Avalon GloboCare Corp

Previous wording

The following discussion and analysis of our financial condition and results of operations for the three and six months ended June 30, 2024 and 2023 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 Quarterly Report on Form 10-Q.

Current wording

The following discussion and analysis of our financial condition and results of operations for the three and nine months ended September 30, 2024 and 2023 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 Quarterly Report on Form 10-Q.

Previous wording

The Company is a commercial stage company dedicated to developing and delivering innovative, transformative, precision diagnostics and clinical laboratory services. The Company is working to establish a leading role in the innovation of diagnostic testing, utilizing proprietary technology to deliver precise, genetics-driven results. The Company also provides laboratory services, offering a broad portfolio of diagnostic tests, including drug testing, toxicology, and a broad array of test services, from general bloodwork to anatomic pathology, and urine toxicology.

Current wording

The Company is a commercial stage company dedicated to developing and delivering innovative, transformative, precision diagnostics and clinical laboratory services. The Company is working to establish a leading role in the innovation of diagnostic testing, utilizing proprietary technology to deliver precise, genetics-driven results. The Company also provides laboratory services through its 40% equity investment in Lab Services MSO, offering a broad portfolio of diagnostic tests, including drug testing, toxicology, and a broad array of test services, from general bloodwork to anatomic pathology, and urine toxicology.

Previous wording

As reflected in the accompanying condensed consolidated financial statements, we had working capital deficit of approximately $7,880,000 at June 30, 2024 and had incurred recurring net losses and generated negative cash flow from operating activities of approximately $3,500,000 and $1,998,000 for the six months ended June 30, 2024, respectively.

Current wording

As reflected in the accompanying condensed consolidated financial statements, we had working capital deficit of approximately $10,935,000 at September 30, 2024 and had incurred recurring net losses and generated negative cash flow from operating activities of approximately $5,179,000 and $3,891,000 for the nine months ended September 30, 2024, respectively.

Previous wording

Significant estimates during the three and six months ended June 30, 2024 and 2023 include the useful life of investment in real estate and intangible assets, the assumptions used in assessing impairment of long-term assets, the valuation of deferred tax assets and the associated valuation allowances, the valuation of stock-based compensation, the assumptions used to determine fair value of warrants, beneficial conversion feature and embedded conversion features of convertible note payable, and the fair value of the consideration given and assets acquired in the purchase of our equity interest in Lab Services MSO.

Current wording

Significant estimates during the three and nine months ended September 30, 2024 and 2023 include the useful life of investment in real estate and intangible assets, the assumptions used in assessing impairment of long-term assets, the valuation of deferred tax assets and the associated valuation allowances, the valuation of stock-based compensation, the assumptions used to determine fair value of warrants and embedded conversion features of convertible note payable, and the fair value of the consideration given and assets acquired in the purchase of our equity interest in Lab Services MSO.

Previous wording

We consider whether the fair value of our equity method investment has declined below its carrying value whenever adverse event or change in circumstance indicates that recorded value may not be recoverable. If we consider any decline to be other than temporary (based on various factors, including historical financial results and the overall health of the investee), then a write-down would be recorded to estimated fair value.

Current wording

We consider whether the fair value of our equity method investment has declined below its carrying value whenever adverse event or change in circumstance indicates that recorded value may not be recoverable. If we consider any decline to be other than temporary (based on various factors, including historical financial results and the overall health of the investee), then a write-down would be recorded to estimated fair value. Impairment of equity method investment amounted to $259,579 for the nine months ended September 30, 2024.

Previous wording

Comparison of Results of Operations for the Three and Six Months Ended June 30, 2024 and 2023

Current wording

Comparison of Results of Operations for the Three and Nine Months Ended September 30, 2024 and 2023

Previous wording

For the three months ended June 30, 2024, we had real property rental revenue of $327,887, as compared to $306,905 for the three months ended June 30, 2023, an increase of $20,982, or 6.8%. For the six months ended June 30, 2024, we had real property rental revenue of $642,475, as compared to $603,070 for the six months ended June 30, 2023, an increase of $39,405, or 6.5%. The increase was primarily attributable to the increase in the number of tenants occupying the building in the three and six months ended June 30, 2024 as compared to the three and six months ended June 30, 2023. We expect that our revenue from real property rent will remain at its current level with minimal increase in the near future.

Current wording

For the three months ended September 30, 2024, we had real property rental revenue of $345,159, as compared to $331,290 for the three months ended September 30, 2023, an increase of $13,869, or 4.2%. For the nine months ended September 30, 2024, we had real property rental revenue of $987,634, as compared to $934,360 for the nine months ended September 30, 2023, an increase of $53,274, or 5.7%. The increase was primarily attributable to the increase in the number of tenants occupying the building in the three and nine months ended September 30, 2024 as compared to the three and nine months ended September 30, 2023. We expect that our revenue from real property rent will remain at its current quarterly level with minimal increase in the near future.

Previous wording

For the three months ended June 30, 2024, our real property operating expenses amounted to $285,488, as compared to $245,403 for the three months ended June 30, 2023, an increase of $40,085, or 16.3%. The increase was primarily due to an increase in repairs and maintenance fee of approximately $11,000, and an increase in utilities of approximately $32,000, offset by a decrease in other miscellaneous items of approximately $3,000.

Current wording

For the three months ended September 30, 2024, our real property operating expenses amounted to $245,528, as compared to $288,083 for the three months ended September 30, 2023, a decrease of $42,555, or 14.8%. The decrease was primarily due to a decrease in repairs and maintenance fee of approximately $30,000, and a decrease in utilities of approximately $14,000, offset by an increase in other miscellaneous items of approximately $1,000.

Previous wording

For the six months ended June 30, 2024, our real property operating expenses amounted to $548,614, as compared to $493,848 for the six months ended June 30, 2023, an increase of $54,766, or 11.1%. The increase was primarily due to an increase in repairs and maintenance fee of approximately $22,000, an increase in utilities of approximately $27,000, and an increase in other miscellaneous items of approximately $6,000.

Current wording

For the nine months ended September 30, 2024, our real property operating expenses amounted to $794,142, as compared to $781,931 for the nine months ended September 30, 2023, an increase of $12,211, or 1.6%. The increase was primarily due to an increase in utilities of approximately $13,000, offset by a decrease in other miscellaneous items of approximately $1,000.

Previous wording

Our real property operating income for the three months ended June 30, 2024 was $42,399, representing a decrease of $19,103, or 31.1%, as compared to $61,502 for the three months ended June 30, 2023. Our real property operating income for the six months ended June 30, 2024 was $93,861, representing a decrease of $15,361, or 14.1%, as compared to $109,222 for the six months ended June 30, 2023. The decrease was primarily attributable to the increase in real property operating expenses as described above. We expect our real property operating income will remain at its current quarterly level with minimal increase in the near future.

Current wording

Our real property operating income for the three months ended September 30, 2024 was $99,631, representing an increase of $56,424, or 130.6%, as compared to $43,207 for the three months ended September 30, 2023. The increase was primarily attributable to an increase in real property rental revenue and a decrease in real property operating expenses as described above. Our real property operating income for the nine months ended September 30, 2024 was $193,492, representing an increase of $41,063, or 26.9%, as compared to $152,429 for the nine months ended September 30, 2023. The increase was primarily attributable to the increase in real property rental revenue as described above. We expect our real property operating income will remain at its current quarterly level with minimal increase in the near future.

Previous wording

For the three months ended June 30, 2024 and 2023, we had loss from our investment in Lab Services MSO of $329,337 and income from our investment in Lab Services MSO of $104,651, respectively, which consists of our share of Lab Services MSO’s net loss of $162,604 and our share of Lab Services MSO’s net income of $308,395, and amortization of identifiable intangible assets acquired from Lab Services MSO acquisition of $166,733 and $203,744, respectively.

Current wording

For the three months ended September 30, 2024, we had loss from our investment in Lab Services MSO of $447,909, which consists of our share of Lab Services MSO’s net loss of $21,597, and amortization of identifiable intangible assets acquired from Lab Services MSO acquisition of $166,733, and impairment of goodwill acquired from Lab Services MSO acquisition of $259,579, which was primarily attributable to Lab Services MSO’s lower revenues and net incomes than anticipated and the decline in our stock price and market capitalization.

Previous wording

For the six months ended June 30, 2024 and 2023, we had loss from our investment in Lab Services MSO of $221,868 and income from our investment in Lab Services MSO of $15,560, respectively, which consists of our share of Lab Services MSO’s net income of $111,598 and $355,134, and amortization of identifiable intangible assets acquired from Lab Services MSO acquisition of $333,466 and $339,574, respectively.

Current wording

For the nine months ended September 30, 2024, we had loss from our investment in Lab Services MSO of $669,777, which consists of our share of Lab Services MSO’s net income of $90,001, and amortization of identifiable intangible assets acquired from Lab Services MSO acquisition of $500,199, and impairment of goodwill acquired from Lab Services MSO acquisition of $259,579, which was primarily attributable to Lab Services MSO’s lower revenues and net incomes than anticipated and the decline in our stock price and market capitalization.

Previous wording

For the three and six months ended June 30, 2024 and 2023, other operating expenses consisted of the following:

Current wording

For the three and nine months ended September 30, 2024 and 2023, other operating expenses consisted of the following:

Previous wording

As a result of the foregoing, for the three months ended June 30, 2024, loss from operations amounted to $1,504,363, as compared to $2,068,368 for the three months ended June 30, 2023, representing a decrease of $564,005, or 27.3%.

Current wording

As a result of the foregoing, for the three months ended September 30, 2024, loss from operations amounted to $1,269,961, as compared to $1,141,136 for the three months ended September 30, 2023, representing an increase of $128,825, or 11.3%.

Previous wording

As a result of the foregoing, for the six months ended June 30, 2024, loss from operations amounted to $2,347,425, as compared to $4,821,695 for the six months ended June 30, 2023, representing a decrease of $2,474,270, or 51.3%.

Current wording

As a result of the foregoing, for the nine months ended September 30, 2024, loss from operations amounted to $3,617,386, as compared to $5,962,831 for the nine months ended September 30, 2023, representing a decrease of $2,345,445, or 39.3%.

Previous wording

Other expense, net, totaled $627,663 for the three months ended June 30, 2024, as compared to $678,689 for the three months ended June 30, 2023, a decrease of $51,026, or 7.5%, which was primarily attributable to anincrease in gain from change in fair value of derivative liability of approximately $139,000, a decrease in impairment of equity method investment on Epicon of approximately $464,000, a decrease in other expense of approximately $9,000, offset by an increase in third party interest expense of approximately $561,000, mainly driven by the increase in amortization of debt discount and debt issuance costs of approximately $495,000 and the increased interest expense of approximately $66,000 from third party debts.

Current wording

Other expense, net, totaled $409,239 for the three months ended September 30, 2024, as compared to $343,939 for the three months ended September 30, 2023, an increase of $65,300, or 19.0%, which was primarily attributable to an increase in third party interest expense of approximately $108,000, mainly driven by the increase in amortization of debt discount and debt issuance costs of approximately $80,000 and the increased interest expense of approximately $28,000 from third party debts, a decrease in other income of approximately $39,000, offset by an increase in gain from change in fair value of derivative liability of approximately $82,000.

Previous wording

Other expense, net, totaled $1,152,114 for the six months ended June 30, 2024, as compared to $845,106 for the six months ended June 30, 2023, an increase of $307,008, or 36.3%, which was primarily attributable to an increase in third party interest expense of approximately $915,000, mainly driven by the increase in amortization of debt discount and debt issuance costs of approximately $745,000 and the increased interest expense of approximately $170,000 from third party debts, an increase in interest expense – related party of approximately $9,000, and an increase in other expense of approximately $17,000, offset by an increase in gain from change in fair value of derivative liability of approximately $170,000, a decrease in impairment of equity method investment on Epicon of approximately $464,000.

Current wording

Other expense, net, totaled $1,561,353 for the nine months ended September 30, 2024, as compared to $1,189,045 for the nine months ended September 30, 2023, an increase of $372,308, or 31.3%, which was primarily attributable to an increase in third party interest expense of approximately $1,024,000, mainly driven by the increase in amortization of debt discount and debt issuance costs of approximately $825,000 and the increased interest expense of approximately $199,000 from third party debts, an increase in interest expense – related party of approximately $9,000, and an increase in other expense of approximately $56,000, offset by an increase in gain from change in fair value of derivative liability of approximately $252,000, a decrease in impairment of equity method investment on Epicon of approximately $464,000.

Previous wording

We did not have any income taxes expense for the three and six months ended June 30, 2024 and 2023 since we incurred losses in these periods.

Current wording

We did not have any income taxes expense for the three and nine months ended September 30, 2024 and 2023 since we incurred losses in these periods.

Previous wording

As a result of the factors described above, our net loss was $2,132,026 for the three months ended June 30, 2024, as compared to $2,747,057 for the three months ended June 30, 2023, a decrease of $615,031, or 22.4%.

Current wording

As a result of the factors described above, our net loss was $1,679,200 for the three months ended September 30, 2024, as compared to $1,485,075 for the three months ended September 30, 2023, an increase of $194,125, or 13.1%.

Previous wording

As a result of the factors described above, our net loss was $3,499,539 for the six months ended June 30, 2024, as compared to $5,666,801 for the six months ended June 30, 2023, a decrease of $2,167,262, or 38.2%.

Current wording

As a result of the factors described above, our net loss was $5,178,739 for the nine months ended September 30, 2024, as compared to $7,151,876 for the nine months ended September 30, 2023, a decrease of $1,973,137, or 27.6%.

Previous wording

The net loss attributable to our common shareholders was $2,132,026, or $0.19 per share (basic and diluted), for the three months ended June 30, 2024, as compared to $2,747,057, or $0.27 per share (basic and diluted), for the three months ended June 30, 2023, a decrease of $615,031, or 22.4%.

Current wording

The net loss attributable to our common shareholders was $1,679,200, or $1.82 per share (basic and diluted), for the three months ended September 30, 2024, as compared to $1,485,075, or $2.06 per share (basic and diluted), for the three months ended September 30, 2023, an increase of $194,125, or 13.1%.

Previous wording

The net loss attributable to our common shareholders was $3,499,539, or $0.31 per share (basic and diluted), for the six months ended June 30, 2024, as compared to $5,666,801, or $0.56 per share (basic and diluted), for the six months ended June 30, 2023, a decrease of $2,167,262, or 38.2%.

Current wording

The net loss attributable to our common shareholders was $5,178,739, or $6.45 per share (basic and diluted), for the nine months ended September 30, 2024, as compared to $7,151,876, or $10.34 per share (basic and diluted), for the nine months ended September 30, 2023, a decrease of $1,973,137, or 27.6%.

Previous wording

Our reporting currency is the U.S. dollar. The functional currency of our parent company, AHS, Avalon RT 9, and Avalon Lab is the U.S. dollar and the functional currency of Avalon Shanghai is the Chinese Renminbi (“RMB”). The financial statements of our subsidiary whose functional currency is the RMB are translated to U.S. dollars using period end rate of exchange for assets and liabilities, average rate of exchange for revenues, costs, and expenses and cash flows, and at historical exchange rate 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 $2,706 and a foreign currency translation loss of $11,011 for the three months ended June 30, 2024 and 2023, respectively. As a result of foreign currency translations, which are a non-cash adjustment, we reported a foreign currency translation loss of $214 and $7,341 for the six months ended June 30, 2024 and 2023, respectively. This non-cash gain/loss had the effect of decreasing/increasing our reported comprehensive loss in each respective period.

Current wording

Our reporting currency is the U.S. dollar. The functional currency of our parent company, AHS, Avalon RT 9, and Avalon Lab is the U.S. dollar and the functional currency of Avalon Shanghai is the Chinese Renminbi (“RMB”). The financial statements of our subsidiary whose functional currency is the RMB are translated to U.S. dollars using period end rate of exchange for assets and liabilities, average rate of exchange for revenues, costs, and expenses and cash flows, and at historical exchange rate 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 $3,043 and a foreign currency translation loss of $8,685 for the three months ended September 30, 2024 and 2023, respectively. As a result of foreign currency translations, which are a non-cash adjustment, we reported a foreign currency translation gain of $2,829 and a foreign currency translation loss of $16,026 for the nine months ended September 30, 2024 and 2023, respectively. This non-cash gain/loss had the effect of decreasing/increasing our reported comprehensive loss in each respective period.

Previous wording

As a result of our foreign currency translation adjustment, we had comprehensive loss of $2,129,320 and $2,758,068 for the three months ended June 30, 2024 and 2023, respectively.

Current wording

As a result of our foreign currency translation adjustment, we had comprehensive loss of $1,676,157 and $1,493,760 for the three months ended September 30, 2024 and 2023, respectively.

Previous wording

As a result of our foreign currency translation adjustment, we had comprehensive loss of $3,499,753 and $5,674,142 for the six months ended June 30, 2024 and 2023, respectively.

Current wording

As a result of our foreign currency translation adjustment, we had comprehensive loss of $5,175,910 and $7,167,902 for the nine months ended September 30, 2024 and 2023, respectively.

Previous wording

Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations as they come due and otherwise operate on an ongoing basis. At June 30, 2024 and December 31, 2023, we had a cash balance of approximately $201,000 and $285,000, respectively. These funds are kept in financial institutions located as follows:

Current wording

Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations as they come due and otherwise operate on an ongoing basis. At September 30, 2024 and December 31, 2023, we had a cash balance of approximately $1,024,000 and $285,000, respectively. These funds are kept in financial institutions located as follows:

Previous wording

Our working capital deficit increased by $1,968,486 to $7,880,305 at June 30, 2024 from $5,911,819 at December 31, 2023. The increase in working capital deficit was primarily attributable to a decrease in rent receivable of approximately $108,000 driven by collection efforts in the six months ended June 30, 2024, an increase in accrued liabilities and other payables of approximately $177,000 mainly due to the increase in accrued Delaware state franchise tax in the six months ended June 30, 2024, an increase in accrued liabilities and other payables – related parties of approximately $515,000 mainly due to our equity method investment payable paid by a related party on our behalf, a significant increase in advance from pending sale of noncontrolling interest – related party of approximately $2,001,000 resulting from advance received in connection with the membership interest purchase agreement entered into in November 2023 in the six months ended June 30, 2024, and an increase in derivative liability of approximately $268,000 mainly due to warrants issued with convertible debts financing in the six months ended June 30, 2024, offset by a decrease in accrued professional fees of approximately $177,000 resulting from payments made to our professional service providers in the six months ended June 30, 2024, a decrease in equity method investment payable of approximately $667,000 resulting from payment of $100,000 made to investee and payment of approximately $567,000 made by a related party on our behalf in the first half of 2024, and a decrease in convertible note payable, net, of approximately $240,000 mainly due to the repayments made to lenders of $3,100,000 in the first half of 2024 which were netted off against the amortization of debt issuance costs and debt discount of approximately $475,000, offset by the issuances of March 2024 Convertible Note and June 2024 Convertible Note with principal of $3,545,000 in the first half of 2024 (as described below) which were netted off against the remaining balances of debt issuance costs and debt discount of approximately $1,160,000.

