10-Q

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 ### March 31, 2023

☐

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
---	---
(Address<br> of principal executive offices)	(Zip<br> Code)
Registrant’s<br> telephone number, including area code	(410)<br> 654-3315
---	---

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 May 12, 2023
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 March 31, 2023

TABLE

OF CONTENTS

---

	PAGE
Part I Financial Information
Item 1. Unaudited Condensed Financial Statements:
Condensed Balance Sheets as of March 31, 2023 and December 31, 2022	3
Condensed Statements of Operations for the three months ended March 31, 2023 and 2022	4
Condensed<br> Statements of Changes in Shareholders’ Equity for the three months ended March 31, 2023 and 2022	5
Condensed<br> Statements of Cash Flows for the three months ended March 31, 2023 and 2022	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 1A. Risk Factors	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

			2022
			December 31,
			2022
ASSETS
Current assets:
Cash	40,562		$	6,346
Accounts receivable, administrative fees	-			12,000
Prepaid expenses	39,567			40,561
Total current assets	80,129			58,907
Investment in Netco Partners	137,011			137,011
Investment in NewStem Ltd	1,985,695			2,090,286
Total assets	2,202,835		$	2,286,204
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	128,499		$	21,203
Current portion of long-term note payable	357,529			-
Accrued expenses	37,673			43,673
Total current liabilities	523,701			64,876
Long-term note payable, including accrued interest	-			288,450
Total liabilities	523,701			353,326
Commitments and contingencies (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> March 31, 2023 and December 31, 2022	468,815			468,815
Additional paid-in capital	290,619,404			290,604,327
Accumulated deficit	(289,209,331	)		(288,940,510	)
Treasury stock, at cost, 3,435,197 shares
as of March 31, 2023 and December 31, 2022	(199,754	)		(199,754	)
Treasury stock, at cost, 3,435,197 shares as of March 31, 2023 and December 31, 2022	(199,754	)		(199,754	)
Total shareholders’ equity	1,679,134			1,932,878
Total liabilities and shareholders’ equity	2,202,835		$	2,286,204

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)

	2023			2022
	Three Months Ended
	March 31,
	2023			2022
Operating expenses:
General and administrative expenses	$	164,792		$	138,956
Contra expenses - legal fees and administrative costs (Note 8)		-			(310,000	)
Total operating expenses		164,792			(171,044	)
Loss from operations		(164,792	)		171,044
Interest expense		7,313			1,605
Loss before income taxes		(172,105	)		169,439
Provision for income tax		-			-
Loss before equity in net income of equity method investees		(172,105	)		169,439
Equity in net loss of equity method investees		(96,716	)		(386,903	)
Net loss	$	(268,821	)	$	(217,464	)
Basic and diluted net loss per share:
Net loss per share - basic and diluted	$	(0.01	)	$	-
Weighted average number of shares outstanding - basic and diluted		46,881,475			46,881,475

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 Months Ended March 31, 2023:

	Shares		Stock		Capital		Deficit			Shares		Stock			Equity
					Additional					Number of					Total
	Number of		Common		Paid-In		Accumulated			Treasury		Treasury			Shareholders’
	Shares		Stock		Capital		Deficit			Shares		Stock			Equity
Balance, January 1, 2023		46,881,475	$	468,815	$	290,604,327	$	(288,940,510	)		3,435,197	$	(199,754	)	$	1,932,878
Net loss		-		-		-		(268,821	)		-		-			(268,821	)
Stock option compensation		-		-		15,077		-			-		-			15,077
Balance, March 31, 2023		46,881,475	$	468,815	$	290,619,404	$	(289,209,331	)		3,435,197	$	(199,754	)	$	1,679,134

Forthe Three Months Ended March 31, 2022:

					Additional					Number of					Total
	Number 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 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

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)

	2023			2022
	Three Months Ended
	March 31,
	2023			2022
Cash flows from operating activities:
Net loss	$	(268,821	)	$	(217,464	)
Equity in loss of equity method investees		96,716			386,903
Distribution from NetCo Partners		7,875			-
Accrued interest added to long-term note payable		7,079			-
Stock-based compensation		15,077			49,011
Change in operating assets and liabilities:
Accounts receivable, administrative fees		12,000			-
Prepaid expenses		994			(1,045	)
Accounts payable		107,296			(17,549	)
Accrued expenses		(6,000	)		(5,752	)
Net cash from operating activities		(27,784	)		194,104
Cash flows from financing activities:
Repayment of short term note payable	$	-		$	(100,000	)
Proceeds from long term notes payable		62,000			-
Net cash from financing activities		62,000			(100,000	)
Net change in cash		34,216			94,104
Cash at the beginning of the period		6,346			8,666
Cash at the end of the period	$	40,562		$	102,770
Supplemental cash flow information:
Cash paid during the period for:
Interest	$	234		$	7,357

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 30.58% 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 $2,500,000 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 has in place a financing agreement with related parties to borrow up to $600,000 for working capital needs (see Note 4). Additionally, in May 2023, the Company entered into a financing agreement with a shareholder to borrow $300,000 consisting of advances of $150,000 in May 2023 and $150,000 in October 2023 (see Note 9). 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 accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the unaudited condensed financial statements reflect all adjustments, which include only normal recurring adjustments necessary for the fair statement of the balances and results for the periods presented. Certain information and footnote disclosures normally included in the Company’s annual financial statements prepared in accordance with GAAP have been condensed or omitted. These condensed consolidated financial statement results are not necessarily indicative of results to be expected for the full fiscal year or any future period.

The accompanying unaudited condensed financial statements and related disclosures have been prepared with the presumption that users of the unaudited condensed financial statements have read or have access to the audited financial statements for the preceding fiscal year. Accordingly, these unaudited condensed consolidated financial statements should be read in conjunction with the Company’s Form 10-K, which was filed with the United States Securities and Exchange Commission (“SEC”) on March 31, 2023, from which the Company derived the balance sheet data at December 31, 2022.

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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 10K filed with the Securities and Exchange Commission on March 31, 2023 for the years ended December 31, 2022 and 2021.

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 loss per share is computed by dividing the net 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 loss and the weighted average number of shares of dilutive potential common stock (unaudited):

SCHEDULE OF WEIGHTED AVERAGE NUMBER OF SHARES OF DILUTIVE

	2023			2022
	Three Months Ended March 31,
	2023			2022
Net loss available to common shareholders	$	(268,821	)	$	(217,464	)
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	$	(0.01	)	$	-

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Warrants and stock options excluded from the above calculations are as follows:

SCHEDULE OF WARRANTS AND STOCK OPTIONS

	Three Months Ended March 31,
	2023		2022
Warrants		3,000,000		3,000,000
Stock options		5,760,000		5,400,000

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. NewStem sold and issued shares to third party investors in 2021 and 2022 resulting in the Company recognizing a gain on dilution of equity method investment. These transactions resulted in the Company having an ownership interest of 30.58% as of March 31, 2023 and December 31, 2022.

The

Company accounts for its investment in NewStem under the equity method. At March 31, 2023 and December 31, 2022, the carrying value of the investment in NewStem exceeded the underlying net assets of NewStem by $1,985,695 and $2,090,286, 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 obtained additional funding of approximately $1,450,000 in 2022 through the sale of shares of ordinary stock.

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

SCHEDULE OF INVESTMENTS

	Three Months Ended March 31, 2023			Year Ended December 31, 2022
	(Unaudited)
Investment in NewStem, beginning	$	2,090,286		$	2,435,155
Allocation of net loss from NewStem, Ltd.		(104,591	)		(732,393	)
Gain on dilution of equity method investment		-			387,524
Investment in NewStem, ending	$	1,985,695		$	2,090,286

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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

	2023			2022
	Three Months Ended March 31,
	2023			2022
Condensed income statement information:
Net revenues	$	95,000		$	-
Gross margin	$	84,000		$	-
Net loss	$	(342,000	)	$	(1,228,000	)
Company’s allocation of net loss from NewStem, Ltd.	$	(104,591	)	$	(386,903	)

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

	Three Months Ended March 31, 2023		Year Ended December 31, 2022
	(Unaudited)
Condensed balance sheet information:
Current assets	$	679,000	$	911,000
Non-current assets	$	19,000	$	23,000
Current liabilities	$	122,000	$	97,000
Non-current liabilities	$	124,000	$	121,000

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

	Three Months Ended March 31, 2023			Year Ended December 31, 2022
	(Unaudited)
Investment in NetCo, beginning	$	137,011		$	137,011
Allocation of net income from Netco		7,875			12,591
Distribution from NetCo		(7,875	)		(12,591	)
Investment 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

	2023		2022
	Three Months Ended March 31,
	2023		2022
Condensed income statement information:
Net sales	$	15,750	$	-
Gross margin	$	15,750	$	-
Net income	$	15,750	$	-
Net income (loss)	$	15,750	$	-
Company’s allocation of net income from NetCo	$	7,875	$	-

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

---

	Three Months Ended March 31, 2023		Year Ended December 31, 2022
	(Unaudited)
Condensed balance sheet information:
Current assets	$	13,475	$	13,475
Non-current assets	$	272,799	$	272,799
Current liabilities	$	12,252	$	12,252
Non-current 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 three months ended March 31, 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 (the “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 through November 11, 2022, at which time the interest rate increased to 10% per annum for subsequent advances. The Agreements 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 Company received advances of $342,000 and $280,000, respectively, pursuant to this agreement through March 31, 2023 and December 31, 2022. Interest expense related to the agreements was $7,079 and $8,450, respectively, for the three months ended March 31, 2023 and the year ended December 31, 2022. Pursuant to the Agreements, accrued interest is added to the note balances.

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NOTE

5—EQUITY

(a) General

At

March 31, 2023 and December 31, 2022, 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, 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 5,760,000 options have been issued to directors and investor relations professionals.

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

SCHEDULE OF FAIR VALUE OF OPTION USING VALUATION ASSUMPTIONS

	Three Months Ended March 31,
	2023			2022
Risk-free interest rate		3.5	%		1.5	%
Expected term of options, in years		4.0			3.9
Expected annual volatility		191.1	%		185.8	%
Expected dividend yield		0	%		0	%
Determined weighted average grant date fair value per option	$	0.19		$	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 7 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 three months ended March 31, 2023, is presented below (unaudited):

SCHEDULE OF STOCK OPTION ACTIVITIES

	Number		Weighted
	of		Average
	Options		Exercise
	(in shares)		Price
Outstanding, December 31, 2022		5,400,000	$	0.14
Granted		360,000		0.20
Outstanding, March 31, 2023		5,760,000	$	0.14
Exercisable, March 31, 2023		5,400,000	$	0.14

Stock-based

compensation expense was approximately $15,000 and $49,000 in the three months ended March 31, 2023 and 2022, respectively.

The

total compensation cost related to non-vested awards not yet recognized was approximately $67,000 as of March 31, 2023. As of March 31, 2023, 360,000 options were unvested. These options vest one year from their grant date which is March 2024.

(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, 2022		3,000,000	$	0.12
Granted		-		-
Exercised		-		-
Forfeited or expired		-		-
Outstanding, March 31, 2023		3,000,000	$	0.12

The warrants outstanding at March 31, 2023 have a weighted average remaining contractual life of approximately three 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

	2023			2022
	Three Months Ended March 31,
	2023			2022
Computed tax at the federal statutory rate of 21%	$	(56,452	)	$	(45,668	)
State income taxes, net of federal income tax benefit		(11,680	)		(9,449	)
Change in federal valuation allowance		87,972			117,021
Foreign rate differential		(19,840	)		(61,904	)
Total 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. Arbitration proceedings for the joint owners of NetCo concluded during 2022 with final briefs being filed in January 2023. In a hearing on May 9, 2023, the arbitrator ordered all parties to submit additional briefings by May 30, 2023. At this time, the arbitrator indicated that a decision will be rendered within 30 days of receiving these final briefs.

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 three months ended March 31, 2022, the Company received $310,000 pursuant to this agreement for the reimbursement of legal costs and working capital expenditures, including previously incurred general and administrative costs.

NOTE

9—SUBSEQUENT EVENTS

As

disclosed in Note 1, on May 5, 2023 the Company entered into a financing agreement with a shareholder to borrow $300,000 consisting of advances of $150,000 in May 2023 and $150,000 in October 2023. This agreement bears no interest and matures May 5, 2025. In relation to the agreement, the Company has guaranteed that the shareholder’s separate equity investment in NewStem will have a minimum value of $650,000 at maturity of the agreement.

Subsequent to the date on these financial statements, on May 11, 2023, the Company’s board of directors approved the amendment of outstanding warrant agreements to extend the expiration date from June 28, 2023 to June 28, 2025.

| 14 |

| --- |

NOVELSTEM

INTERNATIONAL CORP.

ITEM 2.	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 approximately $269,000 and $217,000 for the three months ended March 31, 2023 and 2022, respectively. We had current assets of approximately $80,000 and current liabilities of $524,000 as of March 31, 2023. As of December 31, 2022, our current assets and current liabilities were approximately $59,000 and $65,000, respectively. We have prepared our financial statements for the three months ended March 31, 2023 assuming that we will continue as a going concern. Our continuation as a going concern is dependent upon NewStem’s ability to successfully develop and commercialize its products, improving our profitability and the continuing financial support from our shareholders as well as. 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 related party 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”.

	Three Months Ended March 31,
	2023			2022			Change
Operating expenses:
G&A expenses	$	164,792		$	138,956		$	25,836
Contra expenses - legal fees		-			(310,000	)		310,000
Total operating expenses		164,792			(171,044	)		335,836
Loss from operations		(164,792	)		171,044			335,836
Interest expense		7,313			1,605			5,708
Net loss before equity in net loss of equity method investees		(172,105	)		169,439			(341,544	)
Equity in net loss of equity method investees		(96,716	)		(386,903	)		290,187
Net loss	$	(268,821	)	$	(217,464	)	$	(51,357	)

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 approximately $165,000 and $139,000 for the three months ended March 31, 2023 and 2022, respectively. Specifically, professional fees increased by approximately $60,000 in the three months ended March 31, 2023 as compared to the three months ended March 31, 2022. Our increase in G&A expenses relates primarily to professional fees incurred in the audit of our financial statements for the year ended December 31, 2022 and, in the preparation, and filing of our initial Form 10Q filed for the quarter ended September 30, 2022.

| 15 |

| --- |

Stock compensation expense, included in G&A expenses, decreased by approximately $34,000 in the three months ended March 31, 2023 as compared to the three months ended March 31, 2022 due to a smaller number of options awarded in the current period as compared to the prior period.

During the three months ended March 31, 2022 we recorded a contra expense of $310,000 which is comprised of funds from a litigation funding agreement. This agreement was signed during the first quarter of 2022 with Omni Bridgeway to fund our arbitration against our 50% joint venture partner, C.P. 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 three months ended March 31, 2023.

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 months ended March 31, 2023 included net income of $7,875 from NetCo which was offset by net loss of $104,591 from NewStem. The net losses reported for the three months ended March 31, 2022 were fully comprised of net losses 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 expect our G&A expenses to remain consistent in the near term as we have expanded our finance and administrative staff and incurred additional costs related to being a reporting act company, including directors’ and officers’ insurance and increased professional fees, which should all now be normalized for our current operations.

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 $350,000 pursuant to the aforementioned agreement.

On May 5, 2023 the Company entered into a financing agreement with a shareholder to borrow $300,000 consisting of advances of $150,000 in May 2023 and $150,000 in October 2023. This agreement bears no interest and matures May 5, 2025.

| 16 |

| --- | | ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK | | --- | --- |

This section is not applicable.

ITEM 4.	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 March 31, 2023 and we concluded there was a material weakness in the design of our internal control over financial reporting.

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

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

ITEM 1.	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 proceedings for the joint owners of NetCo concluded during 2022 with final briefs being filed in January 2023. On May 10, 2023, the arbitrator ordered a final briefing from all parties to be filed by May 30, 2023. At this time, the arbitrator indicated that a decision will be rendered within 30 days of the filing of these final briefings.

ITEM 1A.	RISK FACTORS

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(a)	Not<br> applicable.
---	---
(b)	Not<br> applicable.
(c)	Not<br> applicable.
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES
---	---

Not applicable.

ITEM 4.	MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5.	OTHER INFORMATION

None.

ITEM 6.	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<br> Financial Statements of NewStem Ltd. as of and for the nine months ended March 31, 2023

#101.1 The following financial statements from NovelStem International Corp.’s Form 10-Q for the quarter ended March 31, 2023, filed on May 12, 2023, 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<br> exhibit is filed or 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> May 12, 2023	By:	/s/ Jan Loeb
	Name:	Jan<br> Loeb
	Title:	Executive<br> Chairman

| 18 |

| --- |

Exhibit31.1

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> May 12, 2023
---	---
By:	/s/ JAN H. LOEB
	Jan<br> H Loeb
	Principal<br> Executive Officer and Executive Chairman

Exhibit31.2

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:<br> May 12, 2023
---	---
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 March 31, 2023, 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<br> Executive Officer and Executive Chairman
May<br> 12, 2023

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 March 31, 2023, 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<br> T. Jenkins
Chief<br> Financial Officer
May<br> 12, 2023

Exhibit33.1

NewStemLtd.

CondensedInterim Financial Statements

Asof March 31, 2023

(Unaudited)

NewStem Ltd.

CondensedInterim Financial Statements as of March 31, 2023

Contents

	Page
Condensed<br> Interim Balance Sheets	2
Condensed<br> Interim Statements of Operations	3
Condensed<br> Interim Statements of Changes in Shareholders’ Equity (Deficiency)	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)

	March 31		December 31
	2023		2022
	US thousands		US thousands
Assets
Current assets
Cash and cash equivalents
Other accounts receivable
Total current assets
Non-current assets
Property and equipment, net
Total assets
Liabilities and shareholders’ equity
Current liabilities
Accounts payable
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’ equity

All values are in US Dollars.

Ayelet<br> Dilion Mashiah
CEO

Date of approval of the financial statements: May 8, 2023.

* Represents an amount less than $1 thousand.

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

| 2 |

| --- |

NewStem Ltd.

CondensedInterim Statements of Operations for the

(Unaudited)

		Three-month	Three-month
		period ended	period ended
		March 31,	March 31,
		2023	2022
	Note	US thousands	US thousands
Revenues	5B
Cost of revenues	5B
Gross profit
Operating expenses:
Research and development expenses
General and administrative expenses, net
Operating loss
Financial 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 (Deficiency)

(Unaudited)

				Additional
				paid-in	Accumulated
	Ordinary shares			capital	deficit		Total
	Number of shares		US thousands	US thousands	US thousands		US thousands
For the three - month period ended March 31, 2023
Balance as of January 1, 2023		163,494				)
Stock based compensation		-
Loss for the period		-				)		)
Balance as of March 31, 2023		163,494				)
For the three - month period ended March 31, 2022
Balance as of January 1, 2022		158,696				)
Stock based compensation		-
Loss for the period		-				)		)
Balance as of March 31, 2022		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)

	Three-month		Three-month
	period ended		period ended
	March 31,		March 31,
	2023		2022
	US thousands		US thousands
Cash flows from operating activities
Loss for the period		)		)
Adjustments required to reconcile loss to net cash used in operating activities:
Depreciation
Revaluation of convertible financial instrument				)
Stock based compensation
Increase in other accounts receivable		)		)
Increase in other liabilities
Increase (decrease) in accounts payable				)
Net cash used in operating activities		)		)
Cash flows from investing activities
Net cash used in investing activities
Cash flows from financing activities
Net cash used in financing activities
Net decrease in cash and cash equivalents		)		)
Cash and cash equivalents at the beginning of the period
Cash and cash equivalents at the end of the period

All values are in US Dollars.

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

| 5 |

| --- |

NewStem Ltd.

Notesto the Condensed Interim Financial Statements as of March 31, 2023

Note 1 - 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 a deficit of $8,312 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, licensing or financing on terms acceptable to the Company. The Company’s management has approved a contingent cost reduction in order to adjust future operation expenses to its cash balance. Following the fund-raising mentioned in Note 5A and those made in 2022, and the Company’s adjustment of its future operation expenses, the Company believes that its cash resources are sufficient for the operations of the next 12 months.

D.	Definitions

In these financial statements –

1.	The Company – NewStem Ltd.
2.	Related Party – Within its meaning in ASC 850, “Related Party Transactions”.
---	---

---

Note 2 - Basis of Presentation

The accompanying condensed interim balance sheet as of March 31, 2023, and the condensed interim statement of operations, changes in shareholders’ equity (deficiency) and cash flows for the three-month period ended March 31, 2023, 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, 2022. 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 financial statements of the Company as of December 31, 2022. See also note 5B.

| 6 |

| --- |

NewStem Ltd.

Notes to the Condensed InterimFinancial Statements as of March 31, 2023

---

Note 3 - Related Parties

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

In addition, the Company is required to pay a shareholder sublicense fees at a rate of up to 12% of sublicense.

A.	Transactions

---

	Three-month	Three-month
	period ended	period ended
	March 31,	March 31,
	2023	2022
	US thousands	US thousands
Cost of revenues
Research and development expenses

All values are in US Dollars.

B.	Balances
	March 31,	March 31,
---	---	---
	2023	2022
	US thousands	US thousands
Other accounts receivable
Accounts payable

All values are in US Dollars.

