NovelStem International Corp. 10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31 , 2023 Commission file number: 001-14332 ☐ TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 NOVELSTEM INTERNATIONAL CORP. (Exact name of registrant as specified in its charter) Florida 65-0385686 State or other jurisdiction of (I.R.S. Employer incorporation or organization Identification No.) 2255 Glades Road , Suite 221A , Boca Raton , FL 33431 (Address of principal executive offices) (Zip Code) Registrant’s telephone number, including area code (410) 598-9024 Securities registered pursuant to Section 12(b) of the Act: Title of each class Trading Symbol(s) Name of each exchange on which registered None Securities registered pursuant to section 12(g) of the Act: Common Stock, par value $0.01 per share (Title of Class) Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒ Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under those Sections. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☒ Smaller reporting company ☒ Emerging growth company ☒ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Ex- change Act. ☐ Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐ If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐ Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒ As of the last day of the second fiscal quarter of 2023, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was approximately $ 3,282,000 based on the closing sale price on that date as reported on the OTCQB marketplace. As of April 1, 2024 there were 46,881,475 shares of Common Stock, $0.01 par value per share, outstanding. DOCUMENTS INCORPORATED BY REFERENCE None TABLE OF CONTENTS PAGE PART I Item 1. BUSINESS 3 Item 1A. RISK FACTORS 8 Item 1B. UNRESOLVED STAFF COMMENTS 12 Item 2. PROPERTIES 12 Item 3. LEGAL PROCEEDINGS 12 Item 4. MINE SAFETY DISCLOSURES 12 PART II Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES 13 Item 6. [RESERVED] 13 Item 7. MANAGEMEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 14 Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 17 Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 17 Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 17 Item 9A. CONTROLS AND PROCEDURES 18 Item 9B. OTHER INFORMATION 18 Item 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS 18 PART III Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 19 Item 11. EXECUTIVE COMPENSATION 21 Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS 24 Item 13. CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE 25 Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES 26 PART IV Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES 27 Item 16. FORM 10-K SUMMARY 29 Certain statements contained in this report are forward-looking in nature. These statements can be identified by the use of forward-looking terminology such as “believes”, “expects”, “may”, “will”, “should” or “anticipates”, or the negatives thereof, or comparable terminology, or by discussions of strategy. You are cautioned that our business and operations are subject to a variety of risks and uncertainties and, consequently, our actual results may materially differ from those projected by any forward-looking statements. Certain of such risks and uncertainties are discussed below under the heading “Item 1A. Risk Factors.” 2 PART I Item 1. Business. NovelStem International Corp. (“NovelStem” or the “Company”) is a development stage biotechnology holding company focused on the stem cell-based technology developed by its affiliate, NewStem Ltd, an Israeli biotech company (“NewStem”), in which the Company owns an approximate 31% equity interest. NovelStem was formed in January 1993 as Big Entertainment, Inc. Thereafter, the Company changed its name to Hollywood.Com Inc. and, later to Hollywood Media Corp. (“Hollywood Media”). In 2018, the Company shifted its business focus from media to cutting edge biotech when it acquired a substantial ownership interest in NewStem and changed its name to NovelStem. As a significant shareholder in NewStem, and the substantial commitment of our management and financial resources to NewStem, including the fact that our Executive Chairman, Jan Loeb, is also the Chairman of NewStem, we have the ability to exert significant influence over the management and operations of NewStem resulting in NewStem functioning as a minority operating subsidiary of the Company. Since his appointment in July 2018, Mr. Loeb has acted in an executive capacity on behalf of the Company and has served in a de facto leadership role. In September 2022, the Board appointed Mr. Loeb as Executive Chairman of NovelStem in order to ratify Mr. Loeb’s position and clarify his executive role. On January 13, 2023, the Board appointed Mr. Loeb as President. With respect to NewStem, Mr. Loeb, as the Chairman, calls and presides over the meetings of NewStem’s Board of Directors. Additionally, Mr. Loeb leverages his financial expertise by guiding NewStem’s financial and strategic planning, including the raising and deployment of capital, developing and modifying NewStem’s business plan and budget and by participating in the negotiation of NewStem’s material contracts as required. NewStem does not currently have an appointed Chief Financial Officer and, as such, Mr. Loeb serves as the de facto Chief Financial Officer and Chief Strategic Officer of NewStem. NovelStem depends entirely on earnings and cash from its investments in NewStem and our 50% equity interest in a legacy joint venture named NetCo Partners (“NetCo”). The Company’s principal operations coincide with those of NewStem. We have not received any dividend payments or other distributions from NewStem in the fiscal years ended December 31, 2023 and 2022. We received distributions of earnings from NetCo of $6,875 and $12,591, respectively, for the fiscal years ended December 31, 2023 and 2022. NewStem NewStem is a development stage Israeli biotech limited liability company focused on human Pluripotent Stem Cells (hPSCs) in general, and Haploid human Pluripotent Stem Cells (HhPSCs), in particular. These cells have the potential to change the face of medical research as they play a pivotal role in cancer research, regenerative medicine and disease therapy. NewStem established a discovery bio-platform based on haploid human embryonic stem cell technology for genome-wide screenings and is currently using this platform for the discovery and development of oncology drugs based on synthetic lethal interaction and developing a personalized diagnostic for early detection of chemotherapy resistance. NewStem has incurred losses since inception and has generated minimal revenues from a licensing agreement to date. NewStem filed an FDA Pre-Submission and received a CE Mark from the European Medicines Agency (EMA) for its in vitro diagnostic device (IVDD). NewStem does not have an FDA approved medical device. The NewStem Software Diagnostic Device (NSDD) is CE marked under EU regulation as an “other” IVD under Directive 98/79/EC since March 2022. NewStem performs genome-wide genetic screening to identify synthetic lethal interactions with common cancer-related mutations. The first step in the process is to create a model with relevant cancer-related mutations in HhPSCs, where, subsequently, a library targeting approximately 18,000 coding genes is induced. At the end of this step, each cell has two mutations, one in the cancer related gene and the other in a coding gene. A genome-wide genetic screening is performed, both on normal HhPSCs and genomic modified HhPSCs to which a cancer-related mutation was inserted. The goal of such screens is to identify mutations that in combination with a cancer-related mutation will kill the cells. Following bioinformatic analysis of the genetic screening results, novel targets are identified and validated, first in HhPSCs and then cancer models (tumor organoids and PDX). NewStem has validated several targets in HhPSCs and will move next to validation in cancer models. To identify novel targets for drug development, NewStem performs genome-wide genetic screening. The validation process requires additional experiments that corroborate the results in independent experiments that are performed on haploid human embryonic stem cells and cancer models. For validated targets, artificial intelligence (AI) based drug discovery will be performed following by hit to lead process and ADMET that will support the transition to clinical trials. 3 In reference to AI-based drug discovery, AI can assist in structure-based drug discovery by predicting the 3D protein structure and the chemical environment of the target protein site, thus helping to predict the effect of a compound on the target along with safety considerations before their synthesis or production and, accordingly, accelerates the drug development process. In reference to the hit to lead process- this is the iterative process of lead improvement. It is the stage where a hit, typically a small molecule identified in a high throughput screen, is chemically modified into a lead molecule following improvements in activity against the target. In reference to ADMET, this is the five-letter acronym for absorption, distribution, metabolism, excretion, and toxicity that describes pharmacokinetics. ADMET plays key roles in drug discovery and development. A high-quality drug candidate should not only have sufficient efficacy against the therapeutic target, but also show appropriate ADMET properties at a therapeutic dose. NewStem possesses pioneering intellectual property, reagents and experience related to the isolation and differentiation of HhPSCs and hPSCs, their genetic manipulation, immunogenicity, tumorigenicity and their unique capacity in disease modeling. We believe that NewStem is currently the only company worldwide to develop products based on this innovative proprietary technology. These products refer to the medical device platform that provides information to oncologists regarding the presence of mutations in the patient’s tumor profile which may confer resistance to different anti-cancer drugs and to anticancer drugs that target tumors with specific mutations based on a synthetic-lethal interaction approach. NewStem’s technology solutions are derived from an exclusive, worldwide license from Yissum Research Development Company, Hebrew University’s technology transfer company (“Yissum”) and The New York Stem Cells Foundation, based on the findings and inventions of Prof. Nissim Benvenisty, Director of the Azrieli Center for Stem Cells and Genetic Research, The Hebrew University of Jerusalem (the “License”). The License provides NewStem an exclusive worldwide license to make commercial use of the License and to develop, manufacture, market, distribute or sell a product in the field of therapeutics, diagnostics, screening, development and testing. In consideration for the grant of the License, NewStem is obligated to pay royalties of up to 3% of net sales and up to 12% of “Sublicense Consideration” (as defined in the License Agreement). NovelStem was the original seed investor in NewStem providing $2 million in July 2018 and another $2 million over the next two and a half years. We currently own a 30.51% equity interest in NewStem. The remaining equity interests in NewStem are owned by Yissum and Professor Benvenisty, each of whom owns a 30.51% equity interest, Illumina Cambridge LTD, which owns a 5.31% equity interest, and management and a number of other shareholders who own collectively approximately 3.18%. Currently, our President and Executive Chairman, Jan Loeb, is also the Chairman of the Board of NewStem. Professor Benvenisty and a representative of Yissum occupy the other two Board seats. Pursuant to NewStem’s Articles of Association, investors (including NovelStem) are granted certain rights and are subject to certain restrictions with respect to their equity interests in NewStem. NovelStem has preemptive rights to purchase additional shares issued by NewStem up to its pro-rata share of all outstanding shares of NewStem held by all shareholders of NewStem, until the consummation of either an initial public offering or a liquidation event. Such pro-rata share may be increased into an over-allotment if other shareholders decline to exercise their preemptive rights. The Board of Directors of NewStem may make capital calls on NovelStem and the other shareholders, in respect of any sum unpaid in respect of shares held by such shareholder. All shareholders holding at least 10% of the outstanding shares, including NovelStem, may exercise a right of first refusal on all sales of shares of NewStem other than transfers to certain permitted transferees. NovelStem and other shareholders have a co-sale right to sell their shares in place of those that would be issued and sold by NewStem’s founder. The shares of NewStem are subject to a drag-along right, compelling all shares to be sold in the event that a transaction meant to sell all shares of NewStem is approved by shareholders holding at least 65% of the vote of all shares of NewStem. 4 Competition The technologies underlying NewStem’s products are subject to rapid and profound technological change. Competition intensifies as technical advances in each field are made and become more widely known. We can give no assurance that others will not develop services, products, or processes with significant advantages over the products, services, and processes that NewStem offers or is seeking to develop. Any such occurrence could have a material and adverse effect on NewStem’s and our business, results of operations and financial condition. NewStem plans to enhance and broaden its product offerings in response to changing customer demands and competitive pressure and technologies. The success of any new product offering or enhancement to an existing product will depend on numerous factors, including the ability to: - Properly identify and anticipate physician and patient needs; - Develop and introduce new products or product enhancements in a timely manner; - Adequately protect intellectual property and avoid infringing upon the intellectual property rights of third parties; - Demonstrate the safety and efficacy of new products; and - Obtain the necessary regulatory clearances or approvals for new products or product enhancements. Government Regulation In the United States, pharmaceutical products are subject to extensive regulation by the Federal Food and Drug Administration and Cosmetic Act or the FDA. The FDA and other federal and state statutes and regulations, govern, among other things, the research, development, testing, manufacture, storage, recordkeeping, approval, labeling, promotion and marketing, distribution, post-approval monitoring and reporting, sampling, and import and export of pharmaceutical products. The FDA has very broad enforcement authority and failure to abide by applicable regulatory requirements can result in administrative or judicial sanctions being imposed on NewStem, including warning letters, refusals of government contracts, clinical holds, civil penalties, injunctions, restitution, disgorgement of profits, recall or seizure of products, total or partial suspension of production or distribution, withdrawal of approval, refusal to approve pending applications, and criminal prosecution. FDA Approval Process NewStem’s therapeutic product candidates are expected to be regulated by the FDA as drugs. No manufacturer may market a new drug until it has submitted a New Drug Application, or NDA, to the FDA, and the FDA has approved it. The testing and approval process requires substantial time, effort and financial resources, and NewStem’s product candidates may not be approved on a timely basis, if at all. The time and expense required to perform the clinical testing necessary to obtain FDA approval for regulated products can frequently exceed the time and expense of the research and development initially required to create the product. The results of preclinical studies and initial clinical trials of NewStem’s product candidates are not necessarily predictive of the results from large-scale clinical trials, and clinical trials may be subject to additional costs, delays or modifications due to a number of factors, including difficulty in obtaining enough patients, investigators or product candidate supply. Failure by NewStem to obtain, or any delay in obtaining, regulatory approvals or in complying with requirements could adversely affect the commercialization of product candidates and NewStem’s (and, therefore, the Company’s) ability to receive product or royalty revenues. 5 The diagnostic product (NSDD) will be considered a medical device. A Pre-Submission (Pre-Sub) regarding the NSDD was submitted to FDA in March 2022, and the FDA’s written feedback was received in May 2022. The FDA requested that the presented intended use and pivotal clinical testing design be modified. NewStem still needs to present to the FDA a Supplement to the Pre-Sub, presenting such modifications, and asking it to confirm that the de novo route is indeed applicable to the device. Once an agreement is reached with the FDA, the device will be subjected to a retrospective pivotal clinical testing that will be followed by the de novo submission to the FDA. Other Regulatory Requirements After approval, drug products are subject to extensive continuing regulation by the FDA, which include obligations to manufacture products in accordance with Good Manufacturing Practice, or GMP, maintain and provide to the FDA updated safety and efficacy information, report adverse experiences with the product, keep certain records and submit periodic reports, obtain FDA approval of certain manufacturing or labeling changes, and comply with FDA promotion and advertising requirements and restrictions. Failure by NewStem to meet these obligations can result in various adverse consequences, both voluntary and FDA-imposed, including product recalls, withdrawal of approval, restrictions on marketing, and the imposition of civil fines and criminal penalties against the NDA holder. In addition, later discovery of previously unknown safety or efficacy issues may result in restrictions on the product, manufacturer or NDA holder. Outside the United States, NewStem’s ability to market a product is contingent upon receiving marketing authorization from the appropriate regulatory authorities. The requirements governing marketing authorization, pricing and reimbursement vary widely from jurisdiction to jurisdiction. At present, foreign marketing authorizations are applied for at a national level, although within the European Union registration procedures are available to companies wishing to market a product in more than one European Union member state. NewStem is also subject to various environmental, health and safety regulations including those governing laboratory procedures and the handling, use, storage, treatment, and disposal of hazardous materials. From time to time, and in the future, NewStem’s operations may involve the use of hazardous materials. 