Current wording

Our working capital deficit increased by $5,023,533 to $10,935,352 at September 30, 2024 from $5,911,819 at December 31, 2023. The increase in working capital deficit was primarily attributable to a decrease in rent receivable of approximately $120,000 driven by collection efforts in the nine months ended September 30, 2024, an increase in accrued liabilities and other payables of $288,000 mainly due to the increase in accrued Delaware state franchise tax in the nine months ended September 30, 2024, an increase in accrued liabilities and other payables – related parties of approximately $507,000 mainly due to our equity method investment payable paid by a related party on our behalf, a significant increase in advance from pending sale of noncontrolling interest – related party of approximately $2,022,000 resulting from advance received in connection with the membership interest purchase agreement entered into in November 2023 in the nine months ended September 30, 2024, an increase in note payable, net, of approximately $4,719,000, which was attributable to the reclassification of note payable from non-current to current, and an increase in convertible note payable, net, of approximately $211,000, offset by an increase in cash of approximately $739,000, a decrease in accrued professional fees of approximately $1,191,000 resulting from payments made to our professional service providers in the nine months ended September 30, 2024, a decrease in accrued payroll liability and compensation of approximately $201,000, and a decrease in equity method investment payable of approximately $667,000 resulting from payment of $100,000 made to investee and payment of approximately $567,000 made by a related party on our behalf in the nine months ended September 30, 2024.

Previous wording

Cash Flows for the Six Months Ended June 30, 2024 Compared to the Six Months Ended June 30, 2023

Current wording

Cash Flows for the Nine Months Ended September 30, 2024 Compared to the Nine Months Ended September 30, 2023

Previous wording

The following table summarizes the key components of our cash flows for the six months ended June 30, 2024 and 2023:

Current wording

The following table summarizes the key components of our cash flows for the nine months ended September 30, 2024 and 2023:

Previous wording

Net cash flow used in operating activities for the six months ended June 30, 2024 was $1,997,616, which primarily reflected our consolidated net loss of approximately $3,500,000, and the non-cash items adjustment, primarily consisting of change in fair market value of derivative liability of approximately $212,000, and the changes in operating assets and liabilities, primarily consisting of a decrease in accrued liabilities and other payables of approximately $151,000 resulting from payments made to our vendors in the first half of 2024, offset by a decrease in rent receivable of approximately $113,000 driven by our collection efforts, and the non-cash items adjustment, primarily consisting of stock-based compensation and service expense of approximately $150,000, loss from equity method investment of approximately $222,000, distribution of earnings from equity method investment of approximately $473,000, and amortization of debt issuance costs and debt discount of approximately $837,000.

Current wording

Net cash flow used in operating activities for the nine months ended September 30, 2023 was $5,708,402, which primarily reflected our consolidated net loss of approximately $7,152,000, and the changes in operating assets and liabilities, primarily consisting of a decrease in accrued liabilities and other payables of approximately $140,000 due to payments made to vendors in the nine months ended September 30, 2023, and the non-cash items adjustment, primarily consisting of income from equity method investment of approximately $351,000 resulting from our purchase of a 40% equity interest in Lab Services MSO in February 2023, and change in fair market value of derivative liability of approximately $129,000, offset by depreciation of approximately $167,000, stock-based compensation and service expense of approximately $1,056,000, impairment of equity method investment of approximately $464,000, and amortization of debt issuance costs and debt discount of approximately $291,000.

Previous wording

Net cash flow used in investing activities was $100,000 for the six months ended June 30, 2024, as compared to $22,201 for the six months ended June 30, 2023. During the six months ended June 30, 2024, we paid $100,000 for the acquisition of a 40% interest in Lab Services MSO. During the six months ended June 30, 2023, we paid approximately $22,000 for the purchase of property and equipment.

Current wording

Net cash flow used in investing activities was $100,000 for the nine months ended September 30, 2024, as compared to $22,171 for the nine months ended September 30, 2023. During the nine months ended September 30, 2024, we paid $100,000 for the acquisition of a 40% interest in Lab Services MSO. During the nine months ended September 30, 2023, we made payment for purchase of property and equipment of approximately $22,000.

