Equibles

10-Q

NovelStem International Corp. (NSTM)

10-Q 2022-11-14 For: 2022-09-30
View Original
Added on April 06, 2026

UNITED

STATES

SECURITIES

AND EXCHANGE COMMISSION

Washington,

D.C. 20549

FORM

10-Q

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES

EXCHANGE ACT OF 1934

Forthe quarterly period ended ### September 30, 2022

☐

TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For

the transition period from _________________ to _________________

Commission

file number: 000-22908

NOVELSTEM INTERNATIONAL CORP.

(Exact name of registrant as specified in its charter)

Florida 65-0385686
(State<br> or other jurisdiction<br><br> <br>of<br> incorporation or organization) (I.R.S.<br> Employer<br><br> <br>Identification<br> No.)
2255<br> Glades Road, Suite 221A, Boca Raton, FL 33431
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(Address<br> of principal executive offices) (Zip<br> Code)
Registrant’s<br> telephone number, including area code (410)<br> 654-3315
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Securities registered pursuant to Section 12(b) of the Act:

Title<br> of each class Trading<br> Symbol(s) Name<br> of each exchange on which registered
None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐ No ☒

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filed, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large<br> accelerated filer ☐ Accelerated<br> filer ☐
Non-accelerated<br> filer  ☒ Smaller<br> reporting company  ☒
Emerging<br> growth company  ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class Outstanding<br> at November 14, 2022
Common<br> Stock, $0.01 par value per share 46,881,475

NOVELSTEM

INTERNATIONAL CORP.

Quarterly

Report on Form 10-Q

for

the Quarterly Period Ended September 30, 2022

TABLE

OF CONTENTS

PAGE
Part I Financial Information
Item 1. Unaudited Condensed Financial Statements:
Condensed Balance Sheets as of September 30, 2022 and December 31, 2021 3
Condensed Statements of Operations for the three and nine months ended September 30, 2022 and 2021 4
Condensed Statements of Changes in Shareholders’ Equity for the three and nine months ended September 30, 2022 and 2021 5
Condensed Statements of Cash Flows for the nine months ended September 30, 2022 and 2021 6
Notes to Condensed Financial Statements 7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 15
Item 3. Quantitative and Qualitative Disclosures About Market Risk 17
Item 4. Controls and Procedures 17
Part II Other Information
Item 1. Legal Proceedings 17
Item 6. Exhibits 17
Signatures 18 
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PART

I

ITEM 1. UNAUDITED CONDENSED FINANCIAL STATEMENTS

NOVELSTEM

INTERNATIONAL CORP. CONDENSED BALANCE SHEETS

2021
December<br> 31,
2021
ASSETS
Current assets:
Cash 16,892 $ 8,666
Prepaid<br> expenses 48,940 28,316
Total current assets 65,832 36,982
Investment in Netco Partners 137,011 137,011
Investment<br> in NewStem Ltd 1,828,419 2,435,155
Total<br> assets 2,031,262 $ 2,609,148
LIABILITIES AND SHAREHOLDERS’<br> EQUITY
Current liabilities:
Accounts payable 61,460 $ 49,777
Note payable - 100,000
Accrued expenses 64,172 43,425
Total current liabilities 125,632 193,202
Long-term<br> note payable, including accrued interest 168,209 -
Total<br> liabilities 293,841 193,202
Commitments and contingencies<br> (see Note 7) -
Shareholders’ equity:
Common stock, .01 par value, 100,000,000 shares authorized, 50,316,672 shares issued, and 46,881,475 shares outstanding as of<br> September 30, 2022 and December 31, 2021 468,815 468,815
Additional paid-in capital 290,520,159 290,321,665
Accumulated deficit (289,051,799 ) (288,174,780 )
Treasury stock, at cost, 3,435,197 shares as of September 30, 2022 and December 31, 2021 (199,754 ) (199,754 )
Total shareholders’ equity 1,737,421 2,415,946
Total<br> liabilities and shareholders’ equity 2,031,262 $ 2,609,148

All values are in US Dollars.

The

accompanying notes are an integral part of these condensed financial statements.

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NOVELSTEM

INTERNATIONAL CORP.

CONDENSED

STATEMENTS OF OPERATIONS

(UNAUDITED)

2022 2021 2022 2021
Nine<br> Months Ended Three<br> Months Ended
September<br> 30, September<br> 30,
2022 2021 2022 2021
Operating expenses:
General and administrative expenses $ 376,247 $ 136,047 $ 131,060 $ 60,133
Contra expenses - legal fees and administrative costs (Note 8) (310,000 ) - - -
Stock compensation expense 198,494 229,891 75,150 73,045
Total<br> operating expenses 264,741 365,938 206,210 133,178
Loss from operations (264,741 ) (365,938 ) (206,210 ) (133,178 )
Interest<br> expense 5,542 4,417 3,530 2,205
Loss before income taxes (270,283 ) (370,355 ) (209,740 ) (135,383 )
Provision<br> for income tax - - - -
Loss before equity in net loss of equity method investees (270,283 ) (370,355 ) (209,740 ) (135,383 )
Equity<br> in net loss of equity method investees (606,736 ) (365,543 ) (85,532 ) (196,333 )
Net loss $ (877,019 ) $ (735,898 ) $ (295,272 ) $ (331,716 )
Basic and diluted net loss<br> per share:
Net loss per share - basic and diluted $ (0.02 ) $ (0.02 ) $ (0.01 ) $ (0.01 )
Weighted average number<br> of shares outstanding – basic and diluted 46,881,475 43,881,477 46,881,475 43,881,477

The

accompanying notes are an integral part of these unaudited condensed financial statements.

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NOVELSTEM

INTERNATIONAL CORP.

CONDENSED

STATEMENTS OF SHAREHOLDERS’ EQUITY

(UNAUDITED)

Forthe Three and Nine Months Ended September 30, 2022:

Shares Stock Capital Deficit Shares Stock Equity
Additional Number<br> of Total
Number<br> of Common Paid-In Accumulated Treasury Treasury Shareholders’
Shares Stock Capital Deficit Shares Stock Equity
Balance, January 1, 2022 46,881,475 $ 468,815 $ 290,321,665 $ (288,174,780 ) 3,435,197 $ (199,754 ) $ 2,415,946
Net loss - - - (217,464 ) - - (217,464 )
Stock<br> option compensation - - 49,011 - - - 49,011
Balance, March 31, 2022 46,881,475 $ 468,815 $ 290,370,676 $ (288,392,244 ) 3,435,197 $ (199,754 ) $ 2,247,493
Net loss - - - (364,283 ) - - (364,283 )
Stock<br> option compensation - - 74,333 - - - 74,333
Balance, June 30, 2022 46,881,475 $ 468,815 $ 290,445,009 $ (288,756,527 ) 3,435,197 $ (199,754 ) $ 1,957,543
Net loss - - - (295,272 ) - - (295,272 )
Stock<br> option compensation - - 75,150 - - - 75,150
Balance, September 30,<br> 2022 46,881,475 $ 468,815 $ 290,520,159 $ (289,051,799 ) 3,435,197 $ (199,754 ) $ 1,737,421

Forthe Three and Nine Months Ended September 30, 2021:

Additional Number<br> of Total
Number<br> of Common Paid-In Accumulated Treasury Treasury Shareholders’
Shares Stock Capital Deficit Shares Stock Equity
Balance, January 1, 2021 43,881,477 $ 438,815 $ 290,078,899 $ (286,829,152 ) 3,435,197 $ (199,754 ) $ 3,488,808
Net loss - - - (212,593 ) - - (212,593 )
Stock<br> option compensation - - 83,400 - - - 83,400
Balance March 31, 2021 43,881,477 438,815 290,162,299 (287,041,745 ) 3,435,197 (199,754 ) 3,359,615
Net loss - - - (191,588 ) - - (191,588 )
Stock<br> option compensation - - 73,446 - - - 73,446
Balance, June 30, 2021 43,881,477 438,815 290,235,745 (287,233,333 ) 3,435,197 (199,754 ) 3,241,473
Beginning balance, value 43,881,477 438,815 290,235,745 (287,233,333 ) 3,435,197 (199,754 ) 3,241,473
Net loss - - - (331,716 ) - - (331,716 )
Net income (loss) - - - (331,716 ) - - (331,716 )
Stock<br> option compensation - - 73,045 - - - 73,045
Balance, September 30,<br> 2021 43,881,477 $ 438,815 $ 290,308,790 $ (287,565,049 ) 3,435,197 $ (199,754 ) $ 2,982,802
Ending balance, value 43,881,477 $ 438,815 $ 290,308,790 $ (287,565,049 ) 3,435,197 $ (199,754 ) $ 2,982,802

The

accompanying notes are an integral part of these condensed financial statements.

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NOVELSTEM

INTERNATIONAL CORP.

CONDENSED

STATEMENTS OF CASH FLOWS

(UNAUDITED)

2022 2021
Nine<br> Months Ended
September<br> 30,
2022 2021
Cash flows from operating<br> activities:
Net loss $ (877,019 ) $ (735,898 )
Equity in loss of equity method investees 606,736 365,543
Distribution from NetCo Partners - 9,290
Stock-based compensation 198,494 229,891
Change in operating assets and liabilities:
Current assets and other assets (20,624 ) 2,547
Accounts payable and accrued expenses 35,639 1,655
Net cash<br> from operating activities (56,774 ) (126,972 )
Cash flows from financing<br> activities:
Proceeds from (repayment of) short-term note payable $ (100,000 ) $ 100,000
Proceeds<br> from long-term notes payable 165,000 -
Net cash from financing activities 65,000 100,000
Net change in cash 8,226 (26,972 )
Cash<br> at the beginning of the period 8,666 89,594
Cash<br> at the end of the period $ 16,892 $ 62,622
Supplemental cash flow information:
Cash paid during the period<br> for:
Interest $ 8,085 $ 4,417

The

accompanying notes are an integral part of these condensed financial statements.

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NOVELSTEM

INTERNATIONAL CORP.

NOTES

TO CONDENSED FINANCIAL STATEMENTS

(Unaudited)

NOTE

1—NATURE OF OPERATIONS

Description of Business

NovelStem

International Corp. (“NovelStem” or the “Company”) is a holding company whose principal assets are a 30.99% equity interest in NewStem Ltd, an Israeli biotech company (“NewStem”), and a 50% equity interest in NetCo Partners (“NetCo”). NovelStem was formerly known as Hollywood Media Corp. The Company was incorporated in the State of Florida on January 22, 1993 and changed its name to NovelStem International Corp. in September 2018 as a result of its business focus shift from a media business to biotech.

NewStem focuses on the development and commercialization of diagnostic technology that can predict patients’ anti-cancer drug resistance, allowing for targeted cancer treatments and the potential to reduce resistance to chemotherapy. NewStem is collaborating with life sciences companies for the development of drugs and reagents. NetCo is a legacy media business interest which owns “Net Force”, a book publishing franchise.

Liquidity and Management’s Plans

Since

inception, the Company has accumulated a deficit of approximately $289,000,000. The accumulated deficit of the Company subsequent to its business focus shift and name change in September 2018 is approximately $2,390,000 which is comprised primarily of allocated losses from equity method investments and general and administrative costs incurred by the Company.