6 NetCo In June 1995, we and C.P. Group Inc. (“C.P. Group”), formed the joint venture, NetCo. NetCo owns the entertainment property, “Net Force”, about a division of the FBI investigating crimes and adventures involving the internet and the digital world. NovelStem and C.P. Group each own 50% of the ownership interest in NetCo. NetCo owns all rights in all media to the Net Force property including film, television, and video games. In 1997, NetCo licensed to Putnam Berkley the rights to publish the first six Net Force books in North America, which books were written and published. This agreement was subsequently renewed in December 2001 for four more books that were created and published. There was also a series of books targeted to the young adult market, Net Force Explorer, also published by Putnam Berkley. Net Force books have so far been published in mass market paperback format. The first book in the series was adapted as a four-hour mini-series on the ABC television network. In 2019, NetCo entered into a new publishing agreement with HarperCollins. Three novels and two Net Force novellas have been published under that agreement. Through its interest in NetCo, NovelStem receives distributions of its 50% share of proceeds generated from the rights to Net Force. Competition Competition in the publishing and video game industries is intense. Many new products and services are regularly introduced in each major industry segment (console, mobile and PC), but only a relatively small number of “hit” titles account for a significant portion of total revenue in each segment. NetCo’s competitors range from established interactive entertainment companies and diversified media companies to emerging start-ups, and we expect new competitors to continue to emerge throughout the world. See Item 3 – Legal Proceedings for information concerning proceedings related to NetCo. Employees We do not currently have any employees; however, the Company relies on consultants to perform the duties that would be performed by employees. Additional Financial Information For additional financial information regarding our operations, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our Financial Statements included in this Annual Report. Available Information We file annual, quarterly and current reports and other information with the U.S. Securities and Exchange Commission (the “SEC”). These filings are available to the public over the internet at the SEC’s website at http://www.sec.gov. You may also read and copy any document we file at the SEC’s public reference room located at 100 F Street, NE, Washington, DC 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. Our website can be found at http://novelstem.com. 7 Item 1A. Risk Factors. Our business is subject to certain risks, including those described below. If any of the events described in the following risk factors actually occurs then our business, results of operations and financial condition could be materially adversely affected. More detailed information concerning these risks is contained in other sections of this registration statement, including “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Risks Relating to our Business We are a holding company the principal assets of which are illiquid, ownership interests in NewStem and NetCo. Our Company’s primary assets are equity interests in NewStem and NetCo. Our President and Executive Chairman, Jan Loeb, is also the Chairman of NewStem and through this shared management structure along with our 30.51% ownership interest in NewStem, we are able to exert significant influence over the operations of NewStem. Additionally, we are a 50% partner in NetCo and through our ownership interest. We conduct no other business and, as a result, we depend entirely upon earnings and cash flow from NewStem and NetCo. If we decide in the future to pay dividends, as a holding company, our ability to pay dividends and meet other obligations depends upon the receipt of dividends or other payments from our operating subsidiaries. Our investments in NewStem and NetCo are illiquid. Our shares in NewStem and our ownership interest in NetCo are illiquid and have extremely limited liquidity rights. The transferability of these interests is restricted under federal and state securities laws and the governing documents of each of NewStem and NetCo. We depend on our executive officers and consultants and other key individuals along with the executive officers and key individuals of NewStem to continue the implementation of our long-term business strategy and could be harmed by the loss of their services and our inability to make up for such loss with qualified replacements. We believe that our continued growth and future success will depend in large part on the skills of our management team and the management teams of NewStem and NetCo, and our partners’ respective abilities to motivate and retain these individuals and other key individuals. Jan Loeb, our President and Executive Chairman, is also the Chairman of NewStem, and therefore has the shared responsibility of growing the business and operations of NewStem. The loss of any of their service could reduce our ability to successfully implement our long-term business strategy which may result in a loss of revenue, and the value of our common stock could be materially adversely affected. Leadership changes will occur from time to time and we cannot predict whether significant resignations will occur or whether NewStem will be able to recruit additional qualified personnel. We believe these management teams possess valuable knowledge about our, NewStem’s and NetCo’s respective industries and that their knowledge and relationships would be very difficult to replicate. The loss of key personnel, or the inability to recruit and retain qualified and talented personnel in the future, could have an adverse effect on the respective businesses of NewStem and NetCo, and, consequently, our business, financial condition and/or operating results. We and NewStem have limited operating histories and have generated minimal revenue to date. We and NewStem have a limited operating history and do not have a meaningful historical record of sales and revenues, nor do we or NewStem have an established business track record. While we believe that we have the opportunity to be successful, there can be no assurance that we will be successful in accomplishing our business initiatives, or that we will be able to achieve any significant levels of revenues or net income. We have identified material weaknesses in our internal control and procedures and internal control over financial reporting. If not remediated, our failure to establish and maintain effective disclosure controls and procedures and internal control over financial reporting could result in material misstatements in our financial statements and a failure to meet our reporting and financial obligations, each of which could have a material adverse effect on our financial condition and the trading price of our common stock. Maintaining effective internal control over financial reporting and effective disclosure controls and procedures are necessary for us to produce reliable financial statements. We have re-evaluated our internal control over financial reporting and our disclosure controls and procedures and concluded that they were not effective as of December 31, 2023 and we concluded there was a material weakness in the design of our internal control over financial reporting. A material weakness is defined as a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. 8 Rapid technological change could cause products to become obsolete, and if NewStem does not enhance its product offerings through research and development efforts, it may be unable to effectively compete. NewStem’s future business success will depend upon its ability to maintain and enhance its product portfolio with respect to advances in technological improvements for certain products that meet customer needs and market conditions in a cost-effective and timely manner. NewStem may not be successful in gaining access to new products that successfully compete or are able to anticipate customer needs and preferences, and customers may not accept one or more of its products. If NewStem fails to keep pace with evolving technological innovations or fails to modify its products and services in response to customers’ needs or preferences, then NewStem’s and our business, financial condition and results of operations could be adversely affected. The technologies underlying NewStem’s products are subject to rapid and profound technological change. Competition intensifies as technical advances in each field are made and become more widely known. We can give no assurance that others will not develop services, products, or processes with significant advantages over the products, services, and processes that NewStem offers or is seeking to develop. Any such occurrence could have a material and adverse effect on NewStem’s and our business, results of operations and financial condition. NewStem plans to enhance and broaden its product offerings in response to changing customer demands and competitive pressure and technologies. The success of any new product offering or enhancement to an existing product will depend on numerous factors, including the ability to: - Properly identify and anticipate physician and patient needs; - Develop and introduce new products or product enhancements in a timely manner; - Adequately protect intellectual property and avoid infringing upon the intellectual property rights of third parties; - Demonstrate the safety and efficacy of new products; and - Obtain the necessary regulatory clearances or approvals for new products or product enhancements. If NewStem does not develop and, when necessary, obtain regulatory clearance or approval for new products or product enhancements in time to meet market demand, or if there is insufficient demand for these products or enhancements, its results of operations will suffer. NewStem’s research and development efforts may require a substantial investment of time and resources before it is adequately able to determine the commercial viability of a new product, technology, material or other innovation. In addition, even if NewStem is able to successfully develop enhancements or new generations of its products, these enhancements or new generations of products may not produce sales in excess of the costs of development, and they may be quickly rendered obsolete by changing customer preferences or the introduction by competitors of products embodying new technologies or features. Our ongoing viability as a company depends on NewStem’s ability to successfully develop and commercialize its products. NewStem is principally focused on utilizing proprietary hPSCs and HhPSCs in the development of diagnostic and therapeutic products in oncology. NewStem must develop diagnostics and therapeutics successfully test them for safety and efficacy in the targeted patient population and manufacture the finished drugs on a commercial scale to meet regulatory standards and receive regulatory approvals. The development and commercialization process is both time-consuming and costly, and involves a high degree of business risk. The results of pre-clinical and clinical testing of product candidates are uncertain, and there can be no assurance that NewStem will be able to obtain regulatory approvals of its product candidates. If obtained, regulatory approval may take longer or be more expensive than anticipated. Furthermore, even if regulatory approvals are obtained, NewStem’s products may not perform as we expect and NewStem may not be able to successfully and profitably produce and market any products. Delays in any part of the process or our inability to obtain regulatory approval of such products could adversely affect NewStem’s and, therefore, NovelStem’s future operating results by restricting (or even prohibiting) the introduction and sale of such products. The value of our investment in NetCo and our ability to receive distributions may be affected by disputes between the Company and C.P. Group, our partner in NetCo. The Company and C.P. Group each own a 50% interest in NetCo. The joint venture agreement governing NetCo provides for mutual decision making among the Company and C.P. Group generally (subject to exceptions) and arbitration in the event any controversy or disagreement arises. The Company and C.P. Group were previously in arbitration as to ongoing scope and the operation of NetCo. This arbitration was concluded in July 2023. The arbitrator ruled against the Company on certain key issues of the arbitration and in the Company’s favor on two key issues of the arbitration. However, if we are unable proceed in successful utilization of the joint venture assets in a manner favorable to the Company, our investment in NetCo and our ability to continue to receive distributions from our interest in NetCo could have an adverse effect on our business, financial condition or operating results. 9 NetCo’s business is intensely competitive and “hit” driven. NetCo may not deliver “hit” products and services, or consumers may prefer a competitors’ products or services over NetCo. Competition in the publishing and video game industries is intense. Many new products and services are regularly introduced in each major industry segment (console, mobile and PC), but only a relatively small number of “hit” titles account for a significant portion of total revenue in each segment. NetCo’s competitors range from established interactive entertainment companies and diversified media companies to emerging start-ups, and we expect new competitors to continue to emerge throughout the world. If NetCo’s competitors develop and market more successful and engaging products or services, offer competitive products or services at lower price points, or if NetCo does not develop high-quality, well-received and engaging products and services, NetCo and our revenue, margins, and profitability will decline. If NetCo fails to develop relationships with new creative talent, its business could be adversely affected. NetCo’s business, in particular the trade publishing and media portions of the business, is highly dependent on maintaining strong relationships with the authors, illustrators and other creative talent who produce the products and services that are sold to its customers. Any overall weakening of these relationships, or the failure to develop successful new relationships, could have an adverse impact on NetCo and the Company’s business and financial performance. Risks relating to our common stock Because our holding company structure creates restrictions on the payment of dividends, our ability to pay dividends is limited. We are a holding company whose primary assets are our ownership of equity interests in NewStem and NetCo. We conduct no other business and, as a result, we depend entirely upon NewStem’s and NetCo’s earnings and cash flow. If we decide in the future to pay dividends, as a holding company, our ability to pay dividends and meet other obligations depends upon the receipt of dividends or other payments from NewStem or NetCo. NewStem and/or NetCo may be restricted in their ability to pay dividends, make distributions or otherwise transfer funds to us prior to the satisfaction of other obligations, including the payment of operating expenses or debt service, appropriation to reserves prescribed by laws and regulations, covering losses in previous years, restrictions on the conversion of local currency into U.S. dollars or other hard currency, completion of relevant procedures with governmental authorities or banks and other regulatory restrictions. We do not presently have any intention to declare or pay dividends in the future. You should not purchase shares of our common stock in anticipation of receiving dividends in future periods. Because we do not intend to pay any cash dividends on our common stock, our shareholders will not be able to receive a return on their shares unless they sell them. We intend to retain any future earnings to finance the development and expansion of our business. We do not anticipate paying any cash dividends on our common stock in the foreseeable future. Unless we pay dividends, our shareholders will not be able to receive a return on their shares unless they sell them. Shareholders may never be able to sell shares when desired. Before you invest in our securities, you should be aware that there are various risks. You should consider carefully these risk factors, together with all of the other information included in this annual report before you decide to purchase our securities. If any of the following risks and uncertainties develop into actual events, our business, financial condition or results of operations could be materially adversely affected. We are an emerging growth company and the reduced disclosure requirements applicable to emerging growth companies could make our common stock less attractive to investors. We are an emerging growth company. Under the JOBS Act, emerging growth companies can take advantage of certain exemptions from various reporting requirements that are applicable to other public companies including, without limitation, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, exemptions from the requirements of holding a non-binding advisory shareholder vote on executive compensation and golden parachute payments, exemption from the requirement of auditor attestation in the assessment of our internal control over financial reporting and exemption from any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about our audit and the financial statements (auditor discussion and analysis). As a result of the foregoing, the information that we provide shareholders may be different than what is available with respect to other public companies. In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933 for complying with new or revised accounting standards. We plan to elect to use the extended period for compliance and, as a result, our financial statements may not be comparable to companies that comply with public company effective dates. 10 Reporting requirement under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and compliance with the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), including establishing and maintaining acceptable internal controls over financial reporting, are costly and may increase substantially. The rules and regulations of the SEC require a public company to prepare and file periodic reports under the Exchange Act, which require that the Company engage legal, accounting, auditing and other professional services. The engagement of such services is costly. Additionally, the Sarbanes-Oxley Act requires, among other things, that we design, implement and maintain adequate internal controls and procedures over financial reporting. The costs of complying with the Sarbanes-Oxley Act and the limited technically qualified personnel we have may make it difficult for us to design, implement and maintain adequate internal controls over financial reporting. In the event that we fail to maintain an effective system of internal controls or discover material weaknesses in our internal controls, we may not be able to produce reliable financial reports or report fraud, which may harm our overall financial condition and result in loss of investor confidence and a decline in our share price. We are working with our legal, accounting and financial advisors to identify those areas in which changes should be made to our financial and management control systems to manage our growth and our obligations as a public company. These areas include corporate governance, corporate control, disclosure controls and procedures and financial reporting and accounting systems. We have made, and will continue to make, changes in these and other areas. However, we anticipate that the expenses that will be required in order to adequately prepare for being a public company could be material. We estimate that the aggregate cost of increased legal services; accounting and audit functions; consultants to design and implement internal controls; and financial printing alone will be a few hundred thousand dollars per year and could be several hundred thousand dollars per year. In addition, we may incur additional expenses related to director compensation and/or premiums for directors’ and officers’ liability insurance, the costs of which we cannot estimate at this time. We may also incur additional expenses associated with investor relations and similar functions, the cost of which we also cannot estimate at this time. However, these additional expenses individually, or in the aggregate, may also be material. The continued increased costs associated with operating as a public company may decrease our net income or increase our net loss and may cause us to reduce costs in other areas of our business or increase the prices of our products or services to offset the effect of such increased costs. Additionally, if these requirements divert our management’s attention from other business concerns, they could have a material adverse effect on our business, financial condition and results of operations. There is a very limited trading market for our common stock and investors are not assured of the opportunity to sell their stock, should they desire to do so. Our common stock is currently quoted on the OTC Pink Market. However, our stock has traded in very limited quantities in the past. We believe a significant factor in the limited market is our limited capitalization and liquidity, results of operations and the characterization of our stock as a “penny stock.” We hope to remedy our financial condition and results of operation in the future. This, in turn, may assist us in obtaining listing of our stock on other exchanges. However, there is no assurance that any of these objectives will be met or that the market will ever increase to a point where investors could sell their stock at a desirable price, should they desire to do so. The price of our common stock could be highly volatile. Our shares of common stock are quoted on the OTC Pink Market. It is likely that our common stock will be subject to price volatility, low volumes of trades and large spreads in bid and ask prices quoted by market makers. Due to the low volume of shares traded on any trading day, persons buying or selling in relatively small quantities may easily influence prices of our common stock. This low volume of trades could also cause the price of our stock to fluctuate greatly, with large percentage changes in price occurring in any trading day session. Holders of our common stock may also not be able to readily liquidate their investment or may be forced to sell at depressed prices due to low volume trading. If high spreads between the bid and ask prices of our common stock exist at the time of a purchase, the stock would have to appreciate substantially on a relative percentage basis for an investor to recoup their investment. Broad market fluctuations and general economic and political conditions may also adversely affect the market price of our common stock. No assurance can be given that an active market in our common stock will be sustained. If an active market does not continue, holders of our common stock may be unable to readily sell the shares they hold or may not be able to sell their shares at all. 11 We may be deemed an investment company, which could impose on us burdensome compliance requirements. The Investment Company Act of 1940, as amended (the “Investment Company Act”), requires companies to register as an investment company if they are engaged primarily in the business of investing, reinvesting, owning, holding, or trading securities. Generally, companies may be deemed investment companies under the Investment Company Act if they are viewed as engaging in the business of investing in securities