AVALON GLOBOCARE CORP. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

The following discussion and analysis of our financial condition and results of
operations for the three months ended March 31, 2022 and 2021 should be read in
conjunction with our condensed consolidated financial statements and related
notes to those condensed consolidated financial statements that are included
elsewhere in this 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 30, 2022. 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.


Impact of COVID-19 on Our Operations, Financial Condition, Liquidity and Results
of Operations




Although the COVID-19 vaccines have generally been introduced to the public, the
ultimate impact of the COVID-19 pandemic on our operations is unknown and will
depend on future developments, which are highly uncertain and cannot be
predicted with confidence, including the duration of the COVID-19 outbreak, new
information which may emerge concerning the severity of the COVID-19 pandemic, a
significant increase in new and variant strains of COVID-19 cases, availability
and effectiveness of COVID-19 vaccines and therapeutics, the level of acceptance
of the vaccine by the general population and any additional preventative and
protective actions that governments, or us, may determine are needed.



The occurrence of COVID-19 pandemic had negative impact on our operations. Some
of the universities and laboratories with which we collaborate were temporarily
closed. Our general development operations have continued during the COVID-19
pandemic and we have not had significant disruption. However, we are uncertain
if the COVID-19 pandemic will impact future operations at our laboratory, or our
ability to collaborate with other laboratories and universities. In addition, we
are unsure if the COVID-19 pandemic will impact future clinical trials. Given
the dynamic nature of these circumstances, the duration of business disruption
and reduced traffic, the related financial effect cannot be reasonably estimated
at this time but is expected to adversely impact the Company's business for
the
rest of 2022.



We have limited cash available to fund planned operations and although we have
other sources of capital described below under "Liquidity and Capital
Resources," management continues to pursue various financing alternatives to
fund our operations so we can continue as a going concern. However, the COVID-19
pandemic has created significant economic uncertainty and volatility in the
credit and capital markets. Management plans to secure the necessary financing
through the issue of new equity and/or the entering into of strategic
partnership arrangements but the ultimate impact of the COVID-19 pandemic on our
ability to raise additional capital is unknown and will depend on future
developments, which are highly uncertain and cannot be predicted with
confidence, including the duration of the COVID-19 outbreak and new information
which may emerge concerning the severity of the COVID-19 pandemic. We may not be
able to raise sufficient additional capital and may tailor our operations based
on the amount of funding we are able to raise in the future. Nevertheless, there
is no assurance that these initiatives will be successful. Further, there is no
assurance that capital available to us in any future financing will be on
acceptable terms.



Overview



The Company is a clinical-stage, vertically integrated, leading CellTech
bio-developer dedicated to advancing and empowering innovative, transformative
immune effector cell therapy, exosome technology, as well as COVID-19 related
diagnostics and therapeutics. The Company also provides strategic advisory and
outsourcing services to facilitate and enhance its clients' growth and
development, as well as competitiveness in healthcare and CellTech industry
markets. Through its subsidiary structure with unique integration of verticals
from innovative R&D to automated bioproduction and accelerated clinical
development, the Company is establishing a leading role in the fields of
cellular immunotherapy (including CAR-T/NK), exosome technology (ACTEX™), and
COVID-19 related vaccine and therapeutics.



Avalon achieves and fosters seamless integration of unique verticals to bridge
and accelerate innovative research, bio-process development, clinical programs
and product commercialization. Avalon's upstream innovative research includes:



? Development of Avalon Clinical-grade Tissue-specific Exosome (“ACTEX™”)




                                       22




? Novel therapeutic and diagnostic targets development utilizing QTY-code protein

design technology with Massachusetts Institute of Technology (MIT) including

using the QTY code protein design technology for development of a

hemofiltration device to treat Cytokine Storm.

? Co-development of next generation, transposon-based, multi-target CAR-T, CAR-NK

and other immune effector cell therapeutic modalities with Arbele Limited.

? Strategic partnership with the University of Natural Resources and Life

Sciences (BOKU) in Vienna, Austria to develop an S-layer vaccine that can be

administered by an intranasal or oral route against SARS-CoV-2, the novel

   coronavirus that causes COVID-19 disease.



Avalon's midstream bio-processing and bio-production facility is located in
Nanjing, China with state-of-the-art, automated GMP and QC/QA infrastructure for
standardized bio-manufacturing of clinical-grade cellular products involved in
our clinical programs in immune effector cell therapy, regenerative
therapeutics, as well as bio-banking.



Avalon’s downstream medical team and facility consists of top-rated affiliated
hospital network and experts specialized in hematology, oncology, cellular
immunotherapy, hematopoietic stem/progenitor cell transplant, as well as
regenerative therapeutics. Our major clinical programs include:

? AVA-001: Avalon has initiated its first-in-human clinical trial of CD19 CAR-T

candidate, AVA-001 in August 2019 at the Hebei Yanda Lu Daopei Hospital and

Beijing Lu Daopei Hospital in China (the world’s single largest CAR-T treatment

network with over 600 patients being treated with CAR-T) for the indication of

relapsed/refractory B-cell acute lymphoblastic leukemia and non-Hodgkin

Lymphoma. The AVA-001 candidate (co-developed with China Immunotech Co. Ltd) is

characterized by the utilization of 4-1BB (CD137) co-stimulatory signaling

pathway, conferring a strong anti-cancer activity during pre-clinical study. It

also features a shorter bio-manufacturing time which leads to the advantage of

prompt treatment to patients where timing is important related hematologic

malignancies. Avalon has successfully completed the first-in-human clinical

trial of its AVA-001 anti-CD19 CAR-T cell therapy as a bridge to allogeneic

bone marrow transplantation for patients with relapsed/refractory B-cell acute

lymphoblastic leukemia at the Lu Daopei Hospital (registered clinical trial

number NCT03952923) with excellent efficacy (90% complete remission rate) and

minimal adverse side effects. Avalon is currently expanding the patient

recruitment for AVA-001 to include relapsed/refractory non-Hodgkin lymphoma

   patients.




? AVA-011 and FLASH-CAR™: The Company advanced its next generation immune cell

therapy using RNA-based, non-viral FLASH-CAR™ technology co-developed with the

Company’s strategic partner Arbele Limited. The adaptable FLASH-CAR™ platform

can be used to create personalized cell therapy from a patient’s own cells, as

well as off-the-shelf cell therapy from a universal donor. Our leading

candidate, AVA-011, is currently at process development stage to generate

clinical-grade cell-therapy products for subsequent clinical studies. On July

8, 2021, the Company and the University of Pittsburgh of the Commonwealth

System of Higher Education (the “University”) entered into a Corporate Research

Agreement (the “University Agreement”). Pursuant to the University Agreement,

for a term of two years the University agreed to use its reasonable efforts to

perform academic research funded by the Company in connection with the

development of point-of-care modular autonomous processing system to generate

clinical-grade AVA-011, a RNA-based chimeric antigen receptor (CAR) T-cell

therapy candidate (the “Project”) subject to the appointment of Dr. Yen Michael

S. Hsu as Principal Investigator. During the term, the Company agreed to make

eight payments of $125,000 to the University. As of March 31, 2022, the Company

did not make any payment. The Company and the University shall each own an

undivided, one half interest in any intellectual property rights jointly

developed by both parties. The Company has been granted a worldwide,

irrevocable, non-exclusive, royalty free, fully paid-up, perpetual right to use

intellectual property developed by the University in connection with the

Project for commercial purposes research activities and other purposes.

Further, the Company will have an exclusive right of first offer to an

exclusive royalty-bearing license to intellectual property developed by the

University or co-developed by the Company and the University in connection with

   the Project.




