing GenExosome’s research kits are designed to be used by researchers for biomarker discovery and clinical diagnostic development, and the advancement of targeted therapies. Currently, research kits and service are available to isolate exosomes or extract exosomal RNA/protein from serum/plasma, urine and saliva samples. Beijing GenExosome is seeking to decode proteomic and genomic alterations underlying a wide-range of pathologies, thus allowing for the introduction of novel non-invasive “liquid biopsies”. Its mission is focused toward diagnostic advancements in the fields of oncology, infectious diseases and fibrotic diseases, and discovery of disease-specific exosomes to provide disease origin insight necessary to enable personalized clinical management.

Details of the Company’s subsidiaries which are included in these consolidated financial statements as of June 30, ~~2017.~~2018 are as follows:

Name of Subsidiaries	Place and date of Incorporation	Percentage of Ownership	Principal Activities
Avalon Healthcare System, Inc. (“AHS”)	Delaware May 18, 2015	100% held by AVCO	Provides medical related consulting services and developing Avalon Cell and Avalon Rehab in United States of America (“USA”)

Avalon (BVI) Ltd. (“Avalon BVI”)	British Virgin Island January 23, 2017	100% held by AVCO	Dormant, will be dissolved in 2018

Avalon RT 9 Properties LLC (“Avalon RT 9”)	New Jersey February 7, 2017	100% held by AVCO	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	Provides medical related consulting services and developing Avalon Cell and Avalon Rehab in China

GenExosome Technologies Inc. (“GenExosome”)	Nevada July 31, 2017	60% held by AVCO	Develops proprietary diagnostic and therapeutic products leveraging exosome technology and markets and distributes proprietary Exosome Isolation Systems in USA

Beijing Jieteng (GenExosome) Biotech Co., Ltd. (“Beijing GenExosome”)	PRC August 7, 2015	100% held by GenExosome	Provides development services for hospitals and other customers and sells developed items to hospitals and other customers in China

AVALON GLOBOCARE CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2018

NOTE 2 –BASIS OF PRESENTATION ~~AND GOING CONCERN~~

~~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 unaudited 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 unaudited 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 unaudited 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 unaudited 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, ~~2016~~2017 filed with the Securities and Exchange Commission on March ~~28, 2017.~~13, 2018.

~~AVALON GLOBOCARE CORP. AND SUBSIDIARIES~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~SEPTEMBER 30, 2017~~

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

~~Going concern~~

~~The~~Company currently has limited operations. The Company’s operations now are focused on providing outsourced, customized international healthcare services to the rapidly changing health care industry primarily focused in the People’s Republic of China and real estate property ownership and operation in the United States. The Company is also pursuing the provision of healthcare services in the United States. These unaudited 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 unaudited condensed consolidated financial statements, the Company had working capital deficit (total current liabilities in excess of total current assets) and an accumulated deficit of $5,294,818 and $1,743,939 at September 30, 2017, respectively, and had a net loss and net cash flow used in operating activities of $1,690,570 and $747,056 for the nine months ended September 30, 2017, respectively. The Company has a limited operating history and its continued growth is dependent upon the continuation of providing medical consulting services to its only three clients who are related parties and generating rental revenue from its income-producing real estate property in New Jersey; hence generating revenues, 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 or debt instruments 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 unaudited 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

Use of ~~estimates~~Estimates

The preparation of the unaudited condensed consolidated financial statements in conformity with generally accepted accounting principles in the United States of America 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. Actual results could differ from these estimates. Significant estimates during the ~~nine~~three and six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016~~2017 include the allowance for doubtful accounts, reserve for obsolete inventory, the useful life of property ~~plant,~~and equipment and investment in real estate and intangible assets, assumptions used in assessing impairment of long-term assets, valuation of deferred tax assets ~~accruals for taxes due,~~and the associated valuation allowances, and valuation of ~~options.~~

~~Fair value of financial instruments and fair value measurements~~stock-based compensation.

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~~:follows:

●

Level1-Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement ~~date~~.date.

●

Level2-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~~.data.

●

Level3-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~~.information.

~~AVALON GLOBOCARE CORP. AND SUBSIDIARIES~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~SEPTEMBER 30, 2017~~

~~NOTE 3 –SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)~~

~~Fair value of financial instruments and fair value measurements (continued)~~

The carrying amounts reported in the condensed consolidated balance sheets for cash, accounts receivable, account receivable – related ~~parties,~~party, tenants receivable, security deposit, inventory, prepaid expenses and other current assets, accounts payable, accrued liabilities and other payables, accrued liabilities and other payables – related parties, deferred rental income, loan payable, ~~income taxes~~interest payable, Value Added Tax (“VAT”) and other taxes payable, tenants’ security deposit, due to related ~~parties,~~party, and refundable deposit, approximate their fair market value based on the short-term maturity of these instruments. ~~The Company did not have any non-financial~~At June 30, 2018 and December 31, 2017, intangible assets ~~or liabilities that are~~were measured at fair value on a ~~recurring~~nonrecurring basis as ~~of September~~shown in the following tables.

AVALON GLOBOCARE CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, ~~2017 and December 31, 2016~~.2018

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Fair Value of Financial Instruments and Fair Value Measurements (continued)

	Quoted Price in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance at June 30, 2018		Impairment Loss
Patents and other technologies	$	—	$	—	$	1,419,474	$	1,419,474	$	—

	Quoted Price in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance at December 31, 2017		Impairment Loss
Patents and other technologies	$	—	$	—	$	1,583,260	$	1,583,260	$	923,769
Goodwill		—		—		—		—		397,569
Total	$	—	$	—	$	1,583,260	$	1,583,260	$	1,321,338

In December 2017, the Company assessed its long-lived assets for any impairment and concluded that there were indicators of impairment as of December 31, 2017 and it calculated that the estimated undiscounted cash flows were less than the carrying amount of the intangible assets. Based on its analysis, the Company recognized an impairment loss of $1,321,338 for the year ended December 31, 2017, which reduced the value of intangible assets acquired to $1,583,260. The Company did not record any impairment charge for the three and six months ended June 30, 2018.

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~~.instruments.

Cash

Cash consists of cash on hand and cash in banks. The Company maintains cash with various financial institutions in the PRC and United States. At ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, cash balances in PRC are ~~$128,301~~$1,318,799 and ~~$2,525,630,~~$1,327,009, respectively, are uninsured. At ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, cash balances in United States are ~~$228,521~~$2,324,517 and ~~$360,559,~~$1,700,024, respectively. The Company has not experienced any losses in bank accounts and believes it is not exposed to any risks on its cash in bank accounts.

Concentrations of ~~credit risk~~Credit Risk

Currently, a portion of the Company’s operations are carried out in PRC. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environment in the PRC, and by the general state of the PRC’s economy. The Company’s operations in PRC are subject to specific considerations and significant risks not typically associated with companies in North America. The Company’s results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other ~~things~~.things.

Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash, ~~and~~ trade accounts receivable and tenants receivable. A portion of the Company’s cash is maintained with state-owned banks within the PRC, and none of these deposits are covered by 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. A portion of the Company’s sales are credit sales which is to the customer whose ability to pay is dependent upon the industry economics prevailing in these areas; however, concentrations of credit risk with respect to trade accounts ~~receivables~~receivable and tenants receivable is limited due to generally short payment terms. The Company also performs ongoing credit evaluations of its customers to help further reduce credit ~~risk~~.risk.

~~At September 30, 2017 and December 31, 2016, the Company’s cash balances by geographic area were as follows:~~

Country: September 30, 2017 December 31, 2016
United States $ 228,521 64.0 % $ 360,559 12.5 %
China 128,301 36.0 % 2,525,630 87.5 %
Total cash $ 356,822 100.0 % $ 2,886,189 100.0 %

AVALON GLOBOCARE CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
~~SEPTEMBER~~JUNE 30, ~~2017~~2018

NOTE 3 –SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Concentrations of Credit Risk (continued)

At June 30, 2018 and December 31, 2017, the Company’s cash balances by geographic area were as follows:

Country:	June 30, 2018				December 31, 2017
United States	$	2,324,517	63.8	%	$	1,700,024	56.2	%
China		1,318,799	36.2	%		1,327,009	43.8	%
Total cash	$	3,643,316	100.0	%	$	3,027,033	100.0	%

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable ~~– related parties and allowance for doubtful accounts~~

~~Accounts receivable – related parties~~ are presented net of an allowance for doubtful accounts. The Company maintains allowances for doubtful accounts for estimated losses. The Company reviews the accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as to the collectability of individual balances. In evaluating the collectability of individual receivable balances, the Company considers many factors, including the age of the balance, a customer’s historical payment history, its current credit-worthiness and current economic trends. Accounts are written off after exhaustive efforts at collection.

Management believes that the accounts receivable are fully collectable. Therefore, no allowance for doubtful accounts is deemed to be required on its accounts receivable ~~– related parties~~ at ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016.~~2017. The Company historically has not experienced uncollectible accounts from customers granted with credit sales.

Tenants ~~receivable~~Receivable and ~~allowance~~Allowance for ~~doubtful accounts~~Doubtful Accounts

Tenants receivable are presented net of an allowance for doubtful accounts. Tenants receivable balance ~~consists~~consist of base rents, tenant reimbursements and receivables arising from straight-lining of rents primarily represent amounts accrued and unpaid from tenants in accordance with the terms of the respective leases, subject to the Company’s revenue recognition policy. An allowance for the uncollectible portion of tenant receivable is determined based upon an analysis of the tenant’s payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates and economic conditions in Freehold, New Jersey in which the property is located.

Management believes that the tenants receivable isare fully collectable. Therefore, no allowance for doubtful accounts is deemed to be required on its tenants receivable at ~~September~~June 30, 2018 and December 31, 2017.

Inventory

Inventory is stated at the lower of cost and net realizable value. Cost is determined using the first-in, first-out (FIFO) method. A reserve is established when management determines that certain inventory may not be saleable. If inventory costs exceed expected market value due to obsolescence or quantities in excess of expected demand, the Company will record reserve for the difference between the cost and the lower of cost or estimated net realizable value. These reserve is recorded based on estimates. The Company did not record any inventory reserve at June 30, 2018 and December 31, 2017.

Property ~~plant~~ and ~~equipment~~Equipment

Property ~~plant~~ and equipment are carried at cost and are depreciated on a straight-line basis over the estimated useful lives of the assets. The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in income in the year of disposition. The Company examines the possibility of decreases in the value of fixed assets when events or changes in circumstances reflect the fact that their recorded value may not be recoverable.

AVALON GLOBOCARE CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2018

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Investment in ~~real estate~~Real Estate and ~~depreciation~~Depreciation

Investment in real estate is carried at cost less accumulated ~~depreciation.~~depreciation and consists of building and improvement. The Company depreciates real estate building and improvement on a straight-line basis over estimated useful life. ~~The Company capitalizes all capital~~Expenditures for ordinary repair and maintenance costs are charged to expense as incurred. Expenditure for improvements, ~~associated with~~renovations, and replacements ~~improvements or major repairs to~~of real ~~property that extend its useful life~~estate asset is capitalized and ~~depreciate them using the straight-line method~~depreciated over its estimated useful ~~life.~~life if the expenditure qualifies as betterment. Real estate depreciation expense was ~~$20,066~~$31,806 and ~~$53,009~~$32,943 for the three ~~and nine~~ months ended ~~September~~June 30, 2018 and 2017, ~~respectively~~respectively. Real estate depreciation expense was $63,611 and $32,943 for the six months ended June 30, 2018 and 2017, respectively.

.Intangible Assets

~~The Company charges maintenance~~Intangible assets consist of patents and ~~repair costs that do not extend an asset’s~~other technologies. Patents and other technologies are being amortized on a straight-line method over the estimated useful life ~~to expense as incurred~~.of 5 years.

Impairment of ~~long-lived assets~~Long-lived Assets

In accordance with ASC Topic 360, the Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable, or at least annually. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value. The Company did not record any impairment charge for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016.~~

~~Deferred rental income~~2017.

Acquisition Consideration

On October 25, 2017, GenExosome entered into and closed a Stock Purchase Agreement with Beijing Jieteng (GenExosome) Biotech Co. Ltd., a corporation incorporated in the People’s Republic of China (“Beijing GenExosome”) and Dr. Zhou, the sole shareholder of Beijing GenExosome, pursuant to which GenExosome acquired all of the issued and outstanding securities of Beijing GenExosome in consideration of a cash payment in the amount of $450,000, which shall be paid upon Beijing GenExosome recording the change in ownership with the Ministry of Commerce of the People’s Republic of China in accordance with the Interim Measures for Record Management regarding the Establishment and Change of Foreign-invested Enterprises (revised).

On October 25, 2017, Dr. Zhou was appointed to the board of directors of GenExosome and served as Co-chief executive officer of GenExosome. As of June 30, 2018 and December 31, 2017, the unpaid acquisition consideration of $450,000 was recorded as due to related party on the accompanying condensed consolidated balance sheets.

Deferred Rental Income

Deferred rental income represents rental income collected but not earned as of the ~~report~~reporting date. The Company defers the revenue related to lease payments received from tenants in advance of their due dates. As of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, deferred rental income totaled ~~$19,914~~$11,182 and ~~$0, respectively~~.

~~AVALON GLOBOCARE CORP. AND SUBSIDIARIES~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~SEPTEMBER 30, 2017~~

~~NOTE 3 –SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)~~

~~Value added tax~~$12,769, respectively.

~~The Company~~Value Added Tax

Avalon Shanghai is subject to a value added tax (“~~VAT~~”VAT”) of 6% for providing medical related consulting ~~service.~~services and Beijing GenExosome is subject to a VAT of 3% for performing development services and sales of developed products. The amount ofVATliability is determined by applying the applicable tax ~~rate~~rates to the invoiced amount of medical related consulting services provided and the invoiced amount of development services provided and sales of developed products (output VAT) less VAT~~) less~~~~VAT~~paid on purchases made with the relevant supporting invoices (input~~VAT~~) VAT). The Company reports revenue net of PRC’s value added tax for all the periods presented in the unaudited condensed consolidated statements of operations and comprehensive ~~(loss) income~~.loss.

~~Revenue recognition~~

AVALON GLOBOCARE CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2018

Pursuant to the guidance of ASC Topic 605, the Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been provided, the purchase price is fixed or determinable and collectability is reasonably assuredNOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued).

The Company provides medical related consulting services to its clients. The Company is paid for its services by its clients pursuant to the terms of the written consulting agreements. Each contract calls for a fixed payment in a fixed period of time. The Company recognizes revenue by providing medical related consulting services under written service contracts with its customers. Revenue related to its service offerings is recognized as the services are performed and amounts are earned, using the straight-line method over the term of the related services agreement. Prepayments, if any, received from customers prior to the services being performed are recorded as advance from customers. In these cases, when the services are performed, the amount recorded as advance from customers is recognized as revenue.

Revenue Recognition

In May 2014, the Financial Accounting Standards Board (“FASB”) issued an update Accounting Standards Update (“ASU”) (“ASU 2014-09”) establishing Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”). ASU 2014-09, as amended by subsequent ASUs on the topic, establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most of the existing revenue recognition guidance. This standard, which is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2017, requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services and also requires certain additional disclosures. The Company ~~leases commercial property under operating leases with terms~~adopted this standard in 2018 using the modified retrospective approach, which requires applying the new standard to all existing contracts not yet completed as of ~~generally two years or more.~~ the effective date and recording a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. Based on an evaluation of the impact ASU 2014-09 will have on the Company’s sources of revenue, the Company has concluded that ASU 2014-09 did not have a material impact on the process for, timing of, and presentation and disclosure of revenue recognition from customers.

Types of revenue:

●

Rental revenue from leasing commercial property under operating leases with terms of generally three years or more.

●

Service fees under consulting agreements with related parties to provide medical related consulting services to its clients. The Company is paid for its services by its clients pursuant to the terms of the written consulting agreements. Each contract calls for a fixed payment.

●

Service fees under agreements to perform development services for hospitals other customers. The Company does not perform contracts that are contingent upon successful results.

●

Sales of developed products to hospitals and other customers.

Revenue recognition criteria:

●

The Company recognizes rental revenue from its commercial leases on a straight-line basis over the life of the lease including rent holidays, if any. Straight-line rent receivable consists of the difference between the tenants’ rents calculated on a straight-line basis from the date of lease commencement over the remaining terms of the related leases and the tenants’ actual rents due under the lease agreements and is included in tenants receivable in the accompanying consolidated balance sheets. Revenues associated with operating expense recoveries are recognized in the period in which the expenses are incurred.

●

The Company recognizes revenue by providing medical related consulting services under written service contracts with its customers. Revenue related to its service offerings is recognized as the services are performed and amounts are earned and all other elements of revenue recognition have been satisfied. Prepayments, if any, received from customers prior to the services being performed are recorded as advance from customers. In these cases, when the services are performed, the amount recorded as advance from customers is recognized as revenue.

●

Revenue from development services performed under written contracts is recognized when it is earned pursuant to the terms of the contract. Each contract calls for a fixed dollar amount with a specified time period. These contracts generally involve up-front payment. Revenue is recognized for these projects as services are provided.

●

Revenue from sales of developed items to hospitals and other customers is recognized when items are shipped to customers and titles are transferred.

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

Sales tax collected is not recognized as revenue and amounts outstanding are included in accrued liabilities and other payables in the consolidated balance sheets.

Office Lease

When a lease contains “rent holidays”, the Company records rental expense on a straight-line basis over the ~~life~~term of the lease ~~including rent holidays, if any. Straight-line rent receivable consists of~~and the difference between the ~~tenants’ rents calculated on a straight-line basis from the date of lease commencement over the remaining terms of the related leases~~average rental amount charged to expense and the ~~tenants’ actual rents due~~amount payable under the lease ~~agreements and~~ is ~~included in tenants receivable~~recorded as prepaid expenses in the ~~accompanying~~ consolidated balance sheets. ~~Revenues associated with operating~~The Company begins recording rent expense ~~recoveries are recognized in~~on the ~~period in which the expenses are incurred~~lease possession date.

AVALON GLOBOCARE CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2018

.NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

~~Consulting services costs~~Shipping and Handling Costs

~~Costs of consulting services includes the~~Shipping and handling costs are expensed as incurred and are included in cost of ~~internal labor~~sales. For the three months ended June 30, 2018 and ~~related benefits, travel expenses~~2017, the Company did not incur shipping and handling costs. For the six months ended June 30, 2018 and 2017, shipping and handling costs amounted to $25 and $0, respectively.

Research and Development

Expenditures for research and product development costs are expensed as incurred. The Company incurred research and development expense in the amount of $263 related to ~~consulting services, subcontractor~~the development of proprietary diagnostic and therapeutic products leveraging exosome technology and optimization of Exosome Isolation Systems in the three and six months ended June 30, 2018. The Company did not incur any research and development costs ~~other related consulting costs,~~during the three and ~~other overhead costs. Subcontractor costs were~~six months ended June 30, 2017.

Advertising and Marketing Costs

All costs related to ~~consulting services incurred by our subcontractor, such~~advertising and marketing are expensed as ~~medical professional’s compensation~~incurred. The Company did not incur any advertising and ~~travel costs.~~marketing expenses during the three and six months ended June 30, 2018 and 2017.

Real ~~estate operating expenses~~Property Operating Expenses

Real property operating expenses consist of property management fees, property insurance, real estate taxes, depreciation, repairs and maintenance fees, utilities and other expenses related to the Company’s rental properties.

~~Stock-based compensation~~Medical Related Consulting Services Costs

~~Stock based~~Costs of medical related consulting services includes the cost of internal labor and related benefits, travel expenses related to consulting services, subcontractor costs, other related consulting costs, and other overhead costs. Subcontractor costs were costs related to medical related consulting services incurred by our subcontractor, such as medical professional’s compensation and travel costs.

Development Services and Sales of Developed Products Costs

Costs of development services and sales of developed items includes inventory costs, materials and supplies costs, depreciation, internal labor and related benefits, other overhead costs and shipping and handling costs incurred.

Stock-based Compensation

Stock-based compensation is accounted for based on the requirements of the Share-Based Payment topic of Accounting Standards Codification (“ASC”) 718 which requires recognition in the financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the period the employee or director is required to perform the services in exchange for the award. The Accounting Standards Codification also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award.

~~AVALON GLOBOCARE CORP. AND SUBSIDIARIES~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~SEPTEMBER 30, 2017~~

~~NOTE 3 –SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)~~

~~Research~~ The Company’s compensation expense for unvested options to non-employees is re-measured at each balance sheet date and ~~development~~is being amortized over the vesting period of the options.

Expenditures for research and product development costs are expensed as incurred. The Company did not incur any research and development costs during the three and nine months ended September 30, 2017 and 2016Income Taxes.

~~Advertising~~

~~All costs related to advertising are expensed as incurred. The Company did not incur any advertising expenses during the three and nine months ended September 30, 2017 and 2016~~.

~~Income taxes~~

The Company accounts for income taxes using the asset/liability method prescribed by ASC 740, “Income Taxes.” Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the period in which the differences are expected to reverse. The Company records a valuation allowance to offset deferred tax assets if, based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is recognized as income or loss in the period that includes the enactment ~~date~~date.

AVALON GLOBOCARE CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2018

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued).

Income Taxes (continued)

The Company follows the accounting guidance for uncertainty in income taxes using the provisions of ASC 740 “Income Taxes”. Using that guidance, tax positions initially need to be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. As of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, the Company had no significant uncertain tax positions that qualify for either recognition or disclosure in the financial statements. Tax year that remains subject to examination is the years ended December 31, 2017, 2016 and 2015. The Company recognizes interest and penalties related to significant uncertain income tax positions in other expense. However, no such interest and penalties were recorded as of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016.~~

~~Foreign currency translation~~2017.

Foreign Currency Translation

The reporting currency of the Company is the U.S. dollar. The functional currency of the parent company, ~~and its wholly-owned U.S. subsidiaries, Avalon Healthcare System Inc.,~~AHS, Avalon RT 9, ~~Properties, LLC,~~ and ~~Avalon (BVI) Ltd.,~~GenExosome, is the U.S. dollar and the functional currency of ~~the Company’s wholly-owned PRC subsidiary,~~ Avalon ~~(Shanghai) Healthcare Technology Co., Ltd.,~~Shanghai and Beijing GenExosome, is the Chinese Renminbi (“RMB”). For the ~~subsidiary~~subsidiaries whose functional currency is the RMB, result of operations and cash flows are translated at average exchange rates during the period, assets and liabilities are translated at the unified exchange rate at the end of the period, and equity is translated at historical exchange rates. As a result, amounts relating to assets and liabilities reported on the statements of cash flows may not necessarily agree with the changes in the corresponding balances on the balance sheets. Translation adjustments resulting from the process of translating the local currency financial statements into U.S. dollars are included in determining comprehensive income/loss. Transactions denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing on the transaction dates. Assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing at the balance sheet date with any transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as ~~incurred~~.incurred.

All of the Company’s revenue transactions are transacted in the functional currency of the operating subsidiaries. The Company does not enter into any material transaction in foreign currencies. Transaction gains or losses have not had, and are not expected to have, a material effect on the results of operations of the Company.

Asset and liability accounts at ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016~~2017 were translated at ~~6.6536~~6.6225 RMB to $1.00 and at ~~6.9448~~6.5067 RMB to $1.00, respectively, which were the exchange rates on the balance sheet dates. Equity accounts were stated at their historical rates. The average translation rates applied to the statements of operations for the ~~nine~~six months ended ~~September~~June 30, 2018 and 2017 ~~and 2016~~ were ~~6.8071~~6.3701 RMB and ~~6.57924~~6.8745 RMB to $1.00, respectively. Cash flows from the Company’s operations are calculated based upon the local currencies using the average translation rate.

~~AVALON GLOBOCARE CORP. AND SUBSIDIARIES~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~SEPTEMBER 30, 2017~~

~~NOTE 3 –SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)~~Comprehensive Loss

Comprehensive ~~(loss) income~~

~~Comprehensive (loss) income~~loss is comprised of net ~~(loss) income~~loss and all changes to the statements of ~~stockholders’~~ equity, except those due to investments by stockholders, changes in paid-in capital and distributions to stockholders. For the Company, comprehensive ~~(loss) income~~loss for the ~~three and nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016~~2017 consisted of net ~~(loss) income~~loss and unrealized (loss) gain ~~(loss)~~ from foreign currency translation adjustment.

Per ~~share data~~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~~.entity.

Basic net ~~(loss) income~~loss per share are computed by dividing net ~~(loss) income~~loss available to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted net ~~(loss) income~~loss per share is computed by dividing net ~~(loss) income~~loss by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during each period. Potentially dilutive common shares consist of the common shares issuable upon the 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 presents a reconciliation of basic and diluted net ~~(loss) income~~loss per ~~share~~:share:

Three Months Ended Nine Months Ended
September 30, September 30,
2017 2016 2017 2016
Net (loss) income for basic and diluted net (loss) income per share of common stock $ (710,729 ) $ 207,874 $ (1,690,570 ) $ 102,403
Weighted average common stock outstanding - basic and diluted 64,628,622 50,000,000 63,958,292 50,000,000
Net (loss) income per common shares - basic and diluted $ (0.011 ) $ 0.004 $ (0.026 ) $ 0.002

AVALON GLOBOCARE CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2018

~~For~~NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Per Share Data (continued)

	Three Months			Three Months			Six Months			Six Months
	Ended			Ended			Ended			Ended
	June 30, 2018			June 30, 2017			June 30, 2018			June 30, 2017
Net loss available to Avalon GloboCare Corp. common shareholders for basic and diluted net loss per share of common stock	$	(1,294,394	)	$	(430,508	)	$	(2,775,973	)	$	(979,841	)
Weighted average common stock outstanding - basic and diluted		71,979,678			64,628,622			71,122,356			63,617,572
Net loss per common share attributable to Avalon GloboCare Corp. common shareholders - basic and diluted	$	(0.02	)	$	(0.01	)	$	(0.04	)	$	(0.02	)

The following table summarizes the ~~three and nine months ended September 30, 2017, stock options to purchase 484,448 shares of common stock have been~~securities that were excluded from the ~~computation of~~ diluted ~~loss~~ per share ~~as their~~calculation because the effect ~~would be anti-dilutive.~~of including these potential shares was antidilutive:

	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
Stock options		2,610,000		297,780		2,610,000		297,780
Warrants		578,891		—		578,891		—
Potentially dilutive securities		3,188,891		297,780		3,188,891		297,780

~~Segment reporting~~

Business Acquisition

The Company accounts for business acquisition in accordance with ASC No. 805, Business Combinations. The assets acquired and liabilities assumed from the acquired business are recorded at fair value, with the residual of the purchase price recorded as goodwill. The result of operations of the acquired business is included in the Company’s operating result from the date of acquisition.

Non-controlling Interest

As of June 30, 2018, Dr. Yu Zhou, director and Co-Chief Executive Officer of GenExosome, who owned 40% of the equity interests of GenExosome, which is not under the Company’s control.

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. The Company has determined that it has ~~two~~three reportable business segments: real property operating segment, ~~and~~ medical related consulting services segment, and development services and sales of developed products segment. These reportable segments offer different types of ~~service,~~services and products, have different types of revenue, and are managed separately as each requires different operating strategies and management expertise.

Related ~~parties~~Parties

Parties are considered to be related to the Company if the parties, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal with if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. The Company discloses all significant related party transactions.

AVALON GLOBOCARE CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
~~SEPTEMBER~~JUNE 30, ~~2017~~2018

NOTE 3 –SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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.

Reverse ~~stock split~~Stock Split

TheCompany effected a one-for-four reverse stock split of its common stock on October 18, 2016. All share and per share information has been retroactively adjusted to reflect this reverse stock ~~split~~.split.

Fiscal ~~year end~~Year End

TheCompany has adopted a fiscal year end of December ~~31st~~.31st.

Recent ~~accounting pronouncements~~Accounting Pronouncements

In ~~February 2016,~~July 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-11, “Inventory (Topic 330): Simplifying the Measurement of Inventory”, which provides new guidance regarding the measurement of inventory. The new guidance requires most inventory to be measured at the lower of cost or net realizable value. The standard defines net realizable value as estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. The standard applies to companies other than those that measure inventory using last-in, first-out ("LIFO") or the retail inventory method. The standard is effective for annual reporting periods beginning after December 15, 2016, including interim periods within those reporting periods. Early application is permitted. Effective January 1, 2017, the Company adopted ASU No. 2015-11 and it had no material impact on the Company’s consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”), which modified lease accounting for both lessees and lessors to increase transparency and comparability by recognizing lease assets and lease liabilities by lessees for those leases classified as operating leases under previous accounting standards and disclosing key information about leasing arrangements. This pronouncement is effective for reporting periods beginning after December 15, 2018 using a modified retrospective adoption method. The ~~Company~~adoption of this guidance is ~~currently evaluating~~not expected to have a material impact on the ~~impact of adopting the new lease standard on its~~Company’s consolidated financial statements.

In ~~August 2016,~~January 2017, the FASB issued Accounting Standards Update No. 2017-04, Simplifying the Test for Goodwill Impairment (“ASU ~~2016-15, Statement~~2017-04”). ASU 2017-04 simplifies the accounting for goodwill impairment by removing Step 2 of ~~Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This~~the goodwill impairment test, which requires a hypothetical purchase price allocation. ASU addresses the classification of certain specific cash flow issues including debt prepayment or extinguishment costs, settlement of certain debt instruments, contingent consideration payments made after a business combination, proceeds from the settlement of certain insurance claims and distributions received from equity method investees. This ASU2017-04 is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, ~~2017,~~2019, and should be applied on a prospective basis. Early adoption is permitted for interim ~~periods within those fiscal years, with early~~or annual goodwill impairment tests performed on testing dates after January 1, 2017. The adoption ~~permitted. An entity that elects early adoption must adopt all~~ of this guidance is not expected to have a material impact on the ~~amendments in the same period. The Company is currently evaluating the impact it may have on its~~Company’s consolidated financial statements.

In May 2017, the FASB issued ASU No. 2017-09, ~~Compensation – Stock Compensation: Scope~~“Modification Accounting for Share-Based Payment Arrangements”, which amends the scope of ~~Modification Accounting.~~modification accounting for share-based payment arrangements. The ASU provides guidance ~~clarifies when~~on the types of changes to the terms or conditions of a share-based payment ~~award must~~awards to which an entity would be ~~accounted for as modifications. Entities will~~required to apply ~~the~~ modification accounting ~~guidance~~under ASC 718. Specifically, an entity would not apply modification accounting if the fair value, vesting conditions, orand classification of the ~~award changes. This guidance~~awards are the same immediately before and after the modification. The ASU is effective for annual reporting periods, including interim periods within those annual reporting periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period. Effective January 1, 2018, the Company adopted ASU No. 2017-09 and it had no material impact on the Company’s consolidated financial statements.

On December 22, 2017 the SEC staff issued Staff Accounting Bulletin 118 (“SAB 118”), which provides guidance on accounting for the tax effects of the Tax Cuts and Jobs Act (the TCJA). SAB 118 provides a measurement period that should not extend beyond one year from the enactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the TCJA for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the TCJA is incomplete but for which they are able to determine a reasonable estimate, it must record a provisional amount in the financial statements. Provisional treatment is proper in light of anticipated additional guidance from various taxing authorities, the SEC, the FASB, and even the Joint Committee on Taxation. If a company cannot determine a provisional amount to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the TCJA. The Company has applied this guidance to its consolidated financial statements.

In February 2018, the FASB issued ASU 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220)—Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. This update was issued to address the income tax accounting treatment of the stranded tax effects within other comprehensive income due to the prohibition of backward tracing due to an income tax rate change that was initially recorded in other comprehensive income. This issue came about from the enactment of the Tax Cuts and Jobs Ac t on December 22, 2017, which changed the Company’s income tax rate from 35% to 21%. The ASU changed current accounting whereby an entity may elect to reclassify the stranded tax effect from accumulated other comprehensive income to retained earnings. The ASU is effective for periods beginning after December 15, 2018, although early adoption is permitted. The Company ~~is currently evaluating~~does not anticipate that the adoption of this ASU will have a material impact ~~it may have~~ on its consolidated financial statements.

In March 2018, the FASB issued ASU No. 2018-05 (“ASU 2018-05), Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118. This standard amends ASC 740, Income Taxes, to provide guidance on accounting for tax effects of the Tax Cuts and Jobs Act (the “Tax Act”) pursuant to Staff Accounting Bulletin No. 118, which allows companies to complete the accounting under ASC 740 within one-year measurement period from the Tax Act enactment date. This standard is effective upon issuance. The Company has decided to follow the guidance provided by ASU 2018-05 and will leave the one-year measurement period open to evaluate the impact of the Tax Act.

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 EXPENSES AND OTHER~~ACQUISITION

~~At September 30,~~The Company accounts for acquisition using the acquisition method of accounting, whereby the results of operations are included in the financial statements from the date of acquisition. The purchase price is allocated to the acquired assets and assumed liabilities based on their estimated fair values at the date of acquisition, and any excess is allocated to goodwill.

Effective October 25, 2017, pursuant to the Stock Purchase Agreement as discussed in elsewhere in this report, the Company’s majority owned subsidiary, GenExosome, acquired 100% of Beijing GenExosome.

In according to the acquisition, Beijing GenExosome’s assets and liabilities were recorded at their fair values as of the effective date, October 25, 2017, and ~~December 31, 2016, prepaid expenses and other consisted~~the results of operations of Beijing GenExosome are consolidated with results of operations of the ~~following:~~Company, starting on October 25, 2017.

September 30, 2017 December 31, 2016
Prepayment for acquisition of real property $ — $ 700,000
Other 36,414 49,796
$ 36,414 $ 749,796

AVALON GLOBOCARE CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
~~SEPTEMBER~~JUNE 30, ~~2017~~2018

NOTE 4 – ACQUISITION (continued)

The following unaudited pro forma consolidated results of operations have been prepared as if the acquisition of Beijing GenExosome had occurred as of the beginning of the following periods:

	Three Months			Six Months
	Ended			Ended
	June 30, 2017			June 30, 2017
Net revenues	$	374,751		$	441,037
Net loss	$	(441,384	)	$	(1,497,762	)
Net loss attributable to Avalon GloboCare Corp. common shareholders	$	(437,034	)	$	(1,490,116	)
Net loss per share	$	(0.01	)	$	(0.02	)

Pro forma data does not purport to be indicative of the results that would have been obtained had these events actually occurred at the beginning of the periods presented and is not intended to be a projection of future results.

NOTE 5 –INVENTORY

At June 30, 2018 and December 31, 2017, inventory consisted of the following:

	June 30, 2018		December 31, 2017
Raw material	$	20,479	$	2,667
Work-in-process		1,570		—
		22,049		2,667
Less: reserve for obsolete inventory		—		—
	$	22,049	$	2,667

NOTE 6 – PREPAID EXPENSES AND OTHER CURRENT ASSETS

At June 30, 2018 and December 31, 2017, prepaid expenses and other current assets consisted of the following:

	June 30, 2018		December 31, 2017
Prepaid professional fees	$	638,133	$	65,000
Prepaid dues and subscriptions		4,169		49,167
Other		65,623		35,546
	$	707,925	$	149,713

NOTE 7 – PREPAYMENT FOR LONG-TERM ASSETS

At June 30, 2018 and December 31, 2017, prepayment for long-term assets consisted of the following:

	June 30, 2018		December 31, 2017
Prepayment for manufacturing equipment purchased	$	67,044	$	153,688
	$	67,044	$	153,688

AVALON GLOBOCARE CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2018

NOTE 8 –PROPERTY ~~PLANT~~ AND EQUIPMENT

At ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, property ~~plant~~ and equipment consisted of the following:

	Useful life	September 30, 2017			December 31, 2016			Useful life	June 30, 2018			December 31, 2017
Office equipment	3 – 10 Years	$	27,966		$	320
Laboratory equipment								5 Years	$	118,887		$	3,685
Office equipment and furniture								3 – 10 Years		31,546			31,440
Leasehold improvement	1.75 Years		24,009			—		Shorter of useful life or lease term		24,122			24,551
			51,975			320				174,555			59,676
Less: accumulated depreciation			(5,610	)		(25	)			(31,329	)		(11,647	)
		$	46,365		$	295			$	143,226		$	48,029

For the three ~~and nine~~ months ended ~~September~~June 30, 2018 and 2017, depreciation expense of property and equipment amounted to ~~$4,256~~$10,897 and ~~$5,469,~~$1,187, respectively, of which, ~~$502~~$819 and ~~$502~~$0 was included in real property operating expenses, $5,864 and ~~$3,754~~$0 was included in costs of development services and ~~$4,967~~sales of developed products, and $4,214 and $1,187 was included in other operating expenses, respectively.

For the ~~three and nine~~six months ended ~~September~~June 30, ~~2016, the Company did not have any~~2018 and 2017, depreciation ~~expense.~~expense of property and equipment amounted to $20,578 and $1,213, respectively, of which, $1,638 and $0 was included in real property operating expenses, $9,632 and $0 was included in costs of development services and sales of developed products, and $9,308 and $1,213 was included in other operating expenses, respectively.

NOTE 69 –INVESTMENT IN REAL ESTATE

At ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, investment in real estate consisted of the following:

	Useful life	September 30, 2017			December 31, 2016		Useful life	June 30, 2018			December 31, 2017
Commercial real property	39 Years	$	7,708,571		$	—
Commercial real property building							39 Years	$	7,708,571		$	7,708,571
Improvement							12 Years		165,155			—
									7,873,726			7,708,571
Less: accumulated depreciation			(53,009	)		—			(148,425	)		(84,814	)
		$	7,655,562		$	—		$	7,725,301		$	7,623,757

For the three ~~and nine~~ months ended ~~September~~June 30, 2018 and 2017, depreciation expense of this commercial real property amounted to ~~$20,066~~$31,806 and ~~$53,009, respectively,~~$32,943, which was included in real property operating expenses.

For the six months ended June 30, 2018 and 2017, depreciation expense of this commercial real property amounted to $63,611 and $32,943, which was included in real property operating expenses.

NOTE 10 –INTANGIBLE ASSETS

At June 30, 2018 and December 31, 2017, intangible assets consisted of the following:

	Useful Life	June 30, 2018			December 31, 2017
Patents and other technologies	5 Years	$	1,583,260		$	2,593,478
Goodwill			—			397,569
Less: accumulated amortization			(163,786	)		(86,449	)
Less: impairment loss			—			(1,321,338	)
		$	1,419,474		$	1,583,260

For the three months ended June 30, 2018 and 2017, amortization expense amounted to $81,893 and $0, respectively. For the six months ended June 30, 2018 and 2017, amortization expense amounted to $163,786 and $0, respectively.

AVALON GLOBOCARE CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2018

NOTE 10 –INTANGIBLE ASSETS (continued)

Amortization of intangible assets attributable to future periods is as follows:

Twelve-month periods ending June 30:	Amortization amount
2019	$	327,571
2020		327,571
2021		327,571
2022		327,571
2023		109,190
	$	1,419,474

NOTE 711 –ACCRUED LIABILITIES AND OTHER PAYABLES

At ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, accrued liabilities and other payables consisted of the following:

	September 30, 2017		December 31, 2016		June 30, 2018		December 31, 2017
Accrued professional fees	$	239,927	$	14,080	$	151,825	$	82,913
Accrued interest		94,932		—
Commercial real property building improvement payable						43,136		—
Accrued dues and subscriptions						25,000		—
Accrued payroll liability						6,649		6,767
Other		8,143		8,254		73,178		34,384
	$	343,002	$	22,334	$	299,788	$	124,064

NOTE 812 –LOAN PAYABLE

On April 19, 2017, the Company entered into a loan agreement, providing for the issuance of a loan in the principal amount of $2,100,000. The term of the loan is one year. On May 3, 2018, the Company signed an extension agreement with the maturity date of March 31, 2019. The annual interest rate for the loan is 10%. The loan is guaranteed by the Company’s Chairman, Mr. Wenzhao Lu. ~~At September~~The Company repaid principal of $600,000 and $500,000 in November 2017 and in April 2018, respectively.

As of June 30, ~~2017,~~2018, the outstanding principal balance of the loan and related accrued and unpaid interest for the loan was ~~$2,100,000~~$1,000,000 and ~~$94,932,~~$24,931, respectively.

~~AVALON GLOBOCARE CORP. AND SUBSIDIARIES~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~SEPTEMBER 30, 2017~~

On August 3, 2018, the Company signed an extension agreement for the loan with the maturity date of March 31, 2020 (See Note 22 –Loan Payable).

NOTE 913 –VAT AND OTHER TAXES PAYABLE

At ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, VAT and other taxes payable consisted of the following:

	September 30, 2017		December 31, 2016		June 30, 2018		December 31, 2017
VAT tax payable	$	—	$	8,768
VAT payable					$	7,848	$	819
Other taxes payable		2,091		2,502		4,668		2,178
	$	2,091	$	11,270	$	12,516	$	2,997

AVALON GLOBOCARE CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2018

NOTE 1014 –RELATED PARTY TRANSACTIONS

Medical Related Consulting Services Revenue from ~~related parties~~Related Parties and ~~accounts receivable~~Accounts Receivable – ~~related parties~~Related Party

During the three and ~~nine~~six months ended ~~September~~June 30, 2018 and 2017, ~~and 2016,~~medical related consulting services revenue from related parties was as follows:

									Three Months		Three Months		Six Months		Six Months
	Three Months Ended September 30,				Nine Months Ended September 30,				Ended		Ended		Ended		Ended
	2017		2016		2017		2016		June 30, 2018		June 30, 2017		June 30, 2018		June 30, 2017
Medical related consulting services provided to:
Beijing Nanshan (1)	$	2,166	$	108,333	$	154,663	$	108,333

Beijing Daopei (1)									$	141,996	$	—	$	141,996	$	—
Shanghai Daopei (2)		—		125,001		66,286		125,001		—		—		—		66,286
Hebei Yanda (3)		—		93,333		—		93,333
Beijing Nanshan (3)										—		152,497		—		152,497
	$	2,166	$	326,667	$	220,949	$	326,667	$	141,996	$	152,497	$	141,996	$	218,783

(1)

Beijing ~~Nanshan~~Daopei is a subsidiary of an entity whose chairman is Wenzhao Lu, the ~~major~~largest shareholder of the Company.

(2)

Shanghai Daopei is a subsidiary of an entity whose chairman is Wenzhao Lu, the ~~major~~largest shareholder of the Company.

(3)

~~Hebei Yanda~~Beijing Nanshan is a subsidiary of an entity whose chairman is Wenzhao Lu, the ~~major~~largest shareholder of the Company.

Accounts receivable – related ~~parties,~~party, net of allowance for doubtful accounts, at ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016~~2017 amounted to ~~$166,874~~$144,779 and ~~$70,228,~~$0, respectively, and were related to consulting services provided to Beijing Nanshan and Shanghai Daopei, two Chinese entities whose chairman is Wenzhao Lu, the major shareholder of the Company. Management believes that the accounts receivable are fully collectable. Therefore, no allowance for doubtful accounts is deemed to be required on ~~its~~ accounts receivable – related ~~parties~~party at ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016.~~2017.

Accrued ~~liabilities~~Liabilities and ~~other payables~~Other Payables – ~~related parties~~Related Parties

At ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, the Company owed David Jin, its shareholder, chief executive officer, president and board member, of ~~$19,420~~$21,563 and ~~$6,278,~~$15,387, respectively, for travel and other miscellaneous reimbursements, which have been included in accrued liabilities and other payable – related parties on the accompanying condensed consolidated balance sheets.

At ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, the Company owed Yu Zhou, co-chief executive officer of GenExosome, of $14,254 and $24,540, respectively, for accrued payroll, travel and other miscellaneous reimbursements, which have been included in accrued liabilities and other payable – related parties on the accompanying condensed consolidated balance sheets.

At June 30, 2018 and December 31, 2017, the Company owed Meng Li, its shareholder and chief operating officer, of $12,145 and ~~board member, of $2,214 and $309,~~$0, respectively, for travel and other miscellaneous reimbursements, which have been included in accrued liabilities and other payables – related parties on the accompanying condensed consolidated balance sheets.

On October 17, 2016, the Company entered into a lease for office space in New Jersey with a related party (the “AHS Office Lease”). Pursuant to the AHS Office Lease, the monthly rent was $1,000. The AHS Office Lease was terminated in August 2017. As of SeptemberAt June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, the ~~accrued~~Company owed Luisa Ingargiola, its chief financial officer, of $732 and ~~unpaid rent expense related to this AHS Office Lease amounted to $10,000 and $2,000,~~$0, respectively, for travel reimbursement, which ~~was~~have been included in accrued liabilities and other payables – related parties on the accompanying condensed consolidated balance sheets.

Due to Related Party

In connection with the acquisition discussed elsewhere in this report, the Company acquired Beijing GenExosome in cash payment of $450,000, which will be paid upon Beijing GenExosome recording the change in ownership with the Ministry of Commerce of the People’s Republic of China in accordance with the Interim Measures for Record Management regarding the Establishment and Change of Foreign-invested Enterprises (revised). On October 25, 2017, Dr. Yu Zhou, the former sole shareholder of Beijing GenExosome, was appointed to the board of directors of GenExosome and served as co-chief executive officer of GenExosome. As of June 30, 2018 and December 31, 2017, the unpaid acquisition consideration of $450,000 was payable to Dr. Yu Zhou, co-chief executive officer and board member of GenExosome, and reflected as due to related party on the accompanying condensed consolidated balance sheets.

AVALON GLOBOCARE CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
~~SEPTEMBER~~JUNE 30, ~~2017~~2018

NOTE 1014 –RELATED PARTY TRANSACTIONS (continued)

~~Due to related parties~~

From time to time, David Jin, shareholder, chief executive officer, president and board member of the Company, provided advances to the Company to supplement its working capital needs. Those advances are short-term in nature, non-interest bearing, unsecured and payable on demand. During the nine months ended September 30, 2017, the Company repaid $500 working capital advance to David Jin. As of September 30, 2017 and December 31, 2016, the working capital advance balance was $0 and $500, respectively, which was reflected as due to related parties on the accompanying consolidated balance sheets.

From time to time, Meng Li, shareholder, chief operating officer and board member of the Company, provided advances to the Company to supplement its working capital needs. Those advances are short-term in nature, non-interest bearing, unsecured and payable on demand. The working capital advance of $87,650 at September 30, 2017 and December 31, 2016, was reflected as due to related parties on the accompanying consolidated balance sheets.

From time to time, Wenzhao Lu, major shareholder and chairman of the Board of Directors of the Company, provided advances to the Company to supplement its working capital needs. Those advances are short-term in nature, non-interest bearing, unsecured and payable on demand. The working capital advance of $29,000 and $9,000, respectively, at September 30, 2017 and December 31, 2016, was reflected as due to related parties on the accompanying consolidated balance sheets.

During the nine months ended September 30, 2017, the Company received advance from a company, which is controlled by Wenzhao Lu, the Company’s major shareholder and chairman of the Board of Directors of the Company, of $190,000 for general working capital purpose. The advance is unsecured, non-interest bearing and repayable on demand. The working capital advance of $190,000 at September 30, 2017 was reflected as due to related parties on the accompanying consolidated balance sheets.

~~Operating lease~~

On October 17, 2016, AHS entered into a lease for office space in New Jersey with a related party (the “AHS Office Lease”). Pursuant to the AHS Office Lease, the monthly rent is $1,000. The AHS Office Lease was terminated in August 2017. For the three and nine months ended September 30, 2017, rent expense related to the AHS Office Lease amounted to $2,000 and $8,000, respectively.

Real ~~property management agreement~~Property Management Agreement

The Company pays a company, which is controlled by Wenzhao Lu, the Company’s ~~major~~largest shareholder and chairman of the Board of Directors, for the management of its commercial real property located in New Jersey. The monthly property management fee is $5,417. The term of the property management agreement is two years commencing on May 5, 2017 and will expire on May 4, 2019. For the three ~~and nine~~ months ended ~~September~~June 30, 2018 and 2017, the management fee related to the property management agreement amounted to $16,251 and ~~$27,085,~~$10,834, respectively. For the six months ended June 30, 2018 and 2017, the management fee related to the property management agreement amounted to $32,502 and $10,834, respectively.

NOTE 1115 –~~STOCKHOLDERS’~~ EQUITY

Shares ~~authorized~~Authorized

The Company is authorized to issue 10,000,000 shares of preferred stock and 490,000,000 shares of common shares with a par value of ~~$0.0001.~~$0.0001 per share.

There are no shares of its preferred stock issued and outstanding as of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016.~~2017.

There are ~~64,628,622~~73,560,622 and ~~61,628,622~~70,278,622 shares of its common stock issued as of June 30, 2018 and December 31, 2017, respectively.

There are 73,040,622 and 70,278,622 shares of its common stock outstanding as of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, respectively.

Treasury Stock

The Company records treasury stock using the cost method. On March 27, 2018, the Company repurchased 520,000 shares of its common stock from a third party through a privately negotiated transaction at an aggregate price of $522,500, of which $2,500 was paid to an escrow agent as share repurchase cost.

Common Shares Sold for Cash

During the second quarter of 2018, the Company sold 3,107,000 shares of common stock at $1.75 per share to four investors pursuant to subscription agreements. The Company received net cash proceeds of $5,056,643, net of cash fee paid to an investment banking firm of $380,607. In connection with this private offering, the Company issued a total of 218,391 stock warrants to the placement agent for the transaction. Among these warrants, 151,235 warrants with a fixed exercise price of $1.62 per share, 5,960 warrants with a fixed exercise price of $1.85 per share, 36,750 warrants with a fixed exercise price of $1.90 per share, 24,446 warrants with a fixed exercise price of $2.24 per share. These warrants are exercisable at any time for a five-year period.

The offer, sale and issuance of the above securities was made to accredited investors and the Company relied upon the exemptions contained in Section 4(a)(2) of the Securities Act and/or Rule 506 of Regulation D promulgated there under with regard to the sale. No advertising or general solicitation was employed in offering the securities. The offer and sales were made to accredited investors and transfer of the common stock issued was restricted by the Company in accordance with the requirements of the Securities Act of 1933, as amended.The accredited investors acknowledged that they were not aware of nor did it review any registration statement or prospectus filed by the Company with the SEC.

Common Shares Issued for Services

During the six months ended June 30, 2018, pursuant to consulting agreements, the Company issued an aggregate of 175,000 shares of common stock to 3 consulting companies for the services rendered and to be rendered. These shares were valued at $467,000, 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 $61,750 for the three and six months ended June 30, 2018 and recorded prepaid expense of $405,250 as of June 30, 2018 which will be amortized over the rest of corresponding service periods.

AVALON GLOBOCARE CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
~~SEPTEMBER~~JUNE 30, ~~2017~~2018

NOTE 1115 –~~STOCKHOLDERS’~~ EQUITY (continued)

Common ~~shares issued~~Shares Issued for Share Subscription Agreement

On March 3, 2017, the Company entered into and closed a Subscription Agreement with an accredited investor (the “March 2017 Accredited Investor”) pursuant to which the March 2017 Accredited Investor purchased 3,000,000 shares of the Company’s common stock (“March 2017 Shares”) for a purchase price of $3,000,000 (the “Purchase Price”).

The offer, sale and issuance of the above securities was made to an accredited investor and the Company relied upon the exemptions contained in Section ~~4(2)~~4(a)(2) of the Securities Act and/or Rule 506 of Regulation D promulgated there under with regard to the sale. No advertising or general solicitation was employed in offering the securities. The offer and sale was made to an accredited investor and transfer of the common stock issued was restricted by the Company in accordance with the requirements of the Securities Act of 1933, as amended.

The Company, Avalon (Shanghai) Healthcare Technology Co., Ltd. (“Avalon Shanghai”), Beijing DOING Biomedical Technology Co., Ltd. (“DOING”), who is an unaffiliated third party, and the March 2017 Accredited Investor entered into a Share Subscription Agreement whereby the parties acknowledged, among other things, that DOING agreed to transfer the Purchase Price to Avalon Shanghai on behalf of the March 2017 Accredited Investor and the March 2017 Accredited Investor agreed to transfer the March 2017 Shares to DOING upon DOING completing the registration of the acquisition of the March 2017 Shares with the Beijing Commerce Commission (“BCC”) and obtaining an Enterprise Overseas Investment Certificate (the “Investment Certificate”) from BCC. If DOING fails to complete the registration and acquire the Investment Certificate within one year of the closing then Avalon Shanghai shall transfer $3,000,000 with an annual interest of 20% to DOING upon the request of DOING (the “BCC Repayment Obligation”). As of the date hereof, the Company is obligated to DOING in the principal amount of $3,000,000. The BCC Repayment Obligation is a debt obligation arising other than in the ordinary course of business, which constitutes a direct financial obligation of the Company. Further, Wenzhao Lu, a director and shareholder of the Company, and DOING entered into a Warranty Agreement. Pursuant to the Warranty Agreement, Mr. Lu agreed to (i) cause the Company to be liable to DOING in the event the March 2017 Accredited Investor defaults in its obligations to DOING, (ii) cause the March 2017 Accredited Investor to transfer the March 2017 Shares to DOING upon DOING’s receipt of the Investment Certificate from BCC, (iii) within three years from the date of the Warranty Agreement, DOING may require Mr. Lu to acquire the March 2017 Shares at $1.20 per share upon three-month notice, and (iv) in the event Mr. Lu does not acquire the March 2017 Shares within the three-month period, interest of 15% per annum will be added to the purchase price.

On April 23, 2018, the Company, Avalon Shanghai, DOING and March 2017 Accredited Investor entered into a Supplementary Agreement Related to Share Subscription pursuant to which Avalon Shanghai agreed to pay RMB 8,256,000 (approximately $1.3 million based on the exchange rate on April 23, 2018) to DOING representing one-third of the DOING Investment plus 20% interest for the one-third DOING Investment resulting in a reduction in the March 2017 Shares by one-third to 2,000,000 shares. Further, the parties agreed that the BCC Repayment Obligation shall be extended to July 31, 2018 at which time DOING may require that the Company pay $2,000,000 plus 20% interest to DOING resulting in the cancellation of the remaining March 2017 Shares. However, DOING may, in its discretion, require that the remaining March 2017 Shares be transferred to a new nominal holder who shall pay the required subscription price, which funds will, in turn, be used to satisfy the BCC Repayment Obligation. The $1 million BCC Repayment Obligation and related interest was paid in full in May 2018.

As of June 30, 2018, the Company is obligated to DOING in the remaining principal amount of $2,000,000. The BCC Repayment Obligation is a debt obligation arising other than in the ordinary course of business, which constitutes a direct financial obligation of the Company. The Company ~~received cash payment~~recorded the $2,000,000 as refundable deposit as of ~~$3,000,000 as~~June 30, 2018 on the accompanying consolidated balance sheets, which was an earnest money from DOING in connection with the ~~3,000,000~~2,000,000 common stock issued to the March 2017 Accredited Investor who is an entrusted party that holds the shares on behalf of DOING and recorded the $3,000,000 as refundable deposit on the accompanying condensed consolidated balance sheets. Upon DOING completing the registration of the acquisition of the March 2017 Shares with the BCC and obtaining an Enterprise Overseas Investment Certificate from BCC, the Company will cancel the stock certificate issued under the March 2017 Accredited Investor’s name as an entrusted holder of the shares and the Company will issue a new stock certificate under DOING’s name. The $3,000,000 refundable deposit, which paid by DOING as an earnest money will be applied as the proceeds for issuance of the 3,000,000 shares of the Company’s common stock under DOING’s name at the closing date.DOING.

~~The~~As of June 30, 2018 the Company is subject to the contingency of paying interest liability for the remaining $2,000,000 BCC Repayment Obligation upon the request of ~~DOING if DOING fails to complete the registration and obtain the Enterprise Overseas Investment Certificate within one year.~~DOING. The Company records accrual for such contingency based upon the assessment of the probability of occurrence and, where determinable, an estimate of the liability. Management may consider many factors in making these assessments including past history and the specifics of this matter. The Company did not accrue any interest for the remaining $2,000,000BCC Repayment Obligation sincemanagement has evaluated the claim and concluded the likelihood of the claim is remote.

~~Options~~

~~During~~On August 8, 2018, DOING and the ~~nine months ended September 30,~~March 2017 Accredited Investor sold the remaining 2,000,000 shares of common stock to a third party in consideration of $2,000,000. Therefore, the BCC Repayment Obligation was satisfied in full and the Company granted a total of 444,448 options to the Company’s Chief Financial Officer (“CFO”) at a fixed exercise price of $0.50 per share and granted a total of 40,000 options to the Company’s two directors at a fixed exercise price of $1.49 per share. The 444,448 options granted to the Company’s CFO are exercisablehas no further obligation for ~~ten years~~DOING and the 40,000 options granted to the Company’s two directors are exercisable for five years. The fair value of the options was $602,224 which was determined using the Black-Scholes option-pricing model and using the following assumptions:March 2017 Accredited Investor (See Note 22 –DOING Biomedical Technology Co., Ltd. Investment)

AVALON GLOBOCARE CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
~~SEPTEMBER~~JUNE 30, ~~2017~~2018

NOTE 1115 –~~STOCKHOLDERS’~~ EQUITY (continued)

Options ~~(continued)~~

~~Dividend rate~~	0
~~Terms (in years)~~	~~5.0-10.0~~
~~Volatility~~	~~327.82% to 534.84%~~
~~Risk-free interest rate~~	~~1.88% to 2.40%~~

In connection with the option grant, for the three and nine months ended September 30, 2017, the Company recognized stock-based compensation of $335,757 and $602,224, respectively, on the accompanying condensed consolidated statements of operations because the options were deemed fully earned and non-cancellable on the grant date. Stock Option activities for the nine months ended September 30, 2017 were as follows:

Number of Options Weighted Average Exercise Price
Balance at December 31, 2016 — $ —
Granted 484,448 0.58
Exercised — —
Balance at September 30, 2017 484,448 0.58
Option exercisable at September 30, 2017 484,448 $ 0.58

~~The total intrinsic value of the stock options outstanding and exercisable at September 30, 2017 was $1,098,853.~~

The following table summarizes the shares of the Company’s common stock issuable upon exercise of options outstanding at ~~September~~June 30, ~~2017:~~2018:

Options Outstanding									Options Outstanding							Options Exercisable
Range of Exercise Price									Range of Exercise Price	Number Outstanding at June 30, 2018		Range of Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price		Number Exercisable at June 30, 2018		Weighted Average Exercise Price
$									0.50		2,000,000		8.62	$	0.50		944,444	$	0.50
									1.49		60,000		3.83		1.49		60,000		1.49
									1.00		230,000		2.77		1.00		210,000		1.00
									2.50		120,000		4.51		2.50		60,000		2.50
	Options Outstanding					Options Exercisable			1.00		180,000		2.84		1.00		0		1.00
	Range of Exercise Price	Number Outstanding at September 30, 2017	Range of Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price	Number Exercisable at September 30, 2017		Weighted Average Exercise Price	2.30		20,000		4.93		2.30		10,000		2.30
$	0.50	444,448	9.71	$	0.50	444,448	$	0.50	0.50–2.50		2,610,000		7.38	$	0.71		1,284,444	$	0.74
	1.49	40,000	4.63		1.49	40,000		1.49
$	0.50–1.49	484,448	9.29	$	0.58	484,448	$	0.58

Stock options granted to employee and director

Employee and director stock option activities for the six months ended June 30, 2018 were as follows:

	Number of Options		Weighted Average Exercise Price
Outstanding at December 31, 2017		2,110,000	$	0.54
Granted		140,000		2.47
Exercised		—		—
Outstanding at June 30, 2018		2,250,000		0.66
Options exercisable at June 30, 2018		1,104,444	$	0.69
Options expected to vest		1,145,556	$	0.63

The fair values of these options granted to employee and director during the six months ended June 30, 2018 were estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions:

Dividend rate	0
Terms (in years)	5.0
Volatility	175.94 - 185.28%
Risk-free interest rate	2.25% - 2.78%

The aggregate fair value of the options granted to employee and director during the six months ended June 30, 2018 was $337,523, of which, for the three and six months ended June 30, 2018, $79,193 and $151,480, respectively, has been reflected as compensation and related benefits on the accompanying unaudited condensed consolidated statements of operations because the options were fully earned and non-cancellable.

As of June 30, 2018, the aggregate value of nonvested employee and director options was $1,575,471, which will be amortized as stock-based compensation expense as the options are vesting, over the remaining 1.58 years.

The aggregate intrinsic values of the employee and director stock options outstanding and the employee and director stock options exercisable at June 30, 2018 was $4,702,100 and $2,272,599, respectively.

AVALON GLOBOCARE CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2018

NOTE 15 –EQUITY (continued)

Options (continued)

Stock options granted to employee and director (continued)

A summary of the status of the Company’s nonvested employee and director stock options granted as of June 30, 2018 and changes during the six months ended June 30, 2018 is presented below:

	Number of Options			Weighted Average Exercise Price			Grant Date Fair Value
Nonvested at December 31, 2017		1,428,889		$	0.51		$	1,876,079
Granted		140,000			2.47			337,523
Vested		(423,333	)		(0.85	)		(638,131	)
Forfeited		—			—			—
Nonvested at June 30, 2018		1,145,556		$	0.63		$	1,575,471

Stock options granted to non-employee

Non-employee stock option activities for the six months ended June 30, 2018 were as follows:

	Number of Options		Weighted Average Exercise Price
Outstanding at December 31, 2017		180,000	$	1.00
Granted		180,000		1.00
Exercised		—		—
Outstanding at June 30, 2018		360,000		1.00
Options exercisable at June 30, 2018		180,000	$	1.00
Options expected to vest		180,000	$	1.00

Stock-based compensation expense associated with stock options granted to non-employee is recognized as the stock options vest. The stock-based compensation expense related to non-employee will fluctuate as the fair value of the Company’s common stock fluctuates. Stock-based compensation expense associated with stock options granted to non-employee amounted to $172,305 and $383,042 for the three and six months ended June 30, 2018, respectively.

The fair values of these non-employee options vested in the six months ended June 30, 2018 and nonvested non-employee options as of June 30, 2018 were estimated using the Black-Scholes option-pricing model with the following assumptions:

Dividend rate	0
Terms (in years)	2.51 - 3.0
Volatility	172.87% - 188.29%
Risk-free interest rate	2.29% - 2.66%

As of June 30, 2018, the aggregate value of nonvested non-employee options was $303,319, which will be amortized as stock-based compensation expense over the remaining 0.33 years. The aggregate intrinsic values of the non-employee stock options outstanding and the non-employee stock options exercisable at June 30, 2018 was $630,000 and $315,000, respectively.

AVALON GLOBOCARE CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2018

NOTE 15 –EQUITY (continued)

Options (continued)

Stock options granted to non-employee (continued)

A summary of the status of the Company’s nonvested non-employee stock options granted as of June 30, 2018 and changes during the six months ended June 30, 2018 is presented below:

	Number of Options			Weighted Average Exercise Price			Fair Value at June 30, 2018
Nonvested at December 31, 2017		180,000		$	1.00
Granted		180,000			1.00
Vested		(180,000	)		(1.00	)
Forfeited		—			—
Nonvested at June 30, 2018		180,000		$	1.00		$	454,979

Warrants

In connection with equity raise, the Company issued a total of 578,891 stock warrants at various fixed exercise price to an investment banking firm. These warrants are exercisable at any time for a five-year period. The fair value of these warrants was debited to the account of additional paid-in capital and was fully offset by the corresponding credit to the additional paid-in capital, resulting in no change in net equity of the balance sheet.

Stock warrants activities during the six months ended June 30, 2018 were as follows:

	Number of Warrants		Weighted Average Exercise Price
Outstanding at December 31, 2017		—	$	—
Issued		578,891		1.28
Exercised		—		—
Outstanding and exercisable at June 30, 2018		578,891		1.28

The aggregate intrinsic value of the warrants outstanding and exercisable at June 30, 2018 was $850,840.

The following table summarizes the shares of the Company’s common stock issuable upon exercise of warrants outstanding and exercisable at June 30, 2018:

Warrants Outstanding and Exercisable
Range of Exercise Price		Number Outstanding at June 30, 2018		Range of Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price
$	1.00		360,500		4.75	$	1.00
	1.62		151,235		4.81		1.62
	1.85		5,960		4.82		1.85
	1.90		36,750		4.85		1.90
	2.24		24,446		4.90		2.24
$	1.00–2.24		578,891		4.78	$	1.28

NOTE 1216 -STATUTORY RESERVE

Avalon Shanghai ~~operates~~and Beijing GenExosome operate in the PRC, are required to reserve 10% of ~~its~~their net profit after income tax, as determined in accordance with the PRC accounting rules and regulations. Appropriation to the statutory reserve by the Company is based on profit arrived at under PRC accounting standards for business enterprises for each year.

The profit arrived at must be set off against any accumulated losses sustained by the Company in prior years, before allocation is made to the statutory reserve. Appropriation to the statutory reserve must be made before distribution of dividends to shareholders. The appropriation is required until the statutory reserve reaches 50% of the registered capital. This statutory reserve is not distributable in the form of cash dividends.The Company did not make any appropriation to statutory reserve for Avalon Shanghai and Beijing GenExosome during the ~~nine~~six months ended ~~September~~June 30, ~~2017 since it~~2018 as they incurred ~~a loss~~net losses in the period.

AVALON GLOBOCARE CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
~~SEPTEMBER~~JUNE 30, 2018

NOTE 17 -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 and six months ended June 30, 2018 and 2017.

	Three Months			Three Months			Six Months			Six Months
	Ended			Ended			Ended			Ended
Customer	June 30, 2018			June 30, 2017			June 30, 2018			June 30, 2017
A (Beijing Daopei, a related party)		29	%		*			18	%		*
B (Beijing Nanshan, a related party)		0	%		41	%		0	%		35	%
C (Shanghai Daopei, a related party)		0	%		*			0	%		15	%
D		16	%		14	%		20	%		12	%
E		11	%		*			13	%		*
F		*			*			11	%		*

*Less than 10%

Two customers, whose outstanding receivable accounted for 10% or more of the Company’s total outstanding accounts receivable and accounts receivable – related party and tenants receivable at June 30, 2018, accounted for 74.9% of the Company’s total outstanding accounts receivable and accounts receivable – related party and tenants receivable at June 30, 2018.

Two customers, whose outstanding receivable accounted for 10% or more of the Company’s total outstanding accounts receivable and tenants receivable at December 31, 2017, accounted for 48.9% of the Company’s total outstanding accounts receivable and tenants receivable at December 31, 2017.

Suppliers

No supplier accounted for 10% or more of the Company’s purchase during the three and six months ended June 30, 2018 and 2017.

One supplier accounted for 100% of the Company’s total outstanding accounts payable at June 30, 2018.

One supplier accounted for 100% of the Company’s total outstanding accounts payable at December 31, 2017.

Concentrations of Credit Risk

At June 30, 2018 and December 31, 2017, cash balances in the PRC are $1,318,799 and $1,327,009, respectively, are uninsured. The Company has not experienced any losses in PRC bank accounts and believes it is not exposed to any risks on its cash in PRC bank accounts.

The Company maintains its cash in United States bank and financial institution deposits that at times may exceed federally insured limits. At June 30, 2018 and December 31, 2017, the Company’s cash balances in United States bank accounts had approximately $1,507,000 and $1,162,000 in excess of the federally-insured limits, respectively. The Company has not experienced any losses in its United States bank accounts through and as of the date of this report.

NOTE 1318 –SEGMENT INFORMATION

For the three and ~~nine~~six months ended ~~September~~June 30, 2018, the Company operated in three reportable business segments - (1) the real property operating segment, (2) the medical related consulting services segment, and (3) the performing development services for hospitals and other customers and sales of developed products to hospitals and other customers segment.For the three and six months ended June 30, 2017, the Company operated in two reportable business segments - (1) the real property operating segment, and (2) the medical related consulting services segment. ~~For the three and nine months ended September 30, 2016, the Company operated in one reportable business segment – the medical related consulting services segment.~~ The Company’s reportable segments are strategic business units that offer different ~~services.~~services and products. They are managed separately based on the fundamental differences in their operations. Information with respect to these reportable business segments for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016~~2017 was as follows:

Three Months Ended
September 30, Nine Months Ended
September 30,
2017 2016 2017 2016
Revenues
Real property operating $ 315,284 $ — $ 537,538 $ —
Medical related consulting services 2,166 326,667 220,949 326,667
317,450 326,667 758,487 326,667
Depreciation
Real property operating 20,568 — 53,511 —
Medical related consulting services 3,754 — 4,967 —
24,322 — 58,478 —
Interest expense
Real property operating 52,932 — 94,932 —
Medical related consulting services — — — —
52,932 — 94,932 —
Net (loss) income
Real property operating (119,782 ) — (121,016 ) —
Medical related consulting services (116,230 ) 207,874 (278,019 ) 102,403
Other (a) (474,717 ) — (1,291,535 ) —
$ (710,729 ) $ 207,874 $ (1,690,570 ) $ 102,403

Identifiable long-lived tangible assets at September 30, 2017 and December 31, 2016 September 30,
2017 December 31,
2016
Real property operating $ 7,677,995 $ —
Medial related consulting services 23,932 295
$ 7,701,927 $ 295

AVALON GLOBOCARE CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2018

Identifiable long-lived tangible assets at September 30, 2017 and December 31, 2016 September 30,
2017 December 31, 2016
United States $ 7,677,995 $ —
China 23,932 295
$ 7,701,927 $ 295

NOTE 18 –SEGMENT INFORMATION (continued)

	Three Months			Three Months			Six Months			Six Months
	Ended			Ended			Ended			Ended
	June 30, 2018			June 30, 2017			June 30, 2018			June 30, 2017
Revenues
Real property operating	$	278,872		$	222,254		$	575,495		$	222,254
Medical related consulting services – related parties		141,996			152,497			141,996			218,783
Development services and sales of developed products		75,225			—			86,515			—
		496,093			374,751			804,006			441,037
Depreciation and amortization
Real property operating		32,625			32,943			65,249			32,943
Medical related consulting services		3,991			1,187			7,997			1,213
Development services and sales of developed products		87,980			—			174,729			—
		124,596			34,130			247,975			34,156
Interest expense
Real property operating		24,932			42,000			261,918			42,000
Medical related consulting services		—			—			—			—
Development services and sales of developed products		—			—			—			—
		24,932			42,000			261,918			42,000
Net income (loss)
Real property operating		5,617			(1,234	)		(232,083	)		(1,234	)
Medical related consulting services		16,456			54,782			(157,018	)		(161,789	)
Development services and sales of developed products		(196,896	)		—			(297,028	)		—
Other (a)		(1,168,992	)		(484,056	)		(2,208,655	)		(816,818	)
	$	(1,343,815	)	$	(430,508	)	$	(2,894,784	)	$	(979,841	)

Identifiable long-lived tangible assets at June 30, 2018 and December 31, 2017	June 30, 2018		December 31, 2017
Real property operating	$	7,745,277	$	7,645,371
Medical related consulting services		12,507		20,558
Development services and sales of developed products		110,743		5,857
	$	7,868,527	$	7,671,786

Identifiable long-lived tangible assets at June 30, 2018 and December 31, 2017	June 30, 2018		December 31, 2017
United States	$	7,746,017	$	7,646,270
China		122,510		25,516
	$	7,868,527	$	7,671,786

(a)

The Company does not allocate any general and administrative expense of its being a public company activities to its reportable segments as these activities are managed at a corporate level.

AVALON GLOBOCARE CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
~~SEPTEMBER~~JUNE 30, ~~2017~~2018

NOTE 19 –NONCONTROLLING INTEREST

As of June 30, 2018, Dr. Yu Zhou, director and Co-Chief Executive Officer of GenExsome, who owned 40% of the equity interests of GenExosome, which is not under the Company’s control. The following is a summary of noncontrolling interest activities in the six months ended June 30, 2018.

	Amount
Noncontrolling interest at December 31, 2017	$	(585,394	)
Net loss attributable to noncontrolling interest		(118,811	)
Foreign currency translation adjustment attributable to noncontrolling interest		41
Noncontrolling interest at June 30, 2018	$	(704,164	)

NOTE 1420 –COMMITMENTS AND CONTINCENGIES

Severance ~~payments~~Payments

The Company has employment agreements with certain employees that provided severance payments upon termination of employment under certain circumstances, as defined in the applicable agreements. The Company has estimated its possible severance payments of approximately ~~$302,000~~$528,900 as of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, which have not been reflected in its condensed consolidated financial statements since the Company concluded that the likelihood is remote at this ~~moment~~.

~~Legal service contract~~

On November 22, 2016, the Company entered into a legal service agreement with a law firm who has agreed to provide legal and corporate advisory services to the Company. The term of this agreement is on a month to month basis. In accordance to this service agreement, the Company pays a flat cash fee of $15,000 per month. At September 30, 2017 and December 31, 2016, the accrued legal service fees related to the service agreement was $60,000 and $10,000, respectively, which was included in accrued liabilities and other payables on the accompanying condensed consolidated balance sheets.

~~Financial consulting service contract~~

On October 17, 2016, the Company entered into a one-year consulting service agreement with a consultant who has agreed to provide financial consulting service to the Company. In accordance with this agreement, the Company pays a flat fee of $4,800 per month commencing on October 20, 2016. On April 19, 2017, the Company renewed the consulting agreement. In accordance with the renewed agreement, the Company pays a flat fee of $10,000 per month commencing on April 19, 2017. At September 30, 2017 and December 31, 2016, the accrued service fees related to the service agreement was $34,000 and $1,600, respectively, which was included in accrued liabilities and other payables on the accompanying condensed consolidated balance sheets.moment.

Real ~~property management agreement~~Property Management Agreement

On June 6, 2017, the Company entered into a two-year real property management agreement with a related party which agreed to provide real property management service to the Company. In accordance with this agreement, the Company pays a flat fee of $5,417 per month commencing on May 5, 2017 ~~(see~~(See Note ~~10 for real property management agreement)~~14 -Real Property Management Agreement).

Underwritten and Financial Advisory Service Agreement

In October 2017, the Company entered into a service agreement with an investment bank with respect to a planned underwritten public offering and NASDAQ listing advisory service. In accordance with this agreement, the Company pays:

Success Fees:

●

Debt Financing: For any debt financing: (i) a Success Fee, payable in cash, equal to 3% of the gross proceeds received by the Company from such closing; plus (ii) warrants in the entity financed, equal to 3% of the gross proceeds received by the Company from such closing, divisible by and exercisable at a strike price equal to 100% of the fair market value of the common stock for the Company as of the date of the closing of the transaction, in whole or in part, at any time within 5 years from issuance.

●

Equity Financing: For any equity investment into the Company: (i) a Success Fee, payable in cash, equal to 7% of the gross proceeds received by the Company from such closing; plus (ii) warrants in the entity financed, equal to 7% of the gross proceeds received by the Company from such closing, divisible by and exercisable at a strike price equal to 100% of the fair market value of the common stock for the Company as of the date of the closing of the transaction, in whole or in part, at any time within 5 years from issuance.

Expenses: The Company agrees to reimburse for all reasonable out-of-pocket invoiced expenses.

Advisory Fees: (i) an initial advisory fee of $30,000 upon the execution of this agreement; plus (ii) an additional advisory fee of $30,000 upon the issuance of a conditional approval letter to list on NASDAQ.

AVALON GLOBOCARE CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2018

NOTE 20 –COMMITMENTS AND CONTINCENGIES (continued)

Education Program Agreement

On February 12, 2018, the Company entered into an education program agreement with a third party. The term of this agreement is one year. In accordance to this agreement, the Company pays an annual fee of $200,000. At June 30, 2018, the accrued fee related to the agreement was $25,000, which was included in accrued liabilities and other payables on the accompanying condensed consolidated balance sheets.

Operating ~~leases~~Leases

Beijing GenExosome Office Lease

In March 2017, Beijing GenExosome signed an agreement to lease its facilities and equipment under operating lease. Pursuant to the signed lease, the annual rent is RMB 41,000 (approximately $6,000). The term of the lease is one year commencing on March 15, 2017 and expired on March 14, 2018. Beijing GenExosome renewed the lease in fiscal 2018. Pursuant to the renewed lease, the annual rent is RMB 41,000 (approximately $6,000) and the renewed lease expires on March 14, 2019. During the three and six months ended June 30, 2018, rent expense related to the operating lease amounted to approximately $1,600 and $3,200, respectively.Future minimum rental payment required under this operating lease is as follows:

Twelve-month Period Ending June 30:				Amount
	2019			$	4,385

GenExosome Office Lease

In December 2017, GenExosome signed an agreement to lease its office space in Ohio, United States under operating lease. Pursuant to the executed lease, the monthly rent is $300. The term of the lease is one year commencing on January 1, 2018 and expires on December 31, 2018. During the three and six months ended June 30, 2018, rent expense related to the operating lease amounted to $900 and $1,800, respectively. Future minimum rental payment required under this operating lease is as follows:

Twelve-month Period Ending June 30:				Amount
	2019			$	1,800

Avalon Shanghai ~~office leases~~Office Lease

On January 19, 2017, Avalon Shanghai entered into a lease for office space in Beijing, China with a third party (the “Beijing Office Lease”). Pursuant to the Beijing Office Lease, the monthly rent is RMB 50,586 (approximately ~~$7,600)~~$8,000) with a required security deposit of RMB 164,764 (approximately ~~$24,800)~~$25,000). In addition, Avalon Shanghai needs to pay monthly maintenance fees of RMB 4,336 (approximately $700). The term of the Beijing Office Lease is 26 months commencing on January 1, 2017 and will expire on February 28, 2019 with two months of free rent in the months of December 2017 and February 2019. For the three ~~and nine~~ months ended ~~September~~June 30, 2018 and 2017, rent expense and maintenance fees related to the Beijing Office Lease amounted to approximately ~~$21,900~~$23,000 and ~~$64,400,~~$18,500, respectively. For the six months ended June 30, 2018 and 2017, rent expense and maintenance fees related to the Beijing Office Lease amounted to approximately $49,000 and $42,500, respectively. Future minimum rental payment required under the Beijing Office Lease is as follows:

Twelve-month Period Ending September 30: Amount
2018 $ 91,450
2019 33,669
Total $ 125,119

In December 2016, Avalon Shanghai entered into a lease for office space in Shanghai, China with a third party (the “Shanghai Office Lease”). Pursuant to the Shanghai Office Lease, the monthly rent is RMB 20,000 (approximately $3,000). The term of the Shanghai Office Lease is one year commencing on January 1, 2017 and will expire on December 31, 2017. For the three and nine months ended September 30, 2017, rent expense related to the Shanghai Office Lease amounted to approximately $8,600 and $25,200, respectively. Future minimum rental payment required under the Shanghai Office Lease is as follows:

Twelve-month Period Ending September 30: Amount
2018 $ 9,018

Twelve-month Period Ending June 30:				Amount
	2019			$	58,707

AVALON GLOBOCARE CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
~~SEPTEMBER~~JUNE 30, ~~2017~~2018

~~NOTE 15 -CONCENTRATIONS~~

~~Customers~~

~~The following table sets forth information as to each customer that accounted for 10% or more of the Company’s revenue for the three and nine months ended September 30, 2017 and 2016.~~

Three Months Ended
September 30,

Nine Months Ended
September 30,

Customer 2017 2016 2017 2016
A (Beijing Nanshan, a related party) * 33 % 20 % 33 %
B (Shanghai Daopei, a related party) * 38 % * 38 %
C (Hebei Yanda, a related party) * 29 % * 29 %
D 27 % 0 18 % 0
E 16 % 0 11 % 0
F 13 % 0 * 0

* Less than 10%

~~Two customers, one of which was a related party, accounted for 86.1% of the Company’s total outstanding accounts receivable and tenants receivable at September 30, 2017~~.

~~One customer, who was a related party, accounted for 100% of the Company’s total outstanding accounts receivable at December 31, 2016.~~

~~Suppliers~~

~~No supplier accounted for 10% or more of the Company’s purchase during the three and nine months ended September 30, 2017 and 2016~~.

~~Two suppliers accounted for 89.4% of the Company’s total outstanding accounts payable at September 30, 2017.~~

~~No supplier accounted for 10% of the Company’s total outstanding accounts payable at December 31, 2016.~~

~~Concentrations of credit risk~~

At September 30, 2017 and December 31, 2016, cash balances in the PRC are $128,301 and $2,525,630, respectively, are uninsured. The Company has not experienced any losses in PRC bank accounts and believes it is not exposed to any risks on its cash in PRC bank accounts.

The Company maintains its cash in United States bank and financial institution deposits that at times may exceed federally insured limits. At September 30, 2017 and December 31, 2016, the Company’s cash balances in United States bank accounts had approximately $0 and $80,000 in excess of the federally-insured limits, respectively. The Company has not experienced any losses in its United States bank accounts through and as of the date of this report.

~~AVALON GLOBOCARE CORP. AND SUBSIDIARIES~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~SEPTEMBER 30, 2017~~

NOTE 1621 –RESTRICTED NET ASSETS

A portion of the Company’s operations are conducted through its PRC ~~subsidiary,~~subsidiaries, which can only pay dividends out of ~~its~~their retained earnings determined in accordance with the accounting standards and regulations in the PRC and after ~~it has~~they have met the PRC requirements for appropriation to statutory reserve. In addition, a portion of the Company’s businesses and assets are denominated in RMB, which is not freely convertible into foreign currencies. All foreign exchange transactions take place either through the People’s Bank of China or other banks authorized to buy and sell foreign currencies at the exchange rates quoted by the People’s Bank of China. Approval of foreign currency payments by the People’s Bank of China or other regulatory institutions requires submitting a payment application form together with suppliers’ invoices, shipping documents and signed contracts. These currency exchange control procedures imposed by the PRC government authorities may restrict the ability of the Company’s PRC ~~subsidiary~~subsidiaries to transfer ~~its~~their net assets to the Parent Company through loans, advances or cash dividends.

Schedule I of Article 5-04 of Regulation S-X requires the condensed financial information of the parent company to be filed when the restricted net assets of consolidated ~~subsidiary~~subsidiaries 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~~subsidiaries shall mean that amount of the registrant’s proportionate share of net assets of its consolidated ~~subsidiary~~subsidiaries (after intercompany eliminations) which as of the end of the most recent fiscal year may not be transferred to the parent company in the form of loans, advances or cash dividends without the consent of a third party.

The Company’s PRC ~~subsidiary’s~~subsidiaries’ net assets as of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016~~2017 did not exceed 25% of the Company’s consolidated net assets. Accordingly, Parent Company’s condensed ~~consolidated~~ financial statements have not been required in accordance with Rule 5-04 and Rule 12-04 of SEC Regulation S-X.

NOTE 1722 –SUBSEQUENT EVENTS

~~October 2017 Private Placement~~Avactis Biosciences

On October 20, 2017, the Company entered into Subscription Agreements with accredited investors (the “October 2017 Accredited Investors”) pursuant to which the October 2017 Accredited Investors agreed to purchase 3,750,000 shares of the Company’s common stock (“October 2017 Shares”) for a purchase price of $3,750,000 (the “Purchase Price”). The closing with respect to $200,000 of the Purchase occurred on October 24, 2017. As of November 10, 2017, the Company has received $2,090,000 of the Purchase Price. The balance of the Purchase Price is expected to close on or before December 6, 2017 if not sooner.

The offer, sale and issuance of the above securities was made to accredited investors and the Company relied upon the exemptions contained in Section 4(2) of the Securities Act and/or Rule 506 of Regulation D promulgated there under with regard to the sale. No advertising or general solicitation was employed in offering the securities. The offer and sale was made to accredited investors and transfer of the common stock issued was restricted by the Company in accordance with the requirements of the Securities Act of 1933, as amended.~~The accredited investors acknowledged that they were not aware of nor did it review any registration statement or prospectus filed by the Company with the SEC.~~

~~GenExosome Technologies Inc.~~

In July ~~2017,~~18, 2018, the Company formed ~~GenExosome Technologies~~a wholly owned subsidiary, Avactis Biosciences, Inc., a Nevada corporation, ~~(“GenExosome”)~~which will be focused on accelerating commercial activities related to Chimeric Antigen Receptor (CAR)-T technologies. The new subsidiary is designed to integrate and optimize our global scientific and clinical resources to further advance the use of CAR-T to treat certain cancers.

Letter of Intent with Arbele Limited, a Hong Kong Company

On July 30, 2018, the Company signed a Letter of Intent with Arbele Limited, a Hong Kong Company for a proposed strategic partnership agreement. The purpose of the proposed Transaction is to form a joint venture company, AVAR (China) Biotherapeutics (“JV”), to develop, manufacture, and commercializing CAR-T immunotherapy for treating cancer patients in China, utilizing intellectual property from Arbele and the clinical platform of the LuDaopei Medical Group in China. The intention of the parties is to enter into definitive agreements by December 31, 2018. The Company paid a $100,000 fee to Arbele for a five-month exclusive right to complete the definitive agreements for the transaction.

Strategic Partnership with Weill Cornell Medical College

On September 29, 2017, Dr. David K. Jin was appointed as the sole director and as the Chief Executive Officer, Chief Medical Officer and President, Meng Li was appointed as Chief Operating Officer and Secretary and Luisa Ingargiola was appointed as Chief Financial Officer. On October 25, 2017, GenExosome andAugust 6, 2018, the Company entered into a ~~Securities Purchase Agreement pursuant~~strategic partnership agreement with Weill Cornell’s cGMP Cellular Therapy Facility and Laboratory for Advanced Cellular Engineering headed by Dr. Yen-Michael Hsu. This strategic partnership aims to co-develop bio-production and standardization procedures in procurement, storage, processing, clinical study protocols, and bio-banking for Chimeric Antigen Receptor (CAR)-T therapy, in accordance with the Foundation of Accreditation for Cellular Therapy (FACT) and American Association of Blood Banks (AABB) standards. This partnership also includes a CAR-T education program to support and foster collaborative research and training programs for scientists and clinicians between Weill Cornell and Hebei Yanda LuDaopei Hospital, which is our main affiliated clinical facility as well as the ~~Company acquired 600 shares of GenExosome~~world’s single largest medical institution in consideration of $1,326,087 and 500,000 shares of common stock of the Company. The Company is required to pay $876,087 of the cash purchase price by November 24, 2017 and $450,000 of the cash purchase price by December 24, 2017. In addition, the Company is required to deliver the 500,000 shares of its common stock no later than November 24, 2017.CAR-T therapy.

AVALON GLOBOCARE CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
~~SEPTEMBER~~JUNE 30, ~~2017~~2018

NOTE 1722 –SUBSEQUENT EVENTS (continued)

~~GenExosome Technologies Inc. (continued)~~Changes to Board of Directors

On October 25, 2017, GenExosome entered into and closed an Asset Purchase Agreement with Yu Zhou, MD, PhD, pursuant to which the Company acquired all assets, including all intellectual property, held by Dr. Zhou pertainingJuly 5, 2018, William B. Stilley, III was appointed to the ~~business~~Board of ~~researching, developing and commercializing exosome technologies including, but not limited~~Directors. Mr. Stilley will receive options to patent application number CN 2016 1 0675107.5 (application of an Exosomal MicroRNA in plasma as biomaker to diagnosis liver cancer), patent application number CN 2016 1 0675110.7 (clinical application of circulating exosome carried miRNA-33b in the diagnosis of liver cancer), patent application number CN 2017 1 0330847.X (saliva exosome based methods and composition for the diagnosis, staging and prognosis of oral cancer) and patent application number CN 2017 1 0330835.7 (a novel exosome-based therapeutics against proliferative oral diseases). In consideration of the assets, GenExosome agreed to pay Dr. Zhou $876,087 in cash no later than November 24, 2017, transfer 500,000acquire 40,000 shares of common stock per year commencing January 1, 2019 at an exercise price equal to the closing price on December 31st of the prior year. The options shall vest in equal amounts quarterly and shall be exercisable for a period of five years. For 2018, the Company granted Mr. Stilley options to ~~Dr. Zhou no later than November 24, 2017 and issue Dr. Zhou 400~~acquire 20,000 shares of common stock at an exercise price of ~~GenExosome no later than November 24, 2017. As~~$2.30 for a ~~result~~term of five years with 10,000 options vesting immediately and the balance vesting October 1, 2018. In addition, Mr. Stilley will receive $7,500 per quarter for serving as chairman of the ~~above transactions, the Company holds 60% of GenExosome and Dr. Zhou holds 40% of GenExosome.~~audit committee commencing upon formation.

On July 9, 2018, Meng Li resigned as a director of the Company. Ms. Li will continue to serve as our Chief Operating Officer and Secretary and will also serve as an observer to the Board of Directors without voting capacity.

On July 30, 2018, Steven A. Sanders was appointed to the Board of Directors. Mr. Sanders will receive options to acquire 40,000 shares of common stock per year commencing January 1, 2019 at an exercise price equal to the closing price on December 31st of the prior year. The options shall vest in equal amounts quarterly and shall be exercisable for a period of five years. For 2018, the Company granted Mr. Sanders options to acquire 20,000 shares of common stock at an exercise price of $2.80 for a term of five years with 10,000 options vesting immediately and the balance vesting October ~~25,~~1, 2018. In addition, Mr. Sanders will receive $5,000 per quarter for serving as a member of our audit committee and nominating and corporate governance committee, respectively, commencing upon formation.

On July 30, 2018, Steven P. Sukel resigned as a director of the Company.

DOING Biomedical Technology Co., Ltd. Investment

On March 3, 2017, ~~GenExosome~~the Company entered into and closed a ~~Stock Purchase~~Subscription Agreement with ~~Beijing Jieteng (GenExosome) Biotech Co. Ltd., a corporation incorporated in the People’s Republic of China (“Beijing GenExosome”~~an accredited investor (the “March 2017 Accredited Investor”) ~~and Dr. Zhou, the sole shareholder of Beijing GenExosome,~~ pursuant to which ~~GenExosome acquired all~~the March 2017 Accredited Investor purchased 3,000,000 shares of the ~~issued~~Company’s common stock (“March 2017 Shares”) for a purchase price of $3,000,000 (the “DOING Investment”). The Company, Avalon (Shanghai) Healthcare Technology Co., Ltd. (“Avalon Shanghai”), Beijing DOING Biomedical Technology Co., Ltd. (“DOING”), and ~~outstanding securities~~the March 2017 Accredited Investor entered into a Share Subscription Agreement whereby the parties acknowledged, among other things, that DOING agreed to transfer the purchase price to Avalon Shanghai on behalf of the March 2017 Accredited Investor and the March 2017 Accredited Investor agreed to transfer the March 2017 Shares to DOING upon DOING completing the registration of the acquisition of the March 2017 Shares with the Beijing ~~GenExosome~~Commerce Commission (“BCC”), and obtaining an Enterprise Overseas Investment Certificate (the “Investment Certificate”) from BCC. If DOING fails to complete the registration and acquire the Investment Certificate within one year of the closing then Avalon Shanghai was required to transfer $3,000,000 with interest of 20% to DOING upon the request of DOING (the “BCC Repayment Obligation”). Further, Wenzhao Lu, the Company’s director and major shareholder, and DOING entered into a Warranty Agreement. Pursuant to the Warranty Agreement, Mr. Wenzhao agreed to (i) cause us to be liable to DOING in the event the March 2017 Accredited Investor defaults in its obligations to DOING, (ii) cause the March 2017 Accredited Investor to transfer the March 2017 Shares to DOING upon DOING’s receipt of the Investment Certificate from BCC, (iii) within three years from the date of the Warranty Agreement, DOING may require Mr. Wenzhao to acquire the March 2017 Shares at $1.20 per share upon three-month notice, and (iv) in the event Mr. Wenzhao does not acquire the March 2017 Shares within the three month period, interest of 15% per annum will be added to the purchase price.

On April 23, 2018, the Company, Avalon Shanghai, DOING and March 2017 Accredited Investor entered into a Supplementary Agreement Related to Share Subscription pursuant to which Avalon Shanghai agreed to pay RMB 8,256,000 (approximately $1.3 million based on the exchange rate on April 23, 2018) to DOING representing one-third of the DOING Investment plus 20% interest for the one-third DOING Investment resulting in a reduction in the March 2017 Shares by one-third to 2,000,000 shares. Further, the parties agreed that the BCC Repayment Obligation shall be extended to July 31, 2018 at which time DOING may require that the Company pay $2,000,000 plus 20% interest to DOING resulting in the cancellation of the remaining March 2017 Shares. However, DOING may, in its discretion, require that the remaining March 2017 Shares be transferred to a new nominal holder who shall pay the required subscription price, which funds will, in turn, be used to satisfy the BCC Repayment Obligation (See Note 15 - Common Shares Issued for Share Subscription Agreement).

On August 8, 2018, DOING and the March 2017 Accredited Investor sold the remaining 2,000,000 shares of common stock to a third party in consideration of ~~a cash payment~~$2,000,000. Therefore, the BCC Repayment Obligation was satisfied in full and the ~~amount of $450,000, which shall be paid upon Beijing GenExosome recording~~Company has no further obligation for DOING and the change in ownership with the Ministry of Commerce of the People’s Republic of China in accordance with the Interim Measures for Record Management regarding the Establishment and Change of Foreign-invested Enterprises.March 2017 Accredited Investor.

Loan Payable

On ~~October 25, 2017, GenExosome increased~~August 3, 2018, the Company signed an extension agreement for its ~~size~~loan with the maturity date of its board of directors from one to four and appointed Wenzhao “Daniel” Lu, Meng Li and Dr. Zhou to the board of directors. In addition, Dr. Zhou was appointed as Co-Chief Executive Officer of GenExosome.March 31, 2020 (See Note 12).

Common Shares Sold for Cash

On ~~October 25, 2017, Dr. Zhou and GenExosome entered into an Executive Retention Agreement~~August 13, 2018, the Company sold 939,450 shares of common stock at $2.25 per share to investors pursuant to ~~which Dr. Zhou agreed to serve as Co-Chief Executive Officer in consideration~~subscription agreements. The Company receive gross proceeds of ~~an annual salary of $160,000. Dr. Zhou and GenExosome also entered into an Invention Assignment, Confidentiality, Non-Compete and Non-Solicit Agreement.~~

Beijing GenExosome is engaged in the development of exosome technology to improve diagnosis and management of diseases. Exosomes are tiny, subcellular, membrane-bound vesicles in diameter of 30-150 nm that are released by almost all cell types and that can carry membrane and cellular proteins, as well as genetic materials that are representative of the cell of origin. Profiling various bio-molecules in exosomes may serve as useful biomarkers for a wide variety of diseases. Beijing GenExosome’s research kits are designed to be used by researchers for biomarker discovery and clinical diagnostic development, and the advancement of targeted therapies. Currently, research kits and service are available to isolate exosomes or extract exosomal RNA/protein from serum/plasma, urine and saliva samples. Beijing GenExosome is seeking to decode proteomic and genomic alterations underlying a wide-range of pathologies, thus allowing for the introduction of novel non-invasive “liquid biopsies”. Its mission is focused toward diagnostic advancements in the fields of oncology, infectious diseases and fibrotic diseases, and discovery of disease-specific exosomes to provide disease origin insight necessary to enable personalized clinical management. There is no guarantee that Beijing GenExosome will be able to successfully achieve its stated mission.$2,113,763.

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

The following discussion and analysis of ~~the~~our financial condition and results of operations ~~and financial condition of Avalon GloboCare Corp.~~ for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016~~2017 should be read in conjunction with ~~the Avalon GloboCare Corp.~~our unaudited condensed consolidated financial statements and ~~the~~related notes ~~thereto contained~~to those unaudited condensed consolidated financial statements that are included elsewhere in this report. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under the Risk Factors, Special Note Regarding Forward-Looking Statements and Business sections in our Form 10-K as filed with the Securities and Exchange Commission on March ~~28, 2017.~~13, 2018. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements.

The results of operations related to the development services and sales of developed products segment are included in our results of operations commencing from October 25, 2017 (the effective date of the acquisition), which is the result of a business combination, that closed on October 25, 2017 (and reported in an 8-K filed on October 26, 2017).

Unless otherwise indicated, references to the ~~“Company,”~~“Company”, “us” or “we” refer to Avalon GloboCare Corp. and its consolidated subsidiaries.

Overview

~~Avalon GloboCare is~~We are dedicated to integrating and managing global healthcare services and resources, as well as empowering high-impact biomedical innovations and technologies to accelerate their clinical applications. Operating through two major platforms, namely “Avalon Cell”, and “Avalon Rehab”, our “Technology + Service” ecosystem covers the areas of regenerative medicine, cell-based immunotherapy, exosome technology, telemedicine with medical second opinion/referral services, as well as ~~fertility and~~ rehabilitation medicine. ~~We plan to integrate these services through joint ventures and accretive acquisitions that bring shareholder value both~~

In addition, we are engaged in the ~~short term, through operational entities~~development of exosome technology to improve diagnosis and management of diseases. Exosomes are tiny, subcellular, membrane-bound vesicles in diameter of 30-150 nm that are released by almost all cell types and that can carry membrane and cellular proteins, as ~~part~~well as genetic materials that are representative of ~~Avalon Rehab,~~the cell of origin. Profiling various bio-molecules in exosomes may serve as useful biomarkers for a wide variety of diseases. Our research kits are designed to be used by researchers for biomarker discovery and ~~long term, through biomedical innovation~~clinical diagnostic development, ~~as part~~and the advancement of ~~Avalon Cell.~~targeted therapies. Currently, research kits and service are available to isolate exosomes or extract exosomal RNA/protein from serum/plasma, urine and saliva samples. We are seeking to decode proteomic and genomic alterations underlying a wide-range of pathologies, thus allowing for the introduction of novel non-invasive “liquid biopsies”. Our mission is focused toward diagnostic advancements in the fields of oncology, infectious diseases and fibrotic diseases, and discovery of disease-specific exosomes to provide disease origin insight necessary to enable personalized clinical management. There is no guarantee that we will be able to successfully achieve our stated mission.

We currently produce revenue ~~through~~by providing medical related ~~party strategic relationships in the Peoples Republic of China (“China”) that provide consultative~~consulting services in advanced areas of immunotherapy and second opinion/referral ~~services.~~services through Avalon Healthcare System, Inc. (“AHS”) and Avalon (Shanghai) Healthcare Technology Co., Ltd. (“Avalon Shanghai”). Our medical related consulting services include research studies; executive education; daily online executive briefings; tailored expert advisory services; and consulting and management services. ~~We typically charge an annual fee.~~ Through our services we attempt to focus our clients on important problems by providing an analysis of the evolving healthcare industry and the methods prevalent in the industry to solve those problems through counsel, business planning and support.

Further, we produce revenue by performing development services for hospitals and other customers and sales of developed products to hospitals and other customers through GenExosome Technologies Inc. (“GenExosome”) and Beijing Jieteng (GenExosome) Biotech Co., Ltd. (“Beijing GenExosome”).

We also own and operate rental real property in New Jersey.

On May 29, 2018, Avalon Shanghai entered into a Joint Venture Agreement with Jiangsu Unicorn Biological Technology Co., Ltd., or Unicorn, pursuant to which the parties agreed to establish a company named Airuikang Biological Technology Co., Ltd., or ABT, which will be owned 60% by Unicorn and 40% by Avalon Shanghai. Within two years of execution of the Joint Venture Agreement, Unicorn shall invest cash into ABT in an amount not less than RMB 8,000,000 Yuan (approximately $1.2 million) and the premises of the laboratories of Nanjing Hospital of Chinese Medicine for exclusive use by the ABT, and Avalon Shanghai shall invest cash into ABT in an amount not less than 10,000,000 Yuan (approximately $1.5 million). The board of directors of ABT shall consist of five members with Unicorn appointing three members and Avalon Shanghai appointing two members. ABT will be focused on cell preparation, third party testing, biological sample repository for commercial and scientific research purposes and the clinical transformation of scientific achievements.

On July 18, 2018, the Company formed a wholly owned subsidiary, Avactis Biosciences, Inc., a Nevada corporation, which will be focused on accelerating commercial activities related to Chimeric Antigen Receptor (CAR)-T technologies. The new subsidiary is designed to integrate and optimize our global scientific and clinical resources to further advance the use of CAR-T to treat certain cancers.

On August 6, 2018, the Company entered into a strategic partnership agreement with Weill Cornell’s cGMP Cellular Therapy Facility and Laboratory for Advanced Cellular Engineering headed by Dr. Yen-Michael Hsu. This strategic partnership aims to co-develop bio-production and standardization procedures in procurement, storage, processing, clinical study protocols, and bio-banking for Chimeric Antigen Receptor (CAR)-T therapy, in accordance with the Foundation of Accreditation for Cellular Therapy (FACT) and American Association of Blood Banks (AABB) standards. This partnership also includes a CAR-T education program to support and foster collaborative research and training programs for scientists and clinicians between Weill Cornell and Hebei Yanda LuDaopei Hospital, which is our main affiliated clinical facility as well as the world’s single largest medical institution in CAR-T therapy.

The value of the Renminbi (“RMB”), the main currency used in China, fluctuates and is affected by, among other things, changes in China’s political and economic conditions. The conversion of RMB into foreign currencies such as the U.S. dollar have generally been based on rates set by the People’s Bank of China, which are set daily based on the previous day’s interbank foreign exchange market rates and current exchange rates on the world financial markets.

~~Going Concern~~

We have a limited operating history and our continued growth is dependent upon the continuation of providing medical consulting services to our only three clients who are our related parties, and real estate property ownership and operation; hence generating revenues, and obtaining additional financing to fund future obligations and pay liabilities arising from normal business operations. We had working capital deficit (total current liabilities in excess of total current assets) and an accumulated deficit of $5,294,818 and $1,743,939 at September 30, 2017, respectively, and had a net loss and net cash flow used in operating activities of $1,690,570 and $747,056 for the nine months ended September 30, 2017, respectively. 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 factors, among others, raised substantial doubt about our ability to continue as a going concern. Our unaudited condensed consolidated financial statements appearing elsewhere in this report do not include any adjustments that might result from the outcome of this uncertainty. There are no assurances we will be successful in our efforts to generate significant revenues or report profitable operations or to continue as a going concern, in which event investors would lose their entire investment in our company.

Our ability to continue as a going concern is dependent upon our ability to carry out our business plan, achieve profitable operations, obtain additional working capital funds from our significant shareholders, and or through debt and equity financings. However, there can be no assurance that any additional financings will be available to us on satisfactory terms and conditions, if any.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our unaudited condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these unaudited condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We continually evaluate our estimates, including those related to theallowance for doubtful accounts, reserve for obsolete inventory, the useful life of property ~~plant,~~and equipment and investment in real estate and intangible assets, assumptions used in assessing impairment of long-term assets, valuation of deferred tax assets ~~accruals for taxes due,~~and the associated valuation allowances, and valuation of ~~options~~.stock-based compensation.

We base our estimates on historical experience and on various other assumptions that we believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Any future changes to these estimates and assumptions could cause a material change to our reported amounts of revenues, expenses, assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of the unaudited condensed consolidated financial statements.

Revenue Recognition

WeIn May 2014, the Financial Accounting Standards Board (“FASB”) issued an update Accounting Standards Update (“ASU”) (“ASU 2014-09”) establishing Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”). ASU 2014-09, as amended by subsequent ASUs on the topic, establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most of the existing revenue recognition guidance. This standard, which is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2017, requires an entity to recognize revenue ~~when persuasive evidence~~to depict the transfer of ~~an arrangement exists, delivery has occurred~~promised goods or services ~~have been rendered,~~to customers in an amount that reflects the ~~purchase price is fixed~~consideration to which the entity expects to be entitled in exchange for those goods or ~~determinable~~services and ~~collectability is reasonably assured~~.

also requires certain additional disclosures. We ~~provide medical related consulting services~~adopted this standard in 2018 using the modified retrospective approach, which requires applying the new standard to ~~our clients. We are paid for our services by our clients pursuant to the terms~~all existing contracts not yet completed as of the ~~written consulting agreements. Each contract calls for~~effective date and recording a ~~fixed payment in a fixed period of time. We recognize revenue by providing medical related consulting services under written service contracts with our customers. Revenue related~~cumulative-effect adjustment to ~~our service offerings is recognized~~retained earnings as ~~the services are performed and amounts are earned, using the straight-line method over the term~~ of the ~~related services agreement. Prepayments, if any, received~~beginning of the fiscal year of adoption. Based on an evaluation of the impact ASU 2014-09 will have on our sources of revenue, we have concluded that ASU 2014-09 did not have a material impact on the process for, timing of, and presentation and disclosure of revenue recognition from ~~customers prior to the services being performed are recorded as advance from~~ customers. ~~In these cases, when the services are performed, the amount recorded as advance from customers is recognized as revenue.~~

~~We lease commercial property under operating leases with terms~~Types of ~~generally two years or more.~~ revenue:

●

Rental revenue from leasing commercial property under operating leases with terms of generally three years or more.

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Service fees under consulting agreements with related parties to provide medical related consulting services to our clients.We are paid for our services by our clients pursuant to the terms of the written consulting agreements. Each contract calls for a fixed payment.

●

Service fees under agreements to perform development services for hospitals and other customers. We do not perform contracts that are contingent upon successful results.

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Sales of developed products to hospitals and other customers.

Revenue recognition criteria:

●

We recognize rental revenue from our commercial leases on a straight-line basis over the life of the lease including rent holidays, if any. Straight-line rent receivable consists of the difference between the tenants’ rents calculated on a straight-line basis from the date of lease commencement over the remaining terms of the related leases and the tenants’ actual rents due under the lease agreements and is included in tenants receivable in the accompanying consolidated balance sheets. Revenues associated with operating expense recoveries are recognized in the period in which the expenses are incurred.

●

We recognize revenue by providing medical related consulting services under written service contracts with our customers. Revenue related to our service offerings is recognized as the services are performed and amounts are earned and all other elements of revenue recognition have been satisfied. Prepayments, if any, received from customers prior to the services being performed are recorded as advance from customers. In these cases, when the services are performed, the amount recorded as advance from customers is recognized as revenue.

●

Revenue from sales of developed items to hospitals and other customers is recognized when items are shipped to customers and titles are transferred.

We do not offer promotional payments, customer coupons, rebates or other cash redemption offers to our customers.

Sales tax collected is not recognized as revenue and amounts outstanding are included in accrued liabilities and other payables in the consolidated balance sheets.

Income Taxes

We are governed by the income tax laws of ~~the PRC~~China and the United States. Income taxes are accounted for pursuant to ASC 740 “Accounting for Income Taxes,” which is an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in our financial statements or tax returns. The charge for taxes is based on the results for the period as adjusted for items, which are non-assessable or disallowed. It is calculated using tax rates that have been enacted or substantively enacted by the balance sheet ~~date~~.date.

Deferred tax is accounted for using the balance sheet liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax basis used in the computation of assessable tax profit. In principle, deferred tax liabilities are recognized for all taxable temporary differences, and deferred tax assets are recognized to the extent that it is probably that taxable profit will be available against which deductible temporary differences can be utilized.

Deferred tax is calculated using tax rates that are expected to apply to the period when the asset is realized or the liability is settled. Deferred tax is charged or credited in the income statement, except when it is related to items credited or charged directly to equity, in which case the deferred tax is changed to equity. Deferred tax assets and liabilities are offset when they related to income taxes levied by the same taxation authority and we intend to settle its current tax assets and liabilities on a net ~~basis~~.basis.

Stock-based Compensation

Stock based compensation is accounted for based on the requirements of the Share-Based Payment topic of Accounting Standards Codification (“ASC”) 718 which requires recognition in the financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the period the employee or director is required to perform the services in exchange for the award. The Accounting Standards Codification also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award.

Pursuant to ASC Topic 505-50, for share-based payments to consultants and other third-parties, compensation expense is ~~determined at the “measurement date.” The expense is~~ recognized over the period of services or the vesting period, whichever is applicable.Until the measurement date is reached, the total amount of compensation expense remains uncertain.Our compensation expense for unvested options to non-employees is re-measured at each balance sheet date and is being amortized over the vesting period of the options.

Non-controlling Interest

As of June 30, 2018, Dr. Yu Zhou, director and co- chief executive officer of GenExosome, who owned 40% of the equity interests of GenExosome, which is not under our control.

Acquisition

We account for acquisition using the acquisition method of accounting, whereby the results of operations are included in the financial statements from the date of acquisition. The purchase price is allocated to the acquired assets and assumed liabilities based on their estimated fair values at the date of acquisition, and any excess is allocated to goodwill.

Effective October 25, 2017, pursuant to the Stock Purchase Agreement as discussed elsewhere in this report, our majority owned subsidiary, GenExosome, acquired 100% of Beijing GenExosome.

In according to the acquisition, Beijing GenExosome’s assets and liabilities were recorded at their fair values as of the effective date, October 25, 2017, and the results of operations of Beijing GenExosome are consolidated with results of operations of us, starting on October 25, 2017.

Recent Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842) (“ASU 2016-02”), which modified lease accounting for both lessees and lessors to increase transparency and comparability by recognizing lease assets and lease liabilities by lessees for those leases classified as operating leases under previousFor details of applicable new accounting standards, and disclosing key information about leasing arrangements. This pronouncement is effective for reporting periods beginning after December 15, 2018 using a modified retrospective adoption method. We are currently evaluating the impact please, refer to Recent Accounting Pronouncements in Note 3of ~~adopting the new lease standard on~~ our unaudited condensed consolidated ~~financial statements.~~

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This ASU addresses the classification of certain specific cash flow issues including debt prepayment or extinguishment costs, settlement of certain debt instruments, contingent consideration payments made after a business combination, proceeds from the settlement of certain insurance claims and distributions received from equity method investees. This ASU is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. An entity that elects early adoption must adopt all of the amendments in the same period. We are currently evaluating the impact it may have on our consolidated financial statements.

In May 2017, the FASB issued ASU No. 2017-09, Compensation – Stock Compensation: Scope of Modification Accounting. The guidance clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as modifications. Entities will apply the modification accounting guidance if the value, vesting conditions or classification of the award changes. This guidance is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted. We are currently evaluating the impact it may have on our 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 our consolidated~~ financial statements upon adoption. We do not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to our consolidated financial condition, results of operations, cash flows or disclosures.accompanying this report.

RESULTS OF OPERATIONS

Comparison of Results of Operations for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2018 and ~~2016~~2017

Revenues

We generated real property rental revenue commencing in May 2017. We generated revenue from medical related consulting services commencing onin July 2016 and we ~~generated real property rental~~had revenue from performing development services for hospitals and other customers and sales of developed products to hospitals and other customers commencing on ~~May~~October 25, 2017.

For the three and nine months ended September 30, 2017, we had real property rental revenue of $315,284 and $537,538, respectively. We did not generate any real property rental revenue for the three and nine months ended September 30, 2016.

For the three months ended ~~September~~June 30, 2018, we had real property rental revenue of $278,872, as compared to $222,254 for the three months ended June 30, 2017, an increase of $56,618, or 25.5%, since we started to generate real property rental revenue in May 2017. For the six months ended June 30, 2018, we had real property rental revenue of $575,495, as compared to $222,254 for the six months ended June 30, 2017, an increase of $353,241, or 158.9%, since we started to generate real property rental revenue in May 2017.

For the three months ended June 30, 2018, we had medical related consulting services revenue from related parties of ~~$2,166,~~$141,996, as compared to $152,497 for the three months ended June 30, 2017, a decrease of $10,501, or 6.9%. For the six months ended June 30, 2018, we had medical related consulting services revenue from related parties of ~~$326,667~~$141,996, as compared to $218,783 for the ~~three~~six months ended ~~September~~June 30, ~~2016,~~2017, a decrease of ~~$324,501,~~$76,787, or 99.3%. For the nine months ended September 30, 2017, we had consulting services revenue from related parties of $220,949, as compared to consulting services revenue from related parties of $326,667 for the nine months ended September 30, 2016, a decrease of $105,718, or 32.4%35.1%. The decrease was ~~mainly attributable~~primarily due to the decreased demand for our consulting service from our related parties.

For the three and six months ended June 30, 2018, we had revenue from contract services through performing development services for hospitals and other customers and sales of developed products to hospitals and other customers of $75,225 and $86,515, respectively.

Costs and Expenses

For the three ~~and nine~~ months ended ~~September~~June 30, ~~2017,~~2018, our real property operating expenses amounted to ~~$180,722 and $342,576, respectively. Since~~$195,941, as compared to $161,854 for the three months ended June 30, 2017, an increase of $34,087, or 21.1%, since we started ~~generating~~our real property rental ~~revenue during~~operations in May 2017. For the ~~second quarter of 2017, we had neither real property rental revenue nor~~six months ended June 30, 2018, our real property operating expenses inamounted to $406,215, as compared to $161,854 for the ~~three and nine~~six months ended ~~September~~June 30, ~~2016.~~2017, an increase of $244,361, or 151.0%, since we started our real property rental operations in May 2017.

Costs of medical related consulting services ~~includes~~include the cost of internal labor and related benefits, travel expenses related to medical related consulting services, subcontractor costs, other related consulting costs, and other overhead costs. Subcontractor costs were costs related to medical related consulting services incurred by our subcontractor, such as medical professional’s compensation and travel costs.

~~Costs~~For the three months ended June 30, 2018, costs of medical related consulting services amounted to $124,715, as compared to $125,231 for the three months ended ~~September~~June 30, 2017, ~~was $47,033, representing an increase~~a decrease of ~~$13,485,~~$516, or ~~40.2%,~~0.4%. For the six months ended June 30, 2018, costs of medical related consulting services amounted to $124,715, as compared to ~~$33,548~~$224,812 for the ~~three~~six months ended ~~September 30, 2016. Costs of consulting services for the nine months ended September~~June 30, 2017, ~~was $271,845, representing an increase~~a decrease of ~~$238,297,~~$100,097, or ~~710.3%, as compared to $33,548 for the nine months ended September 30, 2016.~~44.5%. The ~~increase~~decrease was primarily attributable to the ~~allocation~~decrease in medical related consulting services revenue.

Costs of ~~fixed~~development services and sales of developed products include inventory costs, ~~mainly consisting of~~materials and supplies costs, internal labor and related benefits, depreciation, other overhead costs and shipping and handling costs incurred.

Costs of development services for hospitals and other customers and sales of developed products to hospitals and other customers was $42,093 and $58,613, respectively, for the three and six months ended June 30, 2018. There were no comparable revenue nor costs of revenue from our ~~cost~~development services and sales of ~~consulting services.~~developed products operations prior to the date of acquisition, October 25, 2017.

Real Property Operating Income

Our real property operating income ~~was $134,562 and $194,962, respectively,~~ for the three ~~and nine~~ months ended ~~September~~June 30, 2018 was $82,931, representing an increase of $22,531 or 37.3% as compared to $60,400 for the three months ended June 30, 2017, which was mainly attributable to we started our real property rental operations in May 2017. ~~We did not generate any~~

Our real property operating income for the ~~three and nine~~six months ended ~~September~~June 30, ~~2016.~~2018 was $169,280, representing an increase of $108,880 or 180.3% as compared to $60,400 for the six months ended June 30, 2017, which was mainly attributable to we started our real property rental operations in May 2017.

Gross Profit (Loss) from Medical Related Consulting Services and Gross Margin

~~Our gross loss~~Gross profit from medical related consulting services for the three months ended ~~September~~June 30, ~~2017~~2018 was ~~$44,867, representing a change of $337,986, or (115.3)%,~~$17,281, as compared to ~~gross profit of $293,119~~$27,266 for the three months ended ~~September~~June 30, ~~2016, mainly due~~2017, a decrease of $9,985, or 36.6%. The decrease was primarily attributable to the ~~significant~~ decrease in our medical related consulting revenue.

Gross profit from medical related consulting services ~~revenue and~~for the ~~increase~~six months ended June 30, 2018 was $17,281, as compared to gross loss from medical related consulting services of $6,029 for the six months ended June 30, 2017, a change of $23,310 or 386.6%. The change was mainly attributable to the decrease in our medical related consulting ~~services costs.~~ costs for the six months ended June 30, 2018.

Gross margin decreased to ~~(2,071.4)%~~12.2% for the three months ended ~~September~~June 30, ~~2017~~2018 from ~~89.7%~~17.9% for the three months ended ~~September~~June 30, ~~2016.~~

Our gross loss from consulting services for the nine months ended September 30, 2017 was $50,896, representing a change of $344,015, or (117.4)%, as compared to gross profit of $293,119 for the nine months ended September 30, 2016, mainly due to the decrease in our consulting services revenue and increase in our consulting services costs. Gross margin decreased to (23.0)% for the nine months ended September 30, 2017 from 89.7% for the nine months ended September 30, 2016.

2017. The decrease in gross margin ~~for the three and nine months ended September 30, 2017 as compared to the three and nine months ended September 30, 2016~~ was primarily resulted from low consulting services revenue and the allocation of fixed costs, mainly consisting of internal labor and related benefits, to costs of the low level of consulting revenue.

Gross margin increased to 12.2% for the six months ended June 30, 2018 from (2.8)% for the six months ended June 30, 2017.The different medical related consulting services agreement in the six months ended June 30, 2018 had an effect of improving gross margin as compared to the six months ended June 30, 2017.

Gross Profits from Development Services and Sales of Developed Products and Gross Margin

Our gross profit from development services and sales of developed products was $33,132 and $27,902, respectively, for the three and six months ended June 30, 2018, representing gross margin of 44.0% and 32.3%, respectively.

Other Operating Expenses

For the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, other operating expenses consisted of the following:

	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months		Three Months		Six Months		Six Months
	2017		2016		2017		2016		Ended		Ended		Ended		Ended
Selling expense	$	148	$	121	$	15,138	$	121
									June 30, 2018		June 30, 2017		June 30, 2018		June 30, 2017
Selling expenses									$	—	$	6,279	$	—	$	14,990
Compensation and related benefits		468,837		—		857,237		—		487,452		205,473		1,026,266		388,400
Professional fees		186,208		84,038		566,131		161,113		593,025		172,705		1,164,797		379,923
Rent		34,846		—		103,173		—
Amortization										81,893		—		163,786		—
Travel and entertainment										82,085		31,192		140,033		39,800
Rent and related utilities										26,173		31,899		55,561		68,327
Other general and administrative		57,575		1,127		141,907		29,583		75,970		28,836		191,993		44,532
	$	747,614	$	85,286	$	1,683,586	$	190,817	$	1,346,598	$	476,384	$	2,742,436	$	935,972

●

Our selling expense consisted of salaries of sales personnel and travel and entertainment costs incurred by our sales department. ~~For~~We did not incur any selling expense in the three and six months ended ~~September~~June 30, 2017 and 2016, we had nominal selling expense. Selling expense for the nine months ended September 30, 2017 was $15,138, representing an increase of $15,017 as compared to $121 for the nine months ended September 30, 2016. In the nine months ended September 30, 2017, we hired a sales representative to enhance our visibility and to market our services in order to generate orders for our consulting services. Therefore, our selling expense increased.2018.

●

~~Our~~For the three months ended June 30, 2018, compensation and related benefits ~~amounted~~increased by $281,979, or 137.2%, as compared to ~~$468,837 and $857,237 for~~ the three ~~and nine~~ months ended ~~September~~June 30, 2017. ~~We did not incur any~~The significant increase was primarily attributable to an increase in stock-based compensation of approximately $194,000 which reflected the value of options granted and vested to our management in the second quarter of fiscal 2018, and an increase in employee salaries and related benefits of approximately $88,000 due to the increase in general and administrative personnel resulting from our business expansion. For the six months ended June 30, 2018, compensation and related benefits ~~during~~increased by $637,866, or 164.2%, as compared to the ~~three and nine~~six months ended ~~September~~June 30, ~~2016.~~2017. The significant increase was primarily attributable to an increase in stock-based compensation of approximately $372,000 which reflected the value of options granted and vested to our management in the first half of fiscal 2018, and an increase in employee salaries and related benefits of approximately $266,000 due to the increase in general and administrative personnel resulting from our business expansion.

●

Professional fees primarily consisted of accounting fees, audit fees, legal service fees, consulting fees, investor relations service charges and other fees incurred for service related to ~~becoming and~~ being a public company. For the three months ended ~~September~~June 30, ~~2017,~~2018, professional fees increased by ~~$102,170~~$420,320, or ~~121.6%~~243.4%, as compared to the three months ended ~~September~~June 30, ~~2016.~~2017. The significant increase was mainly attributable to an increase in ~~accounting~~consulting fees of approximately ~~$17,000 incurred for services performed by our financial consultant, an increase in audit fees incurred of approximately $81,000 mainly~~$329,000 due to the increase in ~~audit fee related to potential acquisition~~use of ~~a target company and Form S-1 registration statement of approximately $69,000,~~consulting services providers, an increase in ~~legal services fees~~investor relations charge of approximately ~~$25,000,~~$50,000 due to the increase in investor relations activities incurred, and an increase in other miscellaneous items of approximately ~~$9,000, offset by a decrease in investor relations charge of approximately $30,000 due to the termination investor relations service agreement in the third quarter of 2017.~~$41,000 reflecting our business expansion. For the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, professional fees increased by ~~$405,018,~~$784,874, or ~~251.4%~~206.6%, as compared to the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2017. The significant increase was mainly attributable to an increase in ~~accounting~~consulting fees of approximately ~~$58,000 incurred for~~$600,000 due to the increase in use of consulting services ~~performed by our financial consultant,~~providers, an increase in ~~audit fees incurred~~investor relations charge of approximately ~~$229,000 mainly~~$93,000 due to anthe increase in ~~audit fee related to potential acquisition of a target company and Form S-1 registration statement of approximately $129,000 and an increase in service~~investor relations activities incurred, ~~and completed for 2016 year end audit of approximately $75,000,~~ an increase in legal ~~services fees~~service fee of approximately ~~$110,000,~~$34,000 due to the increase in use of legal services providers, and an increase in other miscellaneous items of approximately ~~$38,000 resulting from~~$58,000 reflecting our business expansion, offset by a decrease in investor relations charge of approximately $30,000 due to the termination investor relations service agreement in the third quarter of 2017. We expect professional fees to increase as we incur significant costs associated with our public company reporting requirements, and costs associated with newly applicable corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002 and other rules implemented by the Securities and Exchange Commission.expansion.

●

~~Rent expense totaled $34,846 and $103,173 for~~For the three ~~and nine~~ months ended ~~September~~June 30, 2018, amortization expense increased by $81,893, or 100.0%, as compared to the three months ended June 30, 2017. For the six months ended June 30, 2018, amortization expense increased by $163,786, or 100.0%, as compared to the six months ended June 30, 2017. We ~~did not incur any rent expense since we did not rent any office space during~~purchased intangible assets and commenced to amortize it in the ~~three and nine months ended September 30, 2016.~~fourth quarter of fiscal 2017.

●

For the three months ended June 30, 2018, travel and entertainment expense increased by $50,893, or 163.2%, as compared to the three months ended June 30, 2017. For the six months ended June 30, 2018, travel and entertainment expense increased by $100,233, or 251.8%, as compared to the six months ended June 30, 2017. The increase was mainly due to our business expansion.

●

For the three months ended June 30, 2018, rent and related utilities expenses decreased by $5,726, or 18.0%, as compared to the three months ended June 30, 2017. For the six months ended June 30, 2018, rent and related utilities expenses decreased by $12,766, or 18.7%, as compared to the six months ended June 30, 2017.

●

Other general and administrative expenses mainly consisted of ~~travel and entertainment,~~ office supplies, miscellaneous taxes, bank service charge, academic sponsorship and other miscellaneous items. For the three months ended ~~September~~June 30, ~~2017,~~2018, other general and administrative expenses increased by ~~$56,448,~~$47,134, or ~~5,008.7%~~163.5%, as compared to the three months ended ~~September~~June 30, 2016, due to our business expansion. For the nine months ended September 30, 2017, other general and administrative expenses increased by $112,324, or 379.7%, as compared to the nine months ended September 30, 2016.2017. The increase was primarily due to an increase in ~~our travel and entertainment expense~~academic sponsorship incurred of approximately ~~$56,000~~$50,000, offset by a decrease in other miscellaneous items of approximately $3,000. For the six months ended June 30, 2018, other general and administrative expenses increased by $147,461, or 331.1%, as compared to the six months ended June 30, 2017. The increase was primarily due to an increase in academic sponsorship incurred of approximately $75,000, and an increase in other miscellaneous items of approximately ~~$56,000~~$72,000 resulting from our business expansion.

~~(Loss) Income~~Loss from Operations

As a result of the foregoing, for the three months ended ~~September~~June 30, ~~2017,~~2018, loss from operations amounted to ~~$657,919,~~$1,213,254, as compared to ~~income from operations of $207,833~~$388,718 for the three months ended ~~September~~June 30, ~~2016,~~2017, a change of ~~$865,752,~~$824,536, or ~~416.6%~~212.1%.

As a result of the foregoing, for the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, loss from operations amounted to ~~$1,539,520,~~$2,527,973, as compared to ~~income from operations of $102,302~~$881,601 for the ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2017, a change of ~~$1,641,822,~~$1,646,372, or ~~1,604.9%~~186.7%.

Other Income (Expense)

Other income (expense) includes interest income from bank deposits, interest expense ~~generated~~incurred from our outstanding loan ~~payable,~~ and $1 million refundable deposit which we repaid in April 2018 as described elsewhere in this report, foreign currency transaction ~~loss.~~ loss, and other nominal income.

Other expense, net, totaled ~~$52,810~~$130,561 for the three months ended ~~September~~June 30, ~~2017,~~2018, as compared to ~~other income, net, of $41~~$41,790 for the three months ended ~~September~~June 30, ~~2016,~~2017, a change of ~~$52,851,~~$88,771, which was mainly attributable to an increase in foreign currency transaction loss of approximately $107,000, offset by a decrease in interest expense of approximately $17,000.

Other expense, net, totaled $366,811 for the six months ended June 30, 2018, as compared to $98,240 for the six months ended June 30, 2017, a change of $268,571, which was mainly attributable to an increase in interest expense of approximately ~~$53,000~~.

Other expense, net, totaled $151,050 for the nine months ended September 30, 2017, as compared to other income, net, of $101 for the nine months ended September 30, 2016, a change of $151,151, which was mainly attributable to an increase in interest expense of approximately $95,000,$220,000, and an increase in foreign currency transaction loss of approximately ~~$57,000, offset by an increase in interest income of approximately $1,000~~.$50,000.

Income Taxes

We did not have any income taxes expense for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016~~2017 since we ~~did not generate any taxable income~~incurred losses in the periods.

Net Loss

As a result of the factors described above, our net loss was $710,729, or $(0.011) per share (basic and diluted), for the three months ended September 30, 2017. Our net income was $207,874, or $0.004 per share (basic and diluted), for the three months ended September 30, 2016.

As a result of the factors described above, our net loss was ~~$1,690,570,~~$1,343,815 for the three months ended June 30, 2018, as compared to $430,508 for the three months ended June 30, 2017, a change of $913,307 or ~~$(0.026)~~212.1%.

As a result of the factors described above, our net loss was $2,894,784 for the six months ended June 30, 2018, as compared to $979,841 for the six months ended June 30, 2017, a change of $1,914,943 or 195.4%.

Net Loss Attributable to Avalon GloboCare Corp. Common Shareholders

The net loss attributable to Avalon GloboCare Corp. common shareholders was $1,294,394, or $(0.02) per share (basic and diluted), for the ~~nine~~three months ended ~~September~~June 30, ~~2017. Our~~2018, as compared with net ~~income was $102,403,~~loss attributable to Avalon GloboCare Corp. common shareholders of $430,508, or ~~$0.002~~$(0.01) per share (basic and diluted), for the ~~nine~~three months ended ~~September~~June 30, ~~2016.~~2017, a change of $863,886 or 200.7%.

The net loss attributable to Avalon GloboCare Corp. common shareholders was $2,775,973 or $(0.04) per share (basic and diluted) for the six months ended June 30, 2018, as compared with net loss attributable to Avalon GloboCare Corp. common shareholders of $979,841, or $(0.02) per share (basic and diluted) for the six months ended June 30, 2017, a change of $1,796,132 or 183.3%.

Foreign Currency Translation Adjustment

Our reporting currency is the U.S. dollar. The functional currency of our parent company, ~~and our wholly-owned U.S. subsidiaries,~~AHS, Avalon ~~Healthcare System Inc.~~(BVI) Ltd. (dormant, will be dissolved in 2018), Avalon RT 9, ~~Properties, LLC,~~ and ~~Avalon (BVI) Ltd.,~~GenExosome, is the U.S. dollar and the functional currency of ~~our wholly-owned PRC subsidiary,~~ Avalon ~~(Shanghai) Healthcare Technology Co., Ltd. which is incorporated in China,~~Shanghai and Beijing GenExosome, is the Chinese Renminbi (“RMB”). The financial statements of our ~~subsidiary~~subsidiaries whose functional currency is the RMB are translated to U.S. dollars using period end rates of exchange for assets and liabilities, average rate of exchange ~~(for the period)~~ for revenue, costs, and expenses and cash flows, and at historical exchange rates for equity. Net gains and losses resulting from foreign exchange transactions are included in the results of operations. As a result of foreign currency translations, which are a non-cash adjustment, we reported a foreign currency translation loss of $96,207 and a foreign currency translation gain of ~~$6,151 and $216~~$7,647 for the three months ended ~~September~~June 30, 2018 and 2017, ~~and 2016,~~ respectively. ~~As a result of foreign currency translations, which are a non-cash adjustment, we~~We reported a foreign currency translation loss of ~~$25,973~~$43,369 and ~~a foreign currency translation gain of $431~~$32,124 for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, respectively. This non-cash loss/gain had the effect of increasing/decreasing our reported comprehensive ~~loss and increasing our reported comprehensive income. This non-cash loss had the effect of increasing our reported comprehensive loss and decreasing our reported comprehensive income.~~loss.

Comprehensive ~~(Loss) Income~~Loss

As a result of our foreign currency translation adjustment, we had comprehensive loss of ~~$704,578~~$1,440,022 and ~~comprehensive income of $208,090~~$422,861 for the three months ended ~~September~~June 30, 2018 and 2017, ~~and 2016, respectively. As a result of our foreign currency translation adjustment, we~~respectively.We had comprehensive loss of ~~$1,716,543~~$2,938,153 and ~~comprehensive income of $102,834~~$1,011,965 for the ~~nine~~six months ended ~~September~~June 30, 2018 and 2017, ~~and 2016, respectively.~~respectively.

Liquidity and Capital Resources

Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations and otherwise operate on an ongoing basis. At ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, we had cash balance of approximately ~~$357,000~~$3,643,000 and ~~$2,886,000,~~$3,027,000, respectively. These funds are kept in financial institutions located as follows:

Country:	September 30, 2017				December 31, 2016				June 30, 2018				December 31, 2017
United States	$	228,521	64.0	%	$	360,559	12.5	%	$	2,324,517	63.8	%	$	1,700,024	56.2	%
China		128,301	36.0	%		2,525,630	87.5	%		1,318,799	36.2	%		1,327,009	43.8	%
Total cash	$	356,822	100.0	%	$	2,886,189	100.0	%	$	3,643,316	100.0	%	$	3,027,033	100.0	%

Under applicable PRC regulations, foreign invested enterprises, or FIEs, in China may pay dividends only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, a foreign invested enterprise in China is required to set aside at least 10% of its after-tax profit based on PRC accounting standards each year to its general reserves until the cumulative amount of such reserves reach 50% of its registered capital. These reserves are not distributable as cash dividends.

In addition, a portion of our businesses and assets are denominated in RMB, which is not freely convertible into foreign currencies. All foreign exchange transactions take place either through the People’s Bank of China or other banks authorized to buy and sell foreign currencies at the exchange rates quoted by the People’s Bank of China. Approval of foreign currency payments by the People’s Bank of China or other regulatory institutions requires submitting a payment application form together with suppliers’ invoices, shipping documents and signed contracts. These currency exchange control procedures imposed by the PRC government authorities may restrict the ability of our PRC subsidiary to transfer its net assets to the Parent Company through loans, advances or cash dividends.

The current PRC Enterprise Income Tax (“EIT”) Law and its implementing rules generally provide that a 10% withholding tax applies to China-sourced income derived by non-resident enterprises for PRC enterprise income tax purposes unless the jurisdiction of incorporation of such enterprises’ shareholder has a tax treaty with China that provides for a different withholding arrangement.

The following table sets forth a summary of changes in our working capital from December 31, ~~2016~~2017 to ~~September~~June 30, ~~2017:~~2018:

December 31, 2016 to
September 30, 2017

September 30,
2017
December 31, 2016 Change Percentage Change
Working capital (deficit):
Total current assets $ 622,361 $ 3,706,213 $ (3,083,852 ) (83.2 )%
Total current liabilities 5,917,179 160,317 5,756,862 3,590.9 %
Working capital (deficit): $ (5,294,818 ) $ 3,545,896 $ (8,840,714 ) (249.3 )%

						December 31, 2017 to June 30, 2018
	June 30, 2018		December 31, 2017			Change		Percentage Change
Working capital (deficit):
Total current assets	$	4,960,180	$	3,234,977		$	1,725,203		53.3	%
Total current liabilities		3,922,213		5,360,184			(1,437,971)		(26.8)	%
Working capital (deficit)	$	1,037,967	$	(2,125,207	)	$	3,163,174		(148.8)	%

Our working capital ~~deficit~~ increased by ~~$8,840,714~~$3,163,174 to working capital ~~deficit $5,294,818~~of $1,037,967 at ~~September~~June 30, ~~2017~~2018 from working capital ~~$3,545,896~~deficit of $2,125,207 at December 31, ~~2016.~~2017. The increase in working capital ~~deficit~~ was primarily attributable to ~~a decrease~~an increase in cash of approximately ~~$2,529,000~~$616,000, an increase in accounts receivable – related party, net of allowance for doubtful accounts, of approximately $145,000, an increase in security deposit of approximately $322,000 mainly due to ~~cash payment~~a deposit of $302,000 made ~~for acquisition of New Jersey real property,~~in 2018 pursuant to a ~~decrease~~Joint Venture Agreement entered on May 29, 2018, an increase in prepaid expenses and other current assets of approximately ~~$713,000~~$558,000 primarily due to the prepayment made for professional services in 2018, a decrease in ~~prepayment for acquisition of real property~~loan payable of approximately ~~$700,000,~~$500,000 due to the repayment made in 2018, a decrease in interest payable of approximately $113,000, and a decrease in refundable deposit of approximately $1,000,000 resulting from the payment made to DOING to satisfy the BCC Repayment Obligation in 2018 as disclosed elsewhere in this report, offset by an increase in accrued liabilities and other payables of approximately $321,000 resulting from the increase in accrued professional fees of approximately $226,000 and the increase in accrued interest for our outstanding loan of approximately $95,000, an increase in loan payable of approximately $2,100,000 borrowed in connection with our purchase of New Jersey real property, an increase in tenants’ security deposit of approximately $92,000, an increase in due to related parties of approximately $210,000 mainly due to the increase in working capital advance from our related parties, and an increase in refundable deposit of approximately $3,000,000 related to our March 2017 Subscription Agreement (see note 11 – Common shares issued for Share Subscription Agreement), offset by an increase in accounts receivable – related parties, net of allowance for doubtful accounts, of approximately $97,000, and an increase in tenants receivable, net of allowance for doubtful accounts, of approximately $56,000.$176,000.

