NovelStem International Corp 10-Q for FY2022 Q3
NovelStem International Corp. (NSTM)
About this 10-Q
NovelStem International Corp filed this 10-Q on November 14, 2022, covering the quarter ended September 30, 2022 (FY2022 Q3).
Headline figures
Quarter ended September 30, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Net loss
- $295.27K
- compared with a net loss of $331.72K a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
SECURITIES EXCHANGE ACT OF 1934
For
the quarterly period ended
For the transition period from _________________ to _________________
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| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
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Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
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has been subject to such filing requirements for the past 90 days. Yes ☐
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
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| Large accelerated filer ☐ | Accelerated filer ☐ |
| Smaller
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| Emerging
growth company |
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
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Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
| Class | Outstanding at November 14, 2022 | |
| Common Stock, $0.01 par value per share |
NOVELSTEM INTERNATIONAL CORP.
Quarterly Report on Form 10-Q
for the Quarterly Period Ended September 30, 2022
TABLE OF CONTENTS
| 2 |
PART I
| ITEM 1. | UNAUDITED CONDENSED FINANCIAL STATEMENTS |
NOVELSTEM
INTERNATIONAL CORP.
CONDENSED BALANCE SHEETS
| 2022 | 2021 | |||||||
| As of | ||||||||
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Prepaid expenses | ||||||||
| Total current assets | ||||||||
| Investment in Netco Partners | ||||||||
| Investment in NewStem Ltd | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Note payable | ||||||||
| Accrued expenses | ||||||||
| Total current liabilities | ||||||||
| Long-term note payable, including accrued interest | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (see Note 7) | ||||||||
| Shareholders’ equity: | ||||||||
| Common stock, $ par value, shares authorized, shares issued, and shares outstanding as of September 30, 2022 and December 31, 2021 | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Treasury stock, at cost, shares as of September 30, 2022 and December 31, 2021 | ( | ) | ( | ) | ||||
| Total shareholders’ equity | ||||||||
| Total liabilities and shareholders’ equity | $ | $ | ||||||
The accompanying notes are an integral part of these condensed financial statements.
| 3 |
NOVELSTEM INTERNATIONAL CORP.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Nine Months Ended | Three Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Operating expenses: | ||||||||||||||||
| General and administrative expenses | $ | $ | $ | $ | ||||||||||||
| Contra expenses - legal fees and administrative costs (Note 8) | ( | ) | ||||||||||||||
| Stock compensation expense | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Interest expense | ||||||||||||||||
| Loss before income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Provision for income tax | ||||||||||||||||
| Loss before equity in net loss of equity method investees | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Equity in net loss of equity method investees | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Basic and diluted net loss per share: | ||||||||||||||||
| Net loss per share - basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average number of shares outstanding – basic and diluted | ||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
| 4 |
NOVELSTEM INTERNATIONAL CORP.
CONDENSED STATEMENTS OF SHAREHOLDERS’ EQUITY
(UNAUDITED)
For the Three and Nine Months Ended September 30, 2022:
| Shares | Stock | Capital | Deficit | Shares | Stock | Equity | ||||||||||||||||||||||
| Additional | Number of | Total | ||||||||||||||||||||||||||
| Number of | Common | Paid-In | Accumulated | Treasury | Treasury | Shareholders’ | ||||||||||||||||||||||
| Shares | Stock | Capital | Deficit | Shares | Stock | Equity | ||||||||||||||||||||||
| Balance, January 1, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||
| Net loss | - | ( | ) | - | ( | ) | ||||||||||||||||||||||
| Stock option compensation | - | - | ||||||||||||||||||||||||||
| Balance, March 31, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||
| Net loss | - | ( | ) | - | ( | ) | ||||||||||||||||||||||
| Stock option compensation | - | - | ||||||||||||||||||||||||||
| Balance, June 30, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||
| Net loss | - | ( | ) | - | ( | ) | ||||||||||||||||||||||
| Stock option compensation | - | - | ||||||||||||||||||||||||||
| Balance, September 30, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||
For the Three and Nine Months Ended September 30, 2021:
| Additional | Number of | Total | ||||||||||||||||||||||||||
| Number of | Common | Paid-In | Accumulated | Treasury | Treasury | Shareholders’ | ||||||||||||||||||||||
| Shares | Stock | Capital | Deficit | Shares | Stock | Equity | ||||||||||||||||||||||
| Balance, January 1, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||
| Net loss | - | ( | ) | - | ( | ) | ||||||||||||||||||||||
| Stock option compensation | - | - | ||||||||||||||||||||||||||
| Balance March 31, 2021 | ( | ) | ( | ) | ||||||||||||||||||||||||
| Net loss | - | ( | ) | - | ( | ) | ||||||||||||||||||||||
| Stock option compensation | - | - | ||||||||||||||||||||||||||
| Balance, June 30, 2021 | ( | ) | ( | ) | ||||||||||||||||||||||||
| Net loss | - | ( | ) | - | ( | ) | ||||||||||||||||||||||
| Net income (loss) | - | ( | ) | - | ( | ) | ||||||||||||||||||||||
| Stock option compensation | - | - | ||||||||||||||||||||||||||
| Balance, September 30, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||
| Ending balance, value | 43,881,477 | $ | $ | $ | ( | ) | 3,435,197 | $ | ( | ) | $ | |||||||||||||||||
The accompanying notes are an integral part of these condensed financial statements.
| 5 |
NOVELSTEM INTERNATIONAL CORP.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| 2022 | 2021 | |||||||
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2022 | 2021 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Equity in loss of equity method investees | ||||||||
| Distribution from NetCo Partners | ||||||||
| Stock-based compensation | ||||||||
| Change in operating assets and liabilities: | ||||||||
| Current assets and other assets | ( | ) | ||||||
| Accounts payable and accrued expenses | ||||||||
| Net cash from operating activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from (repayment of) short-term note payable | $ | ( | ) | $ | ||||
| Proceeds from long-term notes payable | ||||||||
| Net cash from financing activities | ||||||||
| Net change in cash | ( | ) | ||||||
| Cash at the beginning of the period | ||||||||
| Cash at the end of the period | $ | $ | ||||||
| Supplemental cash flow information: | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | $ | $ | ||||||
The accompanying notes are an integral part of these condensed financial statements.
| 6 |
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
NewStem focuses on the development and commercialization of diagnostic technology that can predict patients’ anti-cancer drug resistance, allowing for targeted cancer treatments and the potential to reduce resistance to chemotherapy. NewStem is collaborating with life sciences companies for the development of drugs and reagents. NetCo is a legacy media business interest which owns “Net Force”, a book publishing franchise.
Liquidity and Management’s Plans
Since
inception, the Company has accumulated a deficit of approximately $
The Company will need to obtain additional funds to continue its operations. Management’s plans with regard to these matters include additional financing and fundraising until its equity investment in NewStem is profitable. Although management continues to pursue these plans, there is no assurance that the Company will be successful in obtaining sufficient cash from financing on terms acceptable to the Company, or that NewStem will become profitable.
The
Company entered into a financing agreement with related parties to borrow up to $
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 unaudited condensed financial statements included in this report have been prepared by the Company pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) for interim reporting and include all adjustments (consisting only of normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation. These condensed financial statements have not been audited. The results of operations for the nine-month periods ended September 30, 2022 and 2021 are not necessarily indicative of the operating results for the full year.
| 7 |
Certain information and footnote disclosures normally included in condensed financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations for interim reporting. The Company believes that the disclosures contained herein are adequate to make the information presented not misleading. These condensed financial statements should be read in conjunction with the Company’s Form 10 filed with the Securities and Exchange Commission on August 2, 2022 for the years ended December 31, 2021 and 2020.
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
The Company reviews equity investments for impairment on an annual basis, or earlier if events or changes in circumstances indicate that the carrying amounts might not be recoverable.
The
Company holds a minority investment in an entity, NewStem, which is accounted for pursuant to the equity
method of accounting. Additionally, the Company is a
Basic net loss per share is computed by dividing the net loss by the weighted average number of shares outstanding during the period, excluding treasury stock. Diluted net income (loss) per share is computed by dividing the net income (loss) by the weighted average number of shares outstanding plus the dilutive potential of common shares which would result from the exercise of stock options and warrants. The dilutive effects of stock options and warrants are excluded from the computation of diluted net income (loss) per share if the effect of doing so would be antidilutive.
SCHEDULE OF WEIGHTED AVERAGE NUMBER OF SHARES OF DILUTIVE
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
Nine Months Ended September 30, | Three Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Net loss available to common shareholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average shares outstanding: | ||||||||||||||||
| -Basic | ||||||||||||||||
| Add: Warrants | ||||||||||||||||
| Add: Stock options | ||||||||||||||||
| -Diluted | ||||||||||||||||
| Basic and diluted net loss per share | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| 8 |
NOTE 3—EQUITY METHOD INVESTMENTS
Investment in NewStem
In
2018, the Company entered into a Share Purchase Agreement with NewStem and other related parties to provide aggregate funding of up
to $
The
Company accounts for its investment in NewStem under the equity method. At September 30, 2022 and December 31, 2021, the carrying value
of the investment in NewStem exceeded the underlying net assets of NewStem by $
The Company assesses its investment in NewStem for impairment on an annual basis.
NewStem
is in the development stage and has incurred losses since its inception and has yet to generate any revenues. NewStem will need to obtain
additional funds to continue its operations. NewStem management’s plans with regard to these matters include continued development,
marketing and licensing of its products, as well as seeking additional financing arrangements. Although management continues to pursue
these plans, there is no assurance that the Company will be successful in obtaining sufficient cash from sales of products or financing
on terms acceptable to the Company. NewStem entered into a share purchase agreement with two investors for the purchase of ordinary
shares for total consideration of $
The following table represents the Company’s investment in NewStem:
SCHEDULE OF INVESTMENTS
Nine Months Ended September 30, 2022 | Year Ended December 31, 2021 | |||||||
| (Unaudited) | ||||||||
| Investment in NewStem, beginning | $ | $ | ||||||
| Allocation of net loss from NewStem | ( | ) | ( | ) | ||||
| Investment in NewStem, ending | $ | $ | ||||||
| 9 |
The results of operations of the Company’s investment in NewStem is summarized below (unaudited):
SCHEDULE OF OPERATIONS AND FINANCIAL POSITION INVESTMENT
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
Nine Months Ended September 30, | Three Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Condensed income statement information: | ||||||||||||||||
| Net sales | $ | $ | $ | $ | ||||||||||||
| Gross margin | $ | $ | $ | $ | ||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Company’s allocation of net loss from NewStem | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
The financial position of the Company’s investment in NewStem is summarized below:
| September 30, 2022 | December 31, 2021 | |||||||
| As of | ||||||||
| September 30, 2022 | December 31, 2021 | |||||||
| (Unaudited) | ||||||||
| Condensed balance sheet information: | ||||||||
| Current assets | $ | $ | ||||||
| Non-current assets | $ | $ | ||||||
| Current liabilities | $ | $ | ||||||
| Non-current liabilities | $ | $ | ||||||
Investment in NetCo
NovelStem
owns a
The following table represents the Company’s investment in NetCo:
SCHEDULE OF INVESTMENTS
Nine Months Ended September 30, 2022 | Year Ended December 31, 2021 | |||||||
| (Unaudited) | ||||||||
| Investment in NetCo, beginning | $ | $ | ||||||
| Allocation of net income from Netco | ||||||||
| Distribution from NetCo | ( | ) | ||||||
| Investment in NetCo, ending | $ | $ | ||||||
| 10 |
The results of operations of the Company’s investment in NetCo is summarized below (unaudited):
SCHEDULE OF OPERATIONS AND FINANCIAL POSITION INVESTMENT
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
Nine Months Ended September 30, | Three Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Condensed income statement information: | ||||||||||||||||
| Net sales | $ | $ | $ | $ | ||||||||||||
| Gross margin | $ | $ | $ | $ | ||||||||||||
| Net income | $ | $ | $ | $ | ||||||||||||
| Company’s allocation of net income from NetCo | $ | $ | $ | $ | ||||||||||||
The financial position of the Company’s investment in NetCo is summarized below:
| September 30, 2022 | December 31, 2021 | |||||||
| As of | ||||||||
| September 30, 2022 | December 31, 2021 | |||||||
| (Unaudited) | ||||||||
| Condensed balance sheet information: | ||||||||
| Current assets | $ | $ | ||||||
| Non-current assets | $ | $ | ||||||
| Current liabilities | $ | $ | ||||||
| Non-current liabilities | $ | $ | ||||||
NOTE 4—NOTES PAYABLE RELATED PARTIES
On
April 12, 2021, the Company entered into a promissory note (the “Note”) with a related party (individual) for $
In
May 2022, the Company entered into long-term notes payable in the form of finance agreements with two individuals who are related parties, which were amended in July 2022, to borrow up to $
| 11 |
NOTE 5—EQUITY
(a) General
At September 30, 2022 and December 31, 2021, the Company had issued and outstanding shares of its common stock, par value $ per share. Holders of outstanding common stock are entitled to receive dividends when, as and if declared by the Board and to share ratably in the assets of the Company legally available for distribution in the event of a liquidation, dissolution or winding up of the Company.
(b) Summary Employee Option Information
The Company’s stock option plan provides for the grant to officers, directors, third party contractors and other future key employees of options to purchase shares of common stock. The purchase price may be paid in cash or at the end of the option term. If the option is “in-the-money”, it is automatically exercised “net”. In a net exercise of an option, the Company does not require a payment of the exercise price of the option from the optionee but reduces the number of shares of common stock issued upon the exercise of the option by the smallest number of whole shares that has an aggregate fair market value equal to or in excess of the aggregate exercise price for the option shares covered by the option exercised. Each option is exercisable to one share of the Company’s common stock. Most options expire within six years from the date of the grant and generally vest on the first anniversary date of their issuance. Pursuant to the Equity Incentive Plan the Company’s board of directors approved on November 12, 2018, an aggregate of options have been issued to directors and investor relations professionals.
SCHEDULE OF FAIR VALUE OF OPTION USING VALUATION ASSUMPTIONS
Nine Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Risk-free interest rate | % | % | ||||||
| Expected term of options, in years | ||||||||
| Expected annual volatility | % | % | ||||||
| Expected dividend yield | % | % | ||||||
| Determined weighted average grant date fair value per option | $ | $ | ||||||
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 years. With respect to determining expected exercise behavior, the Company has grouped its option grants into certain groups to track exercise behavior and establish historical rates. The Company estimated volatility by considering historical stock volatility over the expected term of the option. The risk-free interest rates are based on the U.S. Treasury yields for a period consistent with the expected term. The dividend yield of % is based on the Company’s history and expectation of dividend payout. The Company has not paid and does not anticipate paying dividends in the near future.
| 12 |
(c) Summary Option Information
SCHEDULE OF STOCK OPTION ACTIVITIES
| Number | Weighted | |||||||
| of | Average | |||||||
| Options | Exercise | |||||||
| (in shares) | Price | |||||||
| Outstanding, December 31, 2021 | $ | |||||||
| Granted | ||||||||
| Outstanding, September 30, 2022 | $ | |||||||
| Exercisable, September 30, 2022 | $ | |||||||
Stock-based compensation expense was approximately $ and $ in the nine months and three months ended September 30, 2022, respectively. Stock-based compensation expense was approximately $ and $ for the nine months and three months ended September 30, 2021, respectively.
The total compensation cost related to non-vested awards not yet recognized was approximately $as of September 30, 2022. As of September 30, 2022, options were unvested. These options vest one year from their grant date which is January 2023.
(d) Warrants
The Company has issued warrants at exercise prices equal to or greater than the market value of the Company’s common stock at the date of issuance. A summary of warrant activity follows (unaudited):
| Number of | Weighted | |||||||
| shares | Average | |||||||
| underlying | Exercise | |||||||
| warrants | Price | |||||||
| Outstanding, December 31, 2021 | $ | |||||||
| Granted | ||||||||
| Exercised | ||||||||
| Forfeited or expired | ||||||||
| Outstanding, September 30, 2022 | $ | |||||||
The warrants outstanding at September 30, 2022 have a weighted average remaining contractual life of approximately .
| 13 |
NOTE 6—INCOME TAXES
The Company’s income tax provision differs from the expense that would result from applying statutory rates to income (loss) before taxes. A reconciliation of the provision (benefit) for income taxes with amounts determined by applying the statutory U.S. federal income tax rate to income before income taxes is as follows (unaudited):
SCHEDULE OF INCOME BEFORE INCOME TAX
Nine Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Computed tax at
the federal statutory rate of | $ | ( | ) | $ | ( | ) | ||
| State income taxes, net of federal income tax benefit | ( | ) | ( | ) | ||||
| Change in federal valuation allowance | ||||||||
| Total provision for income tax | $ | $ | ||||||
Three Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Computed tax at
the federal statutory rate of | $ | ( | ) | $ | ( | ) | ||
| State income taxes, net of federal income tax benefit | ( | ) | ( | ) | ||||
| Change in federal valuation allowance | ||||||||
| Total provision for income tax | $ | $ | ||||||
NOTE 7—COMMITMENTS AND CONTINGENCIES
The
Company is the claimant in an arbitration proceeding against their
NOTE 8—LITIGATION FUNDING AGREEMENT
On
February 11, 2022, the Company entered into a nonrecourse litigation funding agreement (the “Agreement”) with Omni Bridgeway
(Fund 4) Invt. 3 L.P. (“Omni”) related to an ongoing arbitration proceeding disclosed in Note 7. The Agreement provides for
Omni to fund all costs related to the arbitration up to $
NOTE 9—SUBSEQUENT EVENTS
As
disclosed in Note 4, the Company has in place notes payable with related parties. The Company received total advances of $
In November 2022, these notes payable were amended to increase the interest rate to 10% per annum on all future advances.
| 14 |
NOVELSTEM INTERNATIONAL CORP.
| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Statements in the following discussion and throughout this Form 10-Q that are not historical in nature are “forward-looking statements.” You can identify forward-looking statements by the use of words such as “expect,” “anticipate,” “estimate,” “may,” “will,” “should,” “intend,” “believe,” and similar expressions. Although we believe the expectations reflected in these forward-looking statements are reasonable, such statements are inherently subject to risk and we can give no assurances that our expectations will prove to be correct. Actual results could differ from those described in this Form 10-Q because of numerous factors, many of which are beyond our control. We undertake no obligation to update these forward-looking statements to reflect events or circumstances after the date of this Form 10-Q or to reflect actual outcomes.
Overview
We are a development stage company and reported net losses of $877,000 and $736,000 for the nine months ended September 30, 2022 and 2021, respectively, and $295,000 and $332,000 for the three months ended September 30, 2022 and 2021, respectively. We had current assets of $66,000 and current liabilities of $126,00 as of September 30, 2022. As of December 31, 2021, our current assets and current liabilities were $37,000 and $193,000, respectively. We have prepared our financial statements for the three and nine months ended September 30, 2022 assuming that we will continue as a going concern. Our continuation as a going concern is dependent upon improving our profitability and the continuing financial support from our shareholders as well as NewStem’s ability to successfully develop and commercialize its products. Our sources of capital in the past have included the sale of equity securities, which include common stock sold in private transactions, large alternative minimum tax refunds, and short-term debt.
NewStem is a development stage Israeli biotech limited liability company focused on pioneering intellectual property related to haploid human embryonic stem cells for the development of personalized diagnostics and therapeutics for genetic and epigenetic diseases. NewStem has incurred losses related to in process research and development since inception and the Company records our percentage allocation of these net losses as incurred. We have included the condensed financial statements of NewStem as an exhibit to this Form 10-Q.
RESULTS OF OPERATIONS
The following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes thereto and other financial information appearing elsewhere in this Form 10-Q. In the discussion below, general and administrative expenses are referred to as “G&A expenses”.
Nine Months Ended September 30 | Three Months Ended September 30 | |||||||||||||||||||||||
| 2022 | 2021 | Change | 2022 | 2021 | Change | |||||||||||||||||||
| Operating expenses: | ||||||||||||||||||||||||
| G&A expenses | $ | 376,247 | $ | 138,252 | $ | 237,995 | $ | 131,060 | $ | 60,133 | $ | 70,927 | ||||||||||||
| Contra expenses - legal fees | (310,000 | ) | - | (310,000 | ) | - | - | - | ||||||||||||||||
| Stock compensation expense | 198,494 | 229,891 | (31,397 | ) | 75,150 | 73,045 | 2,105 | |||||||||||||||||
| Total operating expenses | 264,741 | 368,143 | (103,402 | ) | 206,210 | 133,178 | 73,032 | |||||||||||||||||
| Loss from operations | (264,741 | ) | (368,143 | ) | (103,402 | ) | (206,210 | ) | (133,178 | ) | 73,032 | |||||||||||||
| Interest expense | 5,542 | 2,212 | 3,330 | 3,530 | 2,205 | 1,325 | ||||||||||||||||||
| Net loss before equity in net | ||||||||||||||||||||||||
| loss of equity method investees | (270,283 | ) | (370,355 | ) | 100,072 | (209,740 | ) | (135,383 | ) | (74,357 | ) | |||||||||||||
| Equity in net loss of equity method investees | (606,736 | ) | (365,543 | ) | (241,193 | ) | (85,532 | ) | (196,333 | ) | 110,801 | |||||||||||||
| Net loss | $ | (877,019 | ) | $ | (735,898 | ) | $ | (141,121 | ) | $ | (295,272 | ) | $ | (331,716 | ) | $ | 36,444 | |||||||
We are a holding company whose primary assets are our ownership of equity interests in NewStem and NetCo. We conduct no other business and as a result, we have no revenue or cost of revenue.
The Company incurs G&A expenses primarily related to professional fees and insurance. We incurred G&A expenses of $376,000 and $138,000 for the nine months ended September 30, 2022 and 2021, respectively, and $131,000 and $60,000 for the three months ended September 30, 2022 and 2021, respectively. Specifically, professional fees increased by $199,000 in the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021 and $57,000 in the three months ended September 30, 2022 as compared to the three months ended September 30, 2021. Insurance costs increased by $34,000 in the nine months ended September 30, 2022 as compared to the same period in 2021 and $12,000 in the three months ended September 30, 2022 as compared to the three months ended September 30, 2021. Our increase in G&A expenses relates primarily to professional fees incurred in the audit of our financial statements for the years ended December 31, 2021 and 2020 and, in the preparation, and filing of our Form 10 registration statement.
| 15 |
Stock compensation expense decreased by $31,000 in the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021 due to a smaller number of options awarded in the current period as compared to the prior period.
During the nine months ended September 30, 2022 we recorded a contra expense of $310,000 which is comprised of funds from a litigation funding agreement. This agreement was signed during the first quarter of 2022 with Omni Bridgeway to fund our arbitration against our 50% joint venture partner, C.P. Group. This is a nonrecourse agreement and the Company has no obligation to repay any funds received under the agreement. In the event of a favorable outcome, Omni Bridgeway would recover disbursed funding as part of their investment return.
As part of that funding arrangement, Omni Bridgeway agreed to reimburse NovelStem $310,000 which was comprised of $140,000 for reimbursement of previously incurred legal expenses and $170,000 for working capital needs including previously incurred general and administrative costs. There was no contra expense in the nine months ended September 30, 2021.
The Company has recorded no income tax expense as we have incurred operating losses and all deferred tax assets are fully offset by an income tax valuation allowance.
We reported net losses from equity method investees in all periods presented. The net losses reported for the three and nine months ended September 30, 2022 were fully comprised of net losses from NewStem. The net losses reported for the nine months ended September 30, 2021 included net income of $9,000 from NetCo which was offset by net loss of $375,000 from NewStem.
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 at NewStem, acquisitions or expansion; consequently, we do not expect to pay dividends on common stock in the foreseeable future.
We expect to continue to incur greater expenses in the near future as we expand our business or enter into strategic partnerships. We also expect our G&A expenses to increase as we expand our finance and administrative staff, add infrastructure, and incur additional costs related to being a reporting act company, including directors’ and officers’ insurance and increased professional fees.
The Company will need to obtain additional funds to continue its operations. Management’s plans with regard to these matters include additional financing and fundraising until its equity investment in NewStem is profitable. Although management continues to pursue these plans, there is no assurance that the Company will be successful in obtaining sufficient cash from financing on terms acceptable to the Company, or that NewStem will become profitable.
In May 2022, the Company entered into an agreement with Jan Loeb, our Executive Chairman and Jerry Wolasky, a member of the Board, which was amended in July 2022, to borrow up to an aggregate of $600,000 for working capital needs. This agreement provides for funding through January 31, 2024, provides for interest at a rate of 8% per annum, increased to 10% per annum for advances subsequent to November 11, 2022, and matures the earlier of January 31, 2024 or twenty months from the date of the first funded amount unless the lenders agree to extend the due date at that time. As of the date of this Form 10-Q, the Company has drawn down $200,000 under the aforementioned agreement.
| 16 |
| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK |
This section is not applicable.
| ITEM 4. | CONTROLS AND PROCEDURES |
Our Principal Executive Officer and Chief Financial Officer conducted an evaluation of our controls and procedures. We have identified material weaknesses in our internal control and procedures and internal control over financial reporting. If not remediated, our failure to establish and maintain effective disclosure controls and procedures and internal control over financial reporting could result in material misstatements in our financial statements and a failure to meet our reporting and financial obligations, each of which could have a material adverse effect on our financial condition and the trading price of our common stock.
Maintaining effective internal control over financial reporting and effective disclosure controls and procedures are necessary for us to produce reliable financial statements. We have re-evaluated our internal control over financial reporting and our disclosure controls and procedures and concluded that they were not effective as of September 30, 2022 and we concluded there was a material weakness in the design of our internal control over financial reporting.
A material weakness is defined as a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
The material weaknesses identified included insufficient resources to employ proper segregation of duties over the processing of transactions and financial reporting.
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.
PART II
| ITEM 1. | LEGAL PROCEEDINGS |
Netco owns all rights in all media to the NetForce intellectual property including film, television, and video games. Consistent with our contractual and statutory rights, NovelStem is intent on commercially exploiting the full array of media rights relating to Net Force. We have initiated an arbitration proceeding against our 50% partner in Netco, C.P. Group, in an effort to maximize the total potential value to be derived from fully utilizing the Netco intellectual property across video games, streaming, entertainment, digital media, merchandising and other ancillary markets. Arbitration proceedings for the joint owners of NetCo began in July 2022. To fund efforts to maximize the value of Netco, NovelStem has secured non-recourse litigation funding.
Arbitration hearings were held at the end of July 2022. During the proceedings the arbitrator put the arbitration on hold and asked the parties to try and negotiate a settlement. Arbitration proceedings were concluded in October 2022 and legal counsel for both parties are in the process of filing final briefs which are due to the arbitrator in January 2023. It is unknown as to how long the arbitrator will take to render his decision.
| ITEM 6. | EXHIBITS |
#101.1 The following financial statements from NovelStem International Corp.’s Form 10-Q for the quarter ended September 30, 2022, filed on November 14, 2022, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Balance Sheets, (ii) Condensed Statements of Operations, (iii) Condensed Statements of Changes in Shareholders’ Equity, (iv) Condensed Statements of Cash Flows and (v) Notes to Condensed Financial Statements, tagged as blocks of text.
104 Cover Page Interactive Data File (embedded within the Inline XBRL document).
| # | This exhibit is filed or furnished herewith. |
| 17 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized.
| NOVELSTEM INTERNATIONAL CORP. | ||
| Date: November 14, 2022 | By: | /s/ Jan Loeb |
| Name: | Jan Loeb | |
| Title: | Executive Chairman | |
| 18 |
Exhibit 31.1
I, Jan H. Loeb, the Principal Executive Officer and Executive Chairman of NovelStem International Corp. certify that:
| 1. | I have reviewed this report on Form 10-Q of NovelStem International Corp.; | |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a- 15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and l have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Dated: November 14, 2022 | ||
| By: | /s/ JAN H. LOEB | |
| Jan H Loeb | ||
Principal Executive Officer and Executive Chairman |
||
Exhibit 31.2
I, Christine T. Jenkins, the Chief Financial Officer of NovelStem International Corp. certify that:
| 1. | I have reviewed this report on Form 10-Q of NovelStem International Corp.; | |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a- 15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and l have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Dated: November 14, 2022 | ||
| By: | /s/ CHRISTINE T. JENKINS | |
| Christine T. Jenkins | ||
| Chief Financial Officer | ||
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of NovelStem International Corp. (the “Company”) for the quarterly period ended September 30, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jan H. Loeb, Principal Executive Officer and Executive Chairman of the Company, hereby certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. |
| /s/ Jan H. Loeb | |
| Jan H. Loeb | |
Principal Executive Officer and Executive Chairman |
|
| November 14, 2022 |
Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of NovelStem International Corp. (the “Company”) for the quarterly period ended September 30, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Christine T. Jenkins, Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. |
| /s/ Christine T. Jenkins | |
| Christine T. Jenkins | |
| Chief Financial Officer | |
| November 14, 2022 |
Exhibit 33.1
NewStem Ltd.
Condensed Interim Financial Statements
As of September 30, 2022
(Unaudited)
NewStem Ltd.
Condensed Interim Financial Statements as at September 30, 2022
Contents
NewStem Ltd.