or they own investment securities having a value exceeding 40% of certain assets. We are not in the business of investing, reinvesting, owning, holding or trading securities. However, if the Securities and Exchange Commission deems us to be an investment company, we may have imposed upon us additional burdensome requirements, including having to register as an investment company, adopting a specific form of corporation structure and having to comply with certain reporting, record keeping, voting, proxy, and disclosure requirements. Such additional requirements would require us to incur additional costs and have an adverse effect on our results of operations and our ability to effectively carry out our business plan. Item 1B. Unresolved Staff Comments. None Item 2. Properties . Our corporate office is located at 2255 Glades Road, Boca Raton, FL 33431. We believe that our facilities are adequate for current operations. Item 3. Legal Proceedings. As noted above, NetCo owns all rights to the “Tom Clancy’s Net Force” intellectual property in all media, including film, television, and video games. As part of the joint venture, NetCo has published more than a dozen books and had an ABC miniseries. After Tom Clancy passed away in 2013, his estate and business partners refused to cooperate in exploiting the intellectual property. After trying to amicably resolve the dispute, the Company initiated arbitration proceedings with the American Arbitration Association. The Company’s arbitration demand asserts claims for breach of the joint venture agreement and breach of fiduciary duty. Both claims arise from C.P. Group’s failure to make reasonable, good faith efforts to exploit the full array of media rights relating to Net Force. The Company’s goal is to maximize the total potential value of the NetCo intellectual property across video games, streaming, digital media, merchandising and other ancillary markets. The Company believes that the value of the intellectual property is significant. The arbitration evidentiary hearing concluded on October 20, 2022, and the arbitrator ordered the parties to submit post-hearing briefs. Final briefs were filed in January 2023. The Arbitrator ruled in the Company’s favor on two key issues of the arbitration and ruled against the Company in other key issues. The Arbitrator ruled in NovelStem’s favor on the issue of contract interpretation of the Netco Partners JV Agreement. The Arbitrator also found that the Company’s joint venture partner failed to use “reasonable, good faith efforts” to license and exploit the Net Force concept, in breach of its contractual obligations under the Netco Partners’ Joint Venture Agreement. The Arbitrator confirmed NovelStem’s contractual right to use Tom Clancy’s name as a possessory credit in the Net Force title (Tom Clancy’s Net Force). However, the arbitrator did not award any damages to the Company and did not cede operating control of the joint venture to the Company as requested. As such, the Company continues to struggle to maximize the potential of the NetCo asset. To fund efforts to maximize the value of NetCo, NovelStem has secured non-recourse litigation funding. As a result of this ruling, the costs related to the litigation funding agreement were recognized. Total costs related to the litigation and the related litigation funding agreement of $2,819,196 were recorded by the Company. Item 4. Mine Safety Disclosures. Not applicable 12 PART II [See General Instruction G2] Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market information There is no established public trading market in our common stock, and a regular trading market may not develop, or if developed, may not be sustained. Our securities are currently quoted on the OTC Markets Pink under the symbol “NSTM”. The following reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions. High Low Fiscal 2024 Quarter ended 3/31/2024 (through March 29, 2024) $ 0.08 $ 0.06 Fiscal 2023 Quarter ended 12/31/2023 $ 0.18 $ 0.06 Quarter ended 9/30/2023 $ 0.25 $ 0.13 Quarter ended 6/30/2023 $ 0.28 $ 0.14 Quarter ended 3/31/2023 $ 0.20 $ 0.15 Fiscal 2022 Quarter ended 12/31/2022 $ 0.21 $ 0.11 Quarter ended 9/30/2022 $ 0.28 $ 0.12 Quarter ended 6/30/2022 $ 0.33 $ 0.06 Quarter ended 3/31/2022 $ 0.30 $ 0.13 Fiscal 2021 Quarter ended 12/31/2021 $ 0.31 $ 0.20 Quarter ended 9/30/2021 $ 0.35 $ 0.19 Quarter ended 6/30/2021 $ 0.35 $ 0.23 Quarter ended 3/31/2021 $ 0.30 $ 0.16 Fiscal 2020 Quarter ended 12/31/2020 $ 0.20 $ 0.05 Quarter ended 9/30/2020 $ 0.09 $ 0.05 Quarter ended 6/30/2020 $ 0.13 $ 0.07 Quarter ended 3/31/2020 $ 0.13 $ 0.08 Holders As of April 1, 2024 there were 46,881,475 shares of common stock outstanding held by approximately 80 record holders. Dividends We have not paid cash dividends on any of our capital stock since our name change and business focus shift in 2018 and currently intend to retain our future earnings, if any, to fund the development and growth of our business. We do not expect to pay any dividends on any of our capital stock in the foreseeable future. Item 6. [Reserved] 13 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following discussion includes statements that are forward-looking in nature. Whether such statements ultimately prove to be accurate depends on a variety of factors that may affect our business and operations. Certain of these factors are discussed in “Item 1A. Risk Factors.” The following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes thereto and other financial information appearing elsewhere in this report. Overview We are a development stage company and reported net losses of approximately $4,187,000 and $766,000 for the years ended December 31, 2023 and 2022, respectively. We had current assets of approximately $87,000 and current liabilities of approximately $346,000 as of December 31, 2023. As of December 31, 2022, our current assets and current liabilities were approximately $59,000 and $65,000, respectively. We have prepared our financial statements for the years ended December 31, 2023 and 2022 assuming that we will continue as a going concern. Our continuation as a going concern is dependent upon improving our profitability and the continuing financial support from our shareholders as well as NewStem’s ability to successfully develop and commercialize its products. Our sources of capital in the past have included the sale of equity securities, which include common stock sold in private transactions, and short-term debt. During the current year, we continued to borrow on existing finance agreements with two related party individuals and entered into a long term finance agreement with a shareholder to fund current operating expenses. Additionally, we entered into two short term notes to fund advances to NewStem. NewStem is a development stage Israeli biotech limited liability company focused on pioneering intellectual property related to haploid human embryonic stem cells for the development of personalized diagnostics and therapeutics for genetic and epigenetic diseases. NewStem has incurred losses related to in process research and development since inception and the Company records our percentage allocation of these net losses as incurred. We have included the financial statements of NewStem as an exhibit to this Annual Report. In many cases, the accounting treatment of a particular transaction is specifically dictated by generally accepted accounting principles, with no need for management’s judgement in their application. There are also areas in which the selection of an available alternative policy would not produce a materially different result. Critical Accounting Policies The SEC defines “critical accounting policies” as those that require application of management’s most difficult, subjective or complex judgements, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and my change in subsequent periods. The following discussion of critical accounting policies represents our attempt to report on these accounting policies which we believe are critical to our financial statements and other financial disclosure. It is not intended to be a comprehensive list of all of our significant accounting policies, which are more fully described in Note 2 of the Notes to the Financial Statements included in this Annual Report. We have identified our accounting policies for stock-based compensation and accounting for derivative liabilities as critical accounting policies. We recognize stock-based compensation expense based on the fair value recognition provision of applicable accounting principles, using the Black-Scholes option valuation method. Accordingly, we are required to measure the cost of services received in exchange for an award of equity instruments based on the grant-date fair value of the award and to recognize that cost over the period during which services are provided in exchange for the award. Under the Black-Scholes method, we make assumptions with respect to the expected lives of the options that have been granted and are outstanding, the expected volatility, the dividend yield percentage of our common stock and the risk-free interest rate at the respective dates of grant. The expected volatility factor used to value stock options in 2023 was based on the historical volatility of the market price of our common stock over the period from our change to a biotechnology company, September 2018, through December 2023. For the expected term of the option, we used an estimate of the expected option life based on historical experience. The risk-free interest rate used is based upon U.S. Treasury yields for a period consistent with the expected term of the options. We assumed no quarterly dividend rate. Due to the numerous assumptions involved in calculating stock-based compensation expense, the expense recognized in our financial statements may differ significantly from the value realized by option holders on exercise of the share-based instruments. In accordance with the prescribed methodology, we do not adjust our recognized compensation expense to reflect these differences. For the years ended December 31, 2023 and 2022, we incurred stock compensation expense with respect to options and warrants of approximately $303,000 and $283,000, respectively. See Note 5 to the financial statements for the assumptions used to calculate the fair value of stock-based compensation. In accordance with Accounting Standards Codification (“ASC”) 815, Derivatives and Hedging, we identify and, if applicable, bifurcate embedded derivatives in financial instrument instruments. Those embedded features that are identified, bifurcated and accounted for separately are measured at fair value continuously at each financial statement reporting date. If the fair value of a financial liability (the derivative) exceeds the proceeds received for the issuance of a hybrid instrument in an arms length transaction with no rights or privileges that require separate accounting recognition as an asset identified, then we record the embedded derivative at fair value with the excess of fair value over proceeds recognized as a loss in earnings. 14 Results of Operations. The selected statement of operations data for the years ended December 31, 2023 and 2022 and balance sheet data as of December 31, 2023 and 2022 has been derived from our audited financial statements included in this Annual Report. This data should be read in conjunction with our financial statements and related notes included herein. Selected Statement of Operations Data: Years Ended December 31, 2023 2022 Change Administrative fee income $ 12,000 $ 12,000 $ - Operating expenses: G&A expenses $ 665,277 $ 744,434 $ (79,157 ) Litigation expenses (contra expenses) 2,872,522 (310,000 ) 3,182,522 Total operating expenses 3,537,799 434,434 3,103,365 Loss from operations (3,525,799 ) (422,434 ) (3,103,365 ) Other expenses: Loss on derivative instrument 260,000 - 260,000 Interest expense 99,023 11,018 88,005 Total other expenses 359,023 11,018 348,005 Net loss before equity in net loss of equity method investees (3,884,822 ) (433,452 ) (3,451,370 ) Equity in net loss of equity method investees (338,618 ) (719,802 ) 381,184 Gain on dilution of equity method investment 36,139 387,524 (351,385 ) Net loss $ (4,187,301 ) $ (765,730 ) $ (3,421,571 ) 2023 Compared to 2022 We are a holding company whose primary assets are our ownership of equity interests in NewStem and NetCo. We conduct no other business and as a result, we have no operating revenue or cost of revenue. We do charge annual administrative fees to an affiliated entity. The Company incurs general and administrative (“G&A”) expenses primarily related to professional fees, insurance and stock based compensation. We incurred G&A expenses of approximately $665,000 and $744,000 for the years ended December 31, 2023 and 2022, respectively. Our decrease in G&A expenses relates primarily to stock-based compensation and professional fees incurred in the audit of our financial statements for the years ended December 31, 2023 and 2022, preparation of our quarterly reports for 2023 and 2022, and, in the preparation, and filing of our Form 10 registration statement which was filed in August 2022. Specifically, professional fees decreased by approximately $93,000 in the year ended December 31, 2023 as compared to the year ended December 31, 2022. Insurance costs decreased by approximately $9,000 in the year ended December 31, 2023 as compared to the year ended December 31, 2022. The remaining increase in G&A expenses of approximately $3,000 during the year ended December 31, 2023 consists primarily of increases in expenses related to investor relations and information technology. Total stock compensation expense, included in G&A expenses, increased by approximately $20,000 in the year ended December 31, 2023 as compared to the year ended December 31, 2022 due to a smaller number of options awarded in the current period as compared to the prior period offset by the recognition of $243,000 in stock compensation expense related to the increased value of our outstanding warrants due to the amendment of the agreements to extend the due date by two years. We incurred costs related to litigation and the related litigation funding agreement involving our arbitration with our NetCo joint venture partner of approximately $2,873,000 for year ended December 31, 2023. We recognized contra expenses of $310,000 during the year ended December 31, 2022 in relation to the same litigation and related litigation funding agreement. Specifically, the increase of approximately $3,183,000 for the year ended December 31, 2023 as compared to 2022 is comprised of legal fees related to our NetCo arbitration including litigation funding fees due to Omni Bridgeway pursuant to the litigation funding agreement combined with the reversal of the contra expenses recognized in the previous period. These expenses and contra expenses were funded by the litigation funding agreement. This agreement was signed during the first quarter of 2022 with Omni Bridgeway to fund our arbitration against our 50% joint venture partner, C.P. Group. This is a nonrecourse agreement, and the Company had no obligation to repay any funds received under the agreement unless the NetCo arbitration resulted in a favorable outcome. These amounts are included in the note payable to Omni Bridgeway which was recorded in June 2023 as a result of the arbitration ruling. 15 The Company has recorded a loss on derivative instrument of approximately $260,000 for the year ended December 31, 2023 related to a guarantee included in the note payable shareholder entered into in May 2023. No such instrument was in effect in the year ended December 31, 2022. Interest expense increased by approximately $88,000 in the year ended December 31, 2023 as compared to the year ended December 31, 2022. The increases in interest expense are related to increased debt incurred for operations and the funding of NewStem. The Company has recorded no income tax expense as we have incurred operating losses and all deferred tax assets are fully offset by an income tax valuation allowance. We reported net losses from equity method investees during the years ended December 31, 2023 and 2022. The net losses reported for the year ended December 31, 2023 included net income of approximately $3,000 from NetCo which was offset by net loss of approximately $342,000 from NewStem. Net losses reported for the year ended December 31, 2022 included net income of approximately $13,000 from NetCo which was offset by net loss of approximately $733,000 from NewStem. We reported a gain on dilution of our equity method investment related to stock issuances made to third parties by NewStem. The gain was approximately $36,000 and $388,000 during the years ended December 31, 2023 and 2022, respectively. Liquidity and Capital Resources We have not paid dividends on our common stock since our name change and business focus shift in 2018. Our present policy is to apply cash to investments in product development at NewStem, acquisitions or expansion; consequently, we do not expect to pay dividends on common stock in the foreseeable future. We expect to continue to incur greater expenses in the near future as we expand our business, including funding NewStem, or enter into strategic partnerships. We also expect our G&A expenses to increase as we expand our administrative staff and add infrastructure. The Company will need to obtain additional funds to continue its operations. Management’s plans with regard to these matters include additional financing and fundraising until our equity investment in NewStem is profitable. Although management continues to pursue these plans, there is no assurance that the Company will be successful in obtaining sufficient cash from financing on terms acceptable to the Company, or that NewStem will become profitable. During the year ended December 31, 2022, the Company entered into note agreements with Jan Loeb, our Executive Chairman and Jerry Wolasky, a member of the Board, to borrow up to an aggregate of $600,000 for working capital needs. The note agreements were amended in March 2024 to increase the total borrowing to $650,000 and extend the maturity date. The agreements provide for interest at a rate of 8% per annum, increased to 10% per annum for advances subsequent to November 11, 2022, and mature September 1, 2025. As of the date of this Annual Report, the full amount of $650,000 has been funded pursuant to these agreements. During the year ended December 31, 2023, the Company entered into a note agreement with a shareholder to borrow $300,000 for continued working capital. This note bears interest at zero percent (0%) and matures on May 5, 2025. The note includes a guarantee which has been identified as an embedded derivative with a fair value of a liability of $535,000 at December 31, 2023. In December 2023, the Company entered into two short term notes payable with unrelated parties for a total of $250,000 in borrowings utilized for the funding of NewStem. The notes bear interest at 12% per annum and mature December 21, 2024, at which time all principal and accrued interest are due and payable. The note agreements include a provision whereby, in the event of a capital raise transaction by the Company, the note holders would be entitled to participate in the transaction in an amount equal to 133% of the amounts owed on the note agreements at the closing of the transaction. Net Cash Used In Operating Activities. For the year ended December 31, 2023, net cash used in operating activities was approximately $348,000, which consisted primarily of a net loss of approximately $4,187,000, offset by noncash equity in loss of equity method investees of approximately $339,000 and distributions from equity method investees of $7,000, netted with gain on dilution of approximately $36,000 and stock-based compensation of approximately $303,000. Further offset by approximately $2,819,000 in cumulative noncash litigation expenses funded directly by the litigation funding agreement, loss on derivative instrument of $260,000, accretion of discount on notes payable of $62,000 and interest added to related party notes payable of $35,138. Additionally, cash was used in operations related to a decrease in current assets of approximately $19,000 and an increase in accrued liabilities and other payables of approximately $31,000. For the year ended December 31, 2022, net cash used in operating activities was approximately $182,000, which consisted primarily of a net loss of approximately $776,000, offset by noncash equity in loss of equity method investees of approximately $720,000 and distributions from equity method investees of approximately $13,000, netted with gain on dilution of approximately $388,000 and stock-based compensation of approximately $283,000. Additionally, cash was used in operations related to an increase in current assets of approximately $24,000 and a decrease in accrued liabilities and other payables of approximately $28,000. Net Cash Used In Investing Activities. For the year ended December 31, 2023, $250,000 was loaned to NewStem in an investing activity. For the year ended December 31, 2022, no net cash was used in investing activities. Net Cash Provided By Financing Activities. For the year ended December 31, 2023, net cash provided by financing activities was $645,000, consisting of long-term borrowings from two directors and a stockholder totaling $395,000 and short term borrowings from unrelated parties of $250,000. For the year ended December 31, 2022, net cash provided by financing activities was $180,000, consisting of long-term borrowings from two directors of $280,000 and repayment of $100,000 in short-term borrowings from a significant stockholder. 16 Off-Balance Sheet Arrangements We are not party to any off-balance sheet transactions. With the exception of a guarantee related to long term borrowings from a stockholder which is accounted for as a derivative, we have no guarantees or obligations other than those which arise out of normal business operations. Contractual Obligations and Commercial Commitments As of December 31, 2023, we had a contractual obligation related to our directors’ and officers’ insurance providing for 10 monthly installments of $4,943 payable through June 2024. As of December 31, 2022, we had a contractual obligation related to our directors’ and officers’ insurance providing for 10 monthly installments of $5,184 payable through June 2023. Item 7A. Quantitative and Qualitative Disclosures About Market Risk. This section is not applicable. Item 8. Financial Statements and Supplementary Data. Furnished at the end of this Annual Report, commencing on page F-1. Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. On December 15, 2023, the Board of Directors of Novelstem International Corp. (the “Company”) received formal notice that our independent auditors, Cherry Bekaert LLP (“CB”), had made the decision to resign as our independent accountants effective December 15, 2023. CB audited the financial statements of the Company for the years ended December 31, 2020, 2021 and 2022. The reports of CB on such financial statements dated August 1, 2022, October 11, 2022 and March 31, 2023 did not contain an adverse opinion or disclaimer of opinion and were not modified as to uncertainty, audit scope or accounting principles. For the past three fiscal years and subsequent interim periods through the date of resignation, there have been no disagreements with the former accountants on any matter of accounting principles or practices, financial statement disclosures or auditing scope or procedure, which disagreement, if not resolved to the satisfaction of Cherry Bekaert LLP, would have caused them to make reference thereto in their report on the financial statements. During the Company’s three most recent fiscal years, and since then, CB has not advised the Company that any of the following exist or are applicable: (1) That the internal controls necessary for the Company to develop reliable financial statements do not exist, that information has come to their attention that has led them to no longer be able to rely on management’s representations, or that has made them unwilling to be associated with the financial statements prepared by management. (2) That the Company needs to expand significantly the scope of its audit, or that information has come to their attention that if further investigated may material impact the fairness or reliability of a previously issued audit report or the underlying financial statements or any other financial presentation, or cause them to be unwilling to rely on management’s representations or be associated with the Company’s financial statements for the foregoing reasons or any other reason, or (3) That they have advised the Company that information has come to their attention that they have concluded materially impacts the fairness or reliability of either a previously issued audit report or the underlying financial statements for the foregoing reasons or any other reason. On January 22, 2024, the Board of Directors of Novelstem International Corp. (the “Company”) approved the appointment of Kreit & Chiu CPA LLP (“K&C”) as the Company’s new independent registered public accounting firm, effective immediately, to perform independent audit services for the fiscal year ending December 31, 2023. During the fiscal years ended December 31, 2023, 2022 and 2021 and through January 22, 2024, neither the Company, nor anyone on its behalf, consulted K&C regarding either (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company’s financial statements, and no written report or oral advice was provided to the Company by K&C that was an important factor considered by the Company in reaching a decision as to any accounting, auditing or financial reporting issue; or (ii) any matter that was the subject of a “disagreement” (as defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions) or a “reportable event” (as that term is defined in Item 304(a)(1)(v) of Regulation S-K). 17 Item 9A. Controls and Procedures. Our Principal Executive Officer and Chief Financial Officer conducted an evaluation of our controls and procedures. We have identified material weaknesses in our internal control and procedures and internal control over financial reporting. If not remediated, our failure to establish and maintain effective disclosure controls and procedures and internal control over financial reporting could result in material misstatements in our financial statements and a failure to meet our reporting and financial obligations, each of which could have a material adverse effect on our financial condition and the trading price of our common stock. Maintaining effective internal control over financial reporting and effective disclosure controls and procedures are necessary for us to produce reliable financial statements. We have re-evaluated our internal control over financial reporting and our disclosure controls and procedures and concluded that they were not effective as of December 31, 2023 and we concluded there was a material weakness in the design of our internal control over financial reporting as it relates to insufficient resources to employ proper segregation of duties over the processing of transactions and financial reporting. A material weakness is defined as a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. Remediation Actions Management intends to focus on strengthening the Company’s internal controls. Management expects to make progress towards reducing the risk that the material weakness could result in a material misstatement of the Company’s annual or interim financial statements. As resources permit, management will continue to systematically build the necessary capabilities and infrastructure to implement corrective action. Changes in Internal Control Over Financial Reporting There was no change in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Item 9B. Other Information. None Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. Not applicable. 18 PART III Item 10. Directors, Executive Officers and Corporate Governance. Biographical and certain other information concerning the Company’s officers and directors is set forth below. There are no familial relationships among any of our officers or directors. Except as indicated below, none of our directors is a director in any other reporting companies. None of our officers or directors has been affiliated with any company that has filed for bankruptcy within the last ten years except that Jan Loeb has previously been affiliated with Kid Brands, Inc., which filed for bankruptcy in June 2014. We are not aware of any proceedings to which any of our officers or directors, or any associate of any such officer or director is a party adverse to us or any of our subsidiaries or has a material interest adverse to us or any of our subsidiaries. Unless otherwise indicated, there are no arrangements or understandings between any officer and any other person pursuant to which such person was selected as an officer. Jan Loeb – President and Executive Chairman – 65 Mr. Loeb has more than 40 years of business, money management and investment banking experience. He has served as Chairman of our Board since July 2018 and on September 29, 2022 was appointed as Executive Chairman. On January 13, 2023, Mr. Loeb was appointed President of the Company. He has been the Managing Member of Leap Tide Capital Management LLC since 2007 and has served as President and CEO of Acorn Energy, Inc. since January 2016 and as a Director since August 2015. He has been a Director of Keweenaw Land Association, Ltd. From 2005 to 2007, Mr. Loeb was President of Leap Tide’s predecessor, formerly known as AmTrust Capital Management Inc. He served as a Portfolio Manager of Chesapeake Partners from February 2004 to January 2005 and as Managing Director at Jefferies & Company, Inc. from 2002 to 2004. From 1994 to 2001, he served as Managing Director at Dresdner Kleinwort Wasserstein, Inc. (formerly Wasserstein Perella & Co., Inc.). Mr. Loeb was a Lead Director of American Pacific Corporation from 2013 to 2014 and a Director from 1997 to 2014. He also served as an Independent Director of Pernix Therapeutics Holdings Inc. (formerly, Golf Trust of America, Inc.) from 2006 to 2011 and as a Director of TAT Technologies, Ltd. from 2009 to 2016. Christine Jenkins – Vice President and Chief Financial Officer – 60 Ms. Jenkins has over thirty-five years of experience in public accounting, including audit, consulting and corporate tax. Ms. Jenkins is currently serving as a consultant providing audit and accounting consultation to publicly-traded and large privately held companies. From 2010 to 2018 Ms. Jenkins was an audit partner with Cherry Bekaert, LLP. Prior to Cherry Bekaert, from 1995 to 2010, Ms. Jenkins was a partner in a local accounting firm in Atlanta, GA. Prior experience included audit and tax positions in public accounting firms. Mitchell Rubenstein – Director – 69 Mr. Rubenstein co-founded and served as Chairman of HMC from its inception to June 2018, during which period the company returned approximately $37 million to shareholders in the form of dividends and share repurchases, including a tender offer. He founded Syfy Channel and numerous other media and digital businesses. Eric Richman – Director -62 Mr. Richman is a life science executive with significant leadership, operational and strategic experience from over 25 years in the field. He is currently The CEO of Gain Therapeutics and was a Venture Partner at Brace Pharma Capital and serves on the boards of LabConnect, F2G (board observer) and previously ADMA Biologics (NASDAQ: ADMA). Previously he served as President & CEO of PharmAthene and prior to that was part of the founding team at MedImmune, responsible for the U.S. launch of its first commercial product and an integral part of the global launch teams for other products. He began his career at HealthCare Ventures, a life-sciences focused VC firm and formerly was a Director of Lev Pharmaceuticals (sold to Viropharma) and American Bank (sold to Congressional Bancshares) and served as CEO of Tyrogenex (sold to Betta Pharma). David Seltzer – Director – 63 Mr. Seltzer is the CEO and Founder of Reliable 1 Laboratories LLC, a distributor of OTC medications and nutritional supplements to independent pharmacies, long-term care pharmacies, hospitals and government organizations. He is also a minority owner and Director at Leading Pharma LLC, a generic manufacturer of prescription drugs, having previously served as President and CEO and later Chairman of Hi-Tech Pharmacal Co., Inc., which was acquired by Akorn, Inc. for $640 million in 2014. Jerry Wolasky – Director – 63 Mr. Wolasky has over 35 years’ experience in the wholesale pharmaceutical business, most recently for the past 15 years in his current role as President of HealthSource Distributors LLC. He previously served in executive positions of increasing responsibility for AmerisourceBergen, and its predecessor company, Bergen Brunswig. Tracy Clifford – Director -55 Ms. Clifford has over twenty years of experience in accounting and finance, including mergers and acquisitions of public companies. Ms. Clifford is the CFO of Acorn Energy, Inc. and COO of its operating subsidiary Omnimetrix Inc. and since 2015 she has served as a contract CFO and COO for several clients, participated on advisory boards and worked on numerous project engagements. Ms. Clifford previously served as CFO, Principal Accounting Officer, Corporate Controller and Secretary for a publicly traded pharmaceutical company and a publicly-traded REIT from 1999 to 2015. Ms. Clifford’s prior experience included accounting leadership positions at United Healthcare, the North Broward Hospital District and the audit team of Deloitte & Touche. 19 Audit Committee; Audit Committee Financial Expert The Company’s full board is functioning as our audit committee at the time of this Annual Report. Compensation Committee We do not have a compensation committee or persons participating in deliberations concerning executive officer compensation as there was no executive officer compensation paid other than hourly payments for Chief Financial Officer services during 2023 and 2022. Nominating Committee We do not have a nominating committee. All directors participate in the nomination and election of directors. Section 16(a) Beneficial Ownership Reporting Compliance; Delinquent Section 16(a) Reports Section 16(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) requires our executive officers and directors, and persons who own more than 10% of a registered class of our equity securities to file reports of ownership and changes in ownership with the SEC. These persons are also required by SEC regulation to furnish us with copies of all Section 16(a) forms they file. Further, we have implemented measures to assure timely filing of Section 16(a) reports by our executive officers and directors. Based solely on our review of such forms or written representations from certain reporting persons, we believe that during 2023 our executive officers and directors complied with the filing requirements of Section 16(a). Code of Ethics We have adopted a Code of Business Conduct and Ethics that applies to all our directors, officers and employees. This code of ethics is designed to comply with the NASDAQ marketplace rules related to codes of conduct. Changes in control There are no arrangements which may at a subsequent date result in a change in control of the Company. 20 Item 11. Executive Compensation. Executive and Director Compensation Summary Compensation Table Option All Other Salary Bonus Awards Compensation Total Name and Principal Position Year ($) ($) ($) ($) ($) Jan H. Loeb 2023 - - 16,573 (1) - 16,573 President and Executive Chairman 2022 - - 27,170 (2) - 27,170 Christine Jenkins 2023 54,000 (3) - 1,657 (1) - 55,657 Vice President and Chief Financial Officer 2022 58,725 (3) - - - 58,725 Mitchell Rubenstein 2023 - - 8,286 (1) - 8,286 Director 2022 - - 27,170 (2) - 27,170 Eric Richman 2023 - - 8,286 (1) - 8,286 Director 2022 - - 27,170 (2) - 27,170 David Seltzer 2023 - - 8,286 (1) - 8,286 Director 2022 - - 27,170 (2) - 27,170 Jerry Wolasky 2023 - - 8,286 (1) - 8,286 Director 2022 - - 27,170 (2) - 27,170 Tracy Clifford 2023 - - 8,286 (1) - 8,286 Director 2022 - - 27,170 (2) - 27,170 (1) Represents the grant date fair value calculated in accordance with applicable accounting principles with respect to 50,000 options granted per Director, 100,000 options granted to the President and Executive Chairman and 10,000 options granted to the Vice President and Chief Financial Officer on March 23, 2023 with an exercise price of $0.20. The fair value of the options was determined using the Black-Scholes option pricing model using the following assumptions: (i) a risk-free interest rate of 3.39% (ii) an expected term of 4.98 years (iii) an assumed volatility of 118.3067% and (iv) no dividends. (2) Represents the grant date fair value calculated in accordance with applicable accounting principles with respect to 100,000 options granted per Executive/Director on January 31, 2022 with an exercise price of $0.29. The fair value of the options was determined using the Black-Scholes option pricing model using the following assumptions: (i) a risk-free interest rate of 1.505% (ii) an expected term of 4 years (iii) an assumed volatility of 184.74% and (iv) no dividends. (3) Represents hourly fees paid to Ms. Jenkins for the provision of services as Chief Financial Officer of the Company. 21 Executive Compensation for 2022 and 2023 Prior to being appointed as our Chief Financial Officer on September 29, 2022 and Vice President on January 13, 2023, beginning in March 2022, Ms. Jenkins served as our outside consultant providing certain financial services. Ms. Jenkins is paid on an hourly basis. Mr. Loeb was appointed as Executive Chairman on September 29, 2022 and President on January 13, 2023 and does not receive any compensation for his role as an officer of the Company. The Company pays compensation to its directors pursuant to the NovelStem International Corp. Equity Incentive Plan (the “Plan”). The Plan provides for the grant to officers, directors, third party contractors and other future key employees of options to purchase shares of common stock. Under the Plan, the Company is authorized to issue up to 7,000,000 shares of common stock as equity awards under the Plan. Awards may be made in the form of options, stock appreciation rights (“SARs”), restricted stock or restricted stock units, or stock bonus awards in respect of the Company’s common stock of the Company. Grants to any single participant or non-executive director during any calendar year may not exceed 1,000,000 shares. The purchase price may be paid in cash or at the end of the option term, if the option is “in-the-money”, it is automatically exercised “net”. In a net exercise of an option, the Company does not require a payment of the exercise price of the option from the optionee but reduces the number of shares of common stock issued upon the exercise of the option by the smallest number of whole shares that has an aggregate fair market value equal to or in excess of the aggregate exercise price for the option shares covered by the option exercised. Each option is exercisable to one share of the Company’s common stock. Options awarded under the Plan shall be awarded at an exercise price of not less than the fair market value of a share of our common stock as of the grant date and shall vest and become exercisable after a period not to exceed seven (7) years. SARs awarded under the Plan shall have a strike price per share of common stock of not less than the fair market value of a share of our common stock, provided that, in the case of a SAR granted in tandem with an option, the strike price shall not be less than the exercise price of the related option. A SAR granted in tandem with an option shall become exercisable and shall expire according to the same vesting schedule and expiration provisions as the corresponding option, such date not to exceed seven (7) years of the grant date. In the event of the termination of an employee, third party service provider, officer or Director’s service on the Board of the Company for any reason other than for cause, all of the options which are then vested may be exercised within 18 months of such termination, provided that, in no event shall this extension period continue beyond the expiration of the term of the option(s). In addition, any such extension shall be applicable only to the extent that such option or options are vested and exercisable according to the terms of the Plan and any applicable option agreement. Any unvested options are immediately terminated on the effective date of the termination. In the event of termination of an employee, third party service provider, officer or Director’s service for cause, all options are forfeited and deemed cancelled and no longer exercisable as of the date of termination. 22 Outstanding Equity Awards at 2023 Fiscal Year End The following tables set forth all outstanding equity awards made to each of the Executives and Directors that were outstanding at December 31, 2023. Options to Purchase NovelStem International Corp. Stock Name Number of Securities Underlying Unexercised Options (#) Exercisable Number of Securities Underlying Unexercised Options (#) Unexercisable Option Exercise Price ($) Option Expiration Date Jan H. Loeb 50,000 0.10 November 12, 2025 50,000 0.10 November 26, 2026 1,000,000 0.10 November 24, 2027 100,000 0.29 January 31, 2029 100,000 0.20 March 23, 2030 Mitchell Rubenstein 50,000 0.10 November 12, 2025 50,000 0.10 November 26, 2026 1,000,000 0.10 November 24, 2027 100,000 0.29 January 31, 2029 50,000 0.20 March 23, 2030 Eric Richman 50,000 0.10 November 12, 2025 50,000 0.10 November 26, 2026 50,000 0.10 November 24, 2027 100,000 0.29 January 31, 2029 50,000 0.20 March 23, 2030 David Seltzer 50,000 0.10 November 12, 2025 50,000 0.10 November 26, 2026 50,000 0.10 November 24, 2027 100.000 0.29 January 31, 2029 50,000 0.20 March 23, 2030 Jerry Wolasky 50,000 0.10 November 12, 2025 50,000 0.10 November 26, 2026 50,000 0.10 November 24, 2027 100,000 0.29 January 31, 2029 50,000 0.20 March 23, 2030 Tracy Clifford 50,000 0.10 November 12, 2025 50,000 0.10 November 26, 2026 1,000,000 0.10 November 24, 2027 100,000 0.29 January 31, 2029 50,000 0.20 March 23, 2030 Christine Jenkins 10,000 0.20 March 23, 2030 Warrants to Purchase NovelStem International Corp. Stock Name Number of Securities Underlying Unexercised Warrants (#) Exercisable Number of Securities Underlying Unexercised Warrants (#) Unexercisable Warrant Exercise Price ($) Warrant Expiration Date Jan H. Loeb 2,250,000 - 0.13 June 28, 2025 Mitchell Rubenstein 750,000 - 0.10 June 28, 2025 Eric Richman - - - - David Seltzer - - - - Jerry Wolasky - - - - Tracy Clifford - - - - Christine Jenkins - - - - 23 Option and Warrant Exercises None Non-qualified Deferred Compensation The Company has no deferred compensation plan in place during the years ended December 31, 2023 and 2021. Payments and Benefits Upon Termination or Change in Control There are no agreements in place with any Executive or Director that would provide for any amounts due under any termination scenario at December 31, 2023. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. The following table sets forth certain information with respect to the beneficial ownership of our common stock, as of December 31, 2023, for each person known by us to be the beneficial owner of more than 5% of our outstanding shares of common stock, each of our directors and all directors as a group. The Company has no executive officers. Except as indicated in footnotes to this table, we believe that the shareholders named in this table will have sole voting and investment power with respect to all shares of common stock shown to be beneficially owned by them, based on information provided to us by such shareholders. Security Ownership of Certain Beneficial Owners and Management Name and Address of beneficial owner (6) Amount and nature of beneficial ownership Percent of total common equity (1) Christine Jenkins — — Michael Sosnowik 2,770,270 5.0 % Stephen Gans 7,034,172 12.7 % Jan Loeb 7,670,673 (2)(3)(4) 13.9 % Jerry Wolasky 10,222,973 (3)(4) 18.5 % Tracy Clifford 1,200,000 (4) 2.2 % Eric Richman 804,054 (3)(4) 1.5 % Mitchell Rubenstein 3,058,108 (4)(5) 5.5 % David Seltzer 3,574,324 (3)(4) 6.5 % All directors and officers as a group (seven persons) 26,530,132 48.0 % (1) Applicable percentage ownership is based on 46,881,475 shares of common stock outstanding as of December 31, 2023, together with securities exercisable or convertible into shares of common stock within 60 days of December 31, 2023. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Shares of common stock that a person has the right to acquire beneficial ownership of upon the exercise or conversion of options, convertible stock, warrants or other securities that are currently exercisable or convertible or that will become exercisable or convertible within 60 days of December 31, 2023, are deemed to be beneficially owned by the person holding such securities for the purpose of computing the number of shares beneficially owned and percentage of ownership of such person, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person. (2) Includes 1,108,108 held in an IRA and 874,528 held as Trustee for the Steinberg Family Trust. Includes warrants to purchase 2.25 million shares of common stock at an exercise price of $0.13 per share, options to purchase 1.10 million shares of common stock at an exercise price of $0.10 per share and options to purchase 100,000 shares of common stock at an exercise price of $0.29 per share. (3) Includes options to purchase 150,000 shares of common stock at an exercise price of $0.10 per share and options to purchase 100,000 shares of common stock at an exercise price of $0.29 per share. (4) Director. (5) Includes options and warrants to purchase 1,850,000 shares of common stock at an exercise price of $0.10 per share and options to purchase 100,000 shares of common stock at an exercise price of $0.29 per share. (6) The address of each person is c/o NovelStem International Corp. 2255 Glades Road, Suite 221A, Boca Raton, FL 33431. 24 Securities authorized for issuance under equity compensation plans. Equity Compensation Plan Information Plan category Number of securities to be issued upon exercise of outstanding options, warrants and rights Weighted-average exercise price of outstanding options, warrants and rights Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (a) (b) (c) Equity compensation plans approved by security holders Equity compensation plans not approved by security holders 8,760,000 $ 0.14 1,240,000 Total 8,760,000 $ 0.14 1,240,000 Item 13. Certain Relationships and Related Transactions, and Director Independence. Jan Loeb, our President and Executive Chairman of the Board, is also the Chairman of the Board of NewStem. During the year ended December 31, 2022, the Company entered into note agreements with Jan Loeb, our Executive Chairman and Jerry Wolasky, a shareholder and member of the Board, to borrow up to an aggregate of $600,000 for working capital needs. The note agreements were amended in March 2024 to increase the total borrowing to $650,000 and extend the maturity date. The agreements provide for interest at a rate of 8% per annum, increased to 10% per annum for advances subsequent to November 11, 2022, and mature September 1, 2025. As of the date of this Annual Report, the full amount of $650,000 has been funded pursuant to these agreements. On May 5, 2023, the Company entered into a long term note payable with a shareholder for $300,000 in financing to be funded $150,000 at inception and $150,000 in October 2023. This note bears interest at zero percent (0%) and matures on May 5, 2025. The note includes a guarantee which has been identified as an embedded derivative with a fair value of a liability of $535,000 at December 31, 2023. Except as disclosed herein, no director, executive officer, stockholder holding at least 5% of shares of our common stock, or any family member thereof, had any material interest, direct or indirect, in any transaction, or proposed transaction since January 1, 2019, in which the amount involved in the transaction exceeds the lesser of $120,000 or one percent of the average of our total assets at the year-end for the last two completed fiscal years. 25 Review, Approval or Ratification of Transactions with Related Persons The Board conducts an appropriate review of and oversees all related party transactions on a continuing basis and reviews potential conflict of interest situations where appropriate. The Board has adopted formal standards to apply when it reviews, approves or ratifies any related party transaction. In addition, the Board applies the following standards to such reviews: (i) all related party transactions must be fair and reasonable and on terms comparable to those reasonably expected to be agreed to with independent third parties for the same goods and/or services at the time they are authorized by the Board and (ii) all related party transactions should be authorized, approved or ratified by the affirmative vote of a majority of the directors who have no interest, either directly or indirectly, in any such related party transaction. Director Independence. We have determined that, under the criteria established by NASDAQ and by our board of directors, Tracy Clifford, Eric Richman, Mitchell Rubenstein and David Seltzer are independent. Item 14. Principal Accountant Fees and Services. Accounting Fees Cherry Bekaert LLP The following table summarizes the fees accrued and paid by NovelStem for professional services rendered by Cherry Bekaert LLP for the years ended December 31, 2023 and 2022. 2023 2022 Audit fees $ 111,605 $ 60,800 Tax Fees 6,400 3,500 All other fees - 13,050 Total $ 118,005 $ 77,350 Pre-Approval Policies and Procedures The Audit Committee’s current policy is to pre-approve all audit and non-audit services that are to be performed and fees to be charged by our independent auditor to assure that the provision of these services does not impair the independence of the auditor. The Audit Committee pre-approved all audit and non-audit services rendered by our principal accountant in 2023 and 2022. 26 PART IV Item 15. Exhibit and Financial Statement Schedules. (a) Financial Statements. The following financial statements are filed as part of this registration statement: NOVELSTEM INTERNATIONAL CORP. Years Ended December 31, 2023 and 2022 Index to Audited Financial Statements Page Audited Financial Statements Report of Independent Registered Public Accounting Firm (PCAOB ID 6651 ) F-1 Report of Predecessor Auditor (PCAOB ID 677 ) F-2 Balance Sheets F-3 Statements of Operations F-4 Statements of Changes in Shareholders’ Equity (Deficit) F-5 Statements of Cash Flows F-6 Notes to Financial Statements F-7 27 Report of Independent Registered Public Accounting Firm Board of Directors and Shareholders of NovelStem International Corp. Opinion on the Financial Statements We have audited the accompanying balance sheet of NovelStem International Corp. as of December 31, 2023, and the related statements of operations, shareholders’ equity (deficit) and cash flows for the year then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of NovelStem International Corp. as of December 31, 2023, and the results of its operations and its cash flows for each of the years then ended, in conformity with accounting principles generally accepted in the United States of America. Going Concern The accompanying financial statements have been prepared assuming that the entity will continue as a going concern. As discussed in Note 1 to the financial statements, the entity has suffered losses from operations that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These financial statements are the responsibility of the entity’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to NovelStem International Corp. in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. NovelStem International Corp. is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control over financial reporting. Accordingly, we express no such opinion. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. /s/ Kreit & Chiu CPA LLP We have served as NovelStem International Corp.’s auditor since 2024. New York , New York April 1, 2024 F- 1 Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders NovelStem International Corp. Boca Raton, Florida Opinion on the Financial Statements We have audited the accompanying balance sheet of NovelStem International Corp. (the “Company”) as of December 31, 2022, and the related statements of operations, shareholders’ equity, and cash flows for the year then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. /s/ Cherry Bekaert LLP We have served as the Company’s auditor from 2021 through 2022. Fort Lauderdale, Florida March 31, 2023 F- 2 NOVELSTEM INTERNATIONAL CORP. BALANCE SHEETS As of December 31, 2023 2022 ASSETS Current assets: Cash $ 53,063 $ 6,346 Cash and cash equivalents Accounts receivable, administrative fees - 12,000 Prepaid expenses 33,540 40,561 Other current assets Total current assets 86,603 58,907 Non-current assets Property and equipment, net Investment in Netco 133,709 137,011 Note receivable, NewStem 250,000 - Investment in NewStem 1,784,234 2,090,286 Total assets $ 2,254,546 $ 2,286,204 LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT) Current liabilities: Accounts payable $ 54,257 $ 21,203 Related party Note payable 250,000 - Accrued expenses 42,223 43,673 Total current liabilities 346,480 64,876 Long-term liabilities: Long-term notes payable, including accrued interest 3,324,599 288,450 Convertible financial instrument - - Derivative liability, guarantee 535,000 - Total long-term liabilities 3,859,599 288,450 Total liabilities 4,206,079 353,326 Commitments and contingencies (see Note 7) - - Shareholders’ equity (deficit): Common stock, $ .01 par value, 100,000,000 shares authorized, 50,316,672 shares issued at December 31, 2023 and 2022 and 46,881,475 shares outstanding at December 31, 2023 and 2022 468,815 468,815 Additional paid-in capital 290,907,217 290,604,327 Accumulated deficit ( 293,127,811 ) ( 288,940,510 ) Treasury stock, at cost, 3,435,197 shares at December 31, 2023 and 2022 ( 199,754 ) ( 199,754 ) Total shareholders’ equity (deficit) ( 1,951,533 ) 1,932,878 Total liabilities and shareholders’ equity (deficit) $ 2,254,546 $ 2,286,204 The accompanying notes are an integral part of these financial statements. F- 3 NOVELSTEM INTERNATIONAL CORP. STATEMENTS OF OPERATIONS Years Ended December 31, 2023 2022 Revenues Cost of revenues Gross profit Administrative fee income $ 12,000 $ 12,000 Operating expenses: Research and development expenses - - Less – grants and participations received - - Research and development expenses, net - - General and administrative expenses 665,277 744,434 Litigation expenses (contra expenses) (Note 7) 2,872,522 ( 310,000 ) Total operating expenses 3,537,799 434,434 Loss from operations ( 3,525,799 ) ( 422,434 ) Other expenses: Loss on derivative instrument 260,000 - Interest expense 99,023 11,018 Total other expenses 359,023 11,018 Financial income, net Loss before income taxes ( 3,884,822 ) ( 433,452 ) Provision for income tax - - Net loss before equity in net loss of equity method investees ( 3,884,822 ) ( 433,452 ) Equity in net loss of equity method investees ( 338,618 ) ( 719,802 ) Gain on dilution of equity method investment 36,139 387,524 Net loss $ ( 4,187,301 ) $ ( 765,730 ) Basic and diluted net loss per share: Net loss per share - basic and diluted $ ( 0.09 ) $ ( 0.02 ) Weighted average number of shares outstanding – basic 46,881,475 46,881,475 Weighted average number of shares outstanding – diluted 46,881,475 46,881,475 The accompanying notes are an integral part of these financial statements. F- 4 NOVELSTEM INTERNATIONAL CORP. STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT) Number Total Additional of Shareholders’ Number of Common Paid-In Accumulated Treasury Treasury Equity Shares Stock Capital Deficit Shares Stock (Deficit) Balance, December 31, 2021 46,881,475 $ 468,815 $ 290,321,665 $ ( 288,174,780 ) 3,435,197 $ ( 199,754 ) $ 2,415,946 Net loss - - - ( 765,730 ) - - ( 765,730 ) Stock issued - - - - - - - Stock-based compensation - - 282,662 - 282,662 Balance, December 31, 2022 46,881,475 468,815 290,604,327 ( 288,940,510 ) 3,435,197 ( 199,754 ) 1,932,878 Balance 46,881,475 468,815 290,604,327 ( 288,940,510 ) 3,435,197 ( 199,754 ) 1,932,878 Net loss - - - ( 4,187,301 ) - - ( 4,187,301 ) Stock-based compensation - - 302,890 - - - 302,890 Balance, December 31, 2023 46,881,475 $ 468,815 $ 290,907,217 $ ( 293,127,811 ) 3,435,197 $ ( 199,754 ) $ ( 1,951,533 ) Balance 46,881,475 $ 468,815 $ 290,907,217 $ ( 293,127,811 ) 3,435,197 $ ( 199,754 ) $ ( 1,951,533 ) The accompanying notes are an integral part of these financial statements. F- 5 NOVELSTEM INTERNATIONAL CORP. STATEMENTS OF CASH FLOWS Years Ended December 31, 2023 2022 Cash flows from operating activities: Net loss $ ( 4,187,301 ) $ ( 765,730 ) Adjustments required to reconcile loss to net cash used in operating activities: Depreciation - - Revaluation of convertible financial instrument - - Equity in net loss of equity method investees 338,618 719,802 Gain on dilution of equity method investment ( 36,139 ) ( 387,524 ) Distribution from NetCo 6,875 12,591 Accretion of discount on note payable 61,815 - Loss on derivative instrument 260,000 - Legal fees and litigation funding fees funded by litigation funding agreement 2,819,196 - Accrued interest added to long-term note payable 35,138 8,450 Stock-based compensation 302,890 282,662 Change in operating assets and liabilities: Decrease in other current assets - - Decrease in other liabilities - - Accounts receivable, administrative fees 12,000 ( 12,000 ) Prepaid expenses 7,021 ( 12,245 ) Accounts payable 33,054 ( 28,574 ) Accrued expenses ( 1,450 ) 248 Net cash used in operating activities ( 348,283 ) ( 182,320 ) Cash flows from investing activities: Loans made ( 250,000 ) - Net cash used in investing activities ( 250,000 ) - Cash flows from financing activities: Proceeds from (repayment of) note payable, current 250,000 ( 100,000 ) Proceeds from long-term note payable 395,000 280,000 Funds received from a related party - - Issuance of ordinary shares, net - - Net cash from financing activities 645,000 180,000 Net change in cash 46,717 ( 2,320 ) Cash at the beginning of the year 6,346 8,666 Cash at the end of the year $ 53,063 $ 6,346 Supplemental cash flow information: Cash paid during the year for: Interest $ 1,248 $ 8,320 The accompanying notes are an integral part of these financial statements. F- 6 NOVELSTEM INTERNATIONAL CORP. Notes to Financial Statements NOTE 1— NATURE OF OPERATIONS Description of Business NovelStem International Corp. (“NovelStem” or the “Company”) is a holding company whose principal assets are an approximate 31 % equity interest in NewStem Ltd, an Israeli biotech company (“NewStem”), and a 50 % equity interest in NetCo Partners (“NetCo”). NovelStem was formerly known as Hollywood Media Corp. The Company was incorporated in the State of Florida on January 22, 1993 and changed its name to NovelStem International Corp. in September 2018 as a result of its business focus shift from a media business to cutting edge biotech. NewStem focuses on the development and commercialization of diagnostic technology that can predict patients’ anti-cancer drug resistance, allowing for targeted cancer treatments and the potential to reduce resistance to chemotherapy. NetCo is a legacy media business interest which owns “Net Force”, a book publishing franchise. Going Concern, Liquidity and Management’s Plans Since inception, the Company has accumulated a deficit of approximately $ 293,000,000 . The accumulated deficit of the Company subsequent to its business focus shift and name change in September 2018 is approximately $ 6,447,000 which is comprised primarily of allocated losses from equity method investments and general and administrative costs incurred by the Company. The Company will need to obtain additional funds to continue its operations. Management’s plans with regard to these matters include additional financing and fundraising until its equity investment in NewStem is profitable. Although management continues to pursue these plans, there is no assurance that the Company will be successful in obtaining sufficient cash from financing on terms acceptable to the Company, or that NewStem will be able to continue as a going concern and become profitable (see Note 3). The Company has in place a finance agreement with two individuals who are shareholders and directors to borrow $ 650,000 for working capital needs (see Note 4). Additionally, the Company entered into an additional finance agreement with a shareholder in 2023 to borrow $ 300,000 for working capital needs (see Note 4). As of the date of these financial statements, these borrowings have been fully utilized and the Company will need to obtain additional funds to continue operations for the next 12 months. In view of the matters described above, the Company’s ability to meet financing requirements is dependent upon the ability to complete additional fundraising or obtain additional financing, and/or monetize its investment in NetCo, along with NewStem continuing as a going concern. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence. NOTE 2— SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The Financial Accounting Standards Board (“FASB”) has established the FASB Accounting Standards Codification (“ASC”) as the single source of authoritative GAAP. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. F- 7 NOVELSTEM INTERNATIONAL CORP. Notes to Financial Statements Cash and Cash Equivalents Cash and cash equivalents include certain investments in highly liquid debt instruments with original maturities of three months or less at the date of purchase. The Company had no cash equivalents as of either year end. Equity Investments Investee companies that are not consolidated, but over which the Company exercises significant influence, are accounted for under the equity method of accounting. Whether or not the Company exercises significant influence with respect to an Investee depends on an evaluation of several factors, including, among others, representation on the Investee company’s board of directors and ownership level, which is generally a 20% to 50% interest in the voting securities of the Investee company. Under the equity method of accounting, an Investee company’s accounts are not reflected within the Company’s Balance Sheets or Statements of Operations; however, the Company’s share of the earnings or losses of the Investee company is reflected in the caption “Equity in net income (loss) of equity method investees” in the Statements of Operations. The Company’s carrying value in an equity method Investee company is reflected in the caption “Investment in Investee company” in the Company’s Balance Sheets. When the Company’s carrying value in an equity method Investee company is reduced to zero, no further losses are recorded in the Company’s financial statements unless the Company guarantied obligations of the Investee company or has committed additional funding. When the Investee company subsequently reports income, the Company will not record its share of such income until it equals the amount of its share of losses not previously recognized. The Company reviews equity investments for impairment on an annual basis, or earlier if events or changes in circumstances indicate that the carrying amounts might not be recoverable. The Company holds a minority investment in an entity, NewStem, which is accounted for pursuant to the equity method of accounting. Additionally, the Company is a 50 % joint venture partner in NetCo which is accounted for pursuant to the equity method of accounting. See Note 3. Derivative Financial Instruments The Company has in place a financial instrument, in the form of a note payable, with an identified embedded derivative in the form of a guarantee. The identified embedded derivative has been bifurcated and accounted for separately. Such derivative financial instruments are measured at fair value at each financial statement reporting date. If the fair value of a financial liability (the derivative) exceeds the proceeds received for the issuance of a hybrid instrument in an arms length transaction with no rights or privileges that require separate accounting recognition as an asset identified, then the embedded derivative is recorded at fair value with the excess of fair value over proceeds recognized as a loss in earnings. During the year ended December 31, 2023, the Company recognized a loss on derivative financial instruments of $ 260,000 . Proceeds from the note payable are shown as cash from financing instruments and the loss on derivative instrument is included as an adjustment to reconcile loss to net cash used in operating activities in the statements of cash flows for the year ended December 31, 2023. Treasury Stock Shares of common stock repurchased are recorded at cost as treasury stock. F- 8 NOVELSTEM INTERNATIONAL CORP. Notes to Financial Statements Stock-Based Compensation The Company accounts for stock-based awards in accordance with applicable accounting principles, which requires compensation expense related to share-based transactions to be measured and recognized in the financial statements based on a determination of the fair value of the stock options. The grant date fair value is determined using the Black-Scholes-Merton (“Black-Scholes”) pricing model. For all stock options, the Company recognizes expense on an accelerated basis over the requisite service period (generally the vesting period of the equity grant). The Company’s option pricing model requires the input of highly subjective assumptions, including the expected stock price volatility, expected term, and forfeiture rate. Any changes in these highly subjective assumptions significantly impact stock-based compensation expense. Options awarded to purchase shares of common stock issued to non-employees in exchange for services are accounted for as variable awards in accordance with applicable accounting principles. Such options are valued using the Black-Scholes option pricing model. In the event of the termination of an employee, third party service provider, officer or Director’s service on the Board of the Company for any reason other than for cause, all of the options which are then vested may be exercised within 18 months of such termination, provided that, in no event shall this extension period continue beyond the expiration of the term of the option(s). In addition, any such extension shall be applicable only to the extent that such option or options are vested and exercisable according to the terms of the Plan and this Agreement. Any unvested options are immediately terminated on the effective date of the termination. In the event of termination of an employee, third party service provider, officer or Director’s service for cause, all options are forfeited and deemed cancelled and no longer exercisable on the date of termination. See Note 5 for the assumptions used to calculate the fair value of stock-based compensation. Upon the exercise of options, it is the Company’s policy to issue new shares rather than utilizing treasury shares. Income Taxes Deferred income taxes are determined using the asset and liability method in accordance with Accounting Standards Codification (“ASC”) Topic 740. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred income taxes are measured using enacted tax rates expected to apply to taxable income in years in which such temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred income taxes is recognized in the statement of operations of the period that includes the enactment date. In addition, a valuation allowance is established to reduce any deferred tax asset for which it is determined that it is more likely than not that some portion of the deferred tax asset will not be realized. F- 9 NOVELSTEM INTERNATIONAL CORP. Notes to Financial Statements Basic and Diluted Net Loss Per Share Basic net income per share is computed by dividing the net income by the weighted average number of shares outstanding during the year, excluding treasury stock. Diluted net income per share is computed by dividing the net income by the weighted average number of shares outstanding plus the dilutive potential of common shares which would result from the exercise of stock options and warrants. The dilutive effects of stock options and warrants are excluded from the computation of diluted net income per share if the effect of doing so would be antidilutive. The following data represents the amounts used in computing earnings per share and the effect on net income (loss) and the weighted average number of shares of dilutive potential common stock: SCHEDULE OF WEIGHTED AVERAGE NUMBER OF SHARES OF DILUTIVE Year Ended December 31, 2023 2022 Net loss available to common shareholders $ ( 4,187,301 ) $ ( 765,730 ) Weighted average shares outstanding: -Basic 46,881,475 46,881,475 Add: Warrants - - Add: Stock options - - -Diluted 46,881,475 46,881,475 Basic and diluted net loss per share $ ( 0.09 ) $ ( 0.02 ) NOTE 3— EQUITY METHOD INVESTMENTS Investment in NewStem In 2018, the Company entered into a Share Purchase Agreement with NewStem and other related parties to provide aggregate funding of up to $ 4,000,000 to NewStem. This funding was to be provided through the sale of up to 50,000 common shares of NewStem to the Company representing 33 % of New Stem’s outstanding shares. In 2018, the Company purchased 25,000 shares of NewStem for $ 2,000,000 acquiring an ownership interest of 20 % . The Company made additional investments in 2019 and 2020 purchasing 12,500 shares each year for a $ 1,000,000 investment each year resulting in an ownership interest of 30.51 % and 30.58 % , respectively, as of December 31, 2023 and 2022. The Company accounts for its investment in NewStem under the equity method. At December 31, 2023 and 2022, the carrying value of the investment in NewStem exceeded its portion of the underlying net assets of NewStem by approximately $ 1,800,000 and $ 1,900,000 , respectively. The excess relates to identified intangible assets including license agreements, specialized work force (goodwill) and two separate projects of in process research and development (“IPR&D”) related to stem cell-based diagnostics and therapeutics for cancer chemotherapies. During the years ended December 31, 2023 and 2022, the Company reimbursed NewStem for audit and audit related costs of approximately $ 58,000 and $ 105,000 , respectively. As disclosed in Note 8, the Company is in negotiations to acquire the remainder of NewStem in exchange for shares of Company stock. In anticipation of this transaction, the Company advanced $ 250,000 to NewStem in December 2023 and an additional $ 250,000 in March 2024. The related note agreement bears no interest and is payable on December 30, 2024. The agreement provides for discharge of the note upon the closing of the anticipated acquisition transaction. This note receivable has been presented as a noncurrent asset along with the investment in NewStem in the balance sheets. The Company assesses its investment in NewStem for impairment on an annual basis or more frequently if indicators of impairment exist. F- 10 NOVELSTEM INTERNATIONAL CORP. Notes to Financial Statements NewStem is in the development stage and has incurred losses since its inception and has generated only minimal revenues related to a licensing agreement. NewStem will need to obtain additional funds to continue its operations. NewStem management’s plans with regard to these matters include continued development, marketing and licensing of its products, as well as seeking additional financing arrangements. Although management continues to pursue these plans, there is no assurance that the Company will be successful in obtaining sufficient cash from sales, licensing or financing on terms acceptable to the Company. NewStem obtained additional funding of approximately $ 1,450,000 in April 2022 through the sale of shares of ordinary stock. NewStem’s management has adopted a cost reduction plan in order to adjust future operation expenses to its cash balance. In October 2023, the NewStem board of directors unanimously resolved to dismiss most employees which occurred in December 2023. The aforementioned events indicate significant difficulties to continue as a concern. Additionally, Israel declared a state of war in October 2023 which resulted in a decrease in Israel’s economic and business activity. The security situation in Israel led to a disruption in the chain of supply and production, a decrease in the volume of national transportation, and a shortage in manpower as well as a decrease in the value of financial assets. As a result of the movement and work restrictions, NewStem began operating on a limited scale. Additionally, the situation has brought further difficulties in management’s efforts to seek additional financing. The following table represents the Company’s investment in NewStem: SCHEDULE OF INVESTMENTS 2023 2022 Year Ended December 31, 2023 2022 Investment in NewStem, beginning $ 2,090,286 $ 2,435,155 Allocation of net loss from NewStem ( 342,191 ) ( 732,393 ) Gain on dilution of equity method investment 36,139 387,524 Investment in NewStem, ending $ 1,784,234 $ 2,090,286 The results of operations and financial position of the Company’s investment in NewStem are summarized below: SCHEDULE OF OPERATIONS AND FINANCIAL POSITION INVESTMENT 2023 2022 Year Ended December 31, 2023 2022 Condensed income statement information: License fees $ 95,000 $ - Gross profit $ 84,000 $ - Net loss $ ( 1,119,000 ) $ ( 2,341,000 ) Company’s allocation of net loss from NewStem $ ( 342,191 ) $ ( 732,393 ) 2023 2022 As of December 31, 2023 2022 Condensed balance sheet information: Current assets $ 353,000 $ 911,000 Non-current assets $ 9,000 $ 23,000 Current liabilities $ 284,000 $ 97,000 Non-current liabilities $ - $ 121,000 F- 11 NOVELSTEM INTERNATIONAL CORP. Notes to Financial Statements Investment in NetCo NovelStem owns a 50 % interest in NetCo, a joint venture that owns the Net Force publishing franchise. The Company accounts for its investment in NetCo under the equity method and recognizes nominal royalties and administrative fees from this arrangement. The Company assesses its investment in NetCo for impairment on an annual basis or more frequently if indicators of impairment exist. The following table represents the Company’s investment in NetCo: SCHEDULE OF INVESTMENTS 2023 2022 Year Ended December 31, 2023 2022 Investment in NetCo, beginning $ 137,011 $ 137,011 Allocation of net income from Netco 3,573 12,591 Distribution from NetCo ( 6,875 ) ( 12,591 ) Investment in NetCo, ending $ 133,709 $ 137,011 The results of operations and financial position of the Company’s investment in NetCo are summarized below: SCHEDULE OF OPERATIONS AND FINANCIAL POSITION INVESTMENT 2023 2022 Year Ended December 31, 2023 2022 Condensed income statement information: Net sales $ 25,789 $ 25,182 Gross profit $ 19,422 $ 25,182 Net income $ 7,146 $ 25,182 Company’s allocation of net income from NetCo $ 3,573 $ 12,591 2023 2022 As of December 31, 2023 2022 Condensed balance sheet information: Current assets $ 1,820 $ 13,473 Non-current assets $ 272,799 $ 272,799 Current liabilities $ 325 $ 12,250 Non-current liabilities $ - $ - F- 12 NOVELSTEM INTERNATIONAL CORP. Notes to Financial Statements NOTE 4— NOTES PAYABLE In December 2023, the Company entered into two short term notes payable with unrelated parties, Hewlett Fund and AIGH Investment Partners, LLC. The notes are for $ 125,000 each, for a total of $ 250,000 in borrowings utilized for the funding of NewStem. The notes bear interest at 12 % per annum and mature December 21, 2024 , at which time all principal and accrued interest are due and payable. The note agreements include a provision whereby, in the event of a capital raise transaction by the Company, the note holders would be entitled to participate in the transaction in an amount equal to 133% of the amounts owed on the note agreements at the closing of the transaction . Interest expense related to these notes was $ 822 for the year ended December 31, 2023. Long-term notes payable are summarized as follows: SCHEDULE OF LONG TERM NOTES PAYABLE As of December 31, 2023 2022 Notes payable related parties: Notes payable director and Executive Chairman $ 400,000 $ 280,000 Accrued interest added to note balance 43,588 8,450 Total notes payable director and Executive Chairman 443,588 288,450 Note payable shareholder, principal amount 275,000 - Less unamortized discount ( 213,185 ) - Total note payable shareholder 61,815 - Note payable, litigation funding agreement: Note payable Omni Bridgeway (Fund 4) Invt. 3 L.P. 2,819,196 - Total notes payable 3,324,599 288,450 Less current portion - - Long-term notes payable $ 3,324,599 $ 288,450 On April 12, 2021, the Company entered into a promissory note (the “Note”) with a related party (individual) for $ 100,000 . The Note accrued interest at 8 % per annum and matured on April 12, 2022 . The proceeds of this Note were used to pay operating expenses of the Company including directors and officer insurance premiums. Interest expense accrued related to this Note was $ 1,198 for the year ended December 31, 2022. The Note and all accrued interest, totaling $ 6,752 , were paid in full on February 16, 2022. In May 2022, the Company entered into note agreements with two individuals who are related parties to borrow up to $ 600,000 for working capital needs. The agreements were amended in March 2024 to increase the total borrowing to $ 650,000 and extend the maturity date. The agreements provide for interest at a rate of 8 % per annum through November 11, 2022, at which time the interest rate increased to 10 % per annum for subsequent advances. The agreements mature September 1, 2025 . The Company received advances of $ 400,000 and $ 280,000 , respectively, pursuant to these agreements through December 31, 2023 and 2022. On May 5, 2023, the Company entered into a long term note payable with a shareholder for $ 300,000 in financing to be funded $ 150,000 at inception and $ 150,000 in October 2023. This note bears interest at zero percent ( 0 % ) and matures on May 5, 2025 . The note includes a guarantee which has been identified as an embedded derivative with a fair value of a liability of $ 535,000 at December 31, 2023 which is reported separately on the balance sheet. The fair value of the note exceeds the proceeds, and the note has been discounted at inception so that the net liability is the fair value of the derivative. Accretion of the note discount of $ 61,815 has been reflected as part of interest expense in the statement of operations for year ended December 31, 2023. Note Payable, Litigation Funding Agreement On February 11, 2022, the Company entered into a nonrecourse litigation funding agreement (the “Agreement”) with Omni Bridgeway (Fund 4) Invt. 3 L.P. (“Omni”) related to an arbitration proceeding disclosed in Note 7. The Agreement provides for Omni to fund all costs related to the arbitration up to $ 1,000,000 in exchange for an assignment of a certain portion of rights to and interest in claims related to this arbitration. The agreement provides for specific calculations of the portion of any claims collected to be received by Omni with the remainder collectible by the Company. Additionally, the agreement provides for repayment of funded costs pursuant to the same multiple calculations in the event of a favorable outcome that does not include the collection of claims. During the year ended December 31, 2022, the Company received $ 310,000 pursuant to this agreement for the reimbursement of legal costs and working capital expenditures, including previously incurred general and administrative costs. F- 13 NOVELSTEM INTERNATIONAL CORP. Notes to Financial Statements During July 2023, the arbitration was settled with a favorable outcome for the Company. As a result of the ruling disclosed in Note 7, the liability became probable and reasonably estimable, and the Company has recorded the full liability due to Omni as of December 31, 2023. This liability consists of expenses funded by Omni of $ 933,065 , including $ 310,000 advanced for working capital, and related fees or investment return to Omni calculated as contractual multiples of funding totaling $ 1,886,131 as of December 31, 2023 for a total liability of $ 2,819,196 . This agreement bears interest at 5 % per annum beginning January 2024 and on January 10, 2025. NOTE 5— EQUITY (a) General At December 31, 2023 and 2022 the Company had issued 50,316,672 and outstanding 46,881,475 shares of its common stock, par value $ 0.01 per share. The Company held 3,435,197 shares of its common stock, $ .01 par value, in treasury at December 31, 2023 and 2022. Holders of outstanding common stock are entitled to receive dividends when, and if declared by the Board and to share ratably in the assets of the Company legally available for distribution in the event of a liquidation, dissolution or winding up of the Company. (b) Summary Employee Option Information The Company’s stock option plans provide for the grant to officers, directors, third party contractors and other future key employees of options to purchase shares of common stock. The purchase price may be paid in cash or at the end of the option term, if the option is “in-the-money”, it is automatically exercised “net”. In a net exercise of an option, the Company does not require a payment of the exercise price of the option from the optionee but reduces the number of shares of common stock issued upon the exercise of the option by the smallest number of whole shares that has an aggregate fair market value equal to or in excess of the aggregate exercise price for the option shares covered by the option exercised. Each option is exercisable to one share of the Company’s common stock. Most options expire within six years from the date of the grant and generally vest on the first anniversary date of their issuance. Pursuant to the Equity Incentive Plan approved by the Company’s board of directors on November 12, 2018, an aggregate of 5,760,000 options have been issued to directors and investor relations professionals. The Company utilized the Black-Scholes option-pricing model to estimate fair value, utilizing the following assumptions for the respective years (all in weighted averages): SCHEDULE OF FAIR VALUE OF OPTION USING VALUATION ASSUMPTIONS Year Ended December 31, 2023 2022 Risk-free interest rate 3.4 % 1.5 % Expected term, in years 3.91 3.82 Expected volatility 118.3 % 183.7 % Expected dividend yield 0 % 0 % Determined weighted average grant date fair value per option $ 0.17 $ 0.27 The expected term of the options represents an estimate of the length of time until the expected date of exercising the options. Options granted have a maximum life of 6 years. With respect to determining expected exercise behavior, the Company has grouped its option grants into certain groups in order to track exercise behavior and establish historical rates. The Company estimated volatility by considering historical stock volatility over the period since the Company’s business focus shift to biotech. The risk-free interest rates are based on the U.S. Treasury yields for a period consistent with the expected term. The dividend yield of 0 % is based on the Company’s history and expectation of dividend payout. The Company has not paid and does not anticipate paying of dividends in the near future. F- 14 NOVELSTEM INTERNATIONAL CORP. Notes to Financial Statements (c) Summary Option Information A summary of the Company’s option plans as of December 31, 2023 and 2022, as well as changes during each of the years then ended, is presented below: SCHEDULE OF STOCK OPTION ACTIVITIES Year Ended December 31, 2023 2022 Number Weighted Number Weighted of Average of Average Options Exercise Options Exercise (in shares) Price (in shares) Price Outstanding at beginning of year 5,400,000 0.14 4,300,000 0.10 Granted 360,000 0.20 1,100,000 0.29 Outstanding at end of year 5,760,000 0.14 5,400,000 0.14 Exercisable at end of year 5,400,000 0.14 4,800,000 0.12 Stock-based compensation expense was approximately $ 303,000 and $ 283,000 in the years ending December 31, 2023 and 2022, respectively. The total compensation cost related to non-vested awards not yet recognized was approximately $ 13,000 and $ 13,000 , respectively, as of December 31, 2023 and 2022. An award of 500,000 options granted on January 31, 2022 had special vesting provisions whereby the awards fully vested in 2022. (d) Warrants The Company has issued warrants at exercise prices equal to or greater than market value of the Company’s common stock at the date of issuance. A summary of warrant activity follows: SUMMARY OF WARRANTS ACTIVITY Year Ended December 31, 2023 2022 Number of Weighted Number Weighted shares Average of Average underlying Exercise Options Exercise warrants Price (in shares) Price Outstanding at beginning of year 3,000,000 0.12 3,000,000 0.12 Granted - - - - Exercised - - - - Forfeited or expired - - - - Outstanding at end of year 3,000,000 0.12 3,000,000 0.12 The warrant agreements were amended on May 12, 2023 to extend the expiration date to June 28, 2025 . The warrants outstanding at December 31, 2023 have a weighted average remaining contractual life of approximately one and a half years . The Company recognized $ 243,000 in stock-based compensation expense related to the increase in fair value of warrants pursuant to the modification of the warrant term during the year ended December 31, 2023. No such expense was recognized related to the warrants during the year ended December 31, 2022. F- 15 NOVELSTEM INTERNATIONAL CORP. Notes to Financial Statements NOTE 6— INCOME TAXES For the years ended December 31, 2023 and 2022, the Company incurred net operating losses and, accordingly, no provision for income taxes has been recorded. In addition, no benefit for income taxes has been recorded due to the uncertainty of the realization of any tax assets. At December 31, 2023 and 2022, the Company had approximately $ 54,000,000 and $ 61,000,000 , respectively of net operating losses subject to IRC Section 382 limitations, of which $ 9,900,000 and $ 6,400,000 , respectively, were available for carryforward after the consideration of IRC Section 382 limitations. State of Florida net operating losses available for carryforward approximate the federal net operating loss carryforward amounts. The Company’s federal and state net operating losses began expiring in 2021. Approximately $ 8,000,000 and $ 4,000,000 , respectively of federal and state losses expired in December 2023, and approximately $ 55,000,000 and $ 25,000,000 , respectively, of federal and state losses expired in December 2022. The Company has approximately $ 5,331,000 in federal and state losses that do not expire. The remaining losses expire from 2024 through 2036. The majority of these expiring losses are further limited by IRC section 382 as shown in the deferred tax table below. All such deferred tax assets have been offset with a full valuation allowance. The Company’s income tax provision differs from the expense that would result from applying statutory rates to income before taxes. A reconciliation of the provision (benefit) for income taxes with amounts determined by applying the statutory U.S. federal income tax rate to income before income taxes is as follows: SCHEDULE OF INCOME BEFORE INCOME TAX 2023 2022 Year Ended December 31, 2023 2022 Computed tax at the federal statutory rate of 21 % $ ( 879,333 ) $ ( 160,803 ) State income taxes, net of federal income tax benefit ( 181,938 ) ( 33,271 ) Foreign rate differential ( 48,968 ) ( 171,089 ) Change in federal valuation allowance 1,110,239 365,163 Total provision for income tax $ - $ - Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Deferred tax assets as of December 31, 2023 and 2022 consist of the following: SCHEDULE OF DEFERRED TAX ASSETS 2023 2022 As of December 31, 2023 2022 Outside tax basis difference in equity investments $ 1,700,000 $ 1,700,000 Federal and state net operating loss carryforwards available after consideration of IRC Section 382 limitations 2,540,308 1,686,708 General business credit 41,551 41,551 Related party interest and accretion of note discount 25,691 - Loss on derivative instrument 68,900 Stock compensation 252,275 174,009 Total deferred tax assets 4,630,725 3,602,268 Federal and state net operating loss carryforwards subject to IRC Section 382 limitations 13,644,005 15,465,570 Less valuation allowance for net operating loss limitations ( 13,644,005 ) ( 15,465,570 ) Valuation allowance ( 4,130,103 ) ( 2,971,573 ) Subtotal deferred tax assets 500,622 630,695 Deferred tax liability, equity method basis difference ( 500,622 ) ( 630,695 ) Net deferred tax assets $ - $ - Management has evaluated all tax positions that could have a significant effect on the combined financial statements and determined the Companies had no significant uncertain income tax positions at December 31, 2023 and 2022. F- 16 NOVELSTEM INTERNATIONAL CORP. Notes to Financial Statements NOTE 7— COMMITMENTS AND CONTINGENCIES The Company was the claimant in an arbitration proceeding against their 50 % partner in NetCo. The Company initiated the arbitration proceeding in an effort to maximize the total potential value to be derived from fully utilizing the NetCo intellectual property across publishing, entertainment, digital media, merchandising and other ancillary markets. Arbitration hearings were held at the end of July 2022. Arbitration proceedings for the joint owners of NetCo concluded during 2022 and the arbitrator rendered a decision in July 2023. The arbitrator ruled against the Company on certain key issues of the arbitration and in the Company’s favor on two key issues of the arbitration. The Arbitrator ruled in NovelStem’s favor on the issue of contract interpretation of the Netco Partners JV Agreement. The Arbitrator also found that the Company’s joint venture partner failed to use “reasonable, good faith efforts” to license and exploit the Net Force concept, in breach of its contractual obligations under the Netco Partners’ Joint Venture Agreement. The Arbitrator confirmed NovelStem’s contractual right to use Tom Clancy’s name as a possessory credit in the Net Force title (Tom Clancy’s Net Force). As a result of this ruling, the costs related to the litigation funding agreement disclosed in Note 4 were recognized. Total costs related to the litigation and the related litigation funding agreement of $ 2,819,196 , including a reversal of the prior period contra expenses, were recorded during the December 31, 2023 and were separately stated in the statement of operations. NOTE 8— SUBSEQUENT EVENTS The Company evaluated subsequent events through the date these financial statements were available to be issued and filed with the SEC. During the fourth quarter of 2023, the Company entered into negotiations with NewStem stockholders for the acquisition of the shares not held by the Company. The negotiations are ongoing for the transaction in which the Company would acquire all outstanding shares in exchange for shares of NovelStem stock. Company management anticipates the transaction to conclude in the second quarter of 2024. In anticipation of the Company acquiring the remaining ownership of NewStem, the Company has loaned $ 500,000 to NewStem to ensure continuing operations. The Company advanced $ 250,000 of this loan to NewStem in December 2023 and the remainder in March 2024. See Note 3. As disclosed in Note 4, related party loan agreements were amended in March 2024 to increase the total borrowing to $ 650,000 and extend the maturity date to September 1, 2025 . The Company received an advances of $ 250,000 on these agreements which was utilized to fund NewStem in March 2024 fully utilizing available borrowings. F- 17 (b) Exhibits. Exhibit Number Description 3.1 Third Amended and Restated Articles of Incorporation December 1999 (1) 3.2 Articles of Amendment to Articles of Incorporation 2004 (1) 3.3 Articles of Amendment to Articles of Incorporation 2018 (1) 3.4 Bylaws (1) 3.5 Articles of Association of NewStem (1) 10.1 Equity Incentive Plan (1) 10.2 Joint Venture Agreement by and between the Company and NetCo (1) 10.3 Financing Agreement dated May 2022 (1) 10.4 Amendment to Financing Agreement dated July 2022 (1) 10.5 Promissory Note issued to Jan Loeb (1) 10.6 Promissory Note issued to Jerry Wolasky (1) 10.7 Form of NovelStem Subscription Agreement (1) 10.8 NewStem Share Purchase Agreement (1) 10.9 Redacted Litigation Funding Agreement with Omni Bridgeway (1) 10.10 Promissory Note issued to Stephen Gans 10.11 1 st Amendment to Promissory Note issued to Jan Loeb 10.12 1 st Amendment to Promissory Note issued to Jerry Wolasky 10.13 Certification of Principal Executive Officer and Executive Chairman pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 10.14 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 10.15 Certification of Principal Executive Officer and Executive Chairman pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 10.16 Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 101.INS Inline XBRL Instance Document 101.SCH Inline XBRL Taxonomy Extension Schema Document 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document 104 Cover Page Interactive Data File (embedded within the Inline XBRL document) (1) Previously filed. 28 (c) Financial statements of fifty percent or less owned subsidiaries. NewStem Ltd. Financial Statements As of December 31, 2023 NewStem Ltd. Financial Statements as of December 31, 2023 Contents Page Report of Independent Registered Public Accounting Firm F- 2 Balance Sheets F- 3 Statements of Operations F- 4 Statements of Changes in Shareholders’ Equity F- 5 Statements of Cash Flows F- 6 Notes to the Financial Statements F- 7- F-18 F- 1 Somekh Chaikin KPMG Millennium Tower 17 Ha’arba’a Street, PO Box 609 Tel Aviv 61006, Israel +972 3 684 8000 Report of Independent Registered Public Accounting Firm To the Shareholders and the Board of Directors of NewStem Ltd. Opinion on the Financial Statements We have audited the accompanying balance sheets of NewStem Ltd. as of December 31, 2023 and 2022, the related statements of operations, changes in shareholders’ equity and cash flows for each of the years in the two-year period ended December 31, 2023, and the related notes (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2023, in conformity with U.S. generally accepted accounting principles. Going Concern The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1C to the financial statements, the Company has suffered recurring losses from operations and has an accumulated deficit that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1C. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters. /s/ Somekh Chaikin Somekh Chaikin Member Firm of KPMG International We have served as the Company’s auditor since 2021. Tel Aviv, Israel March 20, 2024 KPMG Somekh Chaikin, an Israeli partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee F- 2 NewStem Ltd. Balance Sheets as of December 31, 2023 2022 Note US$ thousands US$ thousands Assets Current assets Cash and cash equivalents 3 324 878 Other current assets 4 29 33 Total current assets 353 911 Non-current assets Property and equipment, net 5 9 23 Total assets 362 934 Liabilities and shareholders’ equity Current liabilities Accounts payable 6 34 97 Related party 10 250 - Total current liabilities 284 97 Non-current liabilities Convertible financial instrument 7F - 121 Total liabilities 284 218 Commitments and contingent liabilities 9 - - Shareholders’ equity 7 Ordinary shares - * - * Additional paid-in capital 9,167 8,686 Accumulated deficit ( 9,089 ) ( 7,970 ) Total shareholders’ equity 78 716 Total liabilities and shareholders’ equity 362 934 /s/ Jan Loeb Jan Loeb Chairperson of the Board Date of approval of the financial statements: March 20, 2024 * Represents an amount less than $1 thousand. The accompanying notes are an integral part of the financial statements. F- 3 NewStem Ltd. Statements of Operations for the Year Ended December 31, 2023 2022 Note US$ thousands US$ thousands Revenues 8 95 - Cost of revenues 9A 11 - Gross profit 84 - Operating expenses: Research and development expenses 2H 965 2,299 Less – grants and participations received 9B - ( 200 ) Research and development expenses, net 965 2,099 General and administrative expenses, net 240 245 Operating loss 1,121 2,344 Financial income, net ( 2 ) ( 3 ) Loss for the year 1,119 2,341 The accompanying notes are an integral part of the financial statements. F- 4 NewStem Ltd. Statements of Changes in Shareholders’ Equity Additional paid-in Accumulated Ordinary shares capital Deficit Total Number of shares US$ thousands US$ thousands US$ thousands US$ thousands Balance as of January 1, 2022 158,696 - * 6,734 ( 5,629 ) 1,105 Issuance of ordinary shares, net 4,798 - * 1,450 - 1,450 Stock based compensation - - 502 - 502 Loss for the year - - - ( 2,341 ) ( 2,341 ) Balance as of December 31, 2022 163,494 - * 8,686 ( 7,970 ) 716 Balance 163,494 - * 8,686 ( 7,970 ) 716 Conversion of convertible financial instrument 412 - 125 - 125 Stock based compensation - - 356 - 356 Loss for the year - - - ( 1,119 ) ( 1,119 ) Balance as of December 31, 2023 163,906 - * 9,167 ( 9,089 ) 78 Balance 163,906 - * 9,167 ( 9,089 ) 78 * Represents an amount less than $1 thousand. The accompanying notes are an integral part of the financial statements. F- 5 NewStem Ltd. Statements of Cash Flows for the year ended December 31 2023 2022 US$ thousands US$ thousands Cash flows from operating activities Loss for the year ( 1,119 ) ( 2,341 ) Adjustments required to reconcile loss to net cash used in operating activities: Depreciation 14 18 Revaluation of convertible financial instrument 4 ( 13 ) Stock based compensation 356 1,273 Decrease in other current assets 4 20 Decrease in other liabilities - ( 100 ) Decrease in accounts payable ( 63 ) ( 30 ) Net cash used in operating activities ( 804 ) ( 1,173 ) Cash flows from financing activities Funds received from a related party 250 - Issuance of ordinary shares, net - 1,450 Net cash provided by financing activities 250 1,450 Net increase (decrease) in cash and cash equivalents ( 554 ) 277 Cash and cash equivalents at the beginning of the year 878 601 Cash and cash equivalents at the end of the year 324 878 Non-cash financing activities Conversion of convertible financial instrument 125 - The accompanying notes are an integral part of the financial statements. F- 6 NewStem Ltd. Notes to the Financial Statements for the year ended December 31, 2023 Note 1 - General NOTE 1— NATURE OF OPERATIONS A. NewStem Ltd. (“the Company”) was incorporated in September 2016 under the laws of the State of Israel and commenced its business operations in July 2018. B. The Company is a development stage company utilizing its pioneering intellectual property related to haploid human embryonic stem cells for the development of personalized diagnostics and therapeutics for genetic and epigenetic diseases. C. Going Concern Since inception, the Company has accumulated losses of US$ 9,089 thousand. During the year ended December 31, 2023, the Company has incurred losses of US$ 1,119 thousand. As of December 31, 2023, the Company’s cash and cash equivalents balance is US$ 324 thousand, and the net cash used in operating activities during 2023, is US$ 804 thousand. The Company will need to obtain additional funds to continue its operations over the next 12 months. Management’s plans with regard to these matters include continued development, marketing and licensing of its products, as well as seeking additional financing arrangements. Although management continues to pursue these plans, there is no assurance that the Company will be successful in obtaining sufficient cash from sales, licensing or financing on terms acceptable to the Company (see also Note 1D). The Company’s management has adopted a cost reduction plan in order to adjust future operation expenses to its cash balance. On October 23, 2023, the board of directors of the Company unanimously resolved, due to the financial status of the Company, to hold a hearing for most of the Company’s employees to be followed by a dismissal notice, which occurred on December 31, 2023. The above-mentioned events incur significant difficulties to continue to operate the Company’s business and there is a substantial doubt about its ability to continue as a going concern during the look-forward period. The financial statements do not include any adjustments to the carrying amounts and classification of assets, liabilities, and reported expenses that may be necessary if the Company were unable to continue as a going concern. D. “Iron Swords” war Following the brutal attacks on Israel, the mobilization of army reserves, and the Government declaring a state of war (“Iron Swords” war) in October 2023, there was a decrease in Israel’s economic and business activity. The security situation has led, inter alia, to a disruption in the chain of supply and production, a decrease in the volume of national transportation, a shortage in manpower as well as a decrease in the value of financial assets and a rise in the exchange rate of foreign currencies in relation to the shekel. As a result of the movement and work restrictions, the Company began operating on a limited scale, and most of the employees were instructed to work from home. In addition, the situation has brought further difficulties in management’s efforts to seek additional financing arrangements. E. Definitions In these financial statements – 1. The Company – NewStem Ltd. 2. Related Party – Within its meaning in ASC 850, “Related Party Transactions”. F- 7 NewStem Ltd. Notes to the Financial Statements for the year ended December 31, 2023 Note 2 - Significant Accounting Policies NOTE 2— SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The significant accounting policies applied on a consistent basis are as follows: A. Basis of Presentation The financial statements are prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”). B. Functional currency The currency of the primary economic environment in which the Company conducts its operations is the U.S. dollar. The Company raises funds in US dollars and manages its budget in US dollars. Initial revenues recorded in 2023 were generated in US dollars, and future revenues are also expected to be generated in US dollars. Accordingly, the Company uses the U.S. dollar as its functional and reporting currency. C. Use of estimates The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions regarding transactions or matters the final effect of which on the financial statements cannot be accurately determined at the time of their preparation. Even though the estimates and assumptions are based on management’s best judgment, the final effect of such transactions or matters may be different from the estimates and assumptions made in their respect. As applicable to these financial statements, the most significant estimates and assumptions relate to stock-based compensation. D. Cash and cash equivalents Cash and cash equivalents include short-term bank deposits with an original maturity not exceeding three months, that is not restricted for use. E. Property and equipment Property and equipment are stated at cost. Depreciation is computed by using the straight-line method, over the assets’ estimated useful life. The annual depreciation rate for Software and Computers is 33 %. Estimates of the depreciation method, useful life and residual value are reviewed at least at the end of each reporting year and adjusted as necessary. Long-lived assets held and used by the Company, are reviewed for impairment whenever events or changes in circumstance indicate that the carrying amount of the assets may not be recoverable. No such impairment was recorded in 2023 or 2022. F- 8 NewStem Ltd. Notes to the Financial Statements for the year ended December 31, 2023 Note 2 - Significant Accounting Policies (cont’d) F. Concentrations of credit risk Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents. Cash and cash equivalents are invested in a major bank in Israel. Management believes that the financial institution that holds the Company’s investments is financially sound and, accordingly, a minimal credit risk exists with respect to these investments. The Company has no off-balance-sheet concentration of credit risk such as foreign exchange contracts, option contracts or other foreign hedging arrangements. G. Severance pays Pursuant to Section 14 of the Severance Compensation Law, 1963 (“Section 14”), the Company’s employees, covered by this section, are entitled only to monthly deposits, at a rate of 8.33% of their monthly salary, made in their name with insurance companies and/or pension funds. Payments in accordance with Section 14 release the Company from any liability for future severance payments in respect of those employees. Deposits under Section 14 are not recorded as an asset in the Company’s balance sheet. All of the Company’s employees are included under Section 14. H. Research and development costs Research and development expenses consist mainly of labor costs. Costs are expensed as incurred. A grant received is offset from research and development expenses. See also Note 2M. I. Income taxes Deferred income taxes are determined using the asset and liability method in accordance with Accounting Standards Codification (“ASC”) Topic 740. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred income taxes are measured using enacted tax rates expected to apply to taxable income in years in which such temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred income taxes is recognized in the statement of operations of the period that includes the enactment date. In addition, a valuation allowance is established to reduce any deferred tax asset for which it is determined that it is more likely than not that some portion of the deferred tax asset will not be realized. F- 9 NewStem Ltd. Notes to the Financial Statements for the year ended December 31, 2023 Note 2 - Significant Accounting Policies (cont’d) J. Fair value of financial instruments The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments: The carrying amounts of cash and cash equivalents, trade receivables, other accounts receivable, trade payables and other liabilities approximate their fair value due to the short-term maturity of such instruments. The Company adopted ASC 820 Fair Value Measurements (“ASC 820”) which clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. As a basis for considering such assumptions, ASC 820 establishes a three-tier value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value: Level 1 - Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets. Level 2 - Other inputs that are directly or indirectly observable in the marketplace. Level 3 - Unobservable inputs which are supported by little or no market activity. The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. K. Collaborative arrangement The Company may enter into collaborative agreement with a third party. According to such agreement, the Company further develops its intellectual property to meet the needs of the third party and is entitled to royalties from any future sales that include its IP. The Company also receives reimbursement for the R&D costs it incurred as part of such agreement. Such agreements are considered to be within the scope of ASC 808 Collaborative Arrangements (“ASC 808”), as the parties are active participants and exposed to the risks and rewards of the collaborative activity. Performing R&D services for reimbursement is considered to be a collaborative activity under the scope of ASC 808. The Company records reimbursement payments received from the collaboration partner as reductions to R&D expense. L. Stock-based compensation The Company accounts for its stock options grants under the fair value recognition provisions of ASC Topic 718. The Company currently uses the straight-line amortization method for recognizing share option compensation costs. The Company recognizes compensation cost for an award with only service conditions that has a graded vesting schedule on a straight-line basis over the requisite service period for the entire award, provided that the cumulative amount of compensation cost recognized at any date at least equals the portion of the grant-date value of such award that is vested at that date. The Company has elected to account for forfeitures as they occur; any compensation cost previously recognized for an award that is forfeited because of a failure to satisfy the service condition is reversed in the period of the forfeiture. The Company records prepaid stock-based payment as an asset in cases where a fully vested equity award was granted but the services have not been fully received, as required by ASC 718-10 Stock compensation . See also note 7C. F- 10 NewStem Ltd. Notes to the Financial Statements for the year ended December 31, 2023 Note 2 - Significant Accounting Policies (cont’d) M. Grants received The Company receives from time-to-time grants from various sources to fund certain research and development activities. To date, the grants’ terms have stated that if such research and development activities are not successful, the Company would not be obligated to refund any payment previously received. Given such terms, since the financial risk associated with the research and development remains with the grantor, the Company does not recognize a liability associated with such funding. Grants that do not include a specific deliverable in the terms are offset from research and development expenses. N. Leases The Company is a lessee in two agreements. 1. Laboratory The Company leases a certain portion of a laboratory space for its use from a related party. The leased space of the laboratory is not considered to be an identified asset as the agreement does not explicitly specify a distinct space for the Company’s use, nor implicitly specify a distinct space as it does not represent a substantial portion of the laboratory’s capacity. Furthermore, other parties may also use the laboratory and have access to the laboratory. Therefore, the lease is not under the scope of ASC-842. (see also Note 9D). 2. Vehicle lease The lease agreement is for a period of 12 months. The Company has elected not to recognize Right of Use assets and lease liabilities for short-term leases of transportation equipment that have a lease term of 12 months or less. The Company recognizes the lease payments associated with its short-term transportation equipment lease as an expense on a straight-line basis over the lease term. O. Revenue recognition The Company views granting of licenses and sublicenses as outputs of its ordinary business activities, and recipients of such licenses as customers. Thus, the Company considered such licenses agreements to be in the scope of ASC 606 Revenue from Contracts with Customers (“ASC 606”) . The Company has a sublicense agreement with one customer (the “Agreement”). The Company determined that the customer has received rights of use of the IP, which are functional in nature, since the Company will not perform any activities to change functionality of the IP during the terms of the sub-license. As prescribed by ASC 606, revenue from right to use IP is recognized at a point in time, when the customer receives access to the IP. The Company did not identify a promise to provide future services in the Agreement, and hence the rights to use the IP are the only performance obligations in the Agreement. Sales-based royalties and milestone payments dependent of future sales will be recognized upon the occurrence of applicable future sales, under the royalty exception. Other milestone payments are currently fully constrained under the variable consideration guidance. F- 11 NewStem Ltd. Notes to the Financial Statements for the year ended December 31, 2023 Note 3 - Cash and Cash Equivalents The Company’s cash and cash equivalents balance as of December 31, 2023, and 2022, is denominated in the following currencies: Schedule of Cash and Cash Equivalents 2023 2022 December 31 2023 2022 US$ thousands US$ thousands US Dollars 257 811 New Israeli Shekels 67 57 Euro - 9 Great British Pound - 1 Cash and cash equivalents 324 878 Note 4 - Other Current Assets Schedule of Other Current Assets 2023 2022 December 31 2023 2022 US$ thousands US$ thousands Government institutions 3 29 Prepaid expenses 12 4 Related parties 14 - Other current assets 29 33 Note 5 - Property and Equipment, net Schedule of Property and Equipment, Net 2023 2022 December 31 2023 2022 US$ thousands US$ thousands Cost: Software and Computers 62 62 Accumulated depreciation: Software and Computers 53 39 Depreciated cost 9 23 F- 12 NewStem Ltd. Notes to the Financial Statements for the year ended December 31, 2023 Note 6 - Accounts payable Schedule of Accounts Payable 2023 2022 December 31 2023 2022 US$ thousands US$ thousands Employees and payroll accruals 21 53 Accrued expenses and other payables 13 44 Accounts payable 34 97 Note 7 - Share Capital NOTE 5— EQUITY Schedule of Share Capital Composition Composition: As of December 31, 2023 Authorized Issued and fully paid Number of shares Ordinary shares NIS 0.01 par value ( “ Ordinary Shares ” ) 1,000,000 163,906 Ordinary shares NIS 0.01 par value ( “ Ordinary Shares ” ) 1,000,000 163,906 As of December 31, 2022 Issued and Authorized fully paid Number of shares Ordinary shares 1,000,000 163,494 A . In 2016, the Company issued to its founders 100,000 Ordinary Shares. B. In June 2018, the Company entered into an investment agreement for the issuance of 50,000 Ordinary Shares, representing 33 % of the Company’s issued and outstanding shares for a total consideration of $ 4,000 thousands. In 2018, the Company issued to its investors 25,000 Ordinary Shares for a total amount of $ 2,000 thousands. The remainder of the investment in the amount of $ 2,000 thousands was subject to two equal tranches milestones. During 2019 the Company issued additional 12,500 Ordinary Shares for a total amount of $ 1,000 thousands. In 2020, the Company met all milestones set in the investment agreement. As such, the 3rd and last investment tranche of $ 1,000 thousands was paid during 2020 and an additional 12,500 Ordinary Shares were issued. C. In September 2021, the Company signed an agreement with a third-party in which such third party committed to provide the Company certain services in exchange to 5 % (fully diluted) of the Company’s Ordinary Shares amounting to 8,696 Ordinary Shares. The Company recognized the transaction based on the fair value of the shares at $ 1,952 thousands. F- 13 NewStem Ltd. Notes to the Financial Statements for the year ended December 31, 2023 Note 7 - Share Capital (cont’d) D. On April 30, 2022, the Company signed a share purchase agreement with two investors for the purchase of 2,647 Ordinary Shares of the Company (par value ILS 0.01 ) for a total consideration of US$ 800 thousands. On December 23, 2022, the Company signed a Share Purchase Agreement with another investor for the purchase of 2,151 Ordinary Shares of the Company (par value ILS 0.01 ) for a total consideration of US$ 650 thousands. According to those agreements, if the Company provides favorable terms to other investors in this round, then it shall adjust the existing agreements and provide substantially equivalent rights to all the Investors. E. Stock option plan: In 2018 the Company adopted a stock option plan for its employees, service providers and officers, pursuant to which, and to a resolution of the Company’s board of directors dated October 31, 2018, the Company reserved for issuance 6,250 Ordinary Shares. In June 2021, the Company increased its reserved stock option plan to 13,654 Ordinary Shares. The contractual life of the share option is 10 years from the respective date of grant. Share options to employees, service providers and officers granted under the stock option plan shall be vesting in installments, gradually over a period of 4 years from the grant date. Below is a summary of employee option activity under the Company’s equity incentive plan during the current year: Summary of Employee Option Activity Year ended December 31, 2023 Weighted Weighted average average remaining Number of exercise price contractual options US$ term (years) Outstanding at the beginning of the year 13,145 146.63 Forfeited ( 6 ) 80 Outstanding at the end of the year 13,139 146.66 1.80 Exercisable at the end of the year 12,598 144.38 1.58 The following table sets forth the total stock-based compensation expense resulting from stock options included in the statements of operations. Schedule of Stock-based Compensation Expense 2023 2022 Year ended December 31 2023 2022 US$ thousands US$ thousands Research and development 212 321 General and administrative 144 181 Total stock-based compensation expense 356 502 F- 14 NewStem Ltd. Notes to the Financial Statements for the year ended December 31, 2023 Note 7 - Share Capital (cont’d) F. Convertible Financial Instruments In November 2021, the Company signed a Simple Agreement for Future Equity (“SAFE”) with an investor in the amount of 100 thousand Great British Pound (“GBP”) (approximately US$ 134 thousands). According to the agreement, the SAFE does not bear interest and is convertible to the Company’s ordinary shares, as follows: (a) In the event of a financing round of at least 1 million GBP, the SAFE will be automatically converted at the end of the round into ordinary shares at the price determined in such round. (b) In the event that the financing round is below 1 million GBP, the SAFE may be converted into ordinary shares at the price determined in such round, at the discretion of the investor. (c) If no financing round occurs, the SAFE amount shall automatically be converted into ordinary shares at the earlier of: (a) an M&A transaction – using the price per share determined in such transaction, or (b) 36 months after the date of the agreement, at the fair market value of an ordinary share at that time. The SAFE was treated for accounting purposes as a liability, since this arrangement is settled in a variable amount of shares and the investor is not exposed to the changes in the fair value of the shares during the period from the transfer of funds until conversion. The convertible financial instrument was presented at fair value. The convertible financial instrument is considered a Level 3 fair value measurement. In November 2023, upon closing of the round (see also Note 7D), the SAFE was converted to 412 Ordinary Shares, according to scenario (a). The changes in the liability measured at fair value for which the Company has used Level 3 inputs to determine fair value are as follows: Schedule of Change in Liability Measured at Fair Value 2023 2022 US$ thousands US$ thousands Balance as of January 1, 121 134 Change in fair value 4 ( 13 ) Conversion of a convertible financial instrument ( 125 ) - Balance as of December 31, - 121 Note 8 - Revenues On December 23, 2022, The Company signed a Sub-License Agreement (the “Agreement”), which entered into effect in January 2023, for a sub-license of the Company’s intellectual property related to Fragile X Syndrome (“IP”). In consideration for the grant of each period of the sub-license, the Company will be entitled to license fees of a lump sum of US$ 95 thousands for years 1-5 (“First License Period”), US$ 50 thousand per year for years 6-7, US$ 100 thousand per year for year 8 and onwards. The Company is also entitled for reimbursement of patent costs that were incurred in the past relating the intellectual property, of approximately $ 24 thousand and will be entitled for reimbursement of future patent costs. These reimbursements will be accounted for as reduction of General and administrative expenses. F- 15 NewStem Ltd. Notes to the Financial Statements for the year ended December 31, 2023 Note 8 - Revenues (cont’d) In addition, the Company will be entitled to royalties upon future sales of products that are based on the Company’s licensed intellectual property at a rate of 3.5 % of the net sales or 50 % of sales-based sub-license income, sublicense fees at a rate of up to 13.2 % - 22.0 % of sublicense consideration, subject to certain terms, as outlined in the Agreement. Moreover, the Company is entitled to certain future milestones payments, partly based on sales and partly based on reaching Phase III clinical trials. The Company also received a right to receive a fee equal to 0.5 % of the customer’s exit consideration (“Exit Fee”), which will be received upon an exit event of the customer, as defined in the Agreement. Based on the estimated date of the customer’s exit event and the discount rate used to calculate the current value of the Exit Fee, the fair value of the Exit Fee as of the inception date of the Agreement was considered to be immaterial. The Company determined that the customer has received rights of use of the IP, which are functional in nature, since the Company will not perform any activities to change functionality of the IP during the terms of the sub-license. The Company did not identify a promise to provide future services in the Agreement, and hence the rights to use the IP are the only performance obligations in the Agreement. Therefore, the Company recognized revenues of $ 95 thousand in 2023, for the First License Period. Sales-based royalties and milestone payments dependent of future sales will be recognized upon the occurrence of applicable future sales, under the royalty exception. Other milestone payments are currently fully constrained under the variable consideration guidance. Note 9 - Commitments and Contingent Liabilities NOTE 7— COMMITMENTS AND CONTINGENCIES A. Royalties As part of the Company’s research and development efforts, the Company received licenses to use intellectual property developed by Yissum Research and Development Company of the Hebrew University of Jerusalem (“Yissum”) and New York Stem Cell Foundation (“NYSCF”). During 2017, Yissum and NYSCF granted the Company an exclusive license to make commercial use of that intellectual property, in order to develop, manufacture, market, distribute or sell products, subject to certain terms and events. In consideration for the grant of the license, the Company shall pay Yissum and NYSCF royalties at a rate of up to 3 % of the net sales and sublicense fees at a rate of up to 12 % of sublicense consideration, subject to certain terms, as set forth in the agreement. As of December 31, 2023, a provision in the amount of US$ 11 thousands was recorded for these commitments in the financial statements. B. Research Agreement During 2021 and 2022, the Company received payments of US$ 200 thousand as part of a research agreement with a third-party, which was finalized in 2022. The Company recognized the payments in the statement of operations of 2022, as participation in the R&D activities which is offset from development expenses. The research agreement determines that the Company will use its intellectual property to further develop know-how that will allow the third party to use such developed know-how for its commercial purposes. The third party shall pay the Company royalties of up to 3.5 % from any sales that include the Company’s developed know-how, and additional royalties for any sublicense, as set forth in the research agreement. F- 16 NewStem Ltd. Notes to the Financial Statements for the year ended December 31, 2023 Note 9 - Commitments and Contingent Liabilities (cont’d) C. Master Innovation Hub Agreement On October 31, 2022, the Company entered into an agreement with a third party, according to the agreement the Company will develop an IP using the third party’s research data in exchange for 1.5 % royalties from future sales and 10 % royalties from future licenses. In addition, the Company will issue the third-party shares on the earliest of the following milestones: a. The FDA approval of the Product. b. A Change in Control of the Company provided that the collaboration is completed as described in the Development Plan. c. The execution of a Memorandum of Understanding (or equivalent) between the Company and the third party for the investment of funds from the third party into the Company. As of December 31, 2023, the Company does not expect any future sales or licenses nor does the Company considers an FDA approval or change in control of the company as events that are probable to occur. Therefore, no balances were recorded for these commitments in the financial statements . D. Laboratory Renting Agreement The Company rents a laboratory from Yissum starting July 1, 2018. The rent is for an initial three-year term expiring on June 30, 2021. The Company extended the lease until December 31, 2023, and it has an option to further extend the term for an additional one-year period. Each party shall be entitled to terminate the agreement within 30 days’ notice. The company shall pay NIS 3,000 per company employee per month. Total rent cost associated with this lease for the year ended December 31, 2023, and 2022 was US$ 21 thousand and US$ 43 thousand, respectively. Note 1 0 - Related Parties The Company engaged with its shareholders to receive consulting services and laboratory renting (see also Note 9D). In addition, the Company is required to pay a shareholder sublicense fees at a rate of up to 12 % of sublicense (see also Note 9A). Schedule of Related Party Transactions A. Transactions Year ended Year ended December 31 2023 December 31 2022 US$ thousands US$ thousands Cost of revenues 11 - Research and development expenses 176 353 F- 17 NewStem Ltd. Notes to the Financial Statements for the year ended December 31, 2023 Note 1 0 - Related Parties (cont’d) B. Balances December 31, 2023 December 31, 2022 US$ thousands US$ thousands Other current assets 14 - Accounts payable 11 - Related party (*) 250 - (*) The Company negotiates with a related party to make an additional investment in the Company. In December 2023, as part of this negotiation, the Company received funds from the related party in the amount of US$ 250 thousand. Due to the fact that no binding agreement was signed as of December 31, 2023, the funds received were classified as a current liability. Note 11 - Taxes on Income NOTE 6— INCOME TAXES A. The Company is incorporated in Israel and is subject to Israeli taxation. B. The Israeli corporate income tax rate was 23 % in 2023 and 2022. The main reconciling items from the statutory tax rate of the Company to the effective tax rate ( 0 %) is the change in valuation allowance (see note 11D) and non-deductible expenses. C. Net operating loss carried forward As of December 31, 2023, the Company has net operating tax losses carried forward indefinitely of approximately US$ 4.4 million, (December 31, 2022 - US$ 3.8 million). D. Deferred income taxes The tax effects of temporary differences that give rise to significant components of the Company’s deferred tax assets and liabilities are as follows: Schedule of Deferred Tax Assets 2023 2022 December 31, 2023 2022 US$ thousands US$ thousands Deferred tax assets: Net operating losses 1,024 885 Research and development credit carried forward 188 229 Other 12 26 Total deferred tax assets 1,224 1,140 Less valuation allowance ( 1,224 ) ( 1,140 ) Net deferred tax assets - - The net change in the total valuation allowance was an increase of US $ 84 thousand in 2023 and an increase of US $ 187 thousand in 2022. The Company has provided a full valuation allowance in respect of deferred tax assets resulting from the tax loss carried forward. Management currently believes that, since the Company has a history of losses, it is more likely than not that the deferred tax assets related to the loss carried forward and other temporary differences will not be realized in the foreseeable future. F- 18 Item 16. Form 10–K Summary. Not applicable 29 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on April 1, 2024. NovelStem International Corp. By: /s/ Jan H Loeb Jan H. Loeb President and Executive Chairman Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date /s/ Jan H. Loeb President and Executive Chairman April 1, 2024 Jan H. Loeb /s/ Christine Jenkins Vice President and Chief Financial Officer April 1, 2024 Christine Jenkins /s/ Mitchell Rubenstein Director April 1, 2024 Mitchell Rubenstein /s/ Eric Richman Director April 1, 2024 Eric Richman /s/ David Seltzer Director April 1, 2024 David Seltzer /s/ Jerry Wolasky Director April 1, 2024 Jerry Wolasky /s/ Tracy Clifford Director April 1, 2024 Tracy Clifford 30