NovelStem International Corp.: Form 10-K for the period ended Dec 31, 2024

NovelStem International Corp. (“NovelStem” or the “Company”) is a holding company whose principal assets are a 50% equity interest in NetCo Partners (“NetCo”) and an approximately 31% interest in NewStem Ltd, an Israeli biotech company (“NewStem”). 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.

With the purchase of NewStem, the Company expanded its business focus from media to cutting edge biotech. As a significant shareholder in NewStem, and the substantial commitment of our management and financial resources to NewStem, including the fact that our Executive Chairman, Jan Loeb, is also the Chairman of NewStem, we have the ability to exert significant influence over the management and operations of NewStem resulting in NewStem functioning as a minority operating subsidiary of the Company. Since his appointment in July 2018, Mr. Loeb has acted in an executive capacity on behalf of the Company and has served in a de facto leadership role. In September 2022, the Board appointed Mr. Loeb as Executive Chairman of NovelStem in order to ratify Mr. Loeb’s position and clarify his executive role. On January 13, 2023, the Board appointed Mr. Loeb as President. With respect to NewStem, Mr. Loeb, as the Chairman, calls and presides over the meetings of NewStem’s Board of Directors. Additionally, Mr. Loeb leverages his financial expertise by guiding NewStem’s financial and strategic planning, including the raising and deployment of capital, developing and modifying NewStem’s business plan and budget and by participating in the negotiation of NewStem’s material contracts as required. NewStem does not currently have an appointed Chief Financial Officer and, as such, Mr. Loeb serves as the de facto Chief Financial Officer and Chief Strategic Officer of NewStem.

Through the second quarter of 2024, the Company was a development stage biotechnology holding company focused on the stem cell-based technology developed by Hebrew University under exclusive license to NewStem. The Company signed an agreement (the “Purchase Agreement”) on June 20, 2024 to acquire the remainder of NewStem in exchange for Company stock as well as funding for NewStem. The Company was unable to obtain funding to proceed and the Purchase Agreement was not fully consummated. As such, no Company shares were issued to NewStem shareholders in exchange for NewStem shares.

During the third quarter of 2024, it became evident that NewStem would not be able to raise funds to continue operations consisting of research and development and further development of the technology. In October 2024, NewStem ceased operations and began the process of liquidation under which the current state of the technology reverts back to the original licensor with the Company retaining a financial interest in any future licensing.

NovelStem depends entirely on earnings and cash from its investments in NewStem and the NewStem technology and our 50% equity interest in the NetCo joint venture. The Company’s principal operations coincided with those of NewStem. We have not received any dividend payments or other distributions from NewStem in the fiscal years ended December 31, 2024 and 2023. We received distributions of earnings from NetCo of $6,875 during the fiscal year ended December 31, 2023. No such distributions of earnings were received during the fiscal year ended December 31, 2024.

NewStem

NewStem is a development stage Israeli biotech limited liability company that performed research 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 oncology drugs based on synthetic lethal interaction and developing a personalized diagnostic for early detection of chemotherapy resistance. NewStem has incurred losses since inception and has generated minimal revenues from a licensing agreement to date. NewStem filed an FDA Pre-Submission and received a CE Mark from the European Medicines Agency (EMA) for its in vitro diagnostic device (IVDD). NewStem does not have an FDA approved medical device. The NewStem Software Diagnostic Device (NSDD) is CE marked under EU regulation as an “other” IVD under Directive 98/79/EC since March 2022.

NewStem performs genome-wide genetic screening to identify synthetic lethal interactions with common cancer-related mutations. The first step in the process is to create a model with relevant cancer-related mutations in HhPSCs, where, subsequently, a library targeting approximately 18,000 coding genes is induced. At the end of this step, each cell has two mutations, one in the cancer related gene and the other in a coding gene. A genome-wide genetic screening is performed, both on normal HhPSCs and genomic modified HhPSCs to which a cancer-related mutation was inserted. The goal of such screens is to identify mutations that in combination with a cancer-related mutation will kill the cells. Following bioinformatic analysis of the genetic screening results, novel targets are identified and validated, first in HhPSCs and then cancer models (tumor organoids and PDX). NewStem has validated several targets in HhPSCs and will move next to validation in cancer models. To identify novel targets for drug development, NewStem performs genome-wide genetic screening. The validation process requires additional experiments that corroborate the results in independent experiments that are performed on haploid human embryonic stem cells and cancer models. For validated targets, artificial intelligence (AI) based drug discovery will be performed following by hit to lead process and ADMET that will support the transition to clinical trials.

In reference to AI-based drug discovery, AI can assist in structure-based drug discovery by predicting the 3D protein structure and the chemical environment of the target protein site, thus helping to predict the effect of a compound on the target along with safety considerations before their synthesis or production and, accordingly, accelerates the drug development process.

In reference to the hit to lead process- this is the iterative process of lead improvement. It is the stage where a hit, typically a small molecule identified in a high throughput screen, is chemically modified into a lead molecule following improvements in activity against the target.

In reference to ADMET, this is the five-letter acronym for absorption, distribution, metabolism, excretion, and toxicity that describes pharmacokinetics. ADMET plays key roles in drug discovery and development. A high-quality drug candidate should not only have sufficient efficacy against the therapeutic target, but also show appropriate ADMET properties at a therapeutic dose.

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 the only company worldwide to develop products based on this innovative proprietary technology. These products refer to the medical device platform that provides information to oncologists regarding the presence of mutations in the patient’s tumor profile which may confer resistance to different anti-cancer drugs and to anticancer drugs that target tumors with specific mutations based on a synthetic-lethal interaction approach.

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 provided 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 was obligated to pay royalties of up to 3% of net sales and up to 12% of “Sublicense Consideration” (as defined in the License Agreement). As part of the ongoing liquidation of NewStem, the License reverts to the original holders and NovelStem retains a significant financial interest in any future monetization of 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 30.51% equity interest in NewStem. The remaining equity interests in NewStem are owned by Yissum and Professor Benvenisty, each of whom owns a 30.51% equity interest, Illumina Cambridge LTD, which owns a 5.31% equity interest, and management and a number of other shareholders who own collectively approximately 3.18%. Currently, our President and Executive Chairman, Jan Loeb, is also the Chairman of the Board of NewStem. Professor Benvenisty and a representative of Yissum occupy the other two Board seats.

Competition

The technologies underlying future monetization of the License 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 can be developed through the License. Any such occurrence could have a material and adverse effect on our business, results of operations and financial condition.

Yissum plans to find new users for the technology based on the License. The success of a future licensee to enhance and broaden its product offerings in response to changing customer demands and competitive pressure and technologies will depend on numerous factors, including the ability to:

• Properly identify and anticipate physician and patient needs;
• Develop and introduce new products or product enhancements in a timely manner;
• Adequately protect intellectual property and avoid infringing upon the intellectual property rights of third parties;
• Demonstrate the safety and efficacy of new products; and
• Obtain the necessary regulatory clearances or approvals for new products or product enhancements.

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.

FDA Approval Process

NewStem’s therapeutic product candidates were 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 any future licensee’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 any licensee to obtain, or any delay in obtaining, regulatory approvals or in complying with requirements could adversely affect the commercialization of product candidates and the Company’s ability to receive licensing 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 a licensee 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, a licensee’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

In June 1995, we and C.P. Group Inc. (“C.P. Group”), formed the joint venture, NetCo. NetCo owns the entertainment property, “Net Force”, 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. NetCo owns all rights in all media to the Net Force property including film, television, and video games.

In 1997, NetCo 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 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, NovelStem receives distributions of its 50% share of proceeds generated from the rights to Net Force.

At the time of this filing, the Company is in final negotiations to sell our interest in NetCo to our joint venture partner in exchange for the settlement of related debt in the form of a litigation funding agreement.

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’s 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 3 – Legal Proceedings for information concerning proceedings related to NetCo.

Employees

We do not currently have any employees; however, the Company relies on consultants to perform the duties that would be performed by employees.

Additional Financial Information

For additional financial information regarding our operations, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our Financial Statements included in this Annual Report.

Available Information

We file annual, quarterly and current reports and other information with the U.S. Securities and Exchange Commission (the “SEC”). These filings are available to the public over the internet at the SEC’s website at http://www.sec.gov. You may also read and copy any document we file at the SEC’s public reference room located at 100 F Street, NE, Washington, DC 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room.

Our website can be found at http://novelstem.com.

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, ownership interests in NetCo and NewStem.

Our Company’s primary assets are equity interests in NetCo and NewStem, including the residual value of relicensing the license formerly held by NewStem. We are a 50% partner in NetCo. Our President and Executive Chairman, Jan Loeb, is also the Chairman of NewStem.

We conduct no other business and, as a result, we depend entirely upon earnings and cash flow from NewStem and its technology and NetCo. 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 its technology and our ownership interest in NetCo 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.

We depend on our executive officers and consultants and other key individuals along with the executive officers and key individuals of 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, including subsequent monetization of the License and NetCo, and our partners’ respective abilities 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 which may result in a loss of revenue, 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 NewStem will be able to recruit additional qualified personnel. We believe these management teams possess valuable knowledge about our, NewStem’s and NetCo’s 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 the respective businesses of NewStem and NetCo, and, consequently, our business, financial condition and/or operating results.

We and NewStem have limited operating histories and have generated minimal 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 December 31, 2024 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.

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.

Success from NewStem’s efforts will depend upon Yissum’s ability to relicense the technology supported by the License.

The technologies underlying NewStem’s products and the license technology 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 has developed. Any such occurrence could have a material and adverse effect on our business, results of operations and financial condition.

Yissum plans to find new users for the technology based on the License. The success of a future licensee to enhance and broaden its product offerings in response to changing customer demands and competitive pressure and technologies will depend on numerous factors, including the ability to:

• Properly identify and anticipate physician and patient needs;
• Develop and introduce new products or product enhancements in a timely manner;
• Adequately protect intellectual property and avoid infringing upon the intellectual property rights of third parties;
• Demonstrate the safety and efficacy of new products; and
• Obtain the necessary regulatory clearances or approvals for new products or product enhancements.

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

The Company and C.P. Group each hold a 50% interest in NetCo. The joint venture agreement governing NetCo 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 were previously in arbitration as to ongoing scope and the operation of NetCo. This arbitration was concluded in July 2023. The arbitrator ruled against the Company on certain key issues of the arbitration and in the Company’s favor on two key issues of the arbitration. However, if we are unable proceed in the sale of our interest in NetCo to our Joint Venture partner or the successful utilization of the joint venture assets in a manner favorable to the Company, our investment in NetCo and our ability to continue to receive distributions from our interest in NetCo could have an adverse effect on our business, financial condition or operating results.

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

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’s 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’s competitors develop and market more successful and engaging products or services, offer competitive products or services at lower price points, or if NetCo does not develop high-quality, well-received and engaging products and services, NetCo and our revenue, margins, and profitability will decline.

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

NetCo’s 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 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 equity interests in NewStem and NetCo. We conduct no other business and, as a result, we depend entirely upon NewStem’s and NetCo’s 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 NewStem or NetCo. NewStem and/or NetCo 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 reduce debt. 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.

Reporting requirement under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and compliance with the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), 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 Exchange Act, which require that the Company engage legal, accounting, auditing and other professional services. The engagement of such services is costly. Additionally, 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.

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; 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, 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.

The continued 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. 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, our 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 operations 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.

We may be deemed an investment company, which could impose on us burdensome compliance requirements.

The Investment Company Act of 1940, as amended (the “Investment Company Act”), requires companies to register as an investment company if they are engaged primarily in the business of investing, reinvesting, owning, holding, or trading securities. Generally, companies may be deemed investment companies under the Investment Company Act if they are viewed as engaging in the business of investing in securities or they own investment securities having a value exceeding 40% of certain assets. We are not in the business of investing, reinvesting, owning, holding or trading securities. However, if the Securities and Exchange Commission deems us to be an investment company, we may have imposed upon us additional burdensome requirements, including having to register as an investment company, adopting a specific form of corporation structure and having to comply with certain reporting, record keeping, voting, proxy, and disclosure requirements. Such additional requirements would require us to incur additional costs and have an adverse effect on our results of operations and our ability to effectively carry out our business plan.

Risk Management and Strategy

We focus on a comprehensive approach to identifying, preventing, and mitigating cybersecurity threats and incidents, as such term is defined in Item 106(a) of Regulation S-K, and have integrated these processes into our overall risk management systems and processes.

As the Company has no operations and no employees, we have no operating procedures related to cybersecurity. We do design and monitor reasonable technical safeguards to minimize any identified risks with our financial reporting.

Our risk management strategy also considers cybersecurity risks associated with the use of our third-party vendors and service providers.

Governance

Our Board of Directors oversees our cybersecurity risk management as part of its general oversight and management is responsible for the day-to-day management of material cybersecurity risks.

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

As noted above, NetCo owns all rights to the “Tom Clancy’s Net Force” intellectual property in all media, including film, television, and video games. As part of the joint venture, NetCo has published more than a dozen books and had an ABC miniseries.

After Tom Clancy passed away in 2013, his estate and business partners refused to cooperate in exploiting the intellectual property. After trying to amicably resolve the dispute, the Company initiated arbitration proceedings with the American Arbitration Association. The Company’s arbitration demand asserts claims for breach of the joint venture agreement and breach of fiduciary duty. Both claims arise from C.P. Group’s failure to make reasonable, good faith efforts to exploit the full array of media rights relating to Net Force. The Company’s goal is to maximize the total potential value of the NetCo intellectual property across video games, streaming, digital media, merchandising and other ancillary markets. The Company believes that the value of the intellectual property is significant.

The arbitration evidentiary hearing concluded on October 20, 2022, and the arbitrator ordered the parties to submit post-hearing briefs. Final briefs were filed in January 2023. The Arbitrator ruled in the Company’s favor on two key issues of the arbitration and ruled against the Company in other key issues.

The Arbitrator ruled in NovelStem’s favor on the issue of contract interpretation of the Netco Partners JV Agreement. The Arbitrator also found that the Company’s joint venture partner failed to use “reasonable, good faith efforts” to license and exploit the Net Force concept, in breach of its contractual obligations under the Netco Partners’ Joint Venture Agreement. The Arbitrator confirmed NovelStem’s contractual right to use Tom Clancy’s name as a possessory credit in the Net Force title (Tom Clancy’s Net Force). However, the arbitrator did not award any damages to the Company and did not cede operating control of the joint venture to the Company as requested. As such, the Company continues to struggle to maximize the potential of the NetCo asset.

To fund efforts to maximize the value of NetCo, NovelStem has secured non-recourse litigation funding. As a result of this ruling, costs of approximately $2.900,000 related to the litigation funding agreement were recognized during the year ended December 31, 2023.

The following discussion includes statements that are forward-looking in nature. Whether such statements ultimately prove to be accurate depends on a variety of factors that may affect our business and operations. Certain of these factors are discussed in “Item 1A. Risk Factors.”

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

Overview

We are a development stage company and reported net losses of approximately $3,233,000 and $4,187,000 for the years ended December 31, 2024 and 2023, respectively. We had current assets of approximately $32,000 and current liabilities of approximately $5,304,000 as of December 31, 2024. As of December 31, 2023, our current assets and current liabilities were approximately $87,000 and $346,000, respectively. We have prepared our financial statements for the years ended December 31, 2024 and 2023 assuming that we will continue as a going concern. Our continuation as a going concern is dependent upon improving our profitability and the continuing financial support from our shareholders as well as Yissum’s ability to successfully commercialize the License. Our sources of capital in the past have included the sale of equity securities, which include common stock sold in private transactions, and short-term debt. During the current year, we continued to borrow on existing finance agreements with two related party individuals and a shareholder to fund current operating expenses. Additionally, we entered into two convertible debt instruments to fund advances to NewStem.

NewStem is a development stage Israeli biotech limited liability company focused on pioneering intellectual property related to haploid human embryonic stem cells for the development of personalized diagnostics and therapeutics for genetic and epigenetic diseases. NewStem has incurred losses related to in process research and development since inception and the Company records our percentage allocation of these net losses as incurred. In many cases, the accounting treatment of a particular transaction is specifically dictated by generally accepted accounting principles, with no need for management’s judgement in their application. There are also areas in which the selection of an available alternative policy would not produce a materially different result.

Critical Accounting Policies

The SEC defines “critical accounting policies” as those that require application of management’s most difficult, subjective or complex judgements, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and my change in subsequent periods.

The following discussion of critical accounting policies represents our attempt to report on these accounting policies which we believe are critical to our financial statements and other financial disclosure. It is not intended to be a comprehensive list of all of our significant accounting policies, which are more fully described in Note 2 of the Notes to the Financial Statements included in this Annual Report.

We have identified our accounting policies for stock-based compensation and accounting for derivative liabilities as critical accounting policies.

We recognize stock-based compensation expense based on the fair value recognition provision of applicable accounting principles, using the Black-Scholes option valuation method. Accordingly, we are required to measure the cost of services received in exchange for an award of equity instruments based on the grant-date fair value of the award and to recognize that cost over the period during which services are provided in exchange for the award. Under the Black-Scholes method, we make assumptions with respect to the expected lives of the options that have been granted and are outstanding, the expected volatility, the dividend yield percentage of our common stock and the risk-free interest rate at the respective dates of grant.

The expected volatility factor used to value stock options in 2024 was based on the historical volatility of the market price of our common stock over the period from our change to a biotechnology company, September 2018, through December 2024. For the expected term of the option, we used an estimate of the expected option life based on historical experience. The risk-free interest rate used is based upon U.S. Treasury yields for a period consistent with the expected term of the options. We assumed no quarterly dividend rate. Due to the numerous assumptions involved in calculating stock-based compensation expense, the expense recognized in our financial statements may differ significantly from the value realized by option holders on exercise of the share-based instruments. In accordance with the prescribed methodology, we do not adjust our recognized compensation expense to reflect these differences.

For the years ended December 31, 2024 and 2023, we incurred stock compensation expense with respect to options and warrants of approximately $40,000 and $303,000, respectively.

See Note 5 to the financial statements for the assumptions used to calculate the fair value of stock-based compensation.

In accordance with Accounting Standards Codification (“ASC”) 815, Derivatives and Hedging, we identify and, if applicable, bifurcate embedded derivatives in financial instrument instruments. Those embedded features that are identified, bifurcated and accounted for separately are measured at fair value continuously at each financial statement reporting date. If the fair value of a financial liability (the derivative) exceeds the proceeds received for the issuance of a hybrid instrument in an arm’s length transaction with no rights or privileges that require separate accounting recognition as an asset identified, then we record the embedded derivative at fair value with the excess of fair value over proceeds recognized as a loss in earnings.

Results of Operations.

The selected statement of operations data for the years ended December 31, 2024 and 2023 and balance sheet data as of December 31, 2024 and 2023 has been derived from our audited financial statements included in this Annual Report.

This data should be read in conjunction with our financial statements and related notes included herein.

Selected Statement of Operations Data:

2024 Compared to 2023

We are a holding company whose primary assets are our ownership of equity interests in NetCo and NewStem including the technology of NewStem. We conduct no other business and as a result, we have no operating revenue or cost of revenue. We do charge annual administrative fees to an affiliated entity.

The Company incurs general and administrative (“G&A”) expenses primarily related to professional fees, insurance and stock based compensation. We incurred G&A expenses of approximately $881,000 and $665,000 for the years ended December 31, 2024 and 2023, respectively. Our increase in G&A expenses relates primarily to bad debt incurred with the write off of notes receivable from NewStem, stock-based compensation and professional fees incurred in the audit of our financial statements for the years ended December 31, 2024 and 2023, preparation of our quarterly reports for 2024 and 2023, and for documents and advice related to our attempt to purchase the remaining shares of NewStem.

Specifically, we wrote off as bad debt the net balance due from NewStem of $458,000 in the year ended December 31, 2024, and professional fees increased by approximately $40,000 in the year ended December 31, 2024 as compared to the year ended December 31, 2023. Insurance costs decreased by approximately $14,000 in the year ended December 31, 2024 as compared to the year ended December 31, 2023.

Total stock compensation expense, included in G&A expenses, decreased by approximately $263,000 in the year ended December 31, 2024 as compared to the year ended December 31, 2023 due to a smaller number of options awarded in the current period as compared to the prior period as well as by the recognition of $243,000 in stock compensation expense in the year ended December 31, 2023 related to the increased value of our outstanding warrants due to the amendment of the agreements to extend the due date by two years.

The remaining decrease in G&A expenses of approximately $5,000 during the year ended December 31, 2024 consists primarily of Decreases in expenses related to investor relations and information technology.