The Company will need to obtain additional funds to continue its operations. Management’s plans with regard to these matters include additional financing and fundraising until its equity investment in NewStem is profitable. Although management continues to pursue these plans, there is no assurance that the Company will be successful in obtaining sufficient cash from financing on terms acceptable to the Company, or that NewStem will become profitable.

The

Company entered into a financing agreement with related parties to borrow up to $600,000 for working capital needs (see Note 4). Following this financing, the Company believes that its cash resources are sufficient for the operations of the next twelve months.

NOTE

2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basisof Presentation

The condensed 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.

The accompanying unaudited condensed financial statements included in this report have been prepared by the Company pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) for interim reporting and include all adjustments (consisting only of normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation. These condensed financial statements have not been audited. The results of operations for the nine-month periods ended September 30, 2022 and 2021 are not necessarily indicative of the operating results for the full year.

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Certain information and footnote disclosures normally included in condensed financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations for interim reporting. The Company believes that the disclosures contained herein are adequate to make the information presented not misleading. These condensed financial statements should be read in conjunction with the Company’s Form 10 filed with the Securities and Exchange Commission on August 2, 2022 for the years ended December 31, 2021 and 2020.

EquityInvestments

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 investee company” 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.

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% partner in NetCo (which is accounted for pursuant to the equity method of accounting. See Note 3.

Basicand Diluted Net Loss Per Share

Basic net loss per share is computed by dividing the net loss by the weighted average number of shares outstanding during the period, excluding treasury stock. Diluted net income (loss) per share is computed by dividing the net income (loss) 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 (loss) per share if the effect of doing so would be antidilutive.

The following data represents the amounts used in computing earnings per share and the effect on net income (loss) and the weighted average number of shares of dilutive potential common stock (unaudited):

SCHEDULE OF WEIGHTED AVERAGE NUMBER OF SHARES OF DILUTIVE

2022 2021 2022 2021
Nine<br> Months Ended<br><br> <br>September<br> 30, Three<br> Months Ended<br><br> <br>September<br> 30,
2022 2021 2022 2021
Net loss available<br> to common shareholders $ (877,019 ) $ (735,898 ) $ (295,272 ) $ (331,716 )
Weighted average shares outstanding:
-Basic 46,881,475 43,881,477 46,881,475 43,881,477
Add: Warrants - - - -
Add:<br> Stock options - - - -
-Diluted 46,881,475 43,881,477 46,881,475 43,881,477
Basic and diluted net loss<br> per share $ (0.02 ) $ (0.02 ) $ (0.01 ) $ (0.01 ) 
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NOTE

3—EQUITY METHOD INVESTMENTS

Investmentin 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 31.51% as of September 30, 2021. The Company’s ownership interest is 30.99% as of September 30, 2022 as a result of the issuance of additional NewStem shares to new investors.

The

Company accounts for its investment in NewStem under the equity method. At September 30, 2022 and December 31, 2021, the carrying value of the investment in NewStem exceeded the underlying net assets of NewStem by $1,828,419 and $2,435,155, respectively. The excess relates to identified intangible assets including license agreements, specialized work force (goodwill) and two separate projects of in process research and development (“IPR&D”) related to stem cell-based diagnostics and therapeutics for cancer chemotherapies.

The Company assesses its investment in NewStem for impairment on an annual basis.

NewStem

is in the development stage and has incurred losses since its inception and has yet to generate any revenues. NewStem will need to obtain additional funds to continue its operations. NewStem management’s plans with regard to these matters include continued development, marketing and licensing of its products, as well as seeking additional financing arrangements. Although management continues to pursue these plans, there is no assurance that the Company will be successful in obtaining sufficient cash from sales of products or financing on terms acceptable to the Company. NewStem entered into a share purchase agreement with two investors for the purchase of 2,647 ordinary shares for total consideration of $800,000. Based on NewStem’s agreement with one of its other shareholders, NewStem is entitled to a matching investment (“the matching investment”) which will bring the total funding to $1,600,000. As of September 30, 2022, the matching investment has not yet been received.

The following table represents the Company’s investment in NewStem:

SCHEDULE OF INVESTMENTS

Nine Months Ended<br><br> <br>September 30, 2022 Year Ended<br><br> <br>December 31, 2021
(Unaudited)
Investment in<br> NewStem, beginning $ 2,435,155 $ 3,299,713
Allocation<br> of net loss from NewStem (606,736 ) (864,558 )
Investment<br> in NewStem, ending $ 1,828,419 $ 2,435,155 
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The results of operations of the Company’s investment in NewStem is summarized below (unaudited):

SCHEDULE

OF OPERATIONS AND FINANCIAL POSITION INVESTMENT

2022 2021 2022 2021
Nine<br> Months Ended<br><br> <br>September<br> 30, Three<br> Months Ended<br><br> <br>September<br> 30,
2022 2021 2022 2021
Condensed income statement<br> information:
Net<br> sales $ - $ - $ - $ -
Gross<br> margin $ - $ - $ - $ -
Net<br> loss $ (1,935,000 ) $ (1,132,000 ) $ (276,000 ) $ (589,000 )
Company’s allocation<br> of net loss from<br>NewStem $ (606,736 ) $ (374,833 ) $ (85,532 ) $ (196,333 )

The financial position of the Company’s investment in NewStem is summarized below:

September<br> 30, 2022 December<br> 31, 2021
As<br> of
September<br> 30, 2022 December<br> 31, 2021
(Unaudited)
Condensed balance sheet information:
Current<br> assets $ 573,000 $ 1,425,000
Non-current<br> assets $ 27,000 $ 41,000
Current<br> liabilities $ 104,000 $ 227,000
Non-current<br> liabilities $ 112,000 $ 134,000

Investmentin 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 from this arrangement. The Company assesses its investment in NetCo for impairment on an annual basis.