---

Note 4 - Convertible Financial Instrument

In November 2021, the Company signed a Simple Agreement for Future Equity (“SAFE”) with an investor in the amount of 100 thousand Great British Pound (“GBP”) (approximately US$134 thousands).

The convertible financial instrument is presented at fair value. The convertible financial instrument is considered a Level 3 fair value measurement.

The changes in the liability measured at fair value for which the Company has used Level 3 inputs to determine fair value are as follows:

	Three-month	Three-month
	period ended	period ended
	March 31,	March 31,
	2023	2022
	US thousands	US thousands
Balance as of January 1,
Change in fair value			)
Balance as of March 31,

All values are in US Dollars.

| 7 |

| --- |

NewStem Ltd.

Notes to the Condensed InterimFinancial Statements as of March 31, 2023

Note 5 - Events during the period

---

A.	Convertible Loan Agreement

---

On March 20, 2023, the Company signed a Convertible Loan Agreement (“the Loan”) in the amount of US$200 thousands which bear simple interest at the rate of 12.5% per annum, paid in kind. At the end of a period of 24 months after the date on which the loan funds are provided or in M&A Event, the Loan together with the accrued interest (“Outstanding Amount”) shall convert into shares of the Company’s then most senior class of shares at the price per share paid by the investors in the last financing.

If the Company obtains financing at an earlier date, then the Outstanding Amount shall convert into shares of the Company’s most senior class as shall be issued in such financing transaction, at a price per share equal to 75% of the lowest price per share paid by the investors participating in the financing.

In an event of liquidation only (as defined in the Convertible Loan Agreement), the interest rate shall increase to 20% per annum.

As of March 31, 2023, the Loan has not yet been received. Therefore, no balances were recorded for this commitment in the condensed interim financial statements.

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B.	Sub-License Agreement

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On December 23, 2022, The Company signed a Sub-License Agreement (the “Agreement”), which entered into effect in January 2023, for a sub-license of the Company’s intellectual property related to Fragile X Syndrome (“IP”).

In consideration for the grant of each period of the sub-license, the Company will be entitled to license fees of a lump sum of US$95 thousands for years 1-5 (“First License Period”), US$50 thousand per year for years 6-7, US$100 thousand per year for year 8 and onwards. The Company is also entitled for reimbursement of patent costs that were incurred in the past relating the intellectual property, of approximately $24 thousand and will entitled for reimbursement of future patent costs. These reimbursements will be accounted for as reduction of General and administrative expenses.

In addition, the Company will be entitled to royalties upon future sales of products that are based on the Company’s licensed intellectual property at a rate of 3.5% of the net sales or 50% of sales-based sub-license income, sublicense fees at a rate of up to 13.2% - 22.0% of sublicense consideration, subject to certain terms, as outlined in the Agreement. Moreover, the Company is entitled to certain future milestones payments, partly based on sales and partly based on reaching Phase III clinical trials. The Company also received a right to receive a fee equal to 0.5% of the customer’s exit consideration (“Exit Fee”), which will be received upon an exit event of the customer, as defined in the Agreement. Based on the estimated date of the customer’s exit event and the discount rate used to calculate the current value of the Exit Fee, the fair value of the Exit Fee as of the inception date of the Agreement was considered to be immaterial.

In addition, according to this Agreement, it was acknowledged that the Company received US$200 thousand to support certain research activities (performed and accounted for during 2022), and will acquire certain services from the customer for US$100 thousand to evaluate the toxicity of potential drugs candidates.

The Company views granting of licenses and sublicenses as outputs of its ordinary business activities, and recipients of such licenses as customers. Thus, the Company considered this Agreement to be in the scope of ASC 606 Revenue from Contracts with Customers (“ASC606”). The Company determined that the customer has received rights of use of the IP, which are functional in nature, since the Company will not perform any activities to change functionality of the IP during the terms of the sub-license. As prescribed by ASC 606, revenue from right to use IP is recognized at a point in time, when the customer receives access to the IP. The Company did not identify a promise to provide future services in the Agreement, and hence the rights to use the IP are the only performance obligations in the Agreement. Therefore, the Company recognized revenues of $95 thousand in the three-month period ending March 31, 2023, for the First License Period. Sales-based royalties and milestone payments dependent of future sales will be recognized upon the occurrence of applicable future sales, under the royalty exception. Other milestone payments are currently fully constrained under the variable consideration guidance.

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