Securities to be registered pursuant to Section 12(b) of the Act:

Securities to be registered pursuant to Section 12(g) of the Act:

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.

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 ☐

Item 1. Business.

NovelStem International Corp. (“NovelStem” or the “Company”) is a holding company whose principal assets are a 28.6% equity interest in NewStem Ltd, an Israeli biotech company (“NewStem”), and a 50% equity interest in a joint venture named NetCo Partners (“NetCo” or “NetCo Partners”). NovelStem was formed in January 1993 as Big Entertainment, Inc. which changed its name to Hollywood.Com Inc. and, subsequently in December 2000 to Hollywood.Com Inc. which subsequently changed its corporate name to Hollywood Media Corp. (“Hollywood Media”). We changed our name to NovelStem in September 2018 when we shifted our business focus from media to cutting edge biotech.

NewStem

NewStem is an Israeli biotech limited liability company focused on human Pluripotent Stem Cells (hPSCs) in general, and Haploid human Pluripotent Stem Cells (HhPSCs), in particular. These cells have the potential to change the face of medical research as they play a pivotal role in cancer research, regenerative medicine and disease therapy. NewStem established a discovery bio-platform based on haploid human embryonic stem cell technology for genome-wide screenings and is currently using this platform for the discovery and development of first in class precision oncology drugs based on synthetic lethal interaction and developing a personalized diagnostic for early detection of chemotherapy resistance. NewStem possesses pioneering intellectual property, reagents and experience related to the isolation and differentiation of HhPSCs and hPSCs, their genetic manipulation, immunogenicity, tumorigenicity and their unique capacity in disease modeling. We believe that NewStem is currently the only company worldwide to develop products based on this innovative proprietary technology.

NewStem’s technology solutions are derived from an exclusive, worldwide license from Yissum Research Development Company, Hebrew University’s technology transfer company (“Yissum”) and The New York Stem Cells Foundation, based on the findings and inventions of Prof. Nissim Benvenisty, Director of the Azrieli Center for Stem Cells and Genetic Research, The Hebrew University of Jerusalem (the “License”). The License provides NewStem an exclusive worldwide license to make commercial use of the License and to develop, manufacture, market, distribute or sell a product in the field of therapeutics, diagnostics, screening, development and testing. In consideration for the grant of the License, NewStem is obligated to pay royalties of up to 3% of net sales and up to 12% of “Sublicense Consideration” (as defined in the License).

NovelStem was the original seed investor in NewStem providing $2 million in July 2018 and another $2 million over the next two and a half years. We currently own a 28.6% equity interest in NewStem. The remaining equity interests in NewStem are owned by Yissum and Professor Benvenisty, each of whom owns a 28.6% equity interest, Illumina Cambridge LTD, which owns a 5.0% equity interest, and management and a number of other shareholders who own collectively approximately 9%. Currently, our Chairman of the Board, Jan Loeb, is also the Chairman of the Board of NewStem. Professor Benvenisty and a representative of Yissum occupy the other two Board seats.

Pursuant to NewStem’s Articles of Association, investors (including NovelStem) are granted certain rights and are subject to certain restrictions with respect to their equity interests in NewStem. NovelStem has preemptive rights to purchase additional shares issued by NewStem up to its pro-rata share of all outstanding shares of NewStem held by all shareholders of NewStem, until the consummation of either an initial public offering or a liquidation event. Such pro-rata share may be increased into an over-allotment if other shareholders decline to exercise their preemptive rights. The Board of Directors of NewStem may make capital calls on NovelStem and the other shareholders, in respect of any sum unpaid in respect of shares held by such shareholder. All shareholders holding at least 10% of the outstanding shares, including NovelStem, may exercise a right of first refusal on all sales of shares of NewStem other than transfers to certain permitted transferees. NovelStem and other shareholders have a co-sale right to sell their shares in place of those that would be issued and sold by NewStem’s founder. The shares of NewStem are subject to a drag-along right, compelling all shares to be sold in the event that a transaction meant to sell all shares of NewStem is approved by shareholders holding at least 65% of the vote of all shares of NewStem.

Competition

The technologies underlying NewStem’s products are subject to rapid and profound technological change. Competition intensifies as technical advances in each field are made and become more widely known. We can give no assurance that others will not develop services, products, or processes with significant advantages over the products, services, and processes that NewStem offers or is seeking to develop. Any such occurrence could have a material and adverse effect on NewStem’s and our business, results of operations and financial condition.

NewStem plans to enhance and broaden its product offerings in response to changing customer demands and competitive pressure and technologies. The success of any new product offering or enhancement to an existing product will depend on numerous factors, including the ability to:

Government Regulation

In the United States, pharmaceutical products are subject to extensive regulation by the Federal Food and Drug Administration and Cosmetic Act or the FDA. The FDA and other federal and state statutes and regulations, govern, among other things, the research, development, testing, manufacture, storage, recordkeeping, approval, labeling, promotion and marketing, distribution, post-approval monitoring and reporting, sampling, and import and export of pharmaceutical products. The FDA has very broad enforcement authority and failure to abide by applicable regulatory requirements can result in administrative or judicial sanctions being imposed on NewStem, including warning letters, refusals of government contracts, clinical holds, civil penalties, injunctions, restitution, disgorgement of profits, recall or seizure of products, total or partial suspension of production or distribution, withdrawal of approval, refusal to approve pending applications, and criminal prosecution. To date, NewStem has filed an FDA Pre-Submission and received CE mark from the European Medicines Agency (EMA) for its in vitro diagnostic device (IVDD). NewStem will require FDA approval for the therapeutic drugs that are currently in the development stages.

FDA Approval Process

NewStem’s therapeutic product candidates are expected to be regulated by the FDA as drugs. No manufacturer may market a new drug until it has submitted a New Drug Application, or NDA, to the FDA, and the FDA has approved it.

The testing and approval process requires substantial time, effort and financial resources, and NewStem’s product candidates may not be approved on a timely basis, if at all. The time and expense required to perform the clinical testing necessary to obtain FDA approval for regulated products can frequently exceed the time and expense of the research and development initially required to create the product. The results of preclinical studies and initial clinical trials of NewStem’s product candidates are not necessarily predictive of the results from large-scale clinical trials, and clinical trials may be subject to additional costs, delays or modifications due to a number of factors, including difficulty in obtaining enough patients, investigators or product candidate supply. Failure by NewStem to obtain, or any delay in obtaining, regulatory approvals or in complying with requirements could adversely affect the commercialization of product candidates and NewStem’s (and, therefore, the Company’s) ability to receive product or royalty revenues.

Other Regulatory Requirements

After approval, drug products are subject to extensive continuing regulation by the FDA, which include obligations to manufacture products in accordance with Good Manufacturing Practice, or GMP, maintain and provide to the FDA updated safety and efficacy information, report adverse experiences with the product, keep certain records and submit periodic reports, obtain FDA approval of certain manufacturing or labeling changes, and comply with FDA promotion and advertising requirements and restrictions. Failure by NewStem to meet these obligations can result in various adverse consequences, both voluntary and FDA-imposed, including product recalls, withdrawal of approval, restrictions on marketing, and the imposition of civil fines and criminal penalties against the NDA holder. In addition, later discovery of previously unknown safety or efficacy issues may result in restrictions on the product, manufacturer or NDA holder.

Outside the United States, NewStem’s ability to market a product is contingent upon receiving marketing authorization from the appropriate regulatory authorities. The requirements governing marketing authorization, pricing and reimbursement vary widely from jurisdiction to jurisdiction. At present, foreign marketing authorizations are applied for at a national level, although within the European Union registration procedures are available to companies wishing to market a product in more than one European Union member state.

NewStem is also subject to various environmental, health and safety regulations including those governing laboratory procedures and the handling, use, storage, treatment, and disposal of hazardous materials. From time to time, and in the future, NewStem’s operations may involve the use of hazardous materials.

NetCo Partners

In June 1995, we and C.P. Group Inc. (“C.P. Group”), entered into an agreement to form NetCo Partners. NetCo owns the entertainment property, “Net Force” by Tom Clancy, about a division of the FBI investigating crimes and adventures involving the internet and the digital world.

NovelStem and C.P. Group each own 50% of the ownership interest in NetCo Partners. The Estate of Tom Clancy is a shareholder of C.P. Group. NetCo Partners owns all rights in all media to the Net Force property including film, television, and video games.

In 1997, NetCo Partners licensed to Putnam Berkley the rights to publish the first six Net Force books in North America, which books were written and published. This agreement was subsequently renewed in December 2001 for four more books that were created and published. There was also a series of books targeted to the young adult market, Net Force Explorer also published by Putnam Berkley. Net Force books have so far been published in mass market paperback format. The first book in the series was adapted as a four-hour mini-series on the ABC television network.

In 2019, NetCo Partners entered into a new publishing agreement with HarperCollins. Three novels and two Net Force novellas have been published under that agreement. Through its interest in NetCo Partners, NovelStem receives distributions of its 50% share of proceeds generated from the rights to Net Force.

Competition

Competition in the publishing and video game industries is intense. Many new products and services are regularly introduced in each major industry segment (console, mobile and PC), but only a relatively small number of “hit” titles account for a significant portion of total revenue in each segment. NetCo Partners’ competitors range from established interactive entertainment companies and diversified media companies to emerging start-ups, and we expect new competitors to continue to emerge throughout the world.

See Item 8 – Legal Proceedings for information concerning proceedings related to NetCo Partners.

Item 1A. Risk Factors

Our business is subject to certain risks, including those described below. If any of the events described in the following risk factors actually occurs then our business, results of operations and financial condition could be materially adversely affected. More detailed information concerning these risks is contained in other sections of this registration statement, including “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Risks Relating to our Business

We are a holding company the principal assets of which are illiquid, non-controlling equity interests in NewStem and NetCo Partners.

We are a holding company whose primary assets are equity interests in NewStem and NetCo Partners. While we are entitled to certain rights as a shareholder in NewStem and as a partner in NetCo Partners, we do not exercise control over either such entity. Therefore, our ability to direct the management and affairs of both entities is significantly limited.

We conduct no other business and, as a result, we depend entirely upon earnings and cash flow from NewStem and NetCo Partners. If we decide in the future to pay dividends, as a holding company, our ability to pay dividends and meet other obligations depends upon the receipt of dividends or other payments from our operating subsidiaries.

Our investments in NewStem and NetCo are illiquid.

Our shares in NewStem and our partnership interests in NetCo Partners are illiquid and have extremely limited liquidity rights. The transferability of these interests is restricted under federal and state securities laws and the governing documents of each of NewStem and NetCo Partners.

We depend on the executive officers and other key individuals of our Company and our portfolio companies, particularly NewStem, to continue the implementation of our long-term business strategy and could be harmed by the loss of their services and our inability to make up for such loss with qualified replacements.

We believe that our continued growth and future success will depend in large part on the skills of our management team and the management teams of NewStem and NetCo Partners and our ability to motivate and retain these individuals and other key individuals. The loss of any of their service could reduce our ability to successfully implement our long-term business strategy, our business could suffer and the value of our common stock could be materially adversely affected. Leadership changes will occur from time to time and we cannot predict whether significant resignations will occur or whether we will be able to recruit additional qualified personnel. We believe these management teams possess valuable knowledge about our respective industries and that their knowledge and relationships would be very difficult to replicate. The loss of key personnel, or the inability to recruit and retain qualified and talented personnel in the future, could have an adverse effect on our business, financial condition or operating results.

We and NewStem have limited operating histories and have generated no revenue to date.

We and NewStem have a limited operating history and do not have a meaningful historical record of sales and revenues, nor do we or NewStem have an established business track record. While we believe that we have the opportunity to be successful, there can be no assurance that we will be successful in accomplishing our business initiatives, or that we will be able to achieve any significant levels of revenues or net income.

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, 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.

NewStem may be unable to respond effectively to technological changes in its industry, which could reduce the demand for its products and services.

NewStem’s future business success will depend upon its ability to maintain and enhance its product portfolio with respect to advances in technological improvements for certain products that meet customer needs and market conditions in a cost-effective and timely manner. NewStem may not be successful in gaining access to new products that successfully compete or are able to anticipate customer needs and preferences, and customers may not accept one or more of its products. If NewStem fails to keep pace with evolving technological innovations or fails to modify its products and services in response to customers’ needs or preferences, then NewStem’s and our business, financial condition and results of operations could be adversely affected.

Rapid technological change could cause products to become obsolete, and if NewStem does not enhance its product offerings through research and development efforts, it may be unable to effectively compete.

The technologies underlying NewStem’s products are subject to rapid and profound technological change. Competition intensifies as technical advances in each field are made and become more widely known. We can give no assurance that others will not develop services, products, or processes with significant advantages over the products, services, and processes that NewStem offers or is seeking to develop. Any such occurrence could have a material and adverse effect on NewStem’s and our business, results of operations and financial condition.

NewStem plans to enhance and broaden its product offerings in response to changing customer demands and competitive pressure and technologies. The success of any new product offering or enhancement to an existing product will depend on numerous factors, including the ability to:

If NewStem does not develop and, when necessary, obtain regulatory clearance or approval for new products or product enhancements in time to meet market demand, or if there is insufficient demand for these products or enhancements, its results of operations will suffer. NewStem’s research and development efforts may require a substantial investment of time and resources before it is adequately able to determine the commercial viability of a new product, technology, material or other innovation. In addition, even if NewStem is able to successfully develop enhancements or new generations of its products, these enhancements or new generations of products may not produce sales in excess of the costs of development, and they may be quickly rendered obsolete by changing customer preferences or the introduction by competitors of products embodying new technologies or features.

Our ongoing viability as a company depends on NewStem’s ability to successfully develop and commercialize its licensed technology.

NewStem is principally focused on utilizing proprietary hPSCs and HhPSCs in the development of diagnostic and therapeutic products in oncology . NewStem must develop diagnostics and therapeutics successfully test them for safety and efficacy in the targeted patient population, and manufacture the finished drugs on a commercial scale to meet regulatory standards and receive regulatory approvals. The development and commercialization process is both time-consuming and costly, and involves a high degree of business risk. The results of pre-clinical and clinical testing of product candidates are uncertain, and there can be no assurance that NewStem will be able to obtain regulatory approvals of its product candidates. If obtained, regulatory approval may take longer or be more expensive than anticipated. Furthermore, even if regulatory approvals are obtained, NewStem’s products may not perform as we expect and NewStem may not be able to successfully and profitably produce and market any products. Delays in any part of the process or our inability to obtain regulatory approval of such products could adversely affect NewStem’s and, therefore, NovelStem’s future operating results by restricting (or even prohibiting) the introduction and sale of such products.

The value of our investment in NetCo Partners and our ability to receive distributions may be affected by disputes between the Company and C.P. Group, our partner in NetCo Partners.

The Company and C.P. Group each own a 50% partnership interest in NetCo Partners. The joint venture agreement governing NetCo Partners provides for mutual decision making among the Company and C.P. Group generally (subject to exceptions) and arbitration in the event any controversy or disagreement arises. The Company and C.P. Group are currently in arbitration as to ongoing scope and the operation of NetCo Partners. If we are unable to resolve such dispute in a manner favorable to the Company, our investment in NetCo Partners and our ability to continue to receive distributions as a partner in NetCo Partners could have an adverse effect on our business, financial condition or operating results.

NetCo Partners’ business is intensely competitive and “hit” driven. NetCo Partners may not deliver “hit” products and services, or consumers may prefer a competitors’ products or services over NetCo Partners.

Competition in the publishing and video game industries is intense. Many new products and services are regularly introduced in each major industry segment (console, mobile and PC), but only a relatively small number of “hit” titles account for a significant portion of total revenue in each segment. NetCo Partners’ competitors range from established interactive entertainment companies and diversified media companies to emerging start-ups, and we expect new competitors to continue to emerge throughout the world. If NetCo Partner’s competitors develop and market more successful and engaging products or services, offer competitive products or services at lower price points, or if NetCo Partners does not develop high-quality, well-received and engaging products and services, NetCo Partners’ and our revenue, margins, and profitability will decline.

If NetCo Partners fails to develop relationships with new creative talent, its business could be adversely affected.

NetCo Partners’ business, in particular the trade publishing and media portions of the business, is highly dependent on maintaining strong relationships with the authors, illustrators and other creative talent who produce the products and services that are sold to its customers. Any overall weakening of these relationships, or the failure to develop successful new relationships, could have an adverse impact on NetCo Partners’ and the Company’s business and financial performance.

Risks relating to our common stock

Because our holding company structure creates restrictions on the payment of dividends, our ability to pay dividends is limited.

We are a holding company whose primary assets are our ownership of the equity interests in NewStem and NetCo Partner. We conduct no other business and, as a result, we depend entirely upon our NewStem’s and NetCo Partners’ earnings and cash flow. If we decide in the future to pay dividends, as a holding company, our ability to pay dividends and meet other obligations depends upon the receipt of dividends or other payments from our portfolio companies. Our portfolio companies may be restricted in their ability to pay dividends, make distributions or otherwise transfer funds to us prior to the satisfaction of other obligations, including the payment of operating expenses or debt service, appropriation to reserves prescribed by laws and regulations, covering losses in previous years, restrictions on the conversion of local currency into U.S. dollars or other hard currency, completion of relevant procedures with governmental authorities or banks and other regulatory restrictions. We do not presently have any intention to declare or pay dividends in the future. You should not purchase shares of our common stock in anticipation of receiving dividends in future periods.

Because we do not intend to pay any cash dividends on our common stock, our shareholders will not be able to receive a return on their shares unless they sell them.

We intend to retain any future earnings to finance the development and expansion of our business. We do not anticipate paying any cash dividends on our common stock in the foreseeable future. Unless we pay dividends, our shareholders will not be able to receive a return on their shares unless they sell them. Shareholders may never be able to sell shares when desired. Before you invest in our securities, you should be aware that there are various risks. You should consider carefully these risk factors, together with all of the other information included in this annual report before you decide to purchase our securities. If any of the following risks and uncertainties develop into actual events, our business, financial condition or results of operations could be materially adversely affected.

We are an emerging growth company and the reduced disclosure requirements applicable to emerging growth companies could make our common stock less attractive to investors.

We are an emerging growth company. Under the JOBS Act, emerging growth companies can take advantage of certain exemptions from various reporting requirements that are applicable to other public companies including, without limitation, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, exemptions from the requirements of holding a non-binding advisory shareholder vote on executive compensation and golden parachute payments, exemption from the requirement of auditor attestation in the assessment of our internal control over financial reporting and exemption from any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about our audit and the financial statements (auditor discussion and analysis). As a result of the foregoing, the information that we provide shareholders may be different than what is available with respect to other public companies.

In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933for complying with new or revised accounting standards. We plan to elect to use the extended period for compliance and, as a result, our financial statements may not be comparable to companies that comply with public company effective dates.

Reporting requirement under the Exchange Act and compliance with the Sarbanes-Oxley Act of 2002, including establishing and maintaining acceptable internal controls over financial reporting, are costly and may increase substantially.

The rules and regulations of the SEC require a public company to prepare and file periodic reports under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which will require that the Company engage legal, accounting, auditing and other professional services. The engagement of such services is costly. Additionally, the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) requires, among other things, that we design, implement and maintain adequate internal controls and procedures over financial reporting. The costs of complying with the Sarbanes-Oxley Act and the limited technically qualified personnel we have may make it difficult for us to design, implement and maintain adequate internal controls over financial reporting. In the event that we fail to maintain an effective system of internal controls or discover material weaknesses in our internal controls, we may not be able to produce reliable financial reports or report fraud, which may harm our overall financial condition and result in loss of investor confidence and a decline in our share price.

As a public company, we will be subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Act of 2010 and other applicable securities rules and regulations. Despite recent reforms made possible by the JOBS Act, compliance with these rules and regulations will nonetheless increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly and increase demand on our systems and resources, particularly after we are no longer an “emerging growth company.” The Exchange Act requires, among other things, that we file annual, quarterly, and current reports with respect to our business and operating results.

We are working with our legal, accounting and financial advisors to identify those areas in which changes should be made to our financial and management control systems to manage our growth and our obligations as a public company. These areas include corporate governance, corporate control, disclosure controls and procedures and financial reporting and accounting systems. We have made, and will continue to make, changes in these and other areas. However, we anticipate that the expenses that will be required in order to adequately prepare for being a public company could be material. We estimate that the aggregate cost of increased legal services; accounting and audit functions; personnel, such as a chief financial officer familiar with the obligations of public company reporting; consultants to design and implement internal controls; and financial printing alone will be a few hundred thousand dollars per year and could be several hundred thousand dollars per year. In addition, if and when we retain independent directors and/or additional members of senior management, we may incur additional expenses related to director compensation and/or premiums for directors’ and officers’ liability insurance, the costs of which we cannot estimate at this time. We may also incur additional expenses associated with investor relations and similar functions, the cost of which we also cannot estimate at this time. However, these additional expenses individually, or in the aggregate, may also be material.

In addition, being a public company could make it more difficult or more costly for us to obtain certain types of insurance, including directors’ and officers’ liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these events could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as executive officers.

The increased costs associated with operating as a public company may decrease our net income or increase our net loss and may cause us to reduce costs in other areas of our business or increase the prices of our products or services to offset the effect of such increased costs. Additionally, if these requirements divert our management’s attention from other business concerns, they could have a material adverse effect on our business, financial condition and results of operations.

There is a very limited trading market for our common stock and investors are not assured of the opportunity to sell their stock, should they desire to do so.

Our common stock is currently quoted on the OTC Pink Market. However, that stock has traded in very limited quantities in the past. We believe a significant factor in the limited market is our limited capitalization and liquidity, results of operation and the characterization of our stock as a “penny stock.” We hope to remedy our financial condition and results of operation in the future. This, in turn, may assist us in obtaining listing of our stock on other exchanges. However, there is no assurance that any of these objectives will be met or that the market will ever increase to a point where investors could sell their stock at a desirable price, should they desire to do so.

The price of our common stock could be highly volatile.

Our shares of common stock are quoted on the OTC Pink Market. It is likely that our common stock will be subject to price volatility, low volumes of trades and large spreads in bid and ask prices quoted by market makers. Due to the low volume of shares traded on any trading day, persons buying or selling in relatively small quantities may easily influence prices of our common stock. This low volume of trades could also cause the price of our stock to fluctuate greatly, with large percentage changes in price occurring in any trading day session. Holders of our common stock may also not be able to readily liquidate their investment or may be forced to sell at depressed prices due to low volume trading. If high spreads between the bid and ask prices of our common stock exist at the time of a purchase, the stock would have to appreciate substantially on a relative percentage basis for an investor to recoup their investment. Broad market fluctuations and general economic and political conditions may also adversely affect the market price of our common stock. No assurance can be given that an active market in our common stock will be sustained. If an active market does not continue, holders of our common stock may be unable to readily sell the shares they hold or may not be able to sell their shares at all.

Item 2. Financial Information.

Management’s Discussion and Analysis of the Results of Operations

Statements in the following discussion and throughout this registration statement 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 registration statement because of numerous factors, many of which are beyond our control. These factors include, without limitation, those described under Item 1A “Risk Factors” We undertake no obligation to update these forward-looking statements to reflect events or circumstances after the date of this registration statement or to reflect actual outcomes.

The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes thereto and other financial information appearing elsewhere in this Form 10.

Overview

We are a development stage company and reported net losses of $481,000 and $510,000 for the years ended December 31, 2021 and 2020, respectively. We had current assets of $37,000 and current liabilities of $193,00 as of December 31, 2021. As of December 31, 2020, our current assets and current liabilities were $121,000 and $69,000, respectively. We have prepared our financial statements for the years ended December 31, 2021 and 2020 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. 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.

Results of Operations.

Comparison of the twelve months ended December 31, 2021 and December 31, 2020

The following table sets forth certain operational data for the twelve months ended December 31, 2021, compared to the twelve months ended December 31, 2020:

Revenue.

During the twelve months ended December 31, 2021, and 2020, the Company had no revenue, therefore no customers accounted for 10% or more of our total net revenues.

Cost of Revenue.

Cost of Revenue for the twelve months ended December 31, 2021 and 2020 was $0 and $0, respectively. We had no revenues during those periods.

Gross Profit.

Consequently, we achieved a gross profit of $0 and $0 for the twelve months ended December 31, 2021 and 2020, respectively.

General and Administrative and Stock Compensation Expenses (“G&A”).

We incurred G&A expenses of $496,000 and $230,000 for the twelve months ended December 31, 2021 and 2020, respectively. The increase in G&A is primarily attributable to increased stock compensation and higher administrative costs.

Other Income, net.

We have generated other income of $0 and $17,000 for the twelve months ended December 31, 2021 and 2020, respectively. This other income generated during the twelve months ended December 31, 2020 is comprised of interest earned related to alternative minimum tax refunds.

Income Tax Expense.

Our income tax expenses for the twelve months ended December 31, 2021 and 2020 were $0 and $0, respectively.

Comparison of the three months ended March 31, 2022 and March 31, 2021

The following table sets forth certain operational data for the three months ended March 31, 2022, compared to the three months ended March 31, 2021:

Revenue.

During the three months ended March 31, 2022, and 2021, the Company had no revenue, therefore no customers accounted for 10% or more of our total net revenues.

Revenue for the three months ended March 31. 2022 and March 31, 2021 were $0 and $0, respectively.

Cost of Revenue.

Cost of Revenue for the three months ended March 31, 2022 and 2021 was $0 and $0, respectively, as we had no Revenue

Gross Profit (Loss).

We achieved a gross profit of $0 for the three months ended March 31, 2022 and 2021.

General and Administrative Expenses (“G&A”).

We incurred G&A expenses of $90,000 and $44,000 for the three months ended March 31, 2022 and 2021, respectively. The increase in G&A is primarily attributable to the higher accounting and legal fees associated with the preparation of this Form 10.

Other Expenses, net.

We have incurred other expenses consisting of stock compensation expense of $49,000 and $83,000 for the three months ended March 31, 2022 and 2021, respectively. The decrease in stock compensation expense is due to a smaller number of options that were given out in the three months ended March 31, 2022 compared to the three months ended March 31,2021.

During the three months ended March 31, 2022 we had 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 C.P. Group. As part of that funding arrangement Omni Bridgeway agreed to reimburse NovelStem for legal expenses that we had incurred previously. The funding of $310,000 was comprised of $140,000 for reimbursement of previously incurred legal expenses and $170,000 for working capital needs. There was no contra expense in the three months ended March 31, 2021.

For the three months ended March 31, 2022 there was no equity in net income from equity method investees as we did not receive any royalty income from NetCo Partners. For the three months ended March 31, 2021 we did receive $9,000 in royalties and that is reflected in the equity in net income from equity method investees.

Income Tax Expense.

Our income tax expenses for the three months ended March 31, 2022 and 2021 were $0 and $0, respectively.

Net Income

Net Income for the three months ended March 31,2022 was $169,000 compared to a loss of $118,000 for the three months ended March 31,2021. The difference relates to the $310,000 in contra expenses and lower stock compensation expenses somewhat offset by higher general and administrative expenses.

Liquidity and Capital Resources

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

We expect to incur significantly greater expenses in the near future as we expand our business or enter into strategic partnerships. We also expect our general and administrative 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, the Chairman of the Company’s Board of Directors (the “Board”) 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 and matures the earlier of January 31, 2024 or 20 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 registration statement, the Company has drawn down $100,000 under the aforementioned agreement.

Net Cash (Used In) Generated From Operating Activities.

For the year ended December 31, 2021, net cash used in operating activities was $181,000, which consisted primarily of a net loss of $481,000, offset by stock-based compensation of $273,000 and an increase in accrued liabilities and other payables of $24,000.

For the year ended December 31, 2020, net cash generated from operating activities was $419,000, which consisted primarily of a net loss of $510,000, offset by a non-cash equity loss of NewStem Ltd. of $306,000 and a dividend from NetCo of $9,000, stock-based compensation of $80,000, a $509,000 decrease in current assets and an increase in accrued liabilities and other payables of $35,000. The decrease in current assets related primarily to the collection of a refund receivable of a federal alternative minimum tax refund.

Net Cash Used In Investing Activities.

For the year ended December 31, 2021, no net cash was used in investing activities. For the year ended December 31, 2020 $1,000,000 was used in investing activities as we paid milestone payments to NewStem Ltd.

Net Cash Used In Financing Activities.

For the year ended December 31, 2021, net cash provided by financing activities was $100,00 consisting of short-term borrowings from a director.

For the year ended December 31, 2020, net cash provided by financing activities was $600,000 consisting of proceeds from the sale of stock.

Off-Balance Sheet Arrangements

We are not party to any off-balance sheet transactions. We have no guarantees or obligations other than those which arise out of normal business operations.

Contractual Obligations and Commercial Commitments

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

Item 3. Properties.

Our corporate office is located at 2255 Glades Road, Boca Raton, FL 33431. We believe that our facilities are adequate for our current operations.

Item 4. Security Ownership of Certain Beneficial Owners and Management.

The following table sets forth certain information with respect to the beneficial ownership of our common stock, as of August 1, 2022, for each person known by us to be the beneficial owner of more than 5% of our outstanding shares of common stock, each of our directors and all directors as a group. The Company has no executive officers. Except as indicated in footnotes to this table, we believe that the shareholders named in this table will have sole voting and investment power with respect to all shares of common stock shown to be beneficially owned by them, based on information provided to us by such shareholders.

(1) Applicable percentage ownership is based on 46,881,475 shares of common stock outstanding as of August 1, 2022, together with securities exercisable or convertible into shares of common stock within 60 days of August 1, 2022. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Shares of common stock that a person has the right to acquire beneficial ownership of upon the exercise or conversion of options, convertible stock, warrants or other securities that are currently exercisable or convertible or that will become exercisable or convertible within 60 days of August 1, 2022, are deemed to be beneficially owned by the person holding such securities for the purpose of computing the number of shares beneficially owned and percentage of ownership of such person, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person.

(2) Includes 1,108,108 held in an IRA and 874,528 held as Trustee for the Steinberg Family Trust. Includes warrants to purchase 2.25 million shares of common stock at an exercise price of $0.13 per share and options to purchase 1.10 million shares of common stock at an exercise price of $0.10 per share.

(3) Includes options to purchase 150,000 shares of common stock at an exercise price of $0.10 per share.

(4) Director.

(5) Includes options and warrants to purchase 1,850,000 shares of common stock at an exercise price of $0.10 per share.

Item 5. Directors and Executive Officers.

Biographical and certain other information concerning the Company’s directors is set forth below. The Company has no executive officers. There are no familial relationships among any of our directors. Except as indicated below, none of our directors is a director in any other reporting companies. None of our directors has been affiliated with any company that has filed for bankruptcy within the last ten years except that Jan Loeb has previously been affiliated with Kid Brands, Inc., which filed for bankruptcy in June 2014. We are not aware of any proceedings to which any of our directors, or any associate of any such director is a party adverse to us or any of our subsidiaries or has a material interest adverse to us or any of our subsidiaries.

Directors

Executive Officers

We have no executive officers.

Changes in control

There are no arrangements which may at a subsequent date result in a change in control of the Company

Item 6. Executive Compensation.

The Company does not have any executive officers, and therefore does not pay any compensation to executive officers.

The Company pays compensation to its directors pursuant to the NovelStem International Corp. Equity Incentive Plan (the “Plan”).

The Plan provide for the grant to officers, directors, third party contractors and other future key employees of options to purchase shares of common stock. Under the Plan, the Company is authorized to issue up to 7,000,000 shares of common stock as equity awards under the Plan. Awards may be made in the form of options, stock appreciation rights (“SARs”), restricted stock or restricted stock units, or stock bonus awards in respect of the Company’s common stock of the Company. Grants to any single participant or non-executive director during any calendar year may not exceed 1,000,000 shares.

The purchase price may be paid in cash or at the end of the option term, if the option is “in-the-money”, it is automatically exercised “net”. In a net exercise of an option, the Company does not require a payment of the exercise price of the option from the optionee but reduces the number of shares of common stock issued upon the exercise of the option by the smallest number of whole shares that has an aggregate fair market value equal to or in excess of the aggregate exercise price for the option shares covered by the option exercised. Each option is exercisable to one share of the Company’s common stock.

Options awarded under the Plan shall be awarded at an exercise price of not less than the fair market value of a share of our common stock as of the grant date and shall vest and become exercisable after a period not to exceed seven (7) years. SARs awarded under the Plan shall have a strike price per share of common stock of not less than the fair market value of a share of our common stock, provided that, in the case of a SAR granted in tandem with an option, the strike price shall not be less than the exercise price of the related option. A SAR granted in tandem with an option shall become exercisable and shall expire according to the same vesting schedule and expiration provisions as the corresponding option, such date not to exceed seven (7) years of the grant date.

In the event of the termination of an employee, third party service provider, officer or Director’s service on the Board of the Company for any reason other than for cause, all of the Options which are then vested may be exercised within 18 months of such termination, provided that, in no event shall this extension period continue beyond the expiration of the term of the option(s). In addition, any such extension shall be applicable only to the extent that such option or options are vested and exercisable according to the terms of the Plan and any applicable option agreement. Any unvested options are immediately terminated on the effective date of the termination. In the event of termination of an employee, third party service provider, officer or Director’s service for cause, all options are forfeited and deemed cancelled and no longer exercisable as of the date of termination.

The Board of Directors has hired Ms. Christine Jenkins as a financial and accounting consultant. Ms. Jenkins is paid on an hourly basis.

Compensation Committee Interlocks and Insider Participation

We do not have a compensation committee or persons participating in deliberations concerning executive officer compensation, as there was no executive officer compensation paid.

Item 7. Certain Relationships and Related Transactions, and Director Independence.

Jan Loeb, a director and the Chairman of the Board, is also the Chairman of the Board of NewStem.

On April 12, 2021, the Company entered into a promissory note (the “Note”) with Stephen Gans for $100,000. The Note accrues 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 including directors and officer insurance premiums. Interest expense accrued related this this Note was $5,752 for the year ended December 31, 2021. The Note and all accrued interest were paid in full on February 16, 2022

In May 2022, the Company entered into an agreement Jan Loeb, Chairman of the Board, 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 and matures the earlier of January 31, 2024 or 20 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 registration statement, the Company has drawn down $100,000 under the aforementioned agreement.

Except as disclosed herein, no director, executive officer, shareholder holding at least 5% of shares of our common stock, or any family member thereof, had any material interest, direct or indirect, in any transaction, or proposed transaction since January 1, 2019, in which the amount involved in the transaction exceeds the lesser of $120,000 or one percent of the average of our total assets at the year-end for the last two completed fiscal years.

Review, Approval or Ratification of Transactions with Related Persons

The Board conducts an appropriate review of and oversees all related party transactions on a continuing basis and reviews potential conflict of interest situations where appropriate. The Board has adopted formal standards to apply when it reviews, approves or ratifies any related party transaction. In addition, the Board applies the following standards to such reviews: (i) all related party transactions must be fair and reasonable and on terms comparable to those reasonably expected to be agreed to with independent third parties for the same goods and/or services at the time they are authorized by the Board and (ii) all related party transactions should be authorized, approved or ratified by the affirmative vote of a majority of the directors who have no interest, either directly or indirectly, in any such related party transaction.

Director Independence.

We have determined that, under the criteria established by NASDAQ and by our board of directors, Jan Loeb, Tracy Clifford, Eric Richman, Mitchell Rubenstein and David Seltzer are independent.

Item 8. Legal Proceedings.

As noted above, Netco Partners owns all rights in all media to Tom Clancy’s NetForce 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 Partners, in an effort to maximize the total potential value to be derived from fully utilizing the Netco Partners intellectual property across publishing, entertainment, digital media, merchandising and other ancillary markets. Arbitration proceedings for the joint owners of NetCo Partners are scheduled for this summer.” To fund efforts to maximize the value of Netco Partners, NovelStem has secured non-recourse litigation funding.

Item 9. Market Price of and Dividends on the Registrant’s Common Equity and Related Shareholder Matters.

Market information

There is no established public trading market in our common stock, and a regular trading market may not develop, or if developed, may not be sustained. Our securities are currently quoted on the OTC Markets Pink under the symbol “NSTM”. The following reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.

Holders

As of August 1, 2022 there were 46,881,475 shares of common stock outstanding held by approximately 90 record holders.

Dividends

We have never paid cash dividends on any of our capital stock and currently intend to retain our future earnings, if any, to fund the development and growth of our business. We do not expect to pay any dividends on any of our capital stock in the foreseeable future.

Securities authorized for issuance under equity compensation plans.

Item 10. Recent Sales of Unregistered Securities.

On December 11, 2019, we issued 2,500,000 shares of common stock at $0.10 per share to an existing shareholder.

In 2019 we issued options to purchase up to 300,000 shares of common stock at an exercise price of $0.10 per share to members of our Board pursuant to the Plan.

On June 29, 2018, we issued five-year warrants to purchase up to 750,000 shares of common stock with an exercise price of $0.10 per share. These warrants expire on June 28, 2023.

On June 29, 2018, we issued five-year warrants to purchase up to 2,250,000 shares of common stock with an exercise price of $0.13 per share. These warrants expire on June 28, 2023.

On June 25, 2020, we issued 6,000,000 shares of common stock at $0.10 per share to three existing shareholders.

In 2020 we issued options to purchase up to 3,700,000 shares of common stock at an exercise price of $0.10 per share to members of our Board pursuant to the Plan.

On November 15, 2021, in a noncash transaction, the Company issued approximately 3,000,000 shares of common stock to existing holders of subscription agreements dated June 2020. These subscription agreements provided for the issuance of additional shares if certain contingent assets were not realized. It was determined during the year ended December 31, 2021 that the contingent asset would not be realized and the shares were issued.

In 2022 we issued options to purchase up to 1,100,000 shares of common stock at an exercise price of $0.29 per share to members of our Board pursuant to the Plan.

None of the foregoing transactions involved any underwriters, underwriting discounts or commissions, or any public offering. We believe that the offers, sales, and issuances of the above securities were exempt from registration under the Securities Act by virtue of Section 4(a)(2) of the Securities Act or Regulation D promulgated thereunder as transactions by an issuer not involving any public offering, or in reliance on Rule 701 promulgated under Section 3(b) of the Securities Act because the transactions were pursuant to compensatory benefit plans or contracts relating to compensation as provided under Rule 701. The recipients of the securities in each of these transactions represented their intentions to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof, and appropriate legends were placed upon the stock certificates issued in these transactions. All recipients had adequate information about us or had adequate access, through their relationships with us, to information about us.

Item 11. Description of Registrant’s Securities to be Registered.

The following description summarizes the material terms of our capital stock as of the date of this registration statement. Because it is only a summary, it does not contain all the information that may be important to you. For a complete description of our capital stock, you should refer to our Articles of Incorporation and our Bylaws, and to the provisions of applicable Florida law.

Common Stock

We are authorized to issue up to 100,000,000 shares of our common stock, par value $0.01. Each share of common stock entitles the holder to one (1) vote on each matter submitted to a vote of our shareholders, including the election of directors. There is no cumulative voting. Our shareholders are entitled to receive ratably such dividends, if any, as may be declared from time to time by the Board of Directors. Shareholders have no preemptive, conversion or other subscription rights. There are no redemption or sinking fund provisions related to our common stock. In the event of liquidation, dissolution or winding up of the Company, our shareholders are entitled to share ratably in all assets remaining after payment of liabilities, subject to prior distribution rights of preferred stock, if any, then outstanding.

Preferred Stock

We are authorized to issue up to 1,000,000 shares of preferred stock, par value $0.01, in one or more classes or series. The Board of Directors is authorized to fix whether or not each class or series is to have voting rights and what the preferences and relative, participating or other special rights may be. The Board of Directors is authorized to determine the dividend rate and the manner and timing pursuant to which dividends are paid. No preferred stock is currently outstanding.

Options

We are authorized to up to 7 million shares of common stock pursuant to the Plan. As of the date of this registration statement, we have issued options to purchase up to an aggregate of 5.4 million shares of common stock with exercise prices ranging from $0.10 to $0.29. Of the foregoing, 4.3 million options have vested and 1.1 million options will vest on January 1, 2023. The options expire seven years after the grant date.

Warrants

0n June 29, 2018, we issued five year warrants to purchase up to 750,000 shares of common stock with an exercise price of $0.10 per share. These warrants expire on June 28, 2023.

On June 29, 2018, we issued five year warrants to purchase up to 2,250,000 shares of common stock with an exercise price of $0.13 per share. These warrants expire on June 28, 2023.

Item 12. Indemnification of Directors and Officers.

The Company has authority under Section 607.0850 of the Florida Business Corporation Act (the “FBCA”) to indemnify its directors and officers to the extent provided for in the FBCA against liability which a director or officer may incur in his or her capacity as such. The Company’s Articles of Incorporation, as amended, provide that the Company shall indemnify its officers and directors to the fullest extent not prohibited by law.

The Company has entered into agreements with each of its directors wherein it agreed to indemnify each of them to the fullest extent permitted by law, and the Company may from time to time enter into other agreements with such persons regarding such indemnification.

The provisions of the FBCA that authorize indemnification do not eliminate the duty of care of a director, and in appropriate circumstances, equitable remedies such as injunctive or other forms of non-monetary relief will remain available under Florida law. In addition, the FBCA does not permit indemnification of a director or officer under certain circumstances, including in the event that a judgment or other final adjudication establishes that his or her actions or omissions were material to the cause of action so adjudicated and constitute: (a) violations of criminal laws, unless the director or officer had reasonable cause to believe his conduct was lawful or had no reasonable cause to believe his conduct was unlawful, (b) deriving an improper personal benefit from a transaction, (c) in the case of a director, a circumstance under which the director has liability for voting for or assenting to an unlawful distribution, and (d) willful misconduct or conscious disregard for the best interests of the Company in a proceeding by or in the right of the Company to procure a judgment in its favor or in a proceeding by or in the right of a shareholder.

The Company has obtained and currently intends to maintain in effect directors’ and officers’ liability insurance policies providing customary coverage for its directors and officers against losses and liabilities incurred by them in their capacities as directors and officers of the Company.

The above discussion of the Company’s Articles of Incorporation, indemnification agreements, and Florida laws, is only a general summary and is respectively qualified in its entirety by such documents and laws.

Item 13. Financial Statements and Supplementary Data.

The information required by this item may be found beginning on page F-1 of this Form 10.

Item 14. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

Item 15. Financial Statements and Exhibits.

The following financial statements are filed as part of this registration statement:

NOVELSTEM INTERNATIONAL CORP.

Years Ended December 31, 2021 and 2020

Index to Audited Financial Statements

NOVELSTEM INTERNATIONAL CORP.

Three Months Ended March 31, 2022 and 2021

Index to Unaudited Condensed Financial Statements

NEWSTEM, LTD.

Years Ended December 31, 2021 and 2020

Index to Audited Financial Statements

NEWSTEM, LTD

Three Months Ended March 31, 2022 and 2021

Index to Unaudited Condensed Financial Statements

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of

Novelstem International Corp.

Boca Raton, Florida

Opinion on the Financial Statements

We have audited the accompanying balance sheets of NovelStem International Corp. (the “Company”) as of December 31, 2021 and 2020, and the related statements of operations, stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2021, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe our audits provide a reasonable basis for our opinion.

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

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

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

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

NOVELSTEM INTERNATIONAL CORP.

Notes to Financial Statements

NOTE 1—NATURE OF OPERATIONS

Description of Business

NovelStem International Corp. (“NovelStem” or the “Company”) is a holding company whose principal assets are a 31.5% equity interest in NewStem Ltd, an Israeli biotech company (“NewStem”), and a 50% equity interest in NetCo Partners, a Florida partnership (“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 cutting edge 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.

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 $287,000,000. The accumulated deficit of the Company subsequent to its business focus shift and name change in September 2018 is approximately $612,000 which is comprised primarily of 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 (see Note 3).

In the period subsequent to these financial statements, the Company entered into a financing agreement to borrow up to $600,000 for working capital needs (see Note 8). Following this financing, the Company believes that its cash resources are sufficient for the operations of the next 12 months.

NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The Financial Accounting Standards Board (“FASB”) has established the FASB Accounting Standards Codification (“ASC”) as the single source of authoritative GAAP.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.

Cash and Cash Equivalents

Cash and cash equivalents include certain investments in highly liquid debt instruments with original maturities of three months or less at the date of purchase. The Company had no cash equivalents as of either year end presented.

Equity Investments

Investee companies that are not consolidated, but over which the Company exercises significant influence, are accounted for under the equity method of accounting. Whether or not the Company exercises significant influence with respect to an Investee depends on an evaluation of several factors, including, among others, representation on the Investee company’s board of directors and ownership level, which is generally a 20% to 50% interest in the voting securities of the Investee company. Under the equity method of accounting, an Investee company’s accounts are not reflected within the Company’s Balance Sheets or Statements of Operations; however, the Company’s share of the earnings or losses of the Investee company is reflected in the caption “Equity in net income (loss) of affiliates” in the Statements of Operations. The Company’s carrying value in an equity method Investee company is reflected in the caption “Investment in Investee company’ in the Company’s Balance Sheets.

When the Company’s carrying value in an equity method Investee company is reduced to zero, no further losses are recorded in the Company’s financial statements unless the Company guarantied obligations of the Investee company or has committed additional funding. When the Investee company subsequently reports income, the Company will not record its share of such income until it equals the amount of its share of losses not previously recognized.

The Company reviews equity investments for impairment on an annual basis, or earlier if events or changes in circumstances indicate that the carrying amounts might not be recoverable.

The Company holds a minority investment in an entity, NewStem, Ltd (“NewStem”) which is accounted for pursuant to the equity method of accounting. Additionally, the Company is a 50% partner in NetCo Partners (NetCo” which is accounted for pursuant to the equity method of accounting. See Note 3.

Treasury Stock

Shares of common stock repurchased are recorded at cost as treasury stock.

Stock-Based Compensation

The Company accounts for stock-based awards in accordance with applicable accounting principles, which requires compensation expense related to share-based transactions to be measured and recognized in the financial statements based on a determination of the fair value of the stock options. The grant date fair value is determined using the Black-Scholes-Merton (“Black-Scholes”) pricing model. For all stock options, the Company recognizes expense over on an accelerated basis over the requisite service period (generally the vesting period of the equity grant). The Company’s option pricing model requires the input of highly subjective assumptions, including the expected stock price volatility, expected term, and forfeiture rate. Any changes in these highly subjective assumptions significantly impact stock-based compensation expense.

Options awarded to purchase shares of common stock issued to non-employees in exchange for services are accounted for as variable awards in accordance with applicable accounting principles. Such options are valued using the Black-Scholes option pricing model.

In the event of the termination of an employee, third party service provider, officer or Director’s service on the Board of the Company for any reason other than for cause, all of the Options which are then vested may be exercised within 18 months of such termination, provided that, in no event shall this extension period continue beyond the expiration of the term of the option(s). In addition, any such extension shall be applicable only to the extent that such option or options are vested and exercisable according to the terms of the Plan and this Agreement. Any unvested options are immediately terminated on the effective date of the termination. In the event of termination of an employee, third party service provider, officer or Director’s service for cause, all Options are forfeited and deemed cancelled and no longer exercisable on the date of termination.

See Note 5 for the assumptions used to calculate the fair value of stock-based compensation. Upon the exercise of options, it is the Company’s policy to issue new shares rather than utilizing treasury shares.

Income Taxes

Deferred income taxes are determined using the asset and liability method in accordance with Accounting Standards Codification (“ASC”) Topic 740. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred income taxes are measured using enacted tax rates expected to apply to taxable income in years in which such temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred income taxes is recognized in the statement of operations of the period that includes the enactment date. In addition, a valuation allowance is established to reduce any deferred tax asset for which it is determined that it is more likely than not that some portion of the deferred tax asset will not be realized.

Basic and Diluted Net Loss Per Share

Basic net income per share is computed by dividing the net income by the weighted average number of shares outstanding during the year, excluding treasury stock. Diluted net income per share is computed by dividing the net income by the weighted average number of shares outstanding plus the dilutive potential of common shares which would result from the exercise of stock options and warrants. The dilutive effects of stock options and warrants are excluded from the computation of diluted net income per share if the effect of doing so would be antidilutive.

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:

NOTE 3—EQUITY METHOD INVESTMENTS

Investment in NewStem, Ltd.

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 Ltd. This funding was to be provided through the sale of up to 50,000 common shares of NewStem, Ltd. to the Company representing 33% of New Stem Ltd.’s outstanding shares. In 2018, the Company purchased 25,000 shares of NewStem, Ltd. 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% and 33.33%, respectively, as of December 31, 2021 and 2020.

The Company accounts for its investment in NewStem under the equity method. At December 31, 2021 and 2020, the carrying value of the investment in NewStem exceeded the underlying net assets of NewStem by $3,335,175. The excess relates to in process research and development (“IPR&D”) related to stem cell-based diagnostics for cancer chemotherapies. Losses incurred by NewStem reduced the Company’s carrying value of its investment in NewStem to zero and, as a consequence, the Company’s future financial results will not be negatively affected by NewStem’s ongoing operations. All losses incurred since the investment carrying value was reduced to zero are suspended until such time as NewStem becomes profitable. Cumulative suspended losses are approximately $900,000 and $35,000 as of December 31, 2021 and 2020, respectively. The Company has no obligation to fund future operating losses of NewStem. The Company’s remaining investment in NewStem, in both periods presented, consists of in process research and development.

The Company assesses its investment in NewStem including the underlying in process research and development 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 management reports fundraising activities in April 2022 that provide additional funding of approximately $1,600,000.

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

The results of operations and financial position of the Company’s investment in NewStem Ltd. are summarized below:

Investment in NetCo Partners

NovelStem owns a 50% interest in NetCo Partners, a joint venture that owns the Net Force publishing franchise, NetCo Partners. The Company accounts for its investment in NetCo Partners under the equity method and collects 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 Partners:

The results of operations and financial position of the Company’s investment in NetCo Partners are summarized below:

NOTE 4—NOTE PAYABLE

On April 12, 2021, the Company entered into a promissory note (the “Note”) with a related party (individual) for $100,000. The Note accrues 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 including directors and officer insurance premiums. Interest expense accrued related this this Note was $5,752 for the year ended December 31, 2021. The Note and all accrued interest were paid in full on February 16, 2022.

NOTE 5—EQUITY

(a) General

At December 31, 2021 and 2020 the Company had issued and outstanding 46,881,475 and 43,881,477, respectively, 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.

On November 15, 2021, in a noncash transaction, the Company issued approximately 3,000,000 shares of common stock to existing holders of subscription agreements dated June 2020. These subscription agreements provided for the issuance of additional shares if certain contingent assets were not realized. It was determined during the year ended December 31, 2021 that the contingent asset would not be realized and the shares were issued.

(b) Summary Employee Option Information

The Company’s stock option plans provide for the grant to officers, directors, third party contractors and other future key employees of options to purchase shares of common stock. The purchase price may be paid in cash or at the end of the option term, if the option is “in-the-money”, it is automatically exercised “net”. In a net exercise of an option, the Company does not require a payment of the exercise price of the option from the optionee but reduces the number of shares of common stock issued upon the exercise of the option by the smallest number of whole shares that has an aggregate fair market value equal to or in excess of the aggregate exercise price for the option shares covered by the option exercised. Each option is exercisable to one share of the Company’s common stock. Most options expire within six years from the date of the grant and generally vest on the first anniversary date of their issuance. Pursuant to the Equity Incentive Plan the Company’s board of directors approved on November 12, 2018, an aggregate of 4,300,000 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 years (all in weighted averages):

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

(c) Summary Option Information

A summary of the Company’s option plans as of December 31, 2021 and 2020, as well as changes during each of the years then ended, is presented below:

Stock-based compensation expense was approximately $273,000 and $80,000 in the years ending December 31, 2021 and 2020, respectively.

The total compensation cost related to non-vested awards not yet recognized was approximately $273,000 as of December 31, 2020. All awards were vested as of December 31, 2021.

(d) Warrants

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

The warrants outstanding at December 31, 2021 have a weighted average remaining contractual life of approximately 1.5 years.

NOTE 6—INCOME TAXES

For the years ended December 31, 2021 and 2020, the Company incurred net operating losses and, accordingly, no provision for income taxes has been recorded. In addition, no benefit for income taxes has been recorded due to the uncertainty of the realization of any tax assets. At December 31, 2021 and 2020, the Company had approximately $118,000,000 and $141,000,000, respectively of net operating losses subject to IRC Section 382 limitations, of which $6,200,000 and $6,000,000, respectively, were available for carryforward after the consideration of IRC Section 382 limitations. State of Florida net operating losses available for carryforward approximate the federal net operating loss carryforward amounts.

The federal and state net operating losses expire beginning in 2021. Approximately $23,000,000 and $3,000,000, respectively, of federal and state losses expired in December 2021. The Company has approximately $1,635,000 in federal and state losses that do not expire. The remaining losses expire from 2022 through 2036. The majority of these expiring losses are further limited by IRC section 382 as shown in the deferred tax table below. All such deferred tax assets have been offset with a full valuation allowance.

The Company’s income tax provision differs from the expense that would result from applying statutory rates to income before taxes. A reconciliation of the provision (benefit) for income taxes with amounts determined by applying the statutory U.S. federal income tax rate to income before income taxes is as follows:

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Deferred tax assets as of December 31, 2021 and 2020 consist of the following:

Management has evaluated all tax positions that could have a significant effect on the combined financial statements and determined the Companies had no significant uncertain income tax positions at December 31, 2021 and 2020.

During the year ended December 31, 2020, the Company received a refund of 2019 alternative minimum taxes in the amount of $518,819.

NOTE 7—COMMITMENTS AND CONTINGENCIES

The Company is the claimant in an arbitration proceeding against their 50% partner in NetCo Partners. The Company initiated the arbitration proceeding in an effort to maximize the total potential value to be derived from fully utilizing the NetCo Partners intellectual property across publishing, entertainment, digital media, merchandising and other ancillary markets. Arbitration proceedings for the joint owners of NetCo Partners are scheduled during 2022.

NOTE 8—SUBSEQUENT EVENTS

The Company granted 1,100,000 stock options to directors in January 2022.

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 any claims collected to be received by Omni with the remainder collectible by the Company.

In May 2022, the Company entered into a finance agreement with two individuals who are stockholders and directors, which was amended in July 2022, to borrow up to $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 and matures the earlier of January 31, 2024 or 20 months from the date of the first funded amount unless the shareholders agree to extend the due date at that time. To date, the Company has received advances of $100,000 pursuant to this agreement.

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

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

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

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

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 31.5% equity interest in NewStem Ltd, an Israeli biotech company (“NewStem”), and a 50% equity interest in NetCo Partners, a Florida partnership (“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 cutting edge 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. 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 $287,000,000. The accumulated deficit of the Company subsequent to its business focus shift and name change in September 2018 is approximately $443,000 which is comprised primarily of 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.

In the period subsequent to these financial statements, the Company entered into a financing agreement to borrow up to $600,000 for working capital needs (see Note 9). Following this financing, the Company believes that its cash resources are sufficient for the operations of the next 12 months.

NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of 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 condensed financial statements included in this report have bee 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 three-month periods ended March 31, 2021 and 2020 are not necessarily indicative of the operating results for the full year.

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.

Equity Investments

Investee companies that are not consolidated, but over which the Company exercises significant influence, are accounted for under the equity method of accounting. Whether or not the Company exercises significant influence with respect to an Investee depends on an evaluation of several factors, including, among others, representation on the Investee company’s board of directors and ownership level, which is generally a 20% to 50% interest in the voting securities of the Investee company. Under the equity method of accounting, an Investee company’s accounts are not reflected within the Company’s Balance Sheets or Statements of Operations; however, the Company’s share of the earnings or losses of the Investee company is reflected in the caption “Equity in net income (loss) of affiliates” in the Statements of Operations. The Company’s carrying value in an equity method Investee company is reflected in the caption “Investment in Investee company’ in the Company’s Balance Sheets.

When the Company’s carrying value in an equity method Investee company is reduced to zero, no further losses are recorded in the Company’s financial statements unless the Company guarantied obligations of the Investee company or has committed additional funding. When the Investee company subsequently reports income, the Company will not record its share of such income until it equals the amount of its share of losses not previously recognized.

The Company reviews equity investments for impairment on an annual basis, or earlier if events or changes in circumstances indicate that the carrying amounts might not be recoverable.

The Company holds a minority investment in an entity, NewStem, Ltd (“NewStem”) which is accounted for pursuant to the equity method of accounting. Additionally, the Company is a 50% partner in NetCo Partners (NetCo” which is accounted for pursuant to the equity method of accounting. See Note 3.

Treasury Stock

Shares of common stock repurchased are recorded at cost as treasury stock.

Stock-Based Compensation

The Company accounts for stock-based awards in accordance with applicable accounting principles, which requires compensation expense related to share-based transactions to be measured and recognized in the financial statements based on a determination of the fair value of the stock options. The grant date fair value is determined using the Black-Scholes-Merton (“Black-Scholes”) pricing model. For all stock options, the Company recognizes expense over on an accelerated basis over the requisite service period (generally the vesting period of the equity grant). The Company’s option pricing model requires the input of highly subjective assumptions, including the expected stock price volatility, expected term, and forfeiture rate. Any changes in these highly subjective assumptions significantly impact stock-based compensation expense.

Options awarded to purchase shares of common stock issued to non-employees in exchange for services are accounted for as variable awards in accordance with applicable accounting principles. Such options are valued using the Black-Scholes option pricing model.