The following table represents the Company’s investment in NetCo:

SCHEDULE OF INVESTMENTS

Nine Months Ended<br><br> <br>September 30, 2022 Year Ended<br><br> <br>December 31, 2021
(Unaudited)
Investment in<br> NetCo, beginning $ 137,011 $ 137,011
Allocation of net income from<br> Netco - 21,290
Distribution<br> from NetCo - (21,290 )
Investment<br> in NetCo, ending $ 137,011 $ 137,011 
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The results of operations of the Company’s investment in NetCo is summarized below (unaudited):

SCHEDULE

OF OPERATIONS AND FINANCIAL POSITION INVESTMENT

2022 2021 2022 2021
Nine<br> Months Ended<br><br> <br>September<br> 30, Three<br> Months Ended<br><br> <br>September<br> 30,
2022 2021 2022 2021
Condensed income statement<br> information:
Net<br> sales $ - $ 18,580 $ - $ -
Gross<br> margin $ - $ - $ - $ -
Net<br> income $ - $ 18,580 $ - $ -
Company’s allocation<br> of net income from<br> NetCo $ - $ 9,290 $ - $ -

The financial position of the Company’s investment in NetCo is summarized below:

September<br> 30, 2022 December<br> 31, 2021
As<br> of
September<br> 30, 2022 December<br> 31, 2021
(Unaudited)
Condensed balance sheet information:
Current<br> assets $ 1,223 $ 13,475
Non-current<br> assets $ 272,799 $ 272,799
Current<br> liabilities $ - $ 12,252
Non-current<br> liabilities $ - $ -

NOTE

4—NOTES PAYABLE RELATED PARTIES

On April 12, 2021, the Company entered into a promissory note (the “Note”) with a related party (individual) for $100,000. The Note accrued interest at 8% per annum and matured on April 12, 2022. The proceeds of this Note were used to pay operating expenses of the Company. Interest expense related to this Note was $1,198 for the nine months ended September 30, 2022. The Note and accrued interest of $6,752 were paid in full on February 16, 2022.

In

May 2022, the Company entered into long-term notes payable in the form of finance agreements with two individuals who are related parties, which were amended in July 2022, to borrow up to $600,000 for working capital needs. One of the individuals is a director and shareholder, the other is our Executive Chairman who is also a shareholder. These agreements provide for funding through January 31, 2024, provide for interest at a rate of 8% per annum and mature the earlier of January 31, 2024

or twenty months from the date of the

first funded amount (May 2022) unless the shareholders agree to extend the due date at that time. The balance outstanding on these notes was $165,000

as

of September 30, 2022. Related interest accrued and payable at maturity is $3,209 at September 30, 2022.

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NOTE

5—EQUITY

(a) General

At

September 30, 2022 and December 31, 2021, the Company had issued and outstanding 46,881,475 shares of its common stock, par value $0.01 per share. Holders of outstanding common stock are entitled to receive dividends when, as 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 plan provides 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 the Company’s board of directors approved on November 12, 2018, an aggregate of 5,400,000 options have been issued to directors and investor relations professionals.

The Company utilized the Black-Scholes option-pricing model to estimate fair value, utilizing the following assumptions for the respective periods (all in weighted averages):

SCHEDULE OF FAIR VALUE OF OPTION USING VALUATION ASSUMPTIONS

Nine<br> Months Ended<br><br> <br>September<br> 30,
2022 2021
Risk-free interest<br> rate 1.5 % 1.6 %
Expected term of options,<br> in years 3.9 6
Expected annual volatility 185.8 % 140.2 %
Expected dividend yield 0 % 0 %
Determined weighted average grant date fair value per<br> option $ 0.27 $ -

The expected term of the options represents an estimate of the length of time until the expected date of exercising the options. Options granted have a maximum life of 6 years. With respect to determining expected exercise behavior, the Company has grouped its option grants into certain groups to track exercise behavior and establish historical rates. The Company estimated volatility by considering historical stock volatility over the expected term of the option. 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 dividends in the near future.

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(c) Summary Option Information

A summary of the Company’s option plans for the nine months ended September 30, 2022, is presented below (unaudited):

SCHEDULE OF STOCK OPTION ACTIVITIES

Number Weighted
of Average
Options Exercise
(in<br> shares) Price
Outstanding, December 31, 2021 4,300,000 $ 0.10
Granted 1,100,000 0.29
Outstanding, September 30, 2022 5,400,000 $ 0.14
Exercisable, September 30, 2022 4,300,000 $ 0.14

Stock-based

compensation expense was approximately $198,000 and $75,000 in the nine months and three months ended September 30, 2022, respectively. Stock-based compensation expense was approximately $230,000 and $73,000 for the nine months and three months ended September 30, 2021, respectively.

The

total compensation cost related to non-vested awards not yet recognized was approximately $100,000

as of September 30, 2022. As of September 30,

2022, 1,100,000 options were unvested. These options vest one year from their grant date which is January 2023.

(d) Warrants

The Company has issued warrants at exercise prices equal to or greater than the market value of the Company’s common stock at the date of issuance. A summary of warrant activity follows (unaudited):

SUMMARY

OF WARRANTS ACTIVITY

Number of Weighted
shares Average
underlying Exercise
warrants Price
Outstanding, December 31, 2021 3,000,000 $ 0.12
Granted - -
Exercised - -
Forfeited<br> or expired - -
Outstanding, September 30, 2022 3,000,000 $ 0.12

The warrants outstanding at September 30, 2022 have a weighted average remaining contractual life of approximately nine months.