? ACTEX™: Stem cell-derived Avalon Clinical-grade Tissue-specific Exosomes

(ACTEX™) is one of the core technology platforms that has been co-developed by

Avalon GloboCare and the University of Pittsburgh Medical Center. The Company

formed a strategic partnership with HydroPeptide, LLC, a leading epigenetics

skin care company, to engage in co-development and commercialization of a

series of clinical-grade, exosome-based cosmeceutical and orthopedic products.

As part of this agreement, the Company signed a three-way Material Transfer

Agreement between Avalon GloboCare, HydroPeptide and the University of

   Pittsburgh Medical Center.




                                       23




? AVA-Trap™: Avalon’s AVA-Trap™ therapeutic program plans to enter animal model

testing followed by expedited clinical studies with the goal of providing an

effective therapeutic option to combat COVID-19 and other life-threatening

conditions involving cytokine storms. The Company initiated a sponsored

research and co-development project with Massachusetts Institute of Technology

(MIT) led by Professor Shuguang Zhang as Principal Investigator in May 2019.

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

cytokine receptors have been successfully designed and tested to show binding

   affinity to the respective cytokines.




Going Concern



The Company is a clinical-stage, vertically integrated, leading CellTech
bio-developer dedicated to advancing and empowering innovative, transformative
immune effector cell therapy, exosome technology, as well as COVID-19 related
diagnostics and therapeutics. The Company also provides strategic advisory and
outsourcing services to facilitate and enhance its clients' growth and
development, as well as competitiveness in healthcare and CellTech industry
markets. Through its subsidiary structure with unique integration of verticals
from innovative R&D to automated bioproduction and accelerated clinical
development, the Company is establishing a leading role in the fields of
cellular immunotherapy (including CAR-T/NK), exosome technology (ACTEX™), and
COVID-19 related vaccine and therapeutics.



In addition, the Company owns commercial real estate that houses its
headquarters in Freehold, New Jersey and provides outsourced and customized
international healthcare services to the rapidly changing health care industry
primarily focused in the People's Republic of China. These condensed
consolidated financial statements have been prepared assuming that the Company
will continue as a going concern, which contemplates, among other things, the
realization of assets and the satisfaction of liabilities in the normal course
of business.



As reflected in the accompanying condensed consolidated financial statements,
the Company had a working capital deficit of $4,234,370 as of March 31, 2022 and
has incurred recurring net losses and generated negative cash flow from
operating activities of $2,070,538 and $511,208 for the three months ended March
31, 2022, respectively. The Company has a limited operating history and its
continued growth is dependent upon the continuation of providing medical related
consulting services to its only few 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 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 occurrence of an uncontrollable event such as the COVID-19 pandemic had
negatively impact on the Company's operations. Our general development
operations have continued during the COVID-19 pandemic and we have not had
significant disruption. However, we are uncertain if the COVID-19 pandemic will
impact future operations at our laboratory, or our ability to collaborate with
other laboratories and universities. In addition, we are unsure if the COVID-19
pandemic will impact future clinical trials. Given the dynamic nature of these
circumstances, the duration of business disruption and reduced traffic, the
related financial effect cannot be reasonably estimated at this time but is
expected to adversely impact the Company's business for the rest of 2022.



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



Critical Accounting Policies



Use of Estimates



Our discussion and analysis of our financial condition and results of operations
are based upon our condensed consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these 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 the useful life of property and equipment and
investment in real estate, assumptions used in assessing impairment of long-term
assets, valuation of deferred tax assets and the associated valuation
allowances, and valuation of stock-based compensation.



                                       24





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.



Revenue Recognition


We recognize revenue under Accounting Standards Codification ("ASC") Topic 606,
Revenue from Contracts with Customers ("ASC 606"). The core principle of the
revenue standard is that a company should recognize revenue to depict the
transfer of promised goods or services to customers in an amount that reflects
the consideration to which the company expects to be entitled in exchange for
those goods or services. The following five steps are applied to achieve that
core principle:


? Step 1: Identify the contract with the customer

? Step 2: Identify the performance obligations in the contract

? Step 3: Determine the transaction price

? Step 4: Allocate the transaction price to the performance obligations in the

   contract




? Step 5: Recognize revenue when the company satisfies a performance obligation

In order to identify the performance obligations in a contract with a customer,
a company must assess the promised goods or services in the contract and
identify each promised goods or service that is distinct. A performance
obligation meets ASC 606’s definition of a “distinct” goods or service (or
bundle of goods or services) if both of the following criteria are met:

? The customer can benefit from the goods or service either on its own or

together with other resources that are readily available to the customer (i.e.,

the goods or service is capable of being distinct).

? The entity’s promise to transfer the goods or service to the customer is

separately identifiable from other promises in the contract (i.e., the promise

   to transfer the goods or service is distinct within the context of the
   contract).



If a goods or service is not distinct, the goods or service is combined with
other promised goods or services until a bundle of goods or services is
identified that is distinct.




The transaction price is the amount of consideration to which an entity expects
to be entitled in exchange for transferring promised goods or services to a
customer, excluding amounts collected on behalf of third parties (for example,
some sales taxes). The consideration promised in a contract with a customer may
include fixed amounts, variable amounts, or both. Variable consideration is
included in the transaction price only to the extent that it is probable that a
significant reversal in the amount of cumulative revenue recognized will not
occur when the uncertainty associated with the variable consideration is
subsequently resolved.



The transaction price is allocated to each performance obligation on a relative
standalone selling price basis. The transaction price allocated to each
performance obligation is recognized when that performance obligation is
satisfied, at a point in time or over time as appropriate.

The Company's revenues are derived from providing medial related consulting
services for its' related parties. Revenues related to its service offerings are
recognized at a point in time when service is rendered. Any payments received in
advance of the performance of services are recorded as deferred revenue until
such time as the services are performed.



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



                                       25




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



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



Income Taxes



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



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



Recent Accounting Standards


For details of applicable new accounting standards, please, refer to Recent
Accounting Standards in Note 3 of our condensed consolidated financial
statements accompanying this report.



RESULTS OF OPERATIONS


Comparison of Results of Operations for the Three Months Ended March 31, 2022
and 2021




Revenues



For the three months ended March 31, 2022, we had real property rental revenue
of $297,631, as compared to $289,774 for the three months ended March 31, 2021,
an increase of $7,857, or 2.7%. The slight increase was primarily attributable
to the increase of tenants in the first quarter of 2021. We expect that our
revenue from real property rent will remain in its current level with minimal
increase in the near future.



Costs and Expenses


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




For the three months ended March 31, 2022, our real property operating expenses
amounted to $218,448, as compared to $216,894 for the three months ended March
31, 2021, an increase of $1,554, or 0.7%.



Real Property Operating Income




Our real property operating income for the three months ended March 31, 2022 was
$79,183, representing an increase of $6,303, or 8.6%, as compared to $72,880 for
the three months ended March 31, 2021. The increase was mainly attributable to
the increase in real property rental revenue as described above. We expect our
real property operating income will remain in its current level with minimal
increase in the near future.



                                       26





Other Operating Expenses



For the three months ended March 31, 2022 and 2021, other operating expenses
consisted of the following:



                                                         Three Months Ended
                                                              March 31,
                                                        2022            2021
Advertising and marketing expenses                   $   526,806     $    

8,823

Professional fees                                        821,308       

1,381,178

Compensation and related benefits                        523,045         562,006
Research and development                                 116,684         213,188
Travel and entertainment                                  38,280          32,150

Directors and officers liability insurance premium 103,584 81,141
Rent and related utilities

                                20,556          

22,627

Other general and administrative                          55,862          75,355
                                                     $ 2,206,125     $ 2,376,468



? For the three months ended March 31, 2022, advertising and marketing expenses

increased by $517,983 or 5,870.8% as compared to the three months ended March

31, 2021. The increase was primarily due to increased advertising activities.

We expect that our advertising expenses will decrease in the near future.

? Professional fees primarily consisted of accounting fees, audit fees, legal

service fees, consulting fees, investor relations service charges and other

fees. For the three months ended March 31, 2022, professional fees decreased by

$559,870, or 40.5%, as compared to the three months ended March 31, 2021. The

decrease was primarily attributable to a decrease in consulting fees of

approximately $476,000 mainly due to the decrease in use of consulting service

providers, a decrease in legal service fees of approximately $111,000 mainly

due to the decrease in use of legal service providers, and a decrease in

valuation service fee of $90,000, offset by an increase in investor relations

service fees of approximately $107,000 mainly due to the increase in use of

investor relations service providers, and an increase in other miscellaneous

items of approximately $10,000. We expect that our professional fees will

   remain in its current level with minimal increase in the near future.

? For the three months ended March 31, 2022, compensation and related benefits

decreased by $38,961, or 6.9%, as compared to the three months ended March 31,

2021. The decrease was primarily attributable to a decrease in stock-based

compensation of approximately $35,000 which reflected the value of options

granted and vested to our management and a decrease in management’s

compensation and related benefits of approximately $4,000. We expect that our

compensation and related benefits will remain in its current level with minimal

decrease in the near future.

? For the three months ended March 31, 2022, research and development expenses

decreased by $96,504, or 45.3%, as compared to the three months ended March 31,

2021. The decrease was mainly attributable to we decreased research and

development projects in the first quarter of 2022. We expect that our research

   and development expenses will continue to decrease in the near future.

? For the three months ended March 31, 2022, travel and entertainment expense

increased by $6,130, or 19.1%, as compared to the three months ended March 31,

2021. The increase was mainly due to increased business travel activities in

the first quarter of 2022.

? For the three months ended March 31, 2022, Directors and Officers Liability

Insurance premium increased by $22,443, or 27.7%, as compared to the three

months ended March 31, 2021. The increase was mainly due to different insurance

provider with different premium.

? For the three months ended March 31, 2022, rent and related utilities expenses

decreased by $2,071, or 9.2%, as compared to the three months ended March 31,

2021. The decrease was mainly due to the decreased monthly rent in Avalon

   Shanghai's office.




? Other general and administrative expenses mainly consisted of NASDAQ listing

fee, office supplies, and other miscellaneous items. For the three months ended

March 31, 2022, other general and administrative expenses decreased by $19,493,

or 25.9%, as compared to the three months ended March 31, 2021, reflecting our

   efforts at stricter controls on corporate expenditure.




                                       27





Loss from Operations



As a result of the foregoing, for the three months ended March 31, 2022, loss
from operations amounted to $2,126,942, as compared to $2,303,588 for the three
months ended March 31, 2021, a decrease of $176,646 or 7.7%.



Other (Expense) Income


Other (expense) income mainly includes interest expense, loss from equity method
investment, and other miscellaneous income.




Other income, net, totaled $56,404 for the three months ended March 31, 2022, as
compared to other expense, net, of $63,530 for the three months ended March 31,
2021, a change of $119,934, or 188.8%, which was primarily attributable to a
decrease in interest expense of approximately $5,000, and a decrease in loss
from equity method investment of approximately $6,000, and an increase in other
miscellaneous income of approximately $109,000.



Income Taxes


We did not have any income taxes expense for the three months ended March 31,
2022
and 2021 since we incurred losses in these periods.



Net Loss


As a result of the factors described above, our net loss was $2,070,538 for the
three months ended March 31, 2022, as compared to $2,367,118 for the three
months ended March 31, 2021, a decrease of $296,580 or 12.5%.

Net Loss Attributable to Avalon GloboCare Corp. Common Shareholders

The net loss attributable to Avalon GloboCare Corp. common shareholders was
$2,070,538 or $0.02 per share (basic and diluted) for the three months ended
March 31, 2022, as compared with $2,367,118, or $0.03 per share (basic and
diluted) for the three months ended March 31, 2021, a change of $296,580 or
12.5%.

Foreign Currency Translation Adjustment




Our reporting currency is the U.S. dollar. The functional currency of our parent
company, AHS, Avalon RT 9, Genexosome, Avactis, and Exosome, is the U.S. dollar
and the functional currency of Avalon Shanghai and Beijing Genexosome is the
Chinese Renminbi ("RMB"). The financial statements of our 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
revenues, 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 gain of $2,021 and a foreign currency translation loss of $2,722 for
the three months ended March 31, 2022 and 2021, respectively. This non-cash
gain/loss had the effect of decreasing/increasing our reported comprehensive
loss.



Comprehensive Loss



As a result of our foreign currency translation adjustment, we had comprehensive
loss of $2,068,517 and $2,369,840 for the three months ended March 31, 2022
and
2021, respectively.


Liquidity and Capital Resources




The Company has a limited operating history and its continued growth is
dependent upon the continuation of providing medical related consulting services
to its only few 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 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.



                                       28




The occurrence of an uncontrollable event such as the COVID-19 pandemic is
likely to negatively affect the Company's operations. Efforts to contain the
spread of the coronavirus have intensified, including social distancing, travel
bans and quarantine, and these are likely to negatively impact our tenants,
employees and consultants. These, in turn, will not only impact our operations,
financial condition and demand for our medical related consulting services but
our overall ability to react timely to mitigate the impact of this event. Given
the dynamic nature of these circumstances, the duration of business disruption
and reduced traffic, the related financial effect cannot be reasonably estimated
at this time but is expected to adversely impact our business for the rest
of
2022.



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 March 31, 2022 and December 31, 2021, we had cash balance of
approximately $526,000 and $808,000, respectively. These funds are kept in
financial institutions located as follows:



Country:           March 31, 2022           December 31,2021
United States   $ 398,459        75.7 %   $ 767,605        95.1 %
China             127,831        24.3 %      39,933         4.9 %
Total cash      $ 526,290       100.0 %   $ 807,538       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, 2021 to March 31, 2022:



                             March 31,       December 31,               Changes in
                                2022             2021             Amount         Percentage
Working capital deficit:
Total current assets        $    913,516     $   1,323,042     $   (409,526 )          (31.0 )%
Total current liabilities      5,147,886         4,401,658          746,228
            17.0 %
Working capital deficit     $ (4,234,370 )   $  (3,078,616 )   $ (1,155,754 )           37.5 %



Our working capital deficit increased by $1,155,754 to $4,234,370 at March 31,
2022 from $3,078,616 at December 31, 2021. The increase in working capital
deficit was primarily attributable to a decrease in cash of approximately
$281,000, a decrease in prepaid expenses and other current assets of
approximately $152,000, an increase in accrued professional fees of
approximately $686,000, an increase in accrued payroll liability and directors'
compensation of approximately $173,000, and an increase in accrued liabilities
and other payables of approximately $382,000, offset by a decrease in accrued
research and development fees of approximately $116,000 and a decrease in note
payable - related party of $390,000 resulting from the reclassification of note
payable - related party from current to non-current.



                                       29




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

Cash Flows for the Three Months Ended March 31, 2022 Compared to the Three
Months Ended March 31, 2021

The following summarizes the key components of our cash flows for the three
months ended March 31, 2022 and 2021:



                                                Three Months Ended
                                                     March 31,
                                               2022            2021

Net cash used in operating activities $ (511,208 ) $ (1,515,525 )
Net cash used in investing activities

           (1,749 )        (30,844 )

Net cash provided by financing activities 231,500 2,512,212
Effect of exchange rate on cash

                    209              120
Net (decrease) increase in cash             $ (281,248 )   $    965,963




Net cash flow used in operating activities for the three months ended March 31,
2022 was $511,208, which primarily reflected our consolidated net loss of
approximately $2,071,000, and the changes in operating assets and liabilities,
primarily consisting of a decrease in operating lease obligation of
approximately $34,000, offset by a decrease in prepaid expenses and other assets
of approximately $30,000, an increase accrued liabilities and other payables of
approximately $794,000, and an increase in accrued liabilities and other
payables - related parties of approximately $40,000, and the non-cash items
adjustment primarily consisting of depreciation of approximately $85,000,
amortization of right-of-use asset of approximately $34,000, and stock-based
compensation and service expense of approximately $606,000.



Net cash flow used in operating activities for the three months ended March 31,
2021 was $1,515,525, which primarily reflected our consolidated net loss of
approximately $2,367,000, and the changes in operating assets and liabilities,
primarily consisting of an increase in prepaid expenses and other assets of
approximately $41,000, and a decrease in operating lease obligation of
approximately $33,000, offset by an increase in accrued liabilities and other
payables of approximately $163,000, an increase in accrued liabilities and other
payables - related parties of approximately $45,000, and the non-cash items
adjustment primarily consisting of depreciation of approximately $79,000, and
stock-based compensation and service expense of approximately $574,000.



We expect our cash used in operating activities to increase due to the
following:

? the development and commercialization of new products;

? an increase in professional staff and services; 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 $1,749 for the three months ended
March 31, 2022 as compared to $30,844 for the three months ended March 31, 2021.
During the three months ended March 31, 2022, we made payments for purchase of
property and equipment of approximately $2,000. During the three months ended
March 31, 2021, we made additional investment in equity method investment of
approximately $31,000.



Net cash flow provided by financing activities was $231,500 for the three months
ended March 31, 2022 as compared to $2,512,212 for the three months ended March
31, 2021. During the three months ended March 31, 2022, we received proceeds
from related party borrowings of approximately $100,000 and net proceeds from
equity offering of approximately $132,000 (net of cash paid for commission of
approximately $4,000). During the three months ended March 31, 2021, we received
proceeds from related party borrowings of approximately $105,000 and net
proceeds from equity offering of approximately $2,407,000 (net of cash paid for
commission of approximately $74,000).



                                       30





Our capital requirements for the next twelve months primarily relate to working
capital requirements, including salaries, fees related to third parties'
professional services, reduction of accrued liabilities, mergers, acquisitions
and the development of business opportunities. These uses of cash will depend on
numerous factors including our sales and other revenues, and our ability to
control costs. All funds received have been expended in the furtherance of
growing the business. The following trends are reasonably likely to result in a
material decrease in our liquidity over the near to long term:



? an increase in working capital requirements to finance our current business,

including ongoing research and development programs, clinical studies, as well

as commercial strategies;

? the use of capital for mergers, acquisitions and the development of business

   opportunities;




? addition of administrative personnel as the business grows; and

? the cost of being a public company.

In the third quarter of 2019, we had secured a $20 million credit facility (Line
of Credit) provided by our Chairman, Wenzhao Lu. The unsecured credit facility
bears interest at a rate of 5% and provides for maturity on drawn loans 36
months after funding. As of March 31, 2022, the total principal amount
outstanding under the Credit Line was $2.9 million and we have approximately
$14.1 million remaining available under the Line Credit.



On December 13, 2019, we entered into an Open Market Sale AgreementSM (the
"Sales Agreement") with Jefferies LLC, as sales agent ("Jefferies"), pursuant to
which we may offer and sell, from time to time, through Jefferies, shares of our
common stock, par value $0.0001 per share, having an aggregate offering price of
up to $20.0 million. On April 6, 2020, the date on which we filed our Annual
Report on Form 10-K for the fiscal year ended December 31, 2019, our
registration statement became subject to the offering limits set forth in
General Instruction I.B.6 of Form S-3. As of April 6, 2020, the aggregate market
value of our outstanding common stock held by non-affiliates, or public float,
was $39,564,237, based on 23,691,160 shares of our outstanding common stock that
were held by non-affiliates on such date and a price of $1.67 per share, which
was the price at which our common stock was last sold on The Nasdaq Capital
Market on February 19, 2020 (a date within 60 days of the date hereof),
calculated in accordance with General Instruction I.B.6 of Form S-3. We have not
offered any securities pursuant to General Instruction I.B.6 of Form S-3 in the
12 calendar months preceding the date of this prospectus supplement. We filed a
prospectus supplement to amend and supplement the information in our prospectus
and original prospectus supplement based on the amount of securities that we are
eligible to sell under General Instruction I.B.6 of Form S-3. After giving
effect to the $13,000,000 offering limit imposed by General Instruction I.B.6
of Form S-3, we may offer and sell additional shares of our common stock having
an aggregate offering price of up to $13,000,000 from time to time through
Jefferies acting as our sales agent in accordance with the terms of the sales
agreement. As of March 31, 2022, we sold a total of 6,429,486 shares of our
common stock through Jefferies with an aggregate offering price of $10,073,707
and we have approximately $4.9 million offering price remaining available under
the Sales Agreement.


We estimate that based on current plans and assumptions, that our available cash
will be insufficient to satisfy our cash requirements under our present
operating expectations through cash available under our Credit Line and sales of
equity through our Sales Agreement. Other than funds received from the sale of
our equity and advances from our related party, and cash resource generating
from our operations, we presently have no other significant alternative source
of working capital. We have used these funds to fund our operating expenses, pay
our obligations and grow our company. We will need to raise significant
additional capital to fund our operations and to provide working capital for our
ongoing operations and obligations. Therefore, our future operation is dependent
on our ability to secure additional financing. Financing transactions may
include the issuance of equity or debt securities, obtaining credit facilities,
or other financing mechanisms. However, the trading price of our common stock
and a downturn in the U.S. equity and debt markets could make it more difficult
to obtain financing through the issuance of equity or debt securities. Even if
we are able to raise the funds required, it is possible that we could incur
unexpected costs and expenses or experience unexpected cash requirements that
would force us to seek alternative financing. Furthermore, if we issue
additional equity or debt securities, stockholders may experience additional
dilution or the new equity securities may have rights, preferences or privileges
senior to those of existing holders of our common stock. The inability to obtain
additional capital may restrict our ability to grow and may reduce our ability
to continue to conduct business operations. If we are unable to obtain
additional financing, we will be required to cease our operations. To date, we
have not considered this alternative, nor do we view it as a likely occurrence.



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 March 31, 2022, and the effect these
obligations are expected to have on our liquidity and cash flows in future
periods.



                                       31





                                                             Payments Due by Period
                                                    Less than 1
Contractual obligations:             Total             year           1-3 years       3-5 years       5+ years
Operating lease commitment        $    132,110     $     132,110     $         -     $         -     $        -
Acquisition consideration              100,000           100,000               -               -              -
Borrowings from related party
(principal)                          3,240,262                 -       3,240,262               -              -
Accrued interest - related
party                                  408,120           408,120               -               -              -
Epicon equity investment
obligation                             826,498           275,499         550,999               -              -
AVAR joint venture commitment       10,788,644                 -       5,788,644       5,000,000              -
Total                             $ 15,495,634     $     915,729     $ 9,579,905     $ 5,000,000     $        -



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 revenues and
operating results may be impacted by exchange rate fluctuations between RMB and
US dollars. For the three months ended March 31, 2022 and 2021, we had an
unrealized foreign currency translation gain of approximately $2,000 and an
unrealized foreign currency translation loss of approximately $3,000,
respectively, because of changes in the exchange rate.



Inflation


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

© Edgar Online, source Glimpses

Source link