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Item 7. Management’s Discussion and Analysis

2024-04-01 compared with 2023-03-31 · 142 added, 95 removed, 77 unchanged (75% of the section changed)

9 unchanged sentences

and 2022, respectively.

We had current assets of approximately $59,000 and current liabilities of approximately $65,000 as of

December 31, 2022.

As of December 31, 2021, our current assets and current liabilities were approximately $37,000 and $193,000,

respectively.

We have prepared our financial statements for the years ended December 31, 2022 and 2021 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 entered into long term finance agreements with two related party

individuals to fund current operating expenses.

We had current assets of approximately $87,000 and current liabilities of approximately $346,000 as of December

As of December 31, 2022, our current assets and current liabilities were approximately $59,000 and $65,000, respectively.

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.

is a development stage Israeli biotech limited liability company focused on pioneering intellectual property related to haploid human

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net losses as incurred.

We have included the condensed 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.

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.

Accounting Policies

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accounting policies, which are more fully described in Note 2 of the Notes to the Financial Statements included in this Annual Report.

have identified our accounting policy for stock-based compensation as a critical accounting policy.

have identified our accounting policies for stock-based compensation and accounting for derivative liabilities as critical

accounting policies.

recognize stock-based compensation expense based on the fair value recognition provision of applicable accounting principles, using the

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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 a period equal to the expected term of the options.

stock over the period from our change to a biotechnology company, September 2018, through December

For the expected term of the option, we used an estimate of the expected

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compensation expense to reflect these differences.

the years ended December 31, 2022 and 2021, we incurred stock compensation expense with respect to options of approximately $283,000

and $273,000, respectively.

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.

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.

of Operations.

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Statement of Operations Data:

Years Ended December 31,

Administrative fee income

Ended December 31,

Administrative

Operating expenses:

General and administrative expenses

Contra expenses - legal fees

Total operating expenses

Loss from operations

Interest expense

Net loss before equity in net loss of equity method investees

expenses (contra expenses)

operating expenses

from operations

Other expenses:

Loss on derivative instrument

other expenses

loss before equity in net loss of equity method investees

Equity in net loss of equity method investees

Gain on dilution of equity method investment

Gain on dilution of

equity method investment

$ (4,187,301 )

$ (3,421,571 )

Compared to 2022

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as a result, we have no operating revenue or cost of revenue.

During the year ended December 31, 2022, we began charging annual administrative

We do charge annual administrative

fees to an affiliated entity.

Company incurs general and administrative (“G&A”) expenses primarily related to professional fees and insurance.

incurred G&A expenses of approximately $744,000 and $496,000 for the years ended December 31, 2022 and 2021, respectively.

increase 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, 2021 and 2020, preparation of our quarterly reports for 2022, and, in the

preparation, and filing of our Form 10 registration statement which was filed in August 2022.

Specifically, professional fees

increased by $199,000 in the year ended December 31, 2022 as compared to the year ended December 31, 2021.

Insurance costs increased

by $31,000 in the year ended December 31, 2022 as compared to the year ended December 31, 2021.

The remaining increase in G&A

expenses of approximately $9,000 during the year ended December 31, 2022 consists primarily of increases in expenses related to

investor relations and information technology.

compensation expense increased by approximately $10,000 in the year ended December 31, 2022 as compared to the year ended December

This is primarily due to certain options issued in 2022 having a shorter vesting period.

the year ended December 31, 2022, we recorded a contra expense of $310,000 which is comprised of funds from a 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.

This is a nonrecourse agreement, and the Company has no obligation to repay any funds received under the agreement.

In the event of a favorable outcome, Omni Bridgeway would recover disbursed funding as part of their investment return.

part of that funding arrangement, Omni Bridgeway agreed to reimburse NovelStem $310,000 which was comprised of $140,000 for reimbursement

of previously incurred legal expenses and $170,000 for working capital needs including previously incurred general and administrative

There was no contra expense in the year ended December 31, 2021.

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

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.

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.

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.

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.

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.

Company has recorded no income tax expense as we have incurred operating losses and all deferred tax assets are fully offset by an income

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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, 2022 included net income of approximately $13,000 from NetCo which was offset by net loss of approximately

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, 2021 included net income of approximately $21,000 from

NetCo which was offset by net loss of approximately $864,000 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 $388,000

during the year ended December 31, 2022.

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.

reported a gain on dilution of our equity method investment related to stock issuances made to third parties by NewStem.

approximately $36,000 and $388,000 during the years ended December 31, 2023 and 2022, respectively.

and Capital Resources

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.

expect to continue to incur greater expenses in the near future as we expand our business or enter into strategic partnerships.

expect our G&A expenses to increase as we expand our finance and administrative staff, add infrastructure, and incur additional costs

related to being a reporting act company, including directors’ and officers’ insurance and increased professional fees.

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.

expect to continue to incur greater expenses in the near future as we expand our business, including funding NewStem, or enter into strategic partnerships.

expect our G&A expenses to increase as we expand our administrative staff and add infrastructure.

Company will need to obtain additional funds to continue its operations.

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Company, or that NewStem will become profitable.

May 2022, the Company entered into an agreement with Jan Loeb, our Executive Chairman and Jerry Wolasky, a member of the Board, which

was amended in July 2022, to borrow up to an aggregate of $600,000 for working capital needs.

This agreement provides for funding through

January 31, 2024, provides for interest at a rate of 8% per annum, increased to 10% per annum for advances subsequent to November 11,

2022, and matures the earlier of January 31, 2024 or twenty months from the date of the first funded amount unless the lenders agree

to extend the due date at that time.

As of the date of this Form 10-K, the Company has borrowed $292,000 pursuant to the agreement.

Cash Provided By (Used In) Operating Activities.

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, 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

For the year ended December 31, 2021, net cash used in operating activities

was approximately $181,000, which consisted primarily of a net loss of approximately $1,345,000, offset by noncash equity in loss of equity

method investees of approximately $865,000 and stock-based compensation of approximately $273,000 and an increase in accrued liabilities

and other payables of approximately $24,000.

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.

Cash Used In Operating Activities.

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.

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.

Cash Used In Investing Activities.

the years ended December 31, 2022 and 2021, no net cash was used in investing activities.

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.

Cash Provided By Financing Activities.

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.

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.

the year ended December 31, 2021, net cash provided by financing activities was $100,000 consisting of short-term borrowings from a significant

Sheet Arrangements

are not party to any off-balance sheet transactions.

We have no guarantees or obligations other than those which arise out of normal

business operations.

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.

Obligations and Commercial Commitments

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.

of December 31, 2021, we did not have contractual obligations and commercial commitments.

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.

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.

Quantitative and Qualitative Disclosures About Market Risk.

section is not applicable.

Financial Statements and Supplementary Data.

at the end of this Annual Report, commencing on page F-1.

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis