# NovelStem International Corp.: Form 10-Q for the period ended Mar 31, 2024

- Company: [NovelStem International Corp.](/companies/nstm.md) (CIK 912544)
- Form: 10-Q
- Filed: 2024-05-15
- Accepted by EDGAR: May 15, 2024, 14:38 ET
- Period: 2024-03-31
- Accession: 0001493152-24-019729
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/912544/000149315224019729/form10-q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/912544/000149315224019729/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Operating income | 3 months, 2024-01-01 to 2024-03-31 | −$180.3k | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2024-01-01 to 2024-03-31 | $94.8k | us-gaap:InterestExpense |
| Net income | 3 months, 2024-01-01 to 2024-03-31 | −$303.3k | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-01-01 to 2024-03-31 | −$0.01 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-01-01 to 2024-03-31 | −$0.01 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-01-01 to 2024-03-31 | 46,881,475 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2024-01-01 to 2024-03-31 | −$72.9k | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Cash and equivalents | at 2024-03-31 | $5.2k | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-03-31 | $36.0k | us-gaap:AssetsCurrent |
| Total assets | at 2024-03-31 | $2.4m | us-gaap:Assets |
| Current liabilities | at 2024-03-31 | $3.3m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-03-31 | $4.6m | us-gaap:Liabilities |
| Current portion of debt | at 2024-03-31 | $2.9m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2024-03-31 | −$2.2m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 10,603 characters.

Statements in the following discussion and throughout this Form 10-Q that are not historical in nature are “forward-looking statements.” You can identify forward-looking statements by the use of words such as “expect,” “anticipate,” “estimate,” “may,” “will,” “should,” “intend,” “believe,” and similar expressions. Although we believe the expectations reflected in these forward-looking statements are reasonable, such statements are inherently subject to risk and we can give no assurances that our expectations will prove to be correct. Actual results could differ from those described in this Form 10-Q because of numerous factors, many of which are beyond our control. We undertake no obligation to update these forward-looking statements to reflect events or circumstances after the date of this Form 10-Q or to reflect actual outcomes.

### Overview

We are a development stage company and reported net losses of approximately $303,000 and $269,000 for the three months ended March 31, 2024 and 2023, respectively. We had current assets of approximately $36,000 and current liabilities of $3,297,000 as of March 31, 2024. As of December 31, 2023, our current assets and current liabilities were approximately $87,000 and $346,000, respectively. The significant increase in current liabilities is primarily due to the litigation funding agreement liability classification changing from noncurrent to current in January 2024.

We have prepared our financial statements for the three months ended March 31, 2024 assuming that we will continue as a going concern. Our continuation as a going concern is dependent upon NewStem’s ability to successfully develop and commercialize its products, improving our profitability and the continuing financial support from our shareholders as well as obtaining additional outside funding. Our sources of capital in the past have included the sale of equity securities, which include common stock sold in private transactions, large alternative minimum tax refunds, and related party debt as well as debt from unrelated parties.

NewStem is a development stage Israeli biotech limited liability company focused on pioneering intellectual property related to haploid human embryonic stem cells for the development of personalized diagnostics and therapeutics for genetic and epigenetic diseases. NewStem has incurred losses related to in process research and development since inception and the Company records our percentage allocation of these net losses as incurred. We have included the condensed financial statements of NewStem as an exhibit to this Form 10-Q.

### RESULTS OF OPERATIONS

The following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes thereto and other financial information appearing elsewhere in this Form 10-Q. In the discussion below, general and administrative expenses are referred to as “G&A expenses”.

|  | Three Months Ended March 31, 2024 | 2023 | Change |
| --- | ---: | ---: | ---: |
| Administrative fee income | $3,000 | $- | $3,000 |
| Operating expenses: |  |  |  |
| G&A expenses | 183,306 | 164,792 | (18,514) |
| Total operating expenses | 183,306 | 164,792 | (18,514) |
| Loss from operations | (180,306) | (164,792) | (15,514) |
| Other expenses: |  |  |  |
| Gