NovelStem International Corp. 10-K

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, 2024 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 continues to focus on strengthening the Company’s internal controls within the parameters of what can be done with limited resources. As resources permit, management will continue to attempt to build the necessary capabilities and infrastructure to implement corrective action. At the current time, financial resources are limited thereby impeding the ability of management to employ personnel to provide proper separation of duties. 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. 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 – 66 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 – 61 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 – 70 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 -63 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 – 64 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 – 64 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 -56 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 2024 and 2023. 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 2024 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 2024 - - 5,924 (1) - 5,924 President and Executive Chairman 2023 - - 16,573 (2) - 16,573 Christine Jenkins 2024 48,275 (3) - - - 48,275 Vice President and Chief Financial Officer 2023 54,000 (3) - 1,657 (1) - 55,675 Mitchell Rubenstein 2024 - - 5,924 (1) - 5,924 Director 2023 - - 8,286 (2) - 8,286 Eric Richman 2024 - - 5,924 (1) - 5,924 Director 2023 - - 8,286 (2) - 8,286 David Seltzer 2024 - - 5,924 (1) - 5,924 Director 2023 - - 8,286 (2) - 8,286 Jerry Wolasky 2024 - - 5,924 (1) - 5,924 Director 2023 - - 8,286 (2) - 8,286 Tracy Clifford 2024 - - 5,924 (1) - 5,924 Director 2023 - - 8,286 (2) - 8,286 (1) Represents the grant date fair value calculated in accordance with applicable accounting principles with respect to 100,000 options granted per Director and 100,000 options granted to the President and Executive Chairman on April 1, 2024 with an exercise price of $0.06. 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 4.34% (ii) an expected term of 5.09 years (iii) an assumed volatility of 116.9853% and (iv) no dividends. (2) 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. (3) Represents hourly fees paid to Ms. Jenkins for the provision of services as Chief Financial Officer of the Company. 21 Executive Compensation for 2023 and 2024 Our Chief Financial Officer and Vice President, Ms. Jenkins is paid on an hourly basis. Mr. Loeb, our Executive Chairman and President 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 2024 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, 2024. 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 100,000 0.06 April 1, 2031 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 100,000 0.06 April 1, 2031 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 100,000 0.06 April 1, 2031 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 100,000 0.06 April 1, 2031 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 100,000 0.06 April 1, 2031 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 100,000 0.06 April 1, 2031 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, 2024 and 2023. 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, 2024. 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, 2024, 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 10,000 0.0 % Michael Sosnowik 2,770,270 5.0 % Stephen Gans 7,034,172 12.6 % Jan Loeb 7,770,673 (2)(4) 14.0 % Jerry Wolasky 10,272,973 (3)(4) 18.5 % Tracy Clifford 1,250,000 (3)(4) 2.2 % Eric Richman 854,054 (3)(4) 1.5 % Mitchell Rubenstein 3,108,108 (4)(5) 5.6 % David Seltzer 3,624,324 (3)(4) 6.5 % All directors and officers as a group (seven persons) 26,890,132 48.3 % (1) Applicable percentage ownership is based on 46,881,475 shares of common stock outstanding as of December 31, 2024, together with securities exercisable or convertible into shares of common stock within 60 days of December 31, 2024. 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, 2024, 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 2,250,000 million shares of common stock at an exercise price of $0.13 per share, options to purchase 1,100,000 million shares of common stock at an exercise price of $0.10 per share, options to purchase 100,000 shares of common stock at an exercise price of $0.29 per share, and options to purchase 100,000 shares of common stock at an exercise price of $0.20 per share. (3) Includes options to purchase 150,000 shares of common stock at an exercise price of $0.10 per share, options to purchase 100,000 shares of common stock at an exercise price of $0.29 per share, and options to purchase 50,000 shares of common stock at an exercise price of $0.20 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, options to purchase 100,000 shares of common stock at an exercise price of $0.29 per share, and options to purchase 50,000 shares of common stock at an exercise price of $0.20 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 9,360,000 $ 0.1347 640,000 Total 9,360,000 $ 0.1347 640,000 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 note agreements were refinanced in August 2024 providing for total borrowings of $750,000. The agreements provide for interest at a rate of 10% per annum and mature December 31, 2025. As of the date of this Annual Report, the full amount of $750,000 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 $650,000 at December 31, 2024. 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 Kreit & Chiu CPA LLP The following table summarizes the fees accrued and paid by NovelStem for professional services rendered by Kreit & Chiu CPA LLP and Cherry Bekaert LLP for the years ended December 31, 2024 and 2023. 2024 2023 Audit fees $ 113,030 $ 111,605 Tax Fees - 6,400 All other fees - - Total $ 113,030 $ 118,005 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 2024 and 2023. 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, 2024 and 2023 Index to Audited Financial Statements Page Audited Financial Statements Report of Independent Registered Public Accounting Firm (PCAOB ID: 6651 ) F-1 Balance Sheets F-2 Statements of Operations F-3 Statements of Changes in Shareholders’ Equity (Deficit) F-4 Statements of Cash Flows F-5 Notes to Financial Statements F-6 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 sheets of NovelStem International Corp. as of December 31, 2024 and 2023, and the related statements of operations, shareholders’ equity (deficit), and cash flows for the two years 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, 2024 and 2023, and the results of its operations and its cash flows for each of the two 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 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 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 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. 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 audits, 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 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/ Kreit & Chiu CPA LLP We have served as NovelStem International Corp.’s auditor since 2024. Los Angeles, California April 7, 2025 F- 1 NOVELSTEM INTERNATIONAL CORP. BALANCE SHEETS 2024 2023 As of December 31, 2024 2023 ASSETS Current assets: Cash $ 6,099 $ 53,063 Accounts receivable, administrative fees 10,500 - Prepaid expenses 15,272 33,540 Total current assets 31,871 86,603 Investment in Netco 128,240 133,709 Note receivable, NewStem - 250,000 Investment in NewStem - 1,784,234 Total assets $ 160,111 $ 2,254,546 LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT) Current liabilities: Accounts payable $ 167,898 $ 54,257 Accrued expenses 68,576 42,223 Notes payable 250,000 250,000 Current portion of long-term notes payable, including accrued interest 4,059,366 - Convertible debt, including accrued interest 108,646 Derivative liability, guarantee 650,000 - Total current liabilities 5,304,486 346,480 Long-term liabilities: Long-term notes payable, including accrued interest, net - 3,324,599 Derivative liability, guarantee - 535,000 Total long-term liabilities - 3,859,599 Total liabilities 5,304,486 4,206,079 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, 2024 and 2023 and 46,881,475 shares outstanding at December 31, 2024 and 2023 468,815 468,815 Additional paid-in capital 290,947,417 290,907,217 Accumulated deficit ( 296,360,853 ) ( 293,127,811 ) Treasury stock, at cost, 3,435,197 shares at December 31, 2024 and 2023 ( 199,754 ) ( 199,754 ) Total shareholders’ equity (deficit) ( 5,144,375 ) ( 1,951,533 ) Total liabilities and shareholders’ equity (deficit) $ 160,111 $ 2,254,546 The accompanying notes are an integral part of these financial statements. F- 2 NOVELSTEM INTERNATIONAL CORP. STATEMENTS OF OPERATIONS 2024 2023 Year Ended December 31, 2024 2023 Administrative fee income $ 12,000 $ 12,000 Operating expenses: General and administrative expenses 880,947 665,277 Litigation expenses 58,975 2,872,522 Total operating expenses 939,922 3,537,799 Loss from operations ( 927,922 ) ( 3,525,799 ) Other expenses: Loss on derivative instrument 90,000 260,000 Impairment loss on equity method investee 1,628,657 - Interest expense 425,417 99,023 Total other expenses 2,144,074 359,023 Loss before income taxes ( 3,071,996 ) ( 3,884,822 ) Provision for income tax - - Net loss before equity in net loss of equity method investees ( 3,071,996 ) ( 3,884,822 ) Equity in net loss of equity method investees ( 161,046 ) ( 338,618 ) Gain on dilution of equity method investment - 36,139 Net loss $ ( 3,233,042 ) $ ( 4,187,301 ) Basic and diluted net loss per share: Net loss per share - basic and diluted $ ( 0.07 ) $ ( 0.09 ) 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- 3 NOVELSTEM INTERNATIONAL CORP. STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT) Shares Stock Capital Deficit Shares Stock Equity Number Additional of Total Number of Common Paid-In Accumulated Treasury Treasury Shareholders’ Shares Stock Capital Deficit Shares Stock Equity Balance, December 31, 2022 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 ) Net loss - - - ( 3,233,042 ) - - ( 3,233,042 ) Stock-based compensation - - 40,200 - - - 40,200 Balance, December 31, 2024 46,881,475 $ 468,815 $ 290,947,417 $ ( 296,360,853 ) 3,435,197 $ ( 199,754 ) $ ( 5,144,375 ) Balance 46,881,475 $ 468,815 $ 290,947,417 $ ( 296,360,853 ) 3,435,197 $ ( 199,754 ) $ ( 5,144,375 ) The accompanying notes are an integral part of these financial statements. F- 4 NOVELSTEM INTERNATIONAL CORP. STATEMENTS OF CASH FLOWS 2024 2023 Year Ended December 31, 2024 2023 Cash flows from operating activities: Net loss $ ( 3,233,042 ) $ ( 4,187,301 ) Equity in net loss of equity method investees 161,046 338,618 Impairment loss, NewStem 1,628,657 - Gain on dilution of equity method investment - ( 36,139 ) Distribution from NetCo - 6,875 Bad debt expense 500,000 - Accretion of discount on note payable 177,768 61,815 Loss on derivative instrument 90,000 260,000 Legal fees and litigation funding fees funded by litigation funding agreement - 2,819,196 Accrued interest added to long-term note payable 206,999 35,138 Accrued interest added to convertible debt 8,646 - Stock-based compensation 40,200 302,890 Change in operating assets and liabilities: Accounts receivable, administrative fees ( 10,500 ) 12,000 Prepaid expenses 18,268 7,021 Accounts payable 113,641 33,054 Accrued expenses 26,353 ( 1,450 ) Net cash used in operating activities ( 271,964 ) ( 348,283 ) Cash flows from investing activities: Loans made ( 250,000 ) ( 250,000 ) Net cash used in investing activities ( 250,000 ) ( 250,000 ) Cash flows from financing activities: Proceeds from convertible debt $ 100,000 $ - Proceeds from note payable, current 375,000 250,000 Proceeds from long-term note payable - 395,000 Net cash provided by financing activities 475,000 645,000 Net (decrease) increase in cash ( 46,964 ) 46,717 Cash at the beginning of the year 53,063 6,346 Cash at the end of the year $ 6,099 $ 53,063 Supplemental cash flow information: Cash paid during the year for: Interest $ 1,922 $ 1,248 Supplemental Non-Cash Investing and Financing Activities: Interest added to notes payable and convertible debt $ 215,645 $ 35,138 The accompanying notes are an integral part of these financial statements. F- 5 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 its developed technology, 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. NewStem focused 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 $ 296,000,000 . The accumulated deficit of the Company subsequent to its business focus shift and name change in September 2018 is approximately $ 9,680,000 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 as well as monetization of assets held related to equity method investments. Specifically, the Company is in the final stages of the process of selling NetCo to its joint venture partner in a transaction that satisfies the related debt (litigation funding agreement). 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 the Company will realize any value from the intangible assets or technology of NewStem, which is currently in the process of liquidation due to its inability to raise funds for continued operations (see Note 3). The Company has in place a finance agreement with two individuals who are shareholders and directors under which it borrowed $ 750,000 and an additional finance agreement with a shareholder under which it borrowed $ 300,000 for working capital needs (see Note 4). Additionally, the Company entered into additional finance agreements with unrelated parties in December 2023 and April 2024 under which it borrowed an additional $ 450,000 for working capital needs and to fund NewStem (see Note 4). All funds available pursuant to these agreements have been received. 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 monetizing intangible assets of NewStem. 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. F- 6 NOVELSTEM INTERNATIONAL CORP. Notes to Financial Statements 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. 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 arm’s 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 years ended December 31, 2024 and 2023, the Company recognized a loss on derivative financial instruments of $ 90,000 and $ 260,000 , respectively. 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 years ended December 31, 2024 and 2023. Treasury Stock Shares of common stock repurchased are recorded at cost as treasury stock. F- 7 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. 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. F- 8 NOVELSTEM INTERNATIONAL CORP. Notes to Financial Statements 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 2024 2023 Year Ended December 31, 2024 2023 Net loss available to common shareholders $ ( 3,233,042 ) $ ( 4,187,301 ) 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 $ ( 0.07 ) $ ( 0.09 ) 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, 2024 and 2023. The Company accounts for its investment in NewStem under the equity method. At December 31, 2023, the carrying value of the investment in NewStem exceeded its portion of the underlying net assets of NewStem by approximately $ 1,800,000 . The excess related to identified intangible assets including license agreements, specialized work force (goodwill) and two separate projects of in process research and development (“IPR&D”). NewStem is a development stage company and has incurred losses since its inception and has generated only minimal revenues under a licensing agreement. The Company assesses its investment in NewStem for impairment on an annual basis or more frequently if indicators of impairment exist. During the year ended December 31, 2024 indicators of impairment became evident due to the inability of NewStem to raise funds. Due to the inability to raise funds, NewStem has been unable to continue operations and is in the process of liquidation. The intangible assets of NewStem, including license agreements, have reverted to the licensor, Yissum (the commercial division of Hebrew University). The Company has reached an agreement with Yissum regarding the potential monetization of these intangible assets which provides for funds to be received by the Company in the event of re-licensing or monetizing of the licenses or related technology developed by NewStem. Due to the current uncertainty of the recovery of any value from these intangible assets and the liquidation status of NewStem, the Company has fully impaired the investment in NewStem and reduced the carrying value to zero ($ 0 ) at December 31, 2024, recognizing an impairment loss of $ 1,628,657 during the year ended December 31, 2024. F- 9 NOVELSTEM INTERNATIONAL CORP. Notes to Financial Statements The Company signed an agreement (the “Purchase Agreement”) to acquire the remainder of NewStem in exchange for shares of Company stock as well as funding for NewStem operations. 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 was payable on December 30, 2024. The agreement provided for discharge of the note upon the closing of the anticipated acquisition transaction. The Purchase Agreement was not fully consummated, and no Company shares were issued to NewStem shareholders in exchange for NewStem shares, therefore the note was not discharged. The Company determined that collection of the note was unlikely due to NewStem’s liquidation status and lack of assets. As such, the Company wrote the note off as a bad debt during the year ended December 31, 2024. During the year ended December 31, 2024, the Company recorded a reimbursement due to NewStem of approximately $ 42,000 for audit and accounting related costs which was offset against the note receivable from NewStem. During the year ended December 31, 2023, the Company reimbursed NewStem for audit and audit related costs of approximately $ 58,000 . The following table represents the Company’s investment in NewStem: SCHEDULE OF INVESTMENTS 2024 2023 Year Ended December 31, 2024 2023 Investment in NewStem, beginning $ 1,784,234 $ 2,090,286 Allocation of net loss from NewStem ( 155,577 ) ( 342,191 ) Gain on dilution of equity method investment - 36,139 Investment in NewStem before impairment 1,628,657 1,784,234 Impairment loss recorded ( 1,628,657 ) - Investment in NewStem, ending $ - $ 1,784,234 The results of operations and financial position of the Company’s investment in NewStem are summarized below: SCHEDULE OF OPERATIONS AND FINANCIAL POSITION INVESTMENT 2024 2023 Year Ended December 31, 2024 2023 Condensed income statement information: License fees $ - $ 95,000 Gross margin $ - $ 84,000 Net loss $ ( 510,000 ) $ ( 1,119,000 ) Company’s allocation of net loss from NewStem $ ( 155,577 ) $ ( 155,577 ) 2024 2023 As of December 31, 2024 2023 Condensed balance sheet information: Current assets $ 100,000 $ 353,000 Non-current assets $ 2,000 $ 9,000 Current liabilities $ 548,000 $ 284,000 Non-current liabilities $ - $ - F- 10 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 2024 2023 Year Ended December 31, 2024 2023 Investment in NetCo, beginning $ 133,709 $ 137,011 Allocation of net income (loss) from Netco ( 5,469 ) 3,573 Distribution from NetCo - ( 6,875 ) Investment in NetCo, ending $ 128,240 $ 133,709 The results of operations and financial position of the Company’s investment in NetCo are summarized below: SCHEDULE OF OPERATIONS AND FINANCIAL POSITION INVESTMENT 2024 2023 Year Ended December 31, 2024 2023 Condensed income statement information: Net sales $ 1,479 $ 25,789 Gross margin $ 1,362 $ 19,422 Net income (loss) $ ( 10,938 ) $ 7,146 Company’s allocation of net income from NetCo $ ( 5,469 ) $ 3,573 2024 2023 As of December 31, 2024 2023 Condensed balance sheet information: Current assets $ 1,305 $ 13,473 Non-current assets $ 272,799 $ 272,799 Current liabilities $ 10,748 $ 12,250 Non-current liabilities $ - $ - 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 originally matured on December 21, 2024. The maturity date for both notes has been extended until December 21, 2025 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 $ 30,082 and $ 822 , respectively, for the years ended December 31, 2024 and 2023. F- 11 NOVELSTEM INTERNATIONAL CORP. Notes to Financial Statements Long-term notes payable are summarized as follows: SCHEDULE OF LONG TERM NOTES PAYABLE As of December 31, 2024 2023 Notes payable related parties: Notes payable director and Executive Chairman $ 821,766 $ 400,000 Accrued interest added to note balance 38,392 43,588 Total notes payable director and Executive Chairman 860,158 443,588 Note payable shareholder, principal amount 300,000 275,000 Less unamortized discount ( 60,417 ) ( 213,185 ) Total note payable shareholder 239,583 61,815 Note payable, litigation funding agreement: Note payable Omni Bridgeway (Fund 4) Invt. 3 L.P. 2,819,196 2,819,196 Accrued interest added to agreement balance 140,429 - Total note payable, litigation funding agreement 2,959,625 2,819,196 Total notes payable 4,059,366 3,324,599 Less current portion ( 4,059,366 ) - Long-term notes payable $ - $ 3,324,599 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 note agreements were refinanced in August 2024 providing for total borrowings of $ 750,000 . The agreements provide for interest at a rate of 10 % per annum and mature December 31, 2025 . As of the date of financial statements, the full amount of $ 750,000 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 $ 650,000 and $ 535,000 at December 31, 2024 and 2023, respectively, 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 $ 66,570 and $ 61,815 , respectively, has been reflected as part of interest expense in the statement of operations for year ended December 31, 2024 and 2023. F- 12 NOVELSTEM INTERNATIONAL CORP. Notes to Financial Statements 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 July 2023, the arbitration was settled. As a result of the ruling disclosed in Note 7, the liability became probable and reasonably estimable, and the Company 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 is payable on January 10, 2025 . The Company accrued interest related to the Agreement of $ 140,428 during the year ended December 31, 2024. Convertible Debt In April 2024, the Company borrowed $ 100,000 from unrelated parties pursuant to convertible debt agreements accounted for as debt. These agreements bear interest at 10 % per annum and mature December 30, 2025 . The unpaid principal balance of these notes and any accrued interest may be converted into shares of the Company’s common stock at a conversion price of $ 0.13 per share. Interest accrued related to these agreements was $ 8,646 during the year ended December 31, 2024. NOTE 5— EQUITY (a) General At December 31, 2024 and 2023 the Company had issued 50,316,672 shares and had issued 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, $ 0.01 par value, in treasury at December 31, 2024 and 2023. 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 6,360,000 options have been issued to directors and investor relations professionals. F- 13 NOVELSTEM INTERNATIONAL CORP. Notes to Financial Statements 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, 2024 2023 Risk-free interest rate 4.3 % 3.4 % Expected term, in years 5.09 4.98 Expected volatility 116.9 % 118.3 % Expected dividend yield 0 % 0 % Determined weighted average grant date fair value per option $ 0.06 $ 0.17 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. (c) Summary Option Information A summary of the Company’s option plans as of December 31, 2024 and 2023, as well as changes during each of the years then ended, is presented below: SCHEDULE OF STOCK OPTION ACTIVITIES Year Ended December 31, 2024 2023 Number Weighted Number Weighted of Average of Average Options Exercise Options Exercise (in shares) Price (in shares) Price Outstanding at beginning of year 5,760,000 0.14 5,400,000 0.14 Granted 600,000 0.06 360,000 0.20 Outstanding at end of year 6,360,000 0.13 5,760,000 0.14 Exercisable at end of year 5,760,000 0.14 5,400,000 0.14 Stock-based compensation expense was approximately $ 40,000 and $ 303,000 in the years ending December 31, 2024 and 2023, respectively. The total compensation cost related to non-vested awards not yet recognized was approximately $ 9,000 and $ 13,000 , respectively, as of December 31, 2024 and 2023. F- 14 NOVELSTEM INTERNATIONAL CORP. Notes to Financial Statements (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, 2024 2023 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, 2024 have a weighted average remaining contractual life of approximately one 1.5 half year. 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, 2024. NOTE 6— INCOME TAXES For the years ended December 31, 2024 and 2023, 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, 2024 and 2023, the Company had approximately $ 48,000,000 and $ 54,000,000 , respectively of net operating losses subject to IRC Section 382 limitations, of which $ 10,600,000 and $ 9,600,000 , 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 federal and state net operating losses began expiring in 2021. Approximately $ 5,000,000 and $ 300,000 , respectively of federal and state losses expired in December 2024, and approximately $ 8,000,000 and $ 4,000,000 , respectively, of federal and state losses expired in December 2023. The Company has approximately $ 6,063,000 in federal and state losses that do not expire. The remaining losses expire from 2025 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 2024 2023 Year Ended December 31, 2024 2023 Computed tax at the federal statutory rate of 21 % $ ( 645,119 ) $ ( 815,813 ) State income taxes, net of federal income tax benefit ( 133,478 ) ( 168,796 ) Foreign rate differential ( 24,892 ) ( 48,968 ) Change in federal valuation allowance 803,489 1,033,577 Total provision for income tax $ - $ - F- 15 NOVELSTEM INTERNATIONAL CORP. Notes to Financial Statements 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, 2024 and 2023 consist of the following: SCHEDULE OF DEFERRED TAX ASSETS 2024 2023 As of December 31, 2024 2023 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 2,801,830 2,540,308 General business credit 41,552 41,551 Related party interest and accretion of note discount 71,666 25,691 Loss on derivative instrument 92,750 68,900 Stock compensation 262,560 254,275 Total deferred tax assets $ 4,970,358 $ 4,630,725 Federal and state net operating loss carryforwards subject to IRC Section 382 limitations 13,644,005 13,644,005 Less valuation allowance for net operating loss limitations ( 13,644,005 ) ( 13,644,005 ) Valuation allowance ( 4,968,553 ) ( 4,130,103 ) Subtotal deferred tax assets 1,805 500,622 Deferred tax liability, equity method basis difference ( 1,805 ) ( 500,622 ) Net deferred tax assets $ - $ - Management has evaluated all tax positions that could have a significant effect on the combined financial statements and determined the Company had no significant uncertain income tax positions at December 31, 2024 and 2023. 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 $ 2,799,196 , 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. In February 2025, the Company reached an agreement with C.P. Group, Inc. (“CP”), our NetCo joint venture partner, and Omni Bridgeway (‘Omni”), the holder of the litigation funding agreement, to sell our interest in NetCo to CP for $ 1,300,000 in a transaction where the sales proceeds would be provided to Omni in exchange for a full release of our liability to Omni. A Settlement Agreement and Release has been prepared and approved by all parties, however is still in the process of being circulated and reviewed for final execution as of the date of these financial statements. F- 16 (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 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 7, 2025. 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 7, 2025 Jan H. Loeb /s/ Christine Jenkins Vice President and Chief Financial Officer April 7, 2025 Christine Jenkins /s/ Mitchell Rubenstein Director April 7, 2025 Mitchell Rubenstein /s/ Eric Richman Director April 7, 2025 Eric Richman /s/ David Seltzer Director April 7, 2025 David Seltzer /s/ Jerry Wolasky Director April 7, 2025 Jerry Wolasky /s/ Tracy Clifford Director April 7, 2025 Tracy Clifford 30