Because the exchange rate conversion is different for the consolidated balance sheets and the consolidated statements of cash flows, the changes in assets and liabilities reflected on the consolidated statements of cash flows are not necessarily identical with the comparable changes reflected on the consolidated balance sheets.

Cash Flows for the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2018 Compared to the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2016~~2017

The following summarizes the key components of our cash flows for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016:~~2017:

	Nine Months Ended September 30,						Six Months Ended June 30, 2018			Six Months Ended June 30, 2017
	2017			2016
Net cash (used in) provided by operating activities	$	(747,056	)	$	327,898
Net cash used in operating activities							$	(2,200,042	)	$	(600,853	)
Net cash used in investing activities		(7,059,565	)		(230,395	)		(197,953	)		(7,036,355	)
Net cash provided by financing activities		5,309,500			150,000			3,034,143			5,169,500
Effect of exchange rate on cash		(32,246	)		(1,262	)		(19,865	)		(36,527	)
Net (decrease) increase in cash	$	(2,529,367	)	$	246,241
Net increase (decrease) in cash							$	616,283		$	(2,504,235	)

Net cash flow used in operating activities for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 was ~~$747,056,~~$2,200,042, which primarily reflected our net loss of approximately ~~$1,691,000,~~$2,895,000, and the changes in operating assets and liabilities, primarily consisting of an increase in accounts receivable – related parties of approximately ~~$91,000,~~$151,000, an increase in prepaid expenses and other current assets of approximately $154,000, an increase in security deposit of approximately $309,000 mainly due to the deposit made pursuant to a Joint Venture Agreement entered in May 2018, a decrease in interest payable of approximately $113,000, offset by an increase in accrued liabilities and other payables of approximately $177,000, and the add-back of non-cash items consisting of depreciation and amortization expense of approximately $248,000, and stock-based compensation expense of approximately $1,083,000.

Net cash flow used in operating activities for the six months ended June 30, 2017 was $600,853, which primarily reflected our net loss of approximately $980,000, and the changes in operating assets and liabilities primarily consisting of an increase in accounts receivable – related parties of approximately $161,000, an increase in tenants receivable of approximately ~~$56,000,~~$25,000, an increase in security deposit of approximately $30,000, and a decrease in income taxes payable of approximately $21,000, offset by a decrease in prepaid expense and other of approximately $22,000, an increase in accounts payable of approximately ~~$22,000,~~$23,000, an increase in accrued liabilities and other payables of approximately ~~$321,000 resulting from the increase in accrued professional fees of approximately $226,000 and the increase in accrued interest for our outstanding loan of approximately $95,000,~~$147,000, an increase in accrued liabilities and other payables – related parties of approximately ~~$23,000,~~$32,000, and an increase in tenants’ security deposit of approximately $92,000, and the add-back of non-cash items consisting of depreciation expense of approximately ~~$58,000~~$34,000 and stock-based compensation of approximately ~~$602,000~~.$266,000.

~~Net~~We expect our cash ~~flow provided by~~used in operating activities ~~for~~to increase due to the nine months ended September 30, 2016 was $327,898, which primarily reflected our net income of approximately $102,000, and changes in operating assets and liabilities consisting of an increase in accrued liabilities and other payables – related parties of approximately $6,000, and an increase in advance from customers – related parties of approximately $227,000, offset by changes in operating assets and liabilities consisting of an increase in prepaid expenses and other of approximately $5,000, and a decrease in accrued liabilities and other payables of approximately $3,000.following:

●

the development and commercialization of exosome products;

●

an increase in professional staff and services including increased costs of being a public company; and

●

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

Net cash flow used in investing activities was ~~$7,059,565~~$197,953 for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 as compared to ~~$230,395~~$7,036,355 for the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2017. During the ~~nine~~six months ended ~~September~~June 30, 2018, we made payment for purchase of property and equipment of approximately $10,000, made prepayment for purchase of long-term assets of approximately $23,000, and made payment for improvement of commercial real estate of approximately $165,000. During the six months ended June 30, 2017, we made payments for purchase of property ~~plant~~ and equipment of approximately ~~$51,000,~~$28,000, and made payments for purchase of commercial real estate of approximately $7,009,000. ~~During the nine months ended September 30, 2016, we made payment forthe purchase of Avalon GloboCare Corp.’s shares of $230,000 and made payments for the purchase of property, plant and equipment of $395.~~

Net cash flow provided by financing activities was ~~$5,309,500~~$3,034,143 for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 as compared to ~~$150,000~~$5,169,500 for the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2017. During the ~~nine~~six months ended ~~September~~June 30, 2018, we received net proceeds from equity offering of approximately $5,057,000, offset by repayments made for loan of approximately $500,000, repurchase of common stock of approximately $523,000, and refund for refundable deposit in connection with Share Subscription Agreement of approximately $1,000,000 as described elsewhere in this report. During the six months ended June 30, 2017, we received $2,100,000 proceeds from loan payable, and received ~~$210,000~~$70,000 advance from related parties, and received $3,000,000 proceeds of refundable deposit as earnest money in connection with the Share Subscription Agreement related to the 3,000,000 common stock issued to the March 2017 Accredited Investor who is an entrusted party that holds the shares on behalf of DOING, offset by repayment for related parties’ advance of $500.During the nine months ended September 30, 2016, we received proceeds from related parties’ advance of $9,000 and received proceeds from AHS’s founders’ contribution of $141,000, in funding our operations.

Our capital requirements for the next twelve months primarily relate to working capital requirements, including salaries and fees related to third parties’ professional services, reduction of accrued liabilities, mergers, acquisitions and the development of business opportunities. ~~In addition, we expect~~These uses of cash will depend on numerous factors including our sales and other revenues, and our ability to ~~use cash to pay salaries and fees related to third parties’ professional services.~~control costs. All funds received have been expended in the furtherance of growing the business. In addition, we need to pay for acquisition consideration which shall be paid onBeijing GenExosome recording the change in ownership with the Ministry of Commerce of the People’s Republic of China in accordance with the Interim Measures for Record Management regarding the Establishment and Change of Foreign-invested Enterprises (revised), and repay for outstanding loan principal and corresponding accrued and unpaid interest.The following trends are reasonably likely to result in a material decrease in our liquidity over the near to long term:

●

Anan increase in working capital requirements to finance our current business;

●

~~The~~repayment for outstanding loan;

●

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

●

~~Addition~~addition of administrative ~~and sales~~ personnel as the business grows; and

●

~~The~~the cost of being a public company.

~~We will need to raise additional funds, particularly if~~ Currently,we ~~are unable to generate positive cash flow as a result of our operations. We estimate that based on current plans and assumptions, that our available cash will be insufficient to satisfy~~use our cash requirements under our present operating expectations. Other than funds received from the sale of our equity and advances from our related parties, we presently have no other significant alternative source of working capital. We have used these funds to ~~fund our operating expenses, pay our obligations and grow our company. We will need to raise significant additional capital to fund~~support our operations and to provide working capital for our ongoing operations and obligations. ~~Therefore,~~We estimate that we will require additional working capital to fund our ~~future operation~~current operations for the next 12 months. We have historically funded our capital expenditures through cash flow provided by loans, related parties’ advances, and equity financing. Considering our available cash together with our cash inflow from financing, we believe that it is ~~dependent on~~not likely that we will not meet our ~~ability~~anticipated cash requirements for the next twelve months.

Althoughwe estimate that our current cash will be sufficient to ~~secure~~meet our anticipated cash requirements for the next twelve months,we need to either borrow funds or raise additional ~~financing. Financing transactions may include the issuance of~~capital through equity or debt ~~securities, obtaining credit facilities,~~financings in order to support our future mergers or ~~other financing mechanisms. However,~~acquisitions and the ~~trading price~~development of our ~~common stock~~business opportunities. However, we cannot be certain that such capital (from our stockholders or third parties) will be available to us or whether such capital will be available on terms that are acceptable to us. Any such financing likely would be dilutive to existing stockholders and ~~a downturn~~could result in the U.S. equity and debt markets could make it more difficult to obtain financing through the issuance of equity or debt securities. Even if we are able to raise the funds required, it is possible that we could incur unexpected costs and expenses or experience unexpected cash requirementssignificant financial operating covenants that would force us to seek alternative financing. Furthermore, if we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders ofnegatively impact our common stock. The inability to obtain additional capital may restrict our ability to grow and may reduce our ability to continue to conduct business operations. If we are unable to obtain additional financing, we will be required to cease our operations. To date, we have not considered this alternative, nor do we view it as a likely occurrence.business.

Contractual Obligations and Off-Balance Sheet Arrangements

Contractual Obligations

We have certain fixed contractual obligations and commitments that include future estimated payments. Changes in our business needs, cancellation provisions, and other factors may result in actual payments differing from the estimates. We cannot provide certainty regarding the timing and amounts of payments. We have presented below a summary of the most significant assumptions used in our determination of amounts presented in the tables, in order to assist in the review of this information within the context of our consolidated financial position, results of operations, and cash flows. The following tables summarize our contractual obligations as of ~~September~~June 30, ~~2017,~~2018, and the effect these obligations are expected to have on our liquidity and cash flows in future periods.

	Payments Due by Period										Payments Due by Period
Contractual obligations:	Total		Less than 1 year		1-3 years		3-5 years		5⁺years		Total		Less than 1 year		1-3 years		3-5 years		5⁺years
Legal service contract	$	60,000	$	60,000	$	—	$	—	$	—
Financial consulting service contract		34,000		34,000		—		—		—
Office leases commitment											$	64,892	$	64,892	$	—	$	—	$	—
Real property management agreement		102,923		65,004		37,919		—		—		54,170		54,170		—		—		—
Office leases commitment		134,137		100,468		33,669		—		—
Education program agreement												150,000		150,000		—		—		—
Acquisition consideration												450,000		450,000		—		—		—
Loan payable (principal)		2,100,000		2,100,000		—		—		—		1,000,000		1,000,000		—		—		—
Accrued interest for loan		94,932		94,932		—		—		—
Accrued interest												24,931		24,931		—		—		—
Total	$	2,525,992	$	2,454,404	$	71,588	$	—	$	—	$	1,743,993	$	1,743,993	$	—	$	—	$	—

Off-balance Sheet Arrangements

We presently do not have off-balance sheet arrangements.

Foreign Currency Exchange Rate Risk

A portion of our operations are in China. Thus, a portion of our ~~revenue~~revenues and operating results may be impacted by exchange rate fluctuations between RMB and US dollars. For the ~~nine~~three months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, we had unrealized foreign currency translation loss of approximately ~~$26,000~~$96,000 and unrealized foreign currency translation gain of approximately ~~$400,~~$8,000, respectively, because of changes in the exchange rate. For the six months ended June 30, 2018 and 2017, we had unrealized foreign currency translation loss of approximately $43,000 and $32,000, respectively, because of changes in the exchange rate.

Inflation

The effect of inflation on our revenue and operating results was not significant.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

As a smaller reporting company, as defined in Rule 12b-2 of the Exchange Act, we are not required to provide the information required by this Item.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in reports filed or submitted under the Securities Exchange Act of 1934, as amended (“Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed under the Exchange Act is accumulated and communicated to management, including the principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosure. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.

In connection with the preparation of the quarterly report on Form 10-Q for the quarter ended ~~September~~June 30, ~~2017,~~2018, our management, including our principal executive officer and principal financial officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures, which are defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Based on this evaluation, management concluded that our internal control over financial reporting were not effective as of ~~September~~June 30, ~~2017~~2018 due to the material weakness we previously reported in our ~~2016~~Form 10-K Annual Report for the year ended December 31, 2017 (“2017 10-K”) which has not yet been remediated. In our ~~2016~~2017 10-K we reported that we did not maintain a sufficient complement of personnel with an appropriate level of experience and training in the application of U.S. GAAP commensurate with our financial reporting requirements and we did not form a formal audit committee.reported:

●

The Company has not established adequate financial reporting monitoring activities to mitigate the risk of management override, specifically because there are few employees and only three officers with management functions and therefore there is lack of segregation of duties.

●

There is a strong reliance on outside consultants to review and adjust the annual and quarterly financial statements, to monitor new accounting principles, and to ensure compliance with GAAP and SEC disclosure requirements.

●

There is a strong reliance on the external attorneys to review and edit the annual and quarterly filings and to ensure compliance with SEC disclosure requirements.

●

A formal audit committee has not been formed.

Changes in Internal Controls Over Financial Reporting

There were no changes (including corrective actions with regard to material weakness) in our internal controls over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, we are subject to ordinary routine litigation incidental to our normal business operations. We are not currently a party to any litigation the outcome of which, if determined adversely to us, would individually or in the aggregate be reasonably expected to have a material adverse effect on our business, operating results, cash flows or financial condition.

ITEM 1A. RISK FACTORS

As a smaller reporting company, as defined in Rule 12b-2 of the Exchange Act, we are not required to provide the information required by this Item.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Services

On February 21, 2017, Ms. Ingariola and the Company entered into an Executive Retention Agreement effective February 9, 2017 pursuant to which Ms. Ingariola agreed to serve as Chief Financial Officer. As partial compensation, the Company granted Ms. Ingariola a Stock Option to acquire 2,000,000 shares of common stock at an exercise price of $0.50 per share for a period of ten years. The Stock Options vest in 36 equal tranches commencing on the grant date. On April 28, 2017, Steven P. Sukel and Yancen Lu were appointed to the Board of Directors of our company to serve as directors. Mr. Sukel and Mr. Yancen Lu both entered into agreements pursuant to which they will serve as directors. The director agreements provide that they will receive options to receive 40,000 shares of common stock per year at an exercise price equal to the closing price on December 31st of the prior year. The options shall vest in equal amounts quarterly and shall be exercisable for a period of five years.During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, we granted a total of ~~444,448~~140,000 options to ~~our Chief Financial Officer~~four directors with 120,000 options at a fixed exercise price of ~~$0.50~~$2.50 per share and ~~granted a total of 40,000~~20,000 options ~~to our two directors~~ at a fixed exercise price of ~~$1.49~~$2.30 per share. ~~The 444,448~~These options ~~granted to our Chief Financial Officer~~ are exercisable for ~~ten years and the 40,000 options granted to our two directors are exercisable for~~a period of five years. In connection with the option vest, we recorded stock-based compensation expense of ~~$602,224~~$151,480 for the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~

~~DOING Biomedical Technology Co., Ltd.~~2018.

~~DOING Biomedical Technology Co., Ltd. (“DOING”) and Avalon discussed DOING potentially investing in Avalon. However, prior~~During the six months ended June 30, 2018, we granted 180,000 options to ~~such investment, DOING needed~~a consultant at a fixed exercise price of $1.00 per share. These options are exercisable for a period of three years. In connection with the option grant, we recorded stock-based compensation expense of $151,660 for the six months ended June 30, 2018.

During the six months ended June 30, 2018, pursuant to ~~obtain the required approvals from the government, which is a timely and costly process. In lieu~~consulting agreements, we issued an aggregate of ~~acquiring shares directly from Avalon, DOING agreed to fund the purchase of~~175,000 shares of common stock to 3 consulting companies for the services rendered and to be rendered. These shares were valued at $467,000, the fair market values on the grant dates using the reported closing share prices on the dates of ~~Avalon on behalf~~grant, and we recorded stock-based compensation expense of $61,750 for the three and six months ended June 30, 2018 and recorded prepaid expense of $405,250 as of June 30, 2018 which will be amortized over the rest of corresponding service periods.

Warrants for Equity Raise

In connection with equity raise, we issued a total of 578,891 stock warrants with various fixed exercise price to an ~~accredited investor (the “March 2017 Accredited Investor”), which is permitted under Chinese law~~investment banking firm. These warrants are exercisable at any time for a five-year period. The fair value of these warrants was debited to the account of additional paid-in capital and was fully offset by the corresponding credit to the additional paid-in capital, resulting in no change in net equity of the balance sheet.

.Common Shares Sold for Cash

~~Accordingly,~~

During the second quarter of 2018, we ~~entered into and closed a Subscription Agreement with the March 2017 Accredited Investor pursuant to which the March 2017 Accredited Investor purchased 3,000,000~~sold 3,107,000 shares of common stock ~~(“March 2017 Shares”)~~at $1.75 per share to four investors pursuant to subscription agreements. We received net cash proceeds of $5,056,643, net of cash fee paid to an investment banking firm of $380,607. In connection with this private offering, we issued a total of 218,391 stock warrants at various fixed exercise price to the placement agent for the transaction. These warrants are exercisable at any time for a ~~purchase price of $3,000,000 (the “Purchase Price”). The closing occurred on March 3, 2017.~~

Avalon Shanghai, DOING, the March 2017 Accredited Investor and our company entered into a Share Subscription Agreement whereby the parties acknowledged, among other things, that DOING agreed to transfer the Purchase Price to Avalon Shanghai on behalf of the March 2017 Investor and the March 2017 Accredited Investor agreed to transfer the March 2017 Shares to DOING upon DOING completing the registration of the acquisition of the March 2017 Shares with the Beijing Commerce Commission (“BCC”).

The BCC is responsible for guiding foreign investment, trade and technology transfer in China. DOING is required to obtain an Enterprise Overseas Investment Certificate (the “Investment Certificate”) from BCC in order to acquire the March 2017 Shares.

If DOING fails to complete the registration and acquire the Investment Certificate within one year of the closing then Avalon Shanghai shall transfer $3,000,000 with interest of 20% to DOING upon the request of DOING (the “BCC Repayment Obligation”). As of the date hereof, the Company is obligated to DOING in the principal amount of $3,000,000. The BCC Repayment Obligation is a debt obligation arising other than in the ordinary course of business, which constitutes a direct financial obligation of our company. In the event we are required to repay the BCC Repayment Obligation, our operations will be negatively impacted.

Further, Wenzhao Lu, major shareholder and chairman of the Board of Directors of our company, and DOING entered into a Warranty Agreement. Pursuant to the Warranty Agreement, Mr. Wenzhao Lu agreed to (i) cause us to be liable to DOING in the event the March 2017 Accredited Investor defaults in its obligations to DOING, (ii) cause the March 2017 Accredited Investor to transfer the March 2017 Shares to DOING upon DOING’s receipt of the Investment Certificate from BCC, (iii) within three years from the date of the Warranty Agreement, DOING may require Mr. Wenzhao Lu to acquire the March 2017 Shares at $1.20 per share upon three months notice, and (iv) in the event Mr. Wenzhao Lu does not acquire the March 2017 Shares within the three month period, interest of 15% per annum will be added to the purchase price.

~~October 2017 Private Placement~~

~~GenExosome Technologies Inc.~~

In July 2017, the Company formed GenExosome Technologies Inc., a Nevada corporation (“GenExosome”). On September 29, 2017, Dr. David K. Jin was appointed as the sole director and as the Chief Executive Officer, Chief Medical Officer and President, Meng Li was appointed as Chief Operating Officer and Secretary and Luisa Ingargiola was appointed as Chief Financial Officer. On October 25, 2017, GenExosome and the Company entered into a Securities Purchase Agreement pursuant to which the Company acquired 600 shares of GenExosome in consideration of $1,326,087 and 500,000 shares of common stock of the Company. The Company is required to deliver the 500,000 shares of its common stock no later than November 24, 2017. On October 25, 2017, GenExosome entered into and closed an Asset Purchase Agreement with Yu Zhou, MD, PhD, pursuant to which the Company acquired all assets, including all intellectual property, held by Dr. Zhou pertaining to the business of researching, developing and commercializing exosome technologies including, but not limited to, patent application number CN 2016 1 0675107.5 (application of an Exosomal MicroRNA in plasma as biomaker to diagnosis liver cancer), patent application number CN 2016 1 0675110.7 (clinical application of circulating exosome carried miRNA-33b in the diagnosis of liver cancer), patent application number CN 2017 1 0330847.X (saliva exosome based methods and composition for the diagnosis, staging and prognosis of oral cancer) and patent application number CN 2017 1 0330835.7 (a novel exosome-based therapeutics against proliferative oral diseases). In consideration of the assets, GenExosome agreed to pay Dr. Zhou $876,087 in cash no later than November 24, 2017, transfer 500,000 shares of common stock of the Company to Dr. Zhou no later than November 24, 2017 and issue Dr. Zhou 400 shares of common stock of GenExosome no later than November 24, 2017.

five-year period.

The offers, sales, and issuances of the securities described above were deemed to be exempt from registration under the Securities Act in reliance on Section 4(a)(2) of the Securities Act of 1933 or Regulation D promulgated thereunder as transactions by an issuer not involving a public offering. The recipients of securities in each of these transactions acquired the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the securities issued in these transactions. Each of the recipients of securities in these transactions was an accredited or sophisticated person and had adequate access, through employment, business or other relationships, to information about us.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

None.

ITEM 5. OTHER INFORMATION

Issuer Purchases of Equity Securities

On ~~April 19, 2017,~~March 27, 2018, the Company repurchased 520,000 shares of its common stock from a third party through a privately negotiated transaction at an aggregate price of $522,500, of which $2,500 was paid to an escrow agent as share repurchase cost.

Changes to Board of Directors

On June 4, 2018, Tevi Troy was appointed to the Board of Directors of the Company to serve as a director of the Company. In addition, the Company expects to appoint Dr. Troy as Chairman of the Nominating and Corporate Governance Committee upon formation. Dr. Troy entered into an agreement pursuant to which he will serve as a ~~loan~~director. The director agreement ~~providing~~provides that he will receive options to acquire 40,000 shares of common stock per year commencing January 1, 2019 at an exercise price equal to the closing price on December 31st of the prior year. The options shall vest in equal amounts quarterly and shall be exercisable for a period of five years. For 2018, the ~~issuance~~Company granted Dr. Troy options to acquire 20,000 shares of ~~a loan in the principal amount~~common stock at an exercise price of ~~$2,100,000. The~~$2.30 for a term of five years with 10,000 options vesting immediately and the ~~loan is one~~balance vesting October 1, 2018. In addition, Dr. Troy will receive $5,000 per quarter for serving as Chairman of the Nominating and Corporate Governance Committee commencing upon formation.

On July 5, 2018, William B. Stilley, III was appointed to the Board of Directors of the Company to serve as a director of the Company. In addition, the Company expects to appoint Mr. Stilley as Chairman of the Audit Committee upon formation. Mr. Stilley entered into an agreement pursuant to which he will serve as a director. The director agreement provides that he will receive options to acquire 40,000 shares of common stock per year commencing January 1, 2019 at an exercise price equal to the closing price on December 31st of the prior year. The ~~annual interest rate~~options shall vest in equal amounts quarterly and shall be exercisable for a period of five years. For 2018, the ~~loan is 10%. The loan is guaranteed by~~Company granted Mr. Stilley options to acquire 20,000 shares of common stock at an exercise price of $2.30 for a term of five years with 10,000 options vesting immediately and the ~~Company’s~~balance vesting October 1, 2018. In addition, Mr. Stilley will receive $7,500 per quarter for serving as Chairman ~~Mr. Wenzhao Lu. At September 30, 2017, the outstanding principal balance~~ of the ~~loan~~Audit Committee commencing upon formation.

On July 9, 2018, Meng Li resigned as a director of the Company. Ms. Li will continue to serve as Chief Operating Officer and ~~related accrued~~Secretary of the Company and ~~unpaid interest~~will also serve as an observer of the Board of Directors without voting capacity.

On July 30, 2018, Steven A. Sanders was appointed to the Board of Directors of the Company to serve as a director of the Company. In addition, the Company expects to appoint Mr. Sanders as a member of Audit Committee and Nominating and Corporate Governance Committee upon formation. Mr. Sanders entered into an agreement pursuant to which he will serve as a director. The director agreement provides that he will receive options to acquire 40,000 shares of common stock per year commencing January 1, 2019 at an exercise price equal to the closing price on December 31st of the prior year. The options shall vest in equal amounts quarterly and shall be exercisable for a period of five years. For 2018, the ~~loan was $2,100,000~~Company granted Mr. Sanders options to acquire 20,000 shares of common stock at an exercise price of $2.80 for a term of five years with 10,000 options vesting immediately and ~~$94,932, respectively.~~the balance vesting October 1, 2018. In addition, Mr. Sanders will receive $5,000 per quarter for serving as a member of the Audit Committee and Nominating and Corporate Governance Committee commencing upon formation.

On July 30, 2018, Steven P. Sukel resigned as a director of the Company.

ITEM 6. EXHIBITS

The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.

Exhibit ~~No.~~ Number		~~Exhibit~~ Description

3.1		Amended and Restated Certificate of Incorporation ~~(2)~~of the Registrant (incorporated by reference to Exhibit 3.1 of the Current Report on Form 8-K/A filed with the Securities and Exchange Commission on April 26, 2018)

3.2		~~Certificate~~Amended and Restated Bylaws of ~~Amendment~~the Registrant (incorporated by reference to Exhibit 3.2 of ~~Certificate of Incorporation~~the Current Report on Form 8-K/A filed ~~pursuant to Delaware General Corporation Law (1)~~with the Securities and Exchange Commission on April 26, 2018)

~~3.3~~	~~Certificate of Correction to the Certificate of Amendment of Certificate of Incorporation filed pursuant to Delaware General Corporation Law (1)~~

~~3.4~~4.1	~~Bylaws (3)~~

~~4.1~~	Form of Subscription Agreement by and between Avalon GloboCare Corp. and the December 2016 Accredited Investors ~~(5)~~(incorporated by reference to Exhibit 4.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on December 21, 2016)

4.2 †		Stock Option issued to Luisa Ingargiola dated February 21, 2017 ~~(8)~~(incorporated by reference to Exhibit 4.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on February 21, 2017)

4.3		Form of Subscription Agreement by and between Avalon GloboCare Corp. and the March 2017 Accredited Investor ~~(9)~~(incorporated by reference to Exhibit 4.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on March 7, 2017)

4.4		Share Subscription Agreement between Avalon GloboCare Corp., Avalon (Shanghai) Healthcare Technology Co., Ltd., Beijing DOING Biomedical Technology Co., Ltd. and Daron Liang ~~(9)~~(incorporated by reference to Exhibit 4.2 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on March 7, 2017)

4.5		Warranty Agreement between Lu Wenzhao and Beijing DOING Biomedical Technology Co., Ltd. ~~(9)~~(incorporated by reference to Exhibit 4.3 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on March 7, 2017)

4.6		Form of Subscription Agreement between Avalon GloboCare Corp. and the October 2017 Accredited Investors ~~(14)~~(incorporated by reference to Exhibit 4.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on October 26, 2017)

4.7		Form of Warrant to Boustead Securities, LLC in connection with the private placements (incorporated by reference to Exhibit 4.8 of the Registration Statement on Form S-1/A filed with the Securities and Exchange Commission on July 27, 2018)

10.1		Share Exchange Agreement dated as of October 19, 2016 by and among Avalon Healthcare System, Inc., the shareholders of Avalon Healthcare System, Inc. and Avalon GloboCare Corp. ~~(1)~~(incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on October 19, 2016)

10.2 †
~~10.2~~	Executive Employment Agreement, effective December 1, 2016, by and between Avalon GloboCare Corp. and David Jin ~~(4)~~(incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on December 2, 2016)

10.3		Agreement of Sale by and between Freehold Craig Road Partnership, as Seller, and Avalon GloboCare Corp., as Buyer dated as of December 22, 2016 ~~(6)~~(incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on December 23, 2016)

10.4 †		Executive Employment Agreement by and between Avalon (Shanghai) Healthcare Technology Ltd. and Meng Li dated January 11, 2017 ~~(7)~~(incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on January 11, 2017)

10.5 †		Executive Retention Agreement by and between Avalon GloboCare Corp. and Luisa Ingargiola dated February 21, 2017 ~~(8)~~(incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on February 21, 2017)

10.6 †		Indemnification Agreement by and between Avalon GloboCare Corp. and Luisa Ingargiola dated February 21, 2017 ~~(8)~~(incorporated by reference to Exhibit 10.2 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on February 21, 2017)

10.7 †		Director Agreement by and between Avalon GloboCare Corp. and Steven P. Sukel dated April 28, 2017 ~~(11)~~(incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on April 28, 2017)

10.8 †		Director Agreement by and between Avalon GloboCare Corp. and Yancen Lu dated April 28, 2017 ~~(11)~~(incorporated by reference to Exhibit 10.2 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on April 28, 2017)

10.9		Consultation Service Contract between Daopei Investment Management (Shanghai) Co., Ltd. and Avalon HealthCare System Inc. dated April 1, 2016 (English translation) ~~(12)~~(incorporated by reference to Exhibit 10.8 of Amendment No. 1 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on July 7, 2017)

10.10		Consultation Service Contract between Hebei Yanda Ludaopei Hospital Co., Ltd and Avalon HealthCare System Inc. dated April 1, 2016 (English translation) ~~(12)~~(incorporated by reference to Exhibit 10.9 of Amendment No. 1 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on July 7, 2017)

10.11		Consultation Service Contract between Nanshan Memorial Stem Cell Biotechnology Co., ~~Ltd.and~~Ltd. and Avalon HealthCare System Inc. dated April 1, 2016 (English translation) ~~(12)~~(incorporated by reference to Exhibit 10.10 of Amendment No. 1 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on July 7, 2017)

10.12		Loan Agreement between Lotus Capital Overseas Limited and Avalon (Shanghai) Healthcare Technology Co., Ltd. dated April 19, 2017 (English translation) ~~(13)~~(incorporated by reference to Exhibit 10.12 of the Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on August 14, 2017)

10.13		Securities Purchase Agreement between Avalon GloboCare Corp. and GenExosome Technologies Inc. dated October 25, 2017 ~~(14)~~(incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on October 26, 2017)

10.14		Asset Purchase Agreement between GenExosome Technologies Inc. and Yu Zhou dated October 25, 2017 ~~(14)~~(incorporated by reference to Exhibit 10.2 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on October 26, 2017)

10.15		Stock Purchase Agreement between GenExosome Technologies Inc., Beijing Jieteng (GenExosome) Biotech Co. Ltd. and Yu Zhou dated October 25, 2017 ~~(14)~~(incorporated by reference to Exhibit 10.3 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on October 26, 2017)

10.16 †		Executive Retention Agreement between GenExosome Technologies Inc. and Yu Zhou dated October 25, 2017 ~~(14)~~(incorporated by reference to Exhibit 10.4 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on October 26, 2017)

10.17		Invention Assignment, Confidentiality, Non-Compete and Non-Solicit Agreement between GenExosome Technologies Inc. and Yu Zhou dated October 25, 2017 ~~(14)~~(incorporated by reference to Exhibit 10.5 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on October 26, 2017)

~~14.1~~10.18 †		~~Code~~Director Agreement by and between Avalon GloboCare Corp. and Wilbert J. Tauzin II dated November 1, 2017 (incorporated by reference to Exhibit 10.1 of ~~Ethics (1)~~the Current Report on Form 8-K filed with the Securities and Exchange Commission on November 7, 2017)

10.19		Agreement between Avalon GloboCare Corp. and Tauzin Consultants, LLC dated November 1, 2017 (incorporated by reference to Exhibit 10.2 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on November 7, 2017)

10.20 †		Letter Agreement by and between Avalon GloboCare Corp. and David Jin dated April 3, 2018 (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on April 4, 2018)

10.21 †		Letter Agreement by and between Avalon GloboCare Corp. and Meng Li dated April 3, 2018 (incorporated by reference to Exhibit 10.2 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on April 4, 2018)

10.22		Advisory Service Contract between Ludaopei Hematology Research Institute Co., Ltd. and Avalon (Shanghai) Healthcare Technology Co., Ltd. dated April 1, 2018 (English translation) (previously filed)

10.23		Form of Subscription Agreement by and between Avalon GloboCare Corp. and the April 2018 Accredited Investors (incorporated by reference to Exhibit 4.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on April 18, 2018)

10.24

Supplementary Agreement Related to Share Subscription by and between Avalon GloboCare Corp., Avalon (Shanghai) Healthcare Technology Co., Ltd., Beijing DOING Biomedical Technology Co., Ltd. and Daron Liang dated April 23, 2018 (English translation) (incorporated by reference to Exhibit 4.2 of the Current Report on Form 8-K/A filed with the Securities and Exchange Commission on April 26, 2018)


10.25		Loan Extension Agreement between Lotus Capital Overseas Limited and Avalon (Shanghai) Healthcare Technology Co., Ltd. dated May 3, 2018 (English translation) (incorporated by reference to Exhibit 10.18 of the Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 11, 2018)

10.26 †		Director Agreement by and between Avalon GloboCare Corp. and Tevi Troy dated June 4, 2018 (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on June 6, 2018)

10.27		Joint Venture Agreement by and between Avalon (Shanghai) Healthcare Technology Co., Ltd. and Jiangsu Unicorn Biological Technology Co., Ltd. dated May 29, 2018 (English translation) (incorporated by reference to Exhibit 99.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on June 6, 2018)

10.28 †		Director Agreement by and between Avalon GloboCare Corp. and William Stilley, III dated July 5, 2018 (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 10, 2018)

10.29 †		Director Agreement by and between Avalon GloboCare Corp. and Steven A. Sanders dated July 30, 2018 (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 31, 2018)

10.30		Loan Extension Agreement between Lotus Capital Overseas Limited and Avalon (Shanghai) Healthcare Technology Co., Ltd. dated August 3, 2018 (English translation) (incorporated by reference to Exhibit 10.30 of the Registration Statement on Form S-1/A filed with the Securities and Exchange Commission on July 27, 2018)

10.31		Strategic Partnership Agreement between Avalon GloboCare Corp. and Weill Cornell Medical College of Cornell University dated August 6, 2018.(incorporated by reference to Exhibit 10.31 of the Registration Statement on Form S-1/A filed with the Securities and Exchange Commission on July 27, 2018)

21.1		List of Subsidiaries ~~(10)~~(incorporated by reference to Exhibit 21.1 of the Registration Statement on Form S-1/A filed with the Securities and Exchange Commission on July 20, 2018)

31.1*		Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes Oxley Act

31.232.1		Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes Oxley Act

32.1*		Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act

~~(1)~~	~~Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on October 19, 2016.~~
~~(2)~~	~~Incorporated by reference to the Form S-1 Registration Statement filed with the Securities and Exchange Commission on March 26, 2015.~~
~~(3)~~	~~Incorporated by reference to the Form S-1 Registration Statement filed with the Securities and Exchange Commission on February 19, 2015.~~
~~(4)~~	~~Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on December 2, 2016.~~
~~(5)~~	~~Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on December 21, 2016.~~
~~(6)~~	~~Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on December 23, 2016.~~
~~(7)~~	~~Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on January 11, 2017.~~
~~(8)~~	~~Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on February 21, 2017.~~
~~(9)~~	~~Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on March 7, 2017.~~
~~(10)~~	~~Incorporated by reference to the Form 10-K Annual Report filed with the Securities and Exchange Commission on March 28, 2017.~~
~~(11)~~	~~Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on April 28, 2017.~~
~~(12)~~	~~Incorporated by reference to the Amendment No. 1 to the Form S-1 Registration Statement filed with the Securities and Exchange Commission on July 7, 2017.~~
~~(13)~~	~~Incorporated by reference to the Form 10-Q Quarterly Report filed with the Securities and Exchange Commission on August 14, 2017.~~
~~(14)~~	~~Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on October 26, 2017.~~

101.INS*		XBRL INSTANCE DOCUMENT

101.SCH*		XBRL TAXONOMY EXTENSION SCHEMA DOCUMENT

101.CAL*		XBRL TAXONOMY EXTENSION CALCULATION LINKBASE DOCUMENT

101.DEF*		XBRL TAXONOMY EXTENSION DEFINITION LINKBASE DOCUMENT

101.LAB*		XBRL TAXONOMY EXTENSION LABEL LINKBASE DOCUMENT

101.PRE*		XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE DOCUMENT

* Filed herewith

† Management contract or compensatory plan or arrangement.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	AVALON GLOBOCARE CORP.
	(Registrant)

Date: ~~November~~August 14, ~~2017~~2018	By:	/s/ David K. Jin
		David K. Jin
		Chief Executive Officer, President and Director (Principal Executive Officer)

Date: ~~November~~August 14, ~~2017~~2018	By:	/s/ Luisa Ingargiola
		Luisa Ingargiola
		Chief Financial Officer (Principal Financial and Accounting Officer)

36 46

	September 30,				December 31,
	2017				2016
	(Unaudited)
ASSETS

CURRENT ASSETS:
Cash	$	356,822			$	2,886,189
Accounts receivable - related parties, net of allowance for doubtful accounts		166,874				70,228
Tenants receivable, net of allowance for doubtful accounts		56,239				—
Security deposit		6,012		��		—
Prepaid expenses and other		36,414				749,796

Total Current Assets		622,361				3,706,213

OTHER ASSETS:
Security deposit - noncurrent portion		24,763				—
Property, plant and equipment, net		46,365				295
Investment in real estate, net		7,655,562				—

Total Other Assets		7,726,690				295

Total Assets	$	8,349,051			$	3,706,508

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES:
Accounts payable	$	21,600			$	—
Accrued liabilities and other payables		343,002				22,334
Accrued liabilities and other payables - related parties		31,634				8,587
Deferred rental income		19,914				—
Loan payable		2,100,000				—
Income taxes payable		—				20,976
VAT and other taxes payable		2,091				11,270
Tenants’ security deposit		92,288				—
Due to related parties		306,650				97,150
Refundable deposit		3,000,000				—

Total Current Liabilities		5,917,179				160,317

Commitments and Contingencies - (Note 14)

STOCKHOLDERS’ EQUITY:
Preferred stock, $0.0001 par value; 10,000,000 shares authorized; no shares issued and outstanding at September 30, 2017 and December 31, 2016		—				—
Common stock, $0.0001 par value; 490,000,000 shares authorized; 64,628,622 and 61,628,622 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively		6,463				6,163
Additional paid-in capital		4,283,311				3,681,387
Accumulated deficit		(1,743,939	)			(53,369	)
Statutory reserve		6,578				6,578
Accumulated other comprehensive loss - foreign currency translation adjustment		(120,541	)			(94,568	)

Total Stockholders’ Equity		2,431,872				3,546,191

Total Liabilities and Stockholders’ Equity	$	8,349,051			$	3,706,508

	For the Three Months Ended					For the Nine Months Ended
	September 30,					September 30,
	2017			2016		2017			2016

REVENUES
Real property rental revenue	$	315,284		$	—	$	537,538		$	—
Consulting services revenue - related parties		2,166			326,667		220,949			326,667
Total Revenues		317,450			326,667		758,487			326,667

COSTS AND EXPENSES
Real property operating expenses		180,722			—		342,576			—
Consulting services costs - related parties		47,033			33,548		271,845			33,548
Total Costs and Expenses		227,755			33,548		614,421			33,548

REAL PROPERTY OPERATING INCOME		134,562			—		194,962			—
GROSS (LOSS) PROFIT FROM CONSULTING SERVICES		(44,867	)		293,119		(50,896	)		293,119

OTHER OPERATING EXPENSES:
Selling expense		148			121		15,138			121
Compensation and related benefits		468,837			—		857,237			—
Professional fees		186,208			84,038		566,131			161,113
Other general and administrative		92,421			1,127		245,080			29,583

Total Other Operating Expenses		747,614			85,286		1,683,586			190,817

(LOSS) INCOME FROM OPERATIONS		(657,919	)		207,833		(1,539,520	)		102,302

OTHER INCOME (EXPENSE)
Interest income		122			41		1,126			101
Interest expense		(52,932	)		—		(94,932	)		—
Foreign currency transaction loss		—			—		(57,244	)		—

Total Other (Expense) Income, net		(52,810	)		41		(151,050	)		101

(LOSS) INCOME BEFORE INCOME TAXES		(710,729	)		207,874		(1,690,570	)		102,403

INCOME TAXES		—			—		—			—

NET (LOSS) INCOME	$	(710,729	)	$	207,874	$	(1,690,570	)	$	102,403

COMPREHENSIVE (LOSS) INCOME
NET (LOSS) INCOME		(710,729	)		207,874		(1,690,570	)		102,403
OTHER COMPREHENSIVE INCOME (LOSS)
Unrealized foreign currency translation gain (loss)		6,151			216		(25,973	)		431
COMPREHENSIVE (LOSS) INCOME	$	(704,578	)	$	208,090	$	(1,716,543	)	$	102,834

NET (LOSS) INCOME PER COMMON SHARES:
Basic and diluted	$	(0.011	)	$	0.004	$	(0.026	)	$	0.002

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic and diluted		64,628,622			50,000,000		63,958,292			50,000,000

	For the Nine Months Ended September 30,
	2017			2016

CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income	$	(1,690,570	)	$	102,403
Adjustments to reconcile net (loss) income from operations to
net cash (used in) provided by operating activities:
Depreciation expense		58,478			—
Options granted for service		602,224			—
Changes in operating assets and liabilities:
Accounts receivable - related parties		(91,463	)		—
Tenants receivable		(56,239	)		—
Prepaid expenses and other		14,151			(5,125	)
Security deposit		(30,081	)		—
Accounts payable		21,600			—
Accrued liabilities and other payables		320,505			(2,790	)
Accrued liabilities and other payables - related parties		22,990			6,226
Deferred rental income		19,914			—
Advance from customers - related parties		—			227,184
Income taxes payable		(21,400	)		—
VAT and other taxes payable		(9,453	)		—
Tenants’ security deposit		92,288			—

NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES		(747,056	)		327,898

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Avalon GloboCare Corp.’s shares		—			(230,000	)
Purchase of property, plant and equipment		(50,994	)		(395	)
Purchase of commercial real estate		(7,008,571	)		—

NET CASH USED IN INVESTING ACTIVITIES		(7,059,565	)		(230,395	)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds received from loan payable		2,100,000			—
Proceeds received from related parties’ advance		210,000			9,000
Repayment for related parties’ advance		(500	)		—
Proceeds received from AHS’s founders’ contribution		—			141,000
Refundable deposit in connection with Share Subscription Agreement		3,000,000			—

NET CASH PROVIDED BY FINANCING ACTIVITIES		5,309,500			150,000

EFFECT OF EXCHANGE RATE ON CASH		(32,246	)		(1,262	)

NET (DECREASE) INCREASE IN CASH		(2,529,367	)		246,241

CASH - beginning of period		2,886,189			109,586

CASH - end of period	$	356,822		$	355,827

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Interest	$	—		$	—
Income taxes	$	21,400		$	—

NON-CASH INVESTING AND FINANCING ACTIVITIES:
Stock issued in connection with Share Subscription Agreement	$	300		$	—
Distribution of Avalon GloboCare Corp.’s shares to owners	$	—		$	230,000
Acquisition of real estate by decreasing prepayment for property	$	700,000		$	—

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2017			2016		2017			2016
Net (loss) income for basic and diluted net (loss) income per share of common stock	$	(710,729	)	$	207,874	$	(1,690,570	)	$	102,403
Weighted average common stock outstanding - basic and diluted		64,628,622			50,000,000		63,958,292			50,000,000
Net (loss) income per common shares - basic and diluted	$	(0.011	)	$	0.004	$	(0.026	)	$	0.002

	September 30, 2017		December 31, 2016
Prepayment for acquisition of real property	$	—	$	700,000
Other		36,414		49,796
	$	36,414	$	749,796

	Number of Options		Weighted Average Exercise Price
Balance at December 31, 2016		—	$	—
Granted		484,448		0.58
Exercised		—		—
Balance at September 30, 2017		484,448		0.58
Option exercisable at September 30, 2017		484,448	$	0.58

Identifiable long-lived tangible assets at September 30, 2017 and December 31, 2016	September 30, 2017		December 31, 2016
Real property operating	$	7,677,995	$	—
Medial related consulting services		23,932		295
	$	7,701,927	$	295

						December 31, 2016 to September 30, 2017
	September 30, 2017			December 31, 2016		Change			Percentage Change
Working capital (deficit):
Total current assets	$	622,361		$	3,706,213	$	(3,083,852	)		(83.2	)%
Total current liabilities		5,917,179			160,317		5,756,862			3,590.9	%
Working capital (deficit):	$	(5,294,818	)	$	3,545,896	$	(8,840,714	)		(249.3	)%