The following discussion of our financial condition and results of operationsshould be read in conjunction with our audited consolidated financial statementsand related notes and other financial information included elsewhere in thisAnnual Report on Form 10-K. The discussion contains forward-looking statements,such as our plans, expectations and intentions (including those related toclinical trials and business and expense trends), that are based upon currentexpectations and that involve risks and uncertainties. Our actual results maydiffer significantly from management's expectations. The factors that couldaffect these forward-looking statements are in Item 1A of Part I of this report.This discussion should not be construed to imply that the results discussedherein will necessarily continue into the future, or that any expectationsexpressed herein will necessarily be indicative of actual operating results inthe future. Such discussion represents only the best present assessment by ourmanagement.

Business Overview

We have generated aggregate product revenues from our two commercial businessesof $8.2 million and $7.2 million for the years ended December 31, 2022 and 2021,respectively. We currently have no revenue generated from our principaloperations in therapeutic and clinical product development.

Our products are based on multi-decade experience with human cell culture and aproprietary type of pluripotent stem cells, human parthenogenetic stem cells("hpSCs"). Our hpSCs are comparable to human embryonic stem cells ("hESCs") inthat they have the potential to be differentiated into many different cells inthe human body. However, the derivation of hpSCs does not require the use offertilized eggs or the destruction of viable human embryos and also offers thepotential for the creation of immune-matched cells and tissues that are lesslikely to be rejected following transplantation. Our collection of hpSCs, knownas UniStemCell, currently consists of 15 stem cell lines. We have facilitiesand manufacturing protocols that comply with the requirements of GoodManufacturing Practice (GMP) standards as promulgated by the U.S. Code ofFederal Regulations and enforced by the United States Food and DrugAdministration ("FDA").

COVID-19 Pandemic

The impact of the COVID-19 pandemic has been and will likely continue to beextensive in many aspects of society, which has resulted in and will likelycontinue to result in significant disruptions to the global economy, as well asbusinesses and capital markets around the world. Impacts to our business haveincluded a reduction in sales volume primarily from media sales in ourbiomedical market segment and professional channel sales in our anti-agingmarket segment, temporary or reduced occupancy of portions of our manufacturingfacilities, and disruptions or restrictions on our employee's ability to travelto such manufacturing facilities which caused minor delays in manufacturing. Wehave taken precautionary measures to better ensure the health and safety of ourworkers.

The scope and duration of these delays and disruptions, and the ultimate impactsof COVID-19 on our operations, are currently unknown. We are continuing toactively monitor the situation and may take further precautionary and preemptiveactions as may be required by federal, state or local authorities or that wedetermine are in the best interests of public health and safety. We cannotpredict the effects that such actions, or the impact of COVID-19 on globalbusiness operations and economic conditions, may continue to have on ourbusiness, strategy, collaborations, or financial and operating results.

Market Opportunity and Growth Strategy

Therapeutic Market - Clinical Applications of hpSCs for Disease Treatments

We believe that the most promising potential clinical applications of ourtechnology are Parkinson's disease ("PD"), traumatic brain injury ("TBI"), andstroke. Using our proprietary technologies and know-how, we are creating neuralstem cells from hpSCs as a potential treatment of PD, TBI, and stroke.

PD: Our most advanced project is the neural stem cell program for the treatmentof Parkinson's disease. In 2013, we published in Nature Scientific Reports thebasis for our patent on a new method of manufacturing neural stem cells, whichis used to produce the clinical-grade cells necessary for future clinicalstudies and commercialization. In 2014, we completed the majority of thepreclinical research, establishing the safety profile of NSC in various animalspecies, including non-human primates. In June 2016, we published the results ofa 12-month pre-clinical non-human primate study, which demonstrated the safety,efficacy and mechanism of action of the ISC- hpNSC. In 2017, we dosed fourpatients in our Phase I trial of ISC-hpNSC, human parthenogenetic stemcell-derived neural stem cells for the treatment of Parkinson's disease. Wereported 12-month results from the first cohort and 6-month interim results ofthe second cohort at the Society for Neuroscience annual meeting (Neuroscience2018) in November 2018. In April 2019, we announced

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the completion of subject enrollment, with the 12th subject receiving atransplantation of the highest dose of cells. There have been no safety signalsor serious adverse effects seen to date as related to the transplantedISC-hpNSC cells.