We incurred costs related to litigation and the related litigation funding agreement involving our arbitration with our NetCo joint venture partner of approximately $59,000 and $2,873,000, respectively, for years ended December 31, 2024 and 2023. Specifically, the decrease of approximately $2,814,000 for the year ended December 31, 2024 as compared to 2023 is comprised of legal fees related to our NetCo arbitration including litigation funding fees due to Omni Bridgeway pursuant to the litigation funding agreement incurred in the year ended December 31, 2023 as compared to a lower amount incurred in the year ended December 31, 2024 related to final expenses not funded by Omni Bridgeway.

The Company has recorded a loss on derivative instrument of $90,000 and $260,000, respectively, for the years ended December 31, 2024 and 2023 related to a guarantee included in the note payable shareholder entered into in May 2023. The loss recorded in the year ended December 31, 2024 brings the derivative instrument to its highest contractual liability.

The Company has recorded an impairment loss of approximately $1,629,000 during the year ended December 31, 2024 related to its investment in NewStem. This loss reduces our investment in NewStem to zero ($0.00) as of December 31, 2024. This adjustment was made in response to the fact that NewStem ceased operations and is in the process of liquidation. The technology and license held by NewStem reverted to the original licensee, Yissum, and the Company retains a right to a share of future licensing or monetization of the technology and license. The Company does expect to recover some value from the license, however, as of December 31, 2024, the realization of this value is not certain, therefore has not been recorded by the Company. No such adjustment was made during the year ended December 31, 2023.

Interest expense increased by approximately $326,000 in the year ended December 31, 2024 as compared to the year ended December 31, 2023. The increases in interest expense are related to increased debt incurred for operations, the accrual of interest on the litigation funding agreement and the funding of NewStem.

The Company has recorded no income tax expense as we have incurred operating losses and all deferred tax assets are fully offset by an income tax valuation allowance.

We reported net losses from equity method investees during the years ended December 31, 2024 and 2023. The net losses reported for the year ended December 31, 2024 included net loss of approximately $5,000 from NetCo combined with net loss of approximately $156,000 from NewStem. Net losses reported for the year ended December 31, 2023 included net income of approximately $3,000 from NetCo which was offset by net loss of approximately $342,000 from NewStem.

We reported a gain on dilution of our equity method investment related to stock issuances made to third parties by NewStem of approximately $36,000 during the year ended December 31, 2023. We incurred no such gain or loss during the year ended December 31, 2024.

Liquidity and Capital Resources

We have not paid dividends on our common stock since our name change and business focus shift in 2018. Our present policy is to apply cash to investments in product development at NewStem, acquisitions or expansion; consequently, we do not expect to pay dividends on common stock in the foreseeable future.

The Company will need to obtain additional funds to continue its operations. Management’s plans with regard to these matters include the potential sale of our interest in NetCo to settle our liability related to the litigation funding agreement and additional financing and fundraising until our interest in NewStem’s technology is profitable. Although management continues to pursue these plans, there is no assurance that the Company will be successful in obtaining sufficient cash from financing on terms acceptable to the Company, or that NewStem’s technology will be monetized and become profitable.

During the year ended December 31, 2022, the Company entered into note agreements with Jan Loeb, our Executive Chairman and Jerry Wolasky, a member of the Board, to borrow up to an aggregate of $600,000 for working capital needs. The note agreements were amended in March 2024 to increase the total borrowing to $650,000 and extend the maturity date. The agreements provide for interest at a rate of 10% per annum. As of the date of this Annual Report, the full amount of $650,000 has been funded pursuant to these agreements.

During the year ended December 31, 2023, the Company entered into a note agreement with a shareholder to borrow $300,000 for continued working capital. This note bears interest at zero percent (0%) and matures on May 5, 2025. The note includes a guarantee which has been identified as an embedded derivative with a fair value of a liability of $650,000 and $535,000 at December 31, 2024 and 2023, respectively.

In December 2023, the Company entered into two short term notes payable with unrelated parties for a total of $250,000 in borrowings utilized for the funding of NewStem. The notes bear interest at 12% per annum and matured December 21, 2024, at which time all principal and accrued interest are due and payable. Prior to the filing of this Annual Report, the maturity date of these notes was extended to December 21, 2025. The note agreements include a provision whereby, in the event of a capital raise transaction by the Company, the note holders would be entitled to participate in the transaction in an amount equal to 133% of the amounts owed on the note agreements at the closing of the transaction.

In April 2024, the Company borrowed $100,000 from unrelated parties pursuant to convertible debt agreements accounted for as debt.

Net Cash Used In Operating Activities.

For the year ended December 31, 2024, net cash used in operating activities was approximately $272,000, which consisted primarily of a net loss of approximately $3,233,000, offset by noncash equity in loss of equity method investees of approximately $161,000, impairment of equity method investees of approximately $1,629,000, bad debt expense of $500,000, and stock-based compensation of approximately $40,000. Further offset by loss on derivative instrument of $90,000, accretion of discount on notes payable of $178,000 and interest added to notes payable and convertible debt of approximately $215,000. Additionally, cash was used in operations related to an increase in current assets of approximately $8,000 and an increase in accrued liabilities and other payables of approximately $140,000.

For the year ended December 31, 2023, net cash used in operating activities was approximately $348,000, which consisted primarily of a net loss of approximately $4,187,000, offset by noncash equity in loss of equity method investees of approximately $339,000 and distributions from equity method investees of $7,000, netted with gain on dilution of approximately $36,000 and stock-based compensation of approximately $303,000. Further offset by approximately $2,819,000 in cumulative noncash litigation expenses funded directly by the litigation funding agreement, loss on derivative instrument of $260,000, accretion of discount on notes payable of $62,000 and interest added to related party notes payable of $35,138. Additionally, cash was used in operations related to a decrease in current assets of approximately $19,000 and an increase in accrued liabilities and other payables of approximately $31,000.

Net Cash Used In Investing Activities.

During the years ended December 31, 2024 and 2023, the Company loaned a total of $500,000, consisting of $250,000 per year to NewStem in anticipation of a purchase transaction. This transaction was not consummated and NewStem ceased operations and began liquidation proceedings in October 2024, resulting in the loan becoming uncollectible. As such, the Company determined the note was uncollectible and wrote the balance off as a bad debt during the year ended December 31, 2024.

Net Cash Provided By Financing Activities.

For the year ended December 31, 2024, net cash provided by financing activities was $475,000, consisting of long-term borrowings from two directors and a stockholder totaling $375,000 and borrowings from convertible debt with unrelated parties of $100,000.

For the year ended December 31, 2023, net cash provided by financing activities was $645,000, consisting of long-term borrowings from two directors and a stockholder totaling $395,000 and short term borrowings from unrelated parties of $250,000.

Off-Balance Sheet Arrangements

We are not party to any off-balance sheet transactions. With the exception of a guarantee related to long term borrowings from a stockholder which is accounted for as a derivative, we have no guarantees or obligations other than those which arise out of normal business operations.

Contractual Obligations and Commercial Commitments

As of December 31, 2024, we had a contractual obligation related to our directors’ and officers’ insurance providing for 10 monthly installments of $5,127 payable through June 2025.

As of December 31, 2023, we had a contractual obligation related to our directors’ and officers’ insurance providing for 10 monthly installments of $4,943 payable through June 2024.

Our Principal Executive Officer and Chief Financial Officer conducted an evaluation of our controls and procedures. We have identified material weaknesses in our internal control and procedures and internal control over financial reporting. If not remediated, our failure to establish and maintain effective disclosure controls and procedures and internal control over financial reporting could result in material misstatements in our financial statements and a failure to meet our reporting and financial obligations, each of which could have a material adverse effect on our financial condition and the trading price of our common stock.

Maintaining effective internal control over financial reporting and effective disclosure controls and procedures are necessary for us to produce reliable financial statements. We have re-evaluated our internal control over financial reporting and our disclosure controls and procedures and concluded that they were not effective as of December 31, 2024 and we concluded there was a material weakness in the design of our internal control over financial reporting as it relates to insufficient resources to employ proper segregation of duties over the processing of transactions and financial reporting.

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

Remediation Actions

Management continues to focus on strengthening the Company’s internal controls within the parameters of what can be done with limited resources. As resources permit, management will continue to attempt to build the necessary capabilities and infrastructure to implement corrective action. At the current time, financial resources are limited thereby impeding the ability of management to employ personnel to provide proper separation of duties.

Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.