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NOTE

6—INCOME TAXES

The Company’s income tax provision differs from the expense that would result from applying statutory rates to income (loss) 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 (unaudited):

SCHEDULE

OF INCOME BEFORE INCOME TAX

Nine<br> Months Ended<br><br> <br>September<br> 30,
2022 2021
Computed tax at<br> the federal statutory rate of 21% $ (184,174 ) $ (176,854 )
State income taxes, net of<br> federal income tax benefit (38,106 ) (36,591 )
Change<br> in federal valuation allowance 222,280 213,445
Total<br>provision for income tax $ - $ -
Three<br> Months Ended<br><br> <br>September<br> 30,
--- --- --- --- --- --- ---
2022 2021
Computed tax at<br> the federal statutory rate of 21% $ (62,007 ) $ (69,660 )
State income taxes, net of<br> federal income tax benefit (12,829 ) (14,413 )
Change<br> in federal valuation allowance 74,836 84,073
Total<br>provision for income tax $ - $ -

NOTE

7—COMMITMENTS AND CONTINGENCIES

The Company is 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. During the proceedings the arbitrator put the arbitration on hold and asked the parties to try and negotiate a settlement. Arbitration proceedings were concluded in October 2022 and legal counsel for both parties are in the process of filing final briefs which are due to the arbitrator in January 2023. It is unknown as to how long the arbitrator will take to render his decision.

NOTE

8—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 ongoing 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. During the nine months ended September 30, 2022, the Company received $310,000 pursuant to this agreement for the reimbursement of legal costs and working capital expenditures, including previously incurred general and administrative costs.

NOTE

9—SUBSEQUENT EVENTS

As

disclosed in Note 4, the Company has in place notes payable with related parties. The Company received total advances of $35,000 related to these agreements in October 2022, subsequent to the date of these financial statements. To date, the Company has received advances of $200,000 pursuant to these agreements.

In November 2022, these notes payable were amended to increase the interest rate to 10% per annum on all future advances.

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NOVELSTEM

INTERNATIONAL CORP.

ITEM2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Statements in the following discussion and throughout this Form 10-Q that are not historical in nature are “forward-looking statements.” You can identify forward-looking statements by the use of words such as “expect,” “anticipate,” “estimate,” “may,” “will,” “should,” “intend,” “believe,” and similar expressions. Although we believe the expectations reflected in these forward-looking statements are reasonable, such statements are inherently subject to risk and we can give no assurances that our expectations will prove to be correct. Actual results could differ from those described in this Form 10-Q because of numerous factors, many of which are beyond our control. We undertake no obligation to update these forward-looking statements to reflect events or circumstances after the date of this Form 10-Q or to reflect actual outcomes.

Overview

We are a development stage company and reported net losses of $877,000 and $736,000 for the nine months ended September 30, 2022 and 2021, respectively, and $295,000 and $332,000 for the three months ended September 30, 2022 and 2021, respectively. We had current assets of $66,000 and current liabilities of $126,00 as of September 30, 2022. As of December 31, 2021, our current assets and current liabilities were $37,000 and $193,000, respectively. We have prepared our financial statements for the three and nine months ended September 30, 2022 assuming that we will continue as a going concern. Our continuation as a going concern is dependent upon improving our profitability and the continuing financial support from our shareholders as well as NewStem’s ability to successfully develop and commercialize its products. Our sources of capital in the past have included the sale of equity securities, which include common stock sold in private transactions, large alternative minimum tax refunds, and short-term debt.

NewStem is a development stage Israeli biotech limited liability company focused on pioneering intellectual property related to haploid human embryonic stem cells for the development of personalized diagnostics and therapeutics for genetic and epigenetic diseases. NewStem has incurred losses related to in process research and development since inception and the Company records our percentage allocation of these net losses as incurred. We have included the condensed financial statements of NewStem as an exhibit to this Form 10-Q.

RESULTS

OF OPERATIONS

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 Form 10-Q. In the discussion below, general and administrative expenses are referred to as “G&A expenses”.

Nine Months Ended<br><br> <br>September 30 Three Months Ended<br><br> <br>September 30
2022 2021 Change 2022 2021 Change
Operating expenses:
G&A expenses $ 376,247 $ 138,252 $ 237,995 $ 131,060 $ 60,133 $ 70,927
Contra expenses - legal fees (310,000 ) - (310,000 ) - - -
Stock compensation expense 198,494 229,891 (31,397 ) 75,150 73,045 2,105
Total<br> operating expenses 264,741 368,143 (103,402 ) 206,210 133,178 73,032
Loss from operations (264,741 ) (368,143 ) (103,402 ) (206,210 ) (133,178 ) 73,032
Interest<br> expense 5,542 2,212 3,330 3,530 2,205 1,325
Net loss before equity in net
loss of equity method investees (270,283 ) (370,355 ) 100,072 (209,740 ) (135,383 ) (74,357 )
Equity<br> in net loss of equity method investees (606,736 ) (365,543 ) (241,193 ) (85,532 ) (196,333 ) 110,801
Net loss $ (877,019 ) $ (735,898 ) $ (141,121 ) $ (295,272 ) $ (331,716 ) $ 36,444

We are a holding company whose primary assets are our ownership of equity interests in NewStem and NetCo. We conduct no other business and as a result, we have no revenue or cost of revenue.

The Company incurs G&A expenses primarily related to professional fees and insurance. We incurred G&A expenses of $376,000 and $138,000 for the nine months ended September 30, 2022 and 2021, respectively, and $131,000 and $60,000 for the three months ended September 30, 2022 and 2021, respectively. Specifically, professional fees increased by $199,000 in the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021 and $57,000 in the three months ended September 30, 2022 as compared to the three months ended September 30, 2021. Insurance costs increased by $34,000 in the nine months ended September 30, 2022 as compared to the same period in 2021 and $12,000 in the three months ended September 30, 2022 as compared to the three months ended September 30, 2021. Our increase in G&A expenses relates primarily to professional fees incurred in the audit of our financial statements for the years ended December 31, 2021 and 2020 and, in the preparation, and filing of our Form 10 registration statement.

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Stock compensation expense decreased by $31,000 in the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021 due to a smaller number of options awarded in the current period as compared to the prior period.

During the nine months ended September 30, 2022 we recorded a contra expense of $310,000 which is comprised of funds from a litigation funding agreement. This agreement was signed during the first quarter of 2022 with Omni Bridgeway to fund our arbitration against our 50% joint venture partner, C.P. Group. This is a nonrecourse agreement and the Company has no obligation to repay any funds received under the agreement. In the event of a favorable outcome, Omni Bridgeway would recover disbursed funding as part of their investment return.

As part of that funding arrangement, Omni Bridgeway agreed to reimburse NovelStem $310,000 which was comprised of $140,000 for reimbursement of previously incurred legal expenses and $170,000 for working capital needs including previously incurred general and administrative costs. There was no contra expense in the nine months ended September 30, 2021.

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 in all periods presented. The net losses reported for the three and nine months ended September 30, 2022 were fully comprised of net losses from NewStem. The net losses reported for the nine months ended September 30, 2021 included net income of $9,000 from NetCo which was offset by net loss of $375,000 from NewStem.

Liquidityand Capital Resources

We have never paid dividends on our common stock. Our present policy is to apply cash to investments in product development at NewStem, acquisitions or expansion; consequently, we do not expect to pay dividends on common stock in the foreseeable future.

We expect to continue to incur greater expenses in the near future as we expand our business or enter into strategic partnerships. We also expect our G&A expenses to increase as we expand our finance and administrative staff, add infrastructure, and incur additional costs related to being a reporting act company, including directors’ and officers’ insurance and increased professional fees.

The Company will need to obtain additional funds to continue its operations. Management’s plans with regard to these matters include additional financing and fundraising until its equity investment in NewStem is profitable. Although management continues to pursue these plans, there is no assurance that the Company will be successful in obtaining sufficient cash from financing on terms acceptable to the Company, or that NewStem will become profitable.

In May 2022, the Company entered into an agreement with Jan Loeb, our Executive Chairman and Jerry Wolasky, a member of the Board, which was amended in July 2022, to borrow up to an aggregate of $600,000 for working capital needs. This agreement provides for funding through January 31, 2024, provides for interest at a rate of 8% per annum, increased to 10% per annum for advances subsequent to November 11, 2022, and matures the earlier of January 31, 2024 or twenty months from the date of the first funded amount unless the lenders agree to extend the due date at that time. As of the date of this Form 10-Q, the Company has drawn down $200,000 under the aforementioned agreement.

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---
--- ---

This section is not applicable.

ITEM4. 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 September 30, 2022 and we concluded there was a material weakness in the design of our internal control over financial reporting.

A material weakness is defined as a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

The material weaknesses identified included insufficient resources to employ proper segregation of duties over the processing of transactions and financial reporting.

Changesin 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.

PART

II

ITEM1. LEGAL PROCEEDINGS

Netco owns all rights in all media to the NetForce intellectual property including film, television, and video games. Consistent with our contractual and statutory rights, NovelStem is intent on commercially exploiting the full array of media rights relating to Net Force. We have initiated an arbitration proceeding against our 50% partner in Netco, C.P. Group, in an effort to maximize the total potential value to be derived from fully utilizing the Netco intellectual property across video games, streaming, entertainment, digital media, merchandising and other ancillary markets. Arbitration proceedings for the joint owners of NetCo began in July 2022. To fund efforts to maximize the value of Netco, NovelStem has secured non-recourse litigation funding.

Arbitration hearings were held at the end of July 2022. During the proceedings the arbitrator put the arbitration on hold and asked the parties to try and negotiate a settlement. Arbitration proceedings were concluded in October 2022 and legal counsel for both parties are in the process of filing final briefs which are due to the arbitrator in January 2023. It is unknown as to how long the arbitrator will take to render his decision.

ITEM6. EXHIBITS
#31.1 Certification of Principal Executive Officer and Executive Chairman pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
#31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
#32.1 Certification of Principal Executive Officer and Executive Chairman pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
#32.2 Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
#33.1 Condensed Financial Statements of NewStem Ltd. as of and for the nine months ended September 30, 2022

#101.1 The following financial statements from NovelStem International Corp.’s Form 10-Q for the quarter ended September 30, 2022, filed on November 14, 2022, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Balance Sheets, (ii) Condensed Statements of Operations, (iii) Condensed Statements of Changes in Shareholders’ Equity, (iv) Condensed Statements of Cash Flows and (v) Notes to Condensed Financial Statements, tagged as blocks of text.

104 Cover Page Interactive Data File (embedded within the Inline XBRL document).

# This exhibit is filed or<br> furnished herewith. 
| 17 |

| --- |

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized.

NOVELSTEM INTERNATIONAL CORP.
Date:<br> November 14, 2022 By: /s/ Jan Loeb
Name: Jan<br> Loeb
Title: Executive<br> Chairman 
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Exhibit 31.1

I, Jan H. Loeb, the Principal Executive Officer and Executive Chairman of NovelStem International Corp. certify that:

1. I<br> have reviewed this report on Form 10-Q of NovelStem International Corp.;
2. Based<br> on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary<br> to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to<br> the period covered by this report;
3. Based<br> on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material<br> respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in<br> this report;
4. The<br> registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures<br> (as defined in Exchange Act Rules 13a- 15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange<br> Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed<br> such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,<br> to ensure that material information relating to the registrant is made known to us by others within those entities, particularly<br> during the period in which this report is being prepared;
--- ---
(b) Designed<br> such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our<br> supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements<br> for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated<br> the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about<br> the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;<br> and
(d) Disclosed<br> in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s<br> most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected,<br> or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The<br> registrant’s other certifying officer and l have disclosed, based on our most recent evaluation of internal control over financial<br> reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing<br> the equivalent functions):
--- ---
(a) All<br> significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are<br> reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information;<br> and
--- ---
(b) Any<br> fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s<br> internal control over financial reporting.
Dated:<br> November 14, 2022
--- ---
By: /s/ JAN H. LOEB
Jan<br> H Loeb
Principal Executive Officer and Executive Chairman

Exhibit 31.2

I, Christine T. Jenkins, the Chief Financial Officer of NovelStem International Corp. certify that:

1. I<br> have reviewed this report on Form 10-Q of NovelStem International Corp.;
2. Based<br> on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary<br> to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to<br> the period covered by this report;
3. Based<br> on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material<br> respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in<br> this report;
4. The<br> registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures<br> (as defined in Exchange Act Rules 13a- 15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange<br> Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed<br> such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,<br> to ensure that material information relating to the registrant is made known to us by others within those entities, particularly<br> during the period in which this report is being prepared;
--- ---
(b) Designed<br> such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our<br> supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements<br> for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated<br> the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about<br> the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;<br> and
(d) Disclosed<br> in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s<br> most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected,<br> or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The<br> registrant’s other certifying officer and l have disclosed, based on our most recent evaluation of internal control over financial<br> reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing<br> the equivalent functions):
--- ---
(a) All<br> significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are<br> reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information;<br> and
--- ---
(b) Any<br> fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s<br> internal control over financial reporting.
Dated: November 14, 2022
--- ---
By: /s/ CHRISTINE T. JENKINS
Christine<br>T. Jenkins
Chief<br>Financial Officer

Exhibit32.1

CERTIFICATIONPURSUANT TO 18 U.S.C. SECTION 1350,

ASADOPTED PURSUANT TO

SECTION906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of NovelStem International Corp. (the “Company”) for the quarterly period ended September 30, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jan H. Loeb, Principal Executive Officer and Executive Chairman of the Company, hereby certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The<br> Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The<br> information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of<br> the Company.
/s/ Jan H. Loeb
---
Jan<br> H. Loeb
Principal Executive Officer and Executive Chairman
November<br> 14, 2022

Exhibit32.2

CERTIFICATIONPURSUANT TO 18 U.S.C. SECTION 1350,

ASADOPTED PURSUANT TO

SECTION906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of NovelStem International Corp. (the “Company”) for the quarterly period ended September 30, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Christine T. Jenkins, Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The<br> Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The<br> information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of<br> the Company.
/s/ Christine T. Jenkins
---
Christine T. Jenkins
Chief Financial Officer
November 14, 2022

Exhibit 33.1

NewStem Ltd.

Condensed Interim Financial Statements

As of September 30, 2022

(Unaudited)

NewStem Ltd.

Condensed Interim FinancialStatements as at September 30, 2022

Contents

Page
Condensed<br> Interim Balance Sheets 2
Condensed<br> Interim Statements of Operations 3
Condensed<br> Interim Statements of Changes in Shareholders’ Equity 4
Condensed<br> Interim Statements of Cash Flows 5
Notes<br> to the Condensed Interim Financial Statements 6

NewStem Ltd.

CondensedInterim Balance Sheets as of

(Unaudited)

September 30 December 31
2022 2021
US thousands US thousands
Assets
Current assets
Cash and cash equivalents
Prepaid share-based payment
Other accounts receivable
Total current assets
Non-current assets
Property and equipment, net
Total assets
Liabilities and shareholders’ equity
Current liabilities
Accrued expenses and other payables
Other liabilities
Total current liabilities
Non-current liabilities
Convertible financial instrument
Total liabilities
Shareholders’ equity
Ordinary shares
Additional paid-in capital
Accumulated deficit ) )
Total shareholders’ equity
Total liabilities and shareholders’<br> equity

All values are in US Dollars.

/s/ Ayelet Dilion Mashia
Ayelet Dilion Mashiah
CEO

Date of approval of the financial statements: November 2, 2022

* Represents an amount lower than $1 thousand.

The accompanying notes are an integral part of the condensed interim financial statements.

| 2 |

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NewStem Ltd.

CondensedInterim Statements of Operations for the

(Unaudited)

Nine-month Nine-month
period ended period ended
September 30, September 30,
2022 2021
US thousands US thousands
Operating expenses
Research and development expenses
Less – grants and participations received ) )
Research and development expenses, net
General and administrative expenses
Operating loss
Financial (income) expenses, net )
Loss for the period

All values are in US Dollars.

The accompanying notes are an integral part of the condensed interim financial statements.

| 3 |

| --- |

NewStem Ltd.

CondensedInterim Statements of Changes in Shareholders’ Equity

(Unaudited)

Additional
paid-in Accumulated
Ordinary<br> shares capital deficit Total
Number<br> of shares US<br> thousands US<br> thousands US<br> thousands US<br> thousands
For the nine - month period ended<br> September 30, 2022
Balance as of January 1, 2022 **** 158,696 ) ****
Issuance of ordinary shares, net **** 2,647 **** ****
Share based compensation **** - **** ****
Loss for the period **** - ) )
Balance as at September 30, 2022 **** 161,343 ) ****
For the nine - month period ended<br> September 30, 2021
Balance as of January 1, 2021 150,000 )
Issuance of ordinary shares in exchange<br> of services, net 8,696
Share based compensation -
Loss for the period - ) )
Balance as<br> of September 30, 2021 158,696 )

All values are in US Dollars.

* Represents an amount less than $1 thousand.

The accompanying notes are an integral part of the condensed interim financial statements.

| 4 |

| --- |

NewStem Ltd.

CondensedInterim Statements of Cash Flows for the

(Unaudited)

Nine-month Nine-month
period ended period ended
September 30, September 30,
2022 2021
US thousands US thousands
Cash flows from operating activities
Loss for the period ) )
Adjustments required to reconcile loss for the period to net cash used in<br> operating activities:
Depreciation
Revaluation of marketable securities
Revaluation of convertible financial instrument )
Share based compensation
Increase in other accounts receivable ) )
Increase (decrease) in accrued expenses and other payables )
Decrease in other liabilities )
Net cash used in operating activities ) )
Cash flows from investing activities
Proceeds from the sale of marketable securities
Purchase of property and equipment )
Net cash provided by investing<br> activities
Cash flows from financing activities
Proceeds from issuance of ordinary<br> shares, net
Net cash provided by financing<br> activities
Net decrease in cash and cash<br> equivalents ) )
Cash and cash equivalents at the beginning of the<br> period
Cash and cash equivalents at<br> the end of the period

All values are in US Dollars.

The accompanying notes are an integral part of the condensed interim financial statements.

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NewStem Ltd.

Notesto the Condensed Interim Financial Statements as of September 30, 2022

Note1 - General

A. NewStem Ltd. (“the Company”) was incorporated in September 2016 under the laws of the State of Israel and commenced its business operations in July 2018.
B. The Company is a development stage company utilizing its pioneering intellectual property related to haploid human embryonic stem cells for the development of personalized diagnostics and therapeutics for genetic and epigenetic diseases.
C. Since inception, the Company has accumulated losses of $7,564 thousand.
The Company will need to obtain additional funds to continue its operations. Management’s plans with regard to these matters include continued development, marketing and licensing of its products, as well as seeking additional financing arrangements. Although management continues to pursue these plans, there is no assurance that the Company will be successful in obtaining sufficient cash from sales of products or financing on terms acceptable to the Company.
The company currently has agreements in place and draft agreements that will provide cash resources that should suffice for the operations of the next 12 months. If the draft agreements do not materialize to final agreements, the Company may incur difficulties to continue to operate its business and that may raise doubt about its ability to continue as a going concern. The interim financial statements do not include any adjustments that might result from the outcome of these uncertainties.
D. Definitions
In<br> these financial statements –
--- ---
1. The<br> Company – NewStem Ltd.
2. Related<br> Party – Within its meaning in ASC 850, “Related Party Transactions”.

Note 2 - Basis of Presentation

The accompanying condensed interim balance sheet as of September 30, 2022, and the condensed interim statements of operations, changes in shareholders’ equity and cash flows for the nine-month period ended September 30, 2022 are unaudited. These unaudited condensed interim financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America.

The unaudited condensed interim financial statements contain all adjustments which, in the opinion of management, are necessary to present fairly, the financial information included therein. It is suggested that these condensed interim financial statements be read in conjunction with the audited financial statements and accompanying notes included in the Company’s report for the year ended December 31, 2021 (“the 2021 Financial Statements”). Results for the interim periods presented are not necessarily indicative of the results to be expected for the full year.

The accounting principles used in the preparation of the interim statements are consistent with those used in the preparation of the 2021 Financial Statements, except as follows:

The Company signed a development agreement with a third-party. As part of the agreement, which is not part of the Company’s ordinary activities, the Company receives reimbursement for its research and development expenses and will receive subsequent royalties from any future sales that include the Company’s developed intellectual property. The Company has implemented ASC 808 “Collaborative Arrangements” (“ASC 808”) and based on ASC 808 guidance has applied an accounting policy according to which such reimbursements are offset from its research and development expenses.

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NewStem Ltd.

Notesto the Condensed Interim Financial Statements as of September 30, 2022

Note 3 - RelatedParties

The Company engaged with its shareholders to receive consulting services and lab renting.

Transactions

Nine-month Nine-month
period ended period ended
September 30, September 30,
2022 2021
US thousands US thousands
Research and development expenses

All values are in US Dollars.

The Company leases a laboratory from a shareholder. The lease is for an initial three-year term expiring in June 2021. The Company extended the lease until June 2023. Each party shall be entitled to terminate the agreement within 30 days’ notice.

The lease has been classified as an operating lease and the expenses are included in the data presented above. Total lease cost associated with this lease for the nine-month period ended September 30, 2022 and 2021 was US$33 thousand and US$33 thousand, respectively.

Note 4 - Events duringthe period

A. Further to what is stated in Note 8C of the 2021 Financial Statements, the service agreement with a third-party came to its end in March 2022. Accordingly, the prepaid share-based payment balance, was fully recognized as an expense in the Statement of Operations.
B. On April 30, 2022, the Company signed a share purchase agreement with two investors for the purchase of 2,647 Ordinary Shares of the Company (par value ILS 0.01) for a total consideration of US$800 thousands. Based on the Company’s agreement with one of its other shareholders, the Company is entitled to a matching investment (“the matching investment”) which will bring the total funding to US$1,600 thousands. As of September 30, 2022, the matching investment has not yet been received. 
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