Previous wording

Net cash flow provided by financing activities was $2,010,577 for the six months ended June 30, 2024, as compared to $3,046,564 for the six months ended June 30, 2023. During the six months ended June 30, 2024, we received net proceeds from the issuance of convertible debts and warrants of approximately $3,110,000 (net of original issue discount of approximately $177,000 and cash paid for convertible note issuance costs of approximately $258,000), and an advance from the pending sale of a noncontrolling interest in a subsidiary of approximately $2,001,000, offset by repayments made for convertible debt of $3,100,000. During the six months ended June 30, 2023, we received proceeds from related party borrowings of $850,000 and net proceeds from issuance of convertible debt and warrants of $1,261,000 (net of original issue discount of $75,000 and cash paid for convertible note issuance costs of $164,000), and net proceeds from issuance of a balloon promissory note of $936,000 (net of cash paid for promissory note issuance costs of approximately $64,000).

Current wording

Net cash flow provided by financing activities was $4,726,942 for the nine months ended September 30, 2024, as compared to $4,091,323 for the nine months ended September 30, 2023. During the nine months ended September 30, 2024, we received net proceeds from the issuance of convertible debts and warrants of approximately $3,085,000 (net of original issue discount of approximately $177,000 and cash paid for convertible note issuance costs of approximately $283,000), an advance from the pending sale of a noncontrolling interest in a subsidiary of approximately $2,022,000, and net proceeds from equity offering of approximately $2,719,000 (net of cash paid for commission and other offering costs of approximately $138,000), offset by repayments made for convertible debt of $3,100,000. During the nine months ended September 30, 2023, we received proceeds from related party borrowings of $850,000, and net proceeds from issuance of convertible debt and warrants of approximately $1,690,000 (net of original issue discount of $100,000 and cash paid for convertible note issuance costs of approximately $211,000), and net proceeds from issuance of balloon promissory note of approximately $936,000 (net of cash paid for promissory note issuance costs of approximately $64,000), and net proceeds from equity offering of approximately $616,000 (net of cash paid for commission and other offering costs of approximately $19,000).

Previous wording

In June 2023, we entered into a sales agreement (the “Sales Agreement”) with Roth Capital Partners, LLC (“Roth”) under which we may offer and sell from time to time shares of our common stock having an aggregate offering price of up to $3.5 million. From July 1, 2023 to August 16, 2024, we sold an aggregate of 4,684,278 shares of our common stock at an average price of $0.75 per share to investors pursuant to the Sales Agreement, and received net cash proceeds of $3,388,251, net of cash paid for Roth’s commissions and other fees of $104,992.

Current wording

In June 2023, we entered into a sales agreement (the “Sales Agreement”) with Roth Capital Partners, LLC (“Roth”) under which we may offer and sell from time to time shares of our common stock having an aggregate offering price of up to $3.5 million. From July 1, 2023 to August 16, 2024, we sold an aggregate of 312,285 shares of our common stock at an average price of $11.19 per share to investors pursuant to the Sales Agreement, and received net cash proceeds of $3,388,251, net of cash paid for Roth’s commissions and other fees of $104,992.

Previous wording

In March 2024, we entered into a security purchase agreement with a lender (the “March 2024 Lender”) and closed on the issuance of a 13.0% senior secured convertible promissory note in the principal amount of $700,000 (the “March 2024 Convertible Note”), as well as the issuance of 105,000 shares of common stock as a commitment fee and warrants for the purchase of up to 252,404 shares of our common stock. We and our subsidiaries also entered into security agreements in connection with issuance of the March 2024 Convertible Note, creating a security interest in certain property of the Company and its subsidiaries to secure the prompt payment, performance and discharge in full of all of our obligations under the March 2024 Convertible Note.

Current wording

In March 2024, we entered into a security purchase agreement with a lender (the “March 2024 Lender”) and closed on the issuance of a 13.0% senior secured convertible promissory note in the principal amount of $700,000 (the “March 2024 Convertible Note”), as well as the issuance of 7,000 shares of common stock as a commitment fee and warrants for the purchase of up to 16,827 shares of our common stock. We and our subsidiaries also entered into security agreements in connection with issuance of the March 2024 Convertible Note, creating a security interest in certain property of the Company and its subsidiaries to secure the prompt payment, performance and discharge in full of all of our obligations under the March 2024 Convertible Note.

Previous wording

In June 2024, we entered into a security purchase agreement with a lender (the “June 2024 Lender”) and closed on the issuance of a 13.0% senior secured convertible promissory note in the principal amount of $2,845,000 (the “June 2024 Convertible Note”), as well as the issuance of 402,000 shares of common stock as a commitment fee and warrants for the purchase of up to 2,200,000 shares of our common stock. We and our subsidiaries also entered into security agreements in connection with issuance of the June 2024 Convertible Note, creating a security interest in certain property of the Company and its subsidiaries to secure the prompt payment, performance and discharge in full of all of our obligations under the June 2024 Convertible Note.

Current wording

In June 2024, we entered into a security purchase agreement with a lender (the “June 2024 Lender”) and closed on the issuance of a 13.0% senior secured convertible promissory note in the principal amount of $2,845,000 (the “June 2024 Convertible Note”), as well as the issuance of 26,800 shares of common stock as a commitment fee and warrants for the purchase of up to 146,667 shares of our common stock. We and our subsidiaries also entered into security agreements in connection with issuance of the June 2024 Convertible Note, creating a security interest in certain property of the Company and its subsidiaries to secure the prompt payment, performance and discharge in full of all of our obligations under the June 2024 Convertible Note.

Previous wording

We estimate that, based on current plans and assumptions, our available cash will be insufficient to satisfy our cash requirements under our present operating expectations through cash flow provided by operations, and cash available under our ATM, the Line of Credit and sales of equity. Other than funds received as described above and cash resources generated 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.

Current wording

We estimate that, based on current plans and assumptions, our available cash will be insufficient to satisfy our cash requirements under our present operating expectations through cash flow provided by operations, and cash available under the Line of Credit and sales of equity. Other than funds received as described above and cash resources generated 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.

Previous wording

We ceased all operations in China in 2022, with the exception of a small administrative office. We did not during the six months ended June 30, 2024, and do not expect in the foreseeable future, to generate any additional revenue from PRC operations. Thus, exchange rate fluctuations between the RMB and the U.S. dollar do not have a material effect on us. For the three months ended June 30, 2024 and 2023, we had an unrealized foreign currency translation gain of approximately $2,700 and anunrealized foreign currency translation loss of approximately $11,000, respectively, because of changes in the exchange rate. For the six months ended June 30, 2024 and 2023, we had an unrealized foreign currency translation loss of approximately $200 and $7,300, respectively, because of changes in the exchange rate.

Current wording

We ceased all operations in China in 2022, with the exception of a small administrative office. We did not during the nine months ended September 30, 2024, and do not expect in the foreseeable future, to generate any additional revenue from PRC operations. Thus, exchange rate fluctuations between the RMB and the U.S. dollar do not have a material effect on us. For the three months ended September 30, 2024 and 2023, we had an unrealized foreign currency translation gain of approximately $3,000 and an unrealized foreign currency translation loss of approximately $9,000, respectively, because of changes in the exchange rate. For the nine months ended September 30, 2024 and 2023, we had an unrealized foreign currency translation gain of approximately $3,000 and an unrealized foreign currency translation loss of approximately $16,000, respectively, because of changes in the exchange rate.

Previous wording

The effect of inflation on our revenues and operating results was not significant for the six months ended June 30, 2024 and 2023.

Current wording

The effect of inflation on our revenues and operating results was not significant for the three and nine months ended September 30, 2024 and 2023.