Condensed Interim Balance Sheets as of
(Unaudited)
| September 30 | December 31 | |||||||
| 2022 | 2021 | |||||||
| US$ thousands | US$ thousands | |||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | 519 | 601 | ||||||
| Prepaid share-based payment | - | 771 | ||||||
| Other accounts receivable | 54 | 53 | ||||||
| Total current assets | 573 | 1,425 | ||||||
| Non-current assets | ||||||||
| Property and equipment, net | 27 | 41 | ||||||
| Total assets | 600 | 1,466 | ||||||
| Liabilities and shareholders’ equity | ||||||||
| Current liabilities | ||||||||
| Accrued expenses and other payables | 87 | 127 | ||||||
| Other liabilities | 17 | 100 | ||||||
| Total current liabilities | 104 | 227 | ||||||
| Non-current liabilities | ||||||||
| Convertible financial instrument | 112 | 134 | ||||||
| Total liabilities | 216 | 361 | ||||||
| Shareholders’ equity | ||||||||
| Ordinary shares | * | * | ||||||
| Additional paid-in capital | 7,948 | 6,734 | ||||||
| Accumulated deficit | (7,564 | ) | (5,629 | ) | ||||
| Total shareholders’ equity | 384 | 1,105 | ||||||
| Total liabilities and shareholders’ equity | 600 | 1,466 | ||||||
| /s/ Ayelet Dilion Mashia | |
| Ayelet Dilion Mashiah | |
| CEO |
Date of approval of the financial statements: November 2, 2022
* Represents an amount lower than $1 thousand.
The accompanying notes are an integral part of the condensed interim financial statements.
| 2 |
NewStem Ltd.
Condensed Interim Statements of Operations for the
(Unaudited)
| Nine-month | Nine-month | |||||||
| period ended | period ended | |||||||
| September 30, | September 30, | |||||||
| 2022 | 2021 | |||||||
| US$ thousands | US$ thousands | |||||||
| Operating expenses | ||||||||
| Research and development expenses | 1,917 | 1,055 | ||||||
| Less – grants and participations received | (183 | ) | (90 | ) | ||||
| Research and development expenses, net | 1,734 | 965 | ||||||
| General and administrative expenses | 210 | 163 | ||||||
| Operating loss | 1,944 | 1,128 | ||||||
| Financial (income) expenses, net | (9 | ) | 4 | |||||
| Loss for the period | 1,935 | 1,132 | ||||||
The accompanying notes are an integral part of the condensed interim financial statements.
| 3 |
NewStem Ltd.
Condensed Interim Statements of Changes in Shareholders’ Equity
(Unaudited)
| Additional | ||||||||||||||||||||
| paid-in | Accumulated | |||||||||||||||||||
| Ordinary shares | capital | deficit | Total | |||||||||||||||||
| Number of shares | US$ thousands | US$ thousands | US$ thousands | US$ thousands | ||||||||||||||||
| For the nine - month period ended September 30, 2022 | ||||||||||||||||||||
| Balance as of January 1, 2022 | 158,696 | * | 6,734 | (5,629 | ) | 1,105 | ||||||||||||||
| Issuance of ordinary shares, net | 2,647 | * | 800 | - | 800 | |||||||||||||||
| Share based compensation | - | - | 414 | - | 414 | |||||||||||||||
| Loss for the period | - | - | - | (1,935 | ) | (1,935 | ) | |||||||||||||
| Balance as at September 30, 2022 | 161,343 | * | 7,948 | (7,564 | ) | 384 | ||||||||||||||
| For the nine - month period ended September 30, 2021 | ||||||||||||||||||||
| Balance as of January 1, 2021 | 150,000 | * | 4,543 | (2,999 | ) | 1,544 | ||||||||||||||
| Issuance of ordinary shares in exchange of services, net | 8,696 | * | 1,952 | - | 1,952 | |||||||||||||||
| Share based compensation | - | - | 154 | - | 154 | |||||||||||||||
| Loss for the period | - | - | - | (1,132 | ) | (1,132 | ) | |||||||||||||
| Balance as of September 30, 2021 | 158,696 | * | 6,649 | (4,131 | ) | 2,518 | ||||||||||||||
* Represents an amount less than $1 thousand.
The accompanying notes are an integral part of the condensed interim financial statements.
| 4 |
NewStem Ltd.
Condensed Interim Statements of Cash Flows for the
(Unaudited)
| Nine-month | Nine-month | |||||||
| period ended | period ended | |||||||
| September 30, | September 30, | |||||||
| 2022 | 2021 | |||||||
| US$ thousands | US$ thousands | |||||||
| Cash flows from operating activities | ||||||||
| Loss for the period | (1,935 | ) | (1,132 | ) | ||||
| Adjustments required to reconcile loss for the period to net cash used in operating activities: | ||||||||
| Depreciation | 14 | 8 | ||||||
| Revaluation of marketable securities | - | 4 | ||||||
| Revaluation of convertible financial instrument | (22 | ) | - | |||||
| Share based compensation | 1,185 | 336 | ||||||
| Increase in other accounts receivable | (1 | ) | (47 | ) | ||||
| Increase (decrease) in accrued expenses and other payables | (40 | ) | 11 | |||||
| Decrease in other liabilities | (83 | ) | - | |||||
| Net cash used in operating activities | (882 | ) | (820 | ) | ||||
| Cash flows from investing activities | ||||||||
| Proceeds from the sale of marketable securities | - | 774 | ||||||
| Purchase of property and equipment | - | (26 | ) | |||||
| Net cash provided by investing activities | - | 748 | ||||||
| Cash flows from financing activities | ||||||||
| Proceeds from issuance of ordinary shares, net | 800 | - | ||||||
| Net cash provided by financing activities | 800 | - | ||||||
| Net decrease in cash and cash equivalents | (82 | ) | (72 | ) | ||||
| Cash and cash equivalents at the beginning of the period | 601 | 790 | ||||||
| Cash and cash equivalents at the end of the period | 519 | 718 | ||||||
The accompanying notes are an integral part of the condensed interim financial statements.
