Item 7. Management’s Discussion and Analysis
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 $3,233,000 and $4,187,000 for the years ended December 31, 2024
and 2023, respectively. We had current assets of approximately $32,000 and current liabilities of approximately $5,304,000 as of December
31, 2024. As of December 31, 2023, our current assets and current liabilities were approximately $87,000 and $346,000, respectively.
We have prepared our financial statements for the years ended December 31, 2024 and 2023 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 Yissum’s ability to successfully commercialize the License. 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 a shareholder to fund current operating expenses. Additionally,
we entered into two convertible debt instruments 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. 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 2024 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 2024. 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, 2024 and 2023, we incurred stock compensation expense with respect to options and warrants of approximately
$40,000 and $303,000, 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 arm’s 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, 2024 and 2023 and balance sheet data as of December 31, 2024 and
2023 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,
2024
2023
Change
Administrative
fee income
$ 12,000
$ 12,000
$ -
Operating
expenses:
G&A
expenses
$ 880,947
$ 665,277
$ 215,670
Litigation
expenses
58,975
2,872,522
(2,813,547 )
Total
operating expenses
939,922
3,537,799
(2,597,877 )
Loss
from operations
(927,922 )
(3,525,799 )
2,597,877
Other
expenses:
Loss
on derivative instrument
90,000
260,000
(170,000 )
Impairment
loss on equity method investee
1,628,657
-
1,628,657
Interest
expense
425,417
99,023
326,394
Total
other expenses
2,144,074
359,023
1,785,051
Net
loss before equity in net loss
of equity method investees
(3,071,996 )
(3,884,822 )
812,826
Equity
in net loss of equity method investees
(161,046 )
(338,618 )
177,572
Gain
on dilution of equity method investment
-
36,139
(36,139 )
Net
loss
$ (3,233,042 )
$ (4,187,301 )
$ 954,259
2024
Compared to 2023
We
are a holding company whose primary assets are our ownership of equity interests in NetCo and NewStem including the technology of NewStem.
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 $881,000 and $665,000 for the years ended December 31, 2024 and 2023,
respectively. Our increase in G&A expenses relates primarily to bad debt incurred with the write off of notes receivable from NewStem,
stock-based compensation and professional fees incurred in the audit of our financial statements for the years ended December 31, 2024
and 2023, preparation of our quarterly reports for 2024 and 2023, and for documents and advice related to our attempt to purchase the
remaining shares of NewStem.
Specifically,
we wrote off as bad debt the net balance due from NewStem of $458,000 in the year ended December 31, 2024, and professional fees increased
by approximately $40,000 in the year ended December 31, 2024 as compared to the year ended December 31, 2023. Insurance costs decreased
by approximately $14,000 in the year ended December 31, 2024 as compared to the year ended December 31, 2023.
Total
stock compensation expense, included in G&A expenses, decreased by approximately $263,000 in the year ended December 31, 2024 as
compared to the year ended December 31, 2023 due to a smaller number of options awarded in the current period as compared to the prior
period as well as by the recognition of $243,000 in stock compensation expense in the year ended December 31, 2023 related to the increased
value of our outstanding warrants due to the amendment of the agreements to extend the due date by two years.
The
remaining decrease in G&A expenses of approximately $5,000 during the year ended December 31, 2024 consists primarily of Decreases
in expenses related to investor relations and information technology.
We
incurred costs related to litigation and the related litigation funding agreement involving our arbitration with our NetCo joint venture
partner of approximately $59,000 and $2,873,000, respectively, for years ended December 31, 2024 and 2023. Specifically, the decrease
of approximately $2,814,000 for the year ended December 31, 2024 as compared to 2023 is comprised of legal fees related to our NetCo
arbitration including litigation funding fees due to Omni Bridgeway pursuant to the litigation funding agreement incurred in the year
ended December 31, 2023 as compared to a lower amount incurred in the year ended December 31, 2024 related to final expenses not funded
by Omni Bridgeway.
15
The
Company has recorded a loss on derivative instrument of $90,000 and $260,000, respectively, for the years ended December 31, 2024 and
2023 related to a guarantee included in the note payable shareholder entered into in May 2023. The loss recorded in the year ended December
31, 2024 brings the derivative instrument to its highest contractual liability.
The
Company has recorded an impairment loss of approximately $1,629,000 during the year ended December 31, 2024 related to its investment
in NewStem. This loss reduces our investment in NewStem to zero ($0.00) as of December 31, 2024. This adjustment was made in response
to the fact that NewStem ceased operations and is in the process of liquidation. The technology and license held by NewStem reverted
to the original licensee, Yissum, and the Company retains a right to a share of future licensing or monetization of the technology and
license. The Company does expect to recover some value from the license, however, as of December 31, 2024, the realization of this value
is not certain, therefore has not been recorded by the Company. No such adjustment was made during the year ended December 31, 2023.
Interest
expense increased by approximately $326,000 in the year ended December 31, 2024 as compared to the year ended December 31, 2023. The
increases in interest expense are related to increased debt incurred for operations, the accrual of interest on the litigation funding
agreement 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, 2024 and 2023. The net losses reported for the year
ended December 31, 2024 included net loss of approximately $5,000 from NetCo combined with net loss of approximately $156,000 from NewStem.
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.
We
reported a gain on dilution of our equity method investment related to stock issuances made to third parties by NewStem of
approximately $36,000 during the year ended December 31, 2023. We incurred no such gain or loss during the year ended December 31,
2024.
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.
The
Company will need to obtain additional funds to continue its operations. Management’s plans with regard to these matters include
the potential sale of our interest in NetCo to settle our liability related to the litigation funding agreement and additional financing
and fundraising until our interest in NewStem’s technology 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’s technology will be monetized and 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 10% per annum.
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 $650,000 and $535,000 at December 31, 2024 and 2023, respectively.
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 matured December 21, 2024, at which time all principal and accrued
interest are due and payable. Prior to the filing of this Annual Report, the maturity date of these notes was extended to December 21,
2025. 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.
In
April 2024, the Company borrowed $100,000 from unrelated parties pursuant to convertible debt agreements accounted for as debt.
Net
Cash Used In Operating Activities.
For
the year ended December 31, 2024, net cash used in operating activities was approximately $272,000, which consisted primarily of a net
loss of approximately $3,233,000, offset by noncash equity in loss of equity method investees of approximately $161,000, impairment of
equity method investees of approximately $1,629,000, bad debt expense of $500,000, and stock-based compensation of approximately $40,000.
Further offset by loss on derivative instrument of $90,000, accretion of discount on notes payable of $178,000 and interest added to
notes payable and convertible debt of approximately $215,000. Additionally, cash was used in operations related to an increase in current
assets of approximately $8,000 and an increase in accrued liabilities and other payables of approximately $140,000.
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.
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Net
Cash Used In Investing Activities.
During
the years ended December 31, 2024 and 2023, the Company loaned a total of $500,000, consisting of $250,000 per year to NewStem in anticipation
of a purchase transaction. This transaction was not consummated and NewStem ceased operations and began liquidation proceedings in October
2024, resulting in the loan becoming uncollectible. As such, the Company determined the note was uncollectible and wrote the balance
off as a bad debt during the year ended December 31, 2024.
Net
Cash Provided By Financing Activities.
For
the year ended December 31, 2024, net cash provided by financing activities was $475,000, consisting of long-term borrowings from two
directors and a stockholder totaling $375,000 and borrowings from convertible debt with unrelated parties of $100,000.
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.
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, 2024, we had a contractual obligation related to our directors’ and officers’ insurance providing for 10
monthly installments of $5,127 payable through June 2025.
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.
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.
None.
17