We announced a successful completion of the dose escalating phase 1 clinicaltrial in June 2021. In terms of preliminary efficacy, where scores are comparedagainst baseline before transplantation, we observed a potential dose-dependentresponse with an apparent peak effectiveness at our middle dose. The % OFF-Time,which is the time during the day when levodopa medication is not performingoptimally and PD symptoms return, decreased an average 47% from the baseline at12 months post transplantation in cohort 2. This trend continued through 24months where the % OFF-Time in the second cohort dropped by 55% from the initialreading. The same was true for % ON-Time without dyskinesia, which is the timeduring the day when levodopa medication is performing optimally withoutdyskinesia. The % ON-Time increased an average of 42% above the initialevaluation at 12 months post-transplantation in the second cohort.

Stroke: In August 2014, we announced the launch of a stroke program, evaluatingthe use of ISC-hpNSC transplantation for the treatment of ischemic stroke usinga rodent model of the disease. The Company has a considerable amount of safetydata on ISC-hpNSC from the Parkinson's disease program and, as there isevidence that transplantation of ISC-hpNSC may improve patient outcomes as anadjunctive therapeutic strategy in stroke, having a second program that can usethis safety dataset is therefore a logical extension. In 2015, the Companytogether with Tulane University demonstrated that NSC can significantly reduceneurological dysfunction after a stroke in animal models.

TBI: In October 2016, we announced the results of the pre-clinical rodent study,evaluating the use of ISC-hpNSC transplantation for the treatment of TBI. Thestudy was conducted at the University of South Florida Morsani College ofMedicine. We demonstrated that animals receiving injections of ISC-hpNSCdisplayed the highest levels of improvements in cognitive performance and motorcoordination compared to vehicle control treated animals. In February 2019, wepublished the results of the pre-clinical study in Theranostics, a prestigiouspeer-reviewed medical journal. The publication titled, "Human parthenogeneticneural stem cell grafts promote multiple regenerative processes in a traumaticbrain injury model," demonstrated that the clinical-grade neural stem cells usedin our Parkinson's disease clinical trial, ISC-hpNSC, significantly improvedTBI-associated motor, neurological, and cognitive deficits without any safetyissues.

Anti-Aging Cosmetic Market - Skin Care Products

Our wholly owned subsidiary Lifeline Skin Care, Inc. ("LSC") develops,manufactures, and sells anti-aging skin care products based on two coretechnologies: encapsulated extract derived from hpSC and specially selectedtargeted small molecules. LSC's products include:

ProPlus Advanced Defense Complex

ProPlus Advanced Recovery Complex

ProPlus Advanced Aqueous Treatment

ProPlus Collagen Booster (Advanced Molecular Serum)

LSC's products are regulated as cosmetics. LSC's products are sold domesticallythrough a branded website, Amazon, and ecommerce partners.

Biomedical Market - Primary Human Cell Research Products

Our wholly-owned subsidiary LCT develops, manufactures and commercializesapproximately 200 human cell culture products, including frozen human "primary"cells and the reagents (called "media") needed to grow, maintain anddifferentiate the cells. LCT's scientists have used a standardized, methodical,scientific approach to basal medium optimization to systematically produceoptimized products designed to culture specific human cell types and to elicitspecific cellular behaviors. These techniques can also be used to produceproducts that do not contain non-human animal proteins, a feature desirable tothe research and therapeutic markets. Each LCT cell product is quality testedfor the expression of specific markers (to assure the cells are the correcttype), proliferation rate, viability, morphology and absence of pathogens. Eachcell system also contains associated donor information and all informed consent

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requirements are strictly followed. LCT's research products are marketed andsold by its internal sales force, OEM partners and LCT brand distributors inEurope and Asia.

Results of Operations

Comparison of the Years Ended December 31, 2022 and 2021

General and administrative 3,357 4,084 (727 ) -18 %Selling and marketing 1,245 1,383 (138 ) -10 %Research and development 492 695 (203 ) -29 %Other income (expense), net (148 ) 1,022 (1,170 ) -114 %Net loss

Product sales revenue for the year ended December 31, 2022 was $8,180 thousand,compared to $7,176 thousand for the year ended December 31, 2021. The increasewas primarily attributable to a $1,195 thousand increase in sales in ourbiomedical market segment, largely offset by a $191 thousand decrease in salesin our anti-aging market during 2022 compared to 2021.

Our biomedical product sales continue to recover from the impacts of COVID-19 aspurchasing activity from our original equipment manufacturer customers accountfor approximately 86% of the increase in this market segment.

Our professional line of anti-aging products was discontinued starting in 2022resulting in only one product line and less demand. The products that werelargely marketed to medical professionals and spas that offered walk-up retail,experienced a significant decline in customer demand due to COVID-19 and therelated restrictions during the year ended December 31, 2021. The impact ofshutting down to one line has been partially mitigated by our expanded offeringof professional skin care products through our ecommerce channel. Anti-agingproduct sales through our ecommerce channel decreased slightly year-over-year.

Cost of Sales

Cost of sales for the year ended December 31, 2022 was $3,269 thousand, comparedto $2,935 thousand for the year ended December 31, 2021. There was an increasein cost of sales as a result of the increase in product sales in our biomedicalmarket segment of $589 thousand; however, this was offset by significantfavorable manufacturing variances due to the increased sales volumes resultingin a net increase of $172 thousand year over year. There also was an increase incost of goods sold in our anti-aging market of approximately $162 thousand, netprimarily attributable to large amounts of expired product reserves booked as aresult of the change in sales channel and lines of business from 2021 to 2022.In response to previous material scarcities primarily in plastics, we haveincreased our supply of raw materials on hand and have, where possible, sourcedmaterials from alternative vendors.

Cost of sales consists primarily of salaries and benefits associated withemployee efforts expended directly on the production of the Company's products,as well as related direct materials, general laboratory supplies and anallocation of overhead. We aim to continue refining our manufacturing processesand supply chain management to improve the cost of sales as a percentage ofrevenue for both LCT and LSC.

General and Administrative Expenses

General and administrative expenses for the year ended December 31, 2022 was$3,357 thousand, compared to $4,084 thousand for the year ended December 31,2021. The decrease was primarily attributable to a decrease in personnel-relatedcosts including stock-based compensation, human resources, workers compensationand relocation expenses of $385 thousand, a $250 thousand decrease in patentimpairment charges, $124 thousand decrease in building expenses, $49 thousanddecrease in computer and amortization expenses,

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and $60 thousand in legal and directors and officers insurance fees decreases,partially offset by $134 thousand increase primarily in consulting and servicingfees.

Our general and administrative expenses consist primarily of employee-relatedexpenses including salaries, bonuses, benefits and share-based compensation.Other significant costs include facility costs not otherwise included in orallocated to other departments, legal fees not relating to patents and corporatematters, and fees for accounting and consulting services.

Selling and Marketing Expenses

Selling and marketing expenses for the year ended December 31, 2022 was $1,245thousand, compared to $1,383 thousand for the year ended December 31, 2021. Thedecrease was primarily attributable to a $69 thousand decrease inpersonnel-related costs, sales commissions, stock-based compensation andconsultant costs, primarily as a result of headcount reductions and changes inour anti-aging segment year over year. There was a decrease of approximately $16thousand from dues and subscriptions, licensing and other merchant fees, andapproximately $35 thousand decrease in building and other expenses. The decreasewas partially offset by an increase of $61 thousand in marketing materials andwebsite and search engine maximization advertising expense.

Our sales and marketing expenses consist primarily of employee-related expensesincluding salaries, bonuses, benefits, and share-based compensation for ourBiomedical and Anti-aging cosmetic businesses. Other significant costs includefacility costs not otherwise included in or allocated to other departments aswell as marketing material costs, permits and licenses for ecommerce, and otheradvertising type expenses.

Research and Development Expenses

Research and development expenses for the year ended December 31, 2022 was $492thousand, compared to $695 thousand for the year ended December 31, 2021. Thedecrease was primarily attributable to $168 thousand decrease in buildingrelated expenses, $73 thousand decrease in consulting services, $54 thousanddecrease in material, supplies and licensing related expenses partially offsetby $50 thousand in personnel-related costs and stock-based compensation as aresult of increased salaries in Research and Development after salary raisefreezes during the pandemic and $42 thousand decrease in our Australian researchand development tax credit related to qualifiable expenditures from our researchand development activities of our Australian subsidiary, Cyto Therapeutics.

Our research and development efforts are primarily focused on the development oftreatments for Parkinson's disease, traumatic brain injury, liver diseases,stroke, and the creation of new GMP grade human parthenogenetic stem cell lines.These projects are long-term investments that involve developing both new stemcell lines and new differentiation techniques that can provide higher puritypopulations of functional cells. Research and development expenses are expensedas incurred and are accounted for on a project-by-project basis. However, muchof our research has potential applicability to each of our projects.

Other Income (Expense), Net

Other income, net, for the year ended December 31, 2022 was a loss of $148thousand, compared to other income, net, of $1,022 thousand for the year endedDecember 31, 2021. The decrease was primarily attributable to the gainrecognized on the forgiveness of debt related to our First and Second Draw Loanunder the PPP, collectively totaling $1,137 thousand in 2021. The remainder ofthe difference relates to accrued interest on outstanding debt.

Liquidity and Capital Resources

The Company enters into contracts in the normal course of business with variousthird-party consultants and contract research organizations ("CRO") forpreclinical research, clinical trials and manufacturing activities. Thesecontracts generally provide for termination upon notice. Actual expensesassociated with these arrangements may be higher or lower due to variousreasons, including but not limited to, progress of our development products,enrollment in clinical trials, and product and personnel delays due to COVID.Other short-term and long terms commitments that would affect liquidity includelease obligations as well as related party debt repayments.

As of December 31, 2022, we had an accumulated deficit of approximately $110.3million and have, on an annual basis, incurred net losses and negative operatingcash flows since inception. Substantially all of our operating losses haveresulted from the funding of our research and development programs and generaland administrative expenses associated with our operations. We incurred netlosses of $331 thousand and $899 thousand for years ended December 31, 2022 and2021, respectively. As of December 31, 2022, we had cash of $742 thousand,compared to $171 thousand as of December 31, 2021.

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Licensed Patents

The Company had a minimum annual license fee of $75 thousand payable in twoinstallments per year to Astellas Pharma pursuant to the amended UMass IPlicense agreement. The patents, along with the license agreement, expired at theend of July 2022. These patents were fully impaired in prior years and thereforethe expiration did not result in any additional impairment for the year endedDecember 31, 2022. The Company does not anticipate any short-term liquidityeffects from this obligation as we will no longer be liable for the annuallicensing fee.

Cash Flows

Comparison of the Years Ended December 31, 2022 and 2021

The following table provides information regarding our cash flows for the yearsended December 31, 2022 and 2021 (in thousands):

Net cash provided by (used in) operating activities $ 332 $ (1,297 )Net cash used in investing activities

Operating Cash Flows

For the year ended December 31, 2022, net cash provided by operating activitieswas $332 thousand, resulting primarily from our net loss of $331 thousand, andnet changes in operating assets and liabilities of $226 thousand, consistingprimarily of an increase in accrued liabilities of $104 thousand, inventory,net, of $114 thousand, and decrease in accounts payable of $186 thousand andoperating lease liabilities of $179 thousand. The decrease in cash is offset bynet recurring non-cash adjustments of $890 thousand, including depreciation andamortization, stock-based compensation, operating lease expense, and interestexpense. For the year ended December 31, 2021, net cash used in operatingactivities was $1,297 thousand, resulting primarily from our net loss of $899thousand and gain on forgiveness of debt of $1,137 thousand, offset by non-cashadjustments of stock-based compensation expense of $644 thousand, operatinglease expense of $289 thousand, and depreciation and amortization of $262thousand, coupled with net changes in operating assets and liabilities of $823thousand.

Investing Cash Flows

Net cash used in investing activities for the year ended December 31, 2022 was$11 thousand, compared to $45 thousand for the year ended December 31, 2021. Thedecrease was attributable to a decrease in payments for patent licenses of $12thousand and net decrease in the purchases of property and equipment of $22thousand year-over-year.

Financing Cash Flows

Net cash provided by financing activities for year ended December 31, 2022 was$250 thousand, compared to $824 thousand for the year ended December 31, 2021.For the year ended December 31, 2022, net cash provided by financing activitiesconsisted of $250 thousand in proceeds from a note payable from a related party.For the year ended December 31, 2021, net cash provided by financing activitiesconsisted of $474 thousand in proceeds from our second draw loan under thePaycheck Protection Program, coupled with proceeds from a note payable from arelated party of $350 thousand.

Liquidity and Going Concern

Management continues to evaluate various financing sources and options to raiseworking capital to help fund our current research and development programs andoperations. We will need to obtain significant additional capital from sourcesincluding exercise of outstanding warrants, equity and/or debt financings,license arrangements, grants and/or collaborative research arrangements tosustain our operations and develop products. Unless we obtain additionalfinancing, we do not have sufficient cash on hand to sustain our operations atleast through one year after the issuance date. The timing and degree of anyfuture capital requirements will depend on many factors, including:

the accuracy of the assumptions underlying the estimates for capital needs in2023 and beyond;

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the extent that revenues from sales of LSC and LCT products cover the relatedcosts and provide capital;

scientific progress in our research and development programs;

the magnitude and scope of our research and development programs and our abilityto establish, enforce and maintain strategic arrangements for research,development, clinical testing, manufacturing and marketing;

our progress with pre-clinical development and clinical trials;

the extent to which third party interest in Company's research and commercialproducts can be realized through effective partnerships;

the time and costs involved in obtaining regulatory approvals;

the costs involved in preparing, filing, prosecuting, maintaining, defending andenforcing patent claims;

the number and type of product candidates that we pursue; and

the development of major public health concerns, including the novel coronavirusoutbreak or other pandemics arising globally, and the current and future impactof it and COVID-19 on our business operations and funding requirements.

Our failure to raise capital or enter into applicable arrangements when neededwould have a negative impact on our financial condition. Additional debtfinancing may be expensive and require us to pledge all or a substantial portionof its assets. Further, if additional funds are obtained through arrangementswith collaborative partners, these arrangements may require us to relinquishrights to some of its technologies, product candidates or products that we wouldotherwise seek to develop and commercialize on its own. If sufficient capital isnot available, we may be required to delay, reduce the scope of or eliminate oneor more of its product initiatives.

We currently have no revenue generated from our principal operations intherapeutic and clinical product development through research and developmentefforts. There can be no assurance that we will be successful in maintaining ournormal operating cash flow and obtaining additional funds and that the timing ofour capital raising or future financing will result in cash flow sufficient tosustain our operations at least through one year after the issuance date.

Based on the factors above, there is substantial doubt about our ability tocontinue as a going concern. The consolidated financial statements were preparedassuming that we will continue to operate as a going concern. The consolidatedfinancial statements do not include any adjustments to reflect the possiblefuture effects on the recoverability and classification of assets or the amountsand classification of liabilities that may result from the outcome of thisuncertainty. Management's plans in regard to these matters are focused onmanaging our cash flow, the proper timing of our capital expenditures, andraising additional capital or financing in the future.

Critical Accounting Estimates

Our discussion and analysis of our financial condition and results of operationsis based upon our consolidated financial statements, which have been prepared inaccordance with accounting principles generally accepted in the United States.The preparation of these financial statements requires us to make estimates andassumptions that affect the reported amounts of assets, liabilities, revenues,expenses and related disclosures. On an on-going basis, we evaluate ourestimates and assumptions and we base our estimates on historical experience andon various other assumptions that are believed to be reasonable under thecircumstances, the results of which form the basis for making judgments aboutthe carrying values of assets and liabilities that are not readily apparent fromother sources. Actual results may differ from these estimates under differentassumptions and conditions.

Our significant accounting policies are more fully described in Note 1 to ourconsolidated financial statements included elsewhere in this Annual Report onForm 10-K. Our most critical accounting estimates include current andnon-current inventory, intangible assets, and stock-based compensation. Wereview our estimates and assumptions periodically and reflect the effects ofrevisions in the period in which they are deemed to be necessary. We believethat the following accounting policies are critical to the judgments andestimates used in preparation of our consolidated financial statements.

Allowance for Excess and Obsolete Inventory

Our inventory, particularly within our biomedical market, consists of certainproducts that have a long or, when frozen, indefinite shelf life. In addition,future demand for our products is uncertain. Accordingly, at each reportingperiod, we estimate a reserve for allowance for excess and obsolete inventory.This estimate is computed using historical sales data and inventory turnoverrates, which are subjective in nature and fluctuate between periods. Theestablishment of a reserve for excess and obsolete inventory establishes a newcost basis in the inventory with a corresponding adjustment to cost of sales. Ifwe are able to sell such inventory, any related reserves

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INTERNATIONAL STEM CELL CORP MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-K) - Marketscreener.com