| 5 |
NewStem Ltd.
Notes to the Condensed Interim Financial Statements as of September 30, 2022
Note 1 - General
| A. | NewStem Ltd. (“the Company”) was incorporated in September 2016 under the laws of the State of Israel and commenced its business operations in July 2018. | |
| B. | The Company is a development stage company utilizing its pioneering intellectual property related to haploid human embryonic stem cells for the development of personalized diagnostics and therapeutics for genetic and epigenetic diseases. | |
| C. | Since inception, the Company has accumulated losses of $7,564 thousand. | |
| The Company will need to obtain additional funds to continue its operations. Management’s plans with regard to these matters include continued development, marketing and licensing of its products, as well as seeking additional financing arrangements. Although management continues to pursue these plans, there is no assurance that the Company will be successful in obtaining sufficient cash from sales of products or financing on terms acceptable to the Company. | ||
| The company currently has agreements in place and draft agreements that will provide cash resources that should suffice for the operations of the next 12 months. If the draft agreements do not materialize to final agreements, the Company may incur difficulties to continue to operate its business and that may raise doubt about its ability to continue as a going concern. The interim financial statements do not include any adjustments that might result from the outcome of these uncertainties. | ||
| D. | Definitions |
| In these financial statements – | ||
| 1. | The Company – NewStem Ltd. | |
| 2. | Related Party – Within its meaning in ASC 850, “Related Party Transactions”. | |
Note 2 - Basis of Presentation
The accompanying condensed interim balance sheet as of September 30, 2022, and the condensed interim statements of operations, changes in shareholders’ equity and cash flows for the nine-month period ended September 30, 2022 are unaudited. These unaudited condensed interim financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America.
The unaudited condensed interim financial statements contain all adjustments which, in the opinion of management, are necessary to present fairly, the financial information included therein. It is suggested that these condensed interim financial statements be read in conjunction with the audited financial statements and accompanying notes included in the Company’s report for the year ended December 31, 2021 (“the 2021 Financial Statements”). Results for the interim periods presented are not necessarily indicative of the results to be expected for the full year.
The accounting principles used in the preparation of the interim statements are consistent with those used in the preparation of the 2021 Financial Statements, except as follows:
The Company signed a development agreement with a third-party. As part of the agreement, which is not part of the Company’s ordinary activities, the Company receives reimbursement for its research and development expenses and will receive subsequent royalties from any future sales that include the Company’s developed intellectual property. The Company has implemented ASC 808 “Collaborative Arrangements” (“ASC 808”) and based on ASC 808 guidance has applied an accounting policy according to which such reimbursements are offset from its research and development expenses.
| 6 |
NewStem Ltd.
Notes to the Condensed Interim Financial Statements as of September 30, 2022
Note 3 - Related Parties
The Company engaged with its shareholders to receive consulting services and lab renting.
Transactions
| Nine-month | Nine-month | |||||||
| period ended | period ended | |||||||
| September 30, | September 30, | |||||||
| 2022 | 2021 | |||||||
| US$ thousands | US$ thousands | |||||||
| Research and development expenses | 267 | 237 | ||||||
The Company leases a laboratory from a shareholder. The lease is for an initial three-year term expiring in June 2021. The Company extended the lease until June 2023. Each party shall be entitled to terminate the agreement within 30 days’ notice.
The lease has been classified as an operating lease and the expenses are included in the data presented above. Total lease cost associated with this lease for the nine-month period ended September 30, 2022 and 2021 was US$33 thousand and US$33 thousand, respectively.
Note 4 - Events during the period
| A. | Further to what is stated in Note 8C of the 2021 Financial Statements, the service agreement with a third-party came to its end in March 2022. Accordingly, the prepaid share-based payment balance, was fully recognized as an expense in the Statement of Operations. | |
| B. | On April 30, 2022, the Company signed a share purchase agreement with two investors for the purchase of 2,647 Ordinary Shares of the Company (par value ILS 0.01) for a total consideration of US$800 thousands. Based on the Company’s agreement with one of its other shareholders, the Company is entitled to a matching investment (“the matching investment”) which will bring the total funding to US$1,600 thousands. As of September 30, 2022, the matching investment has not yet been received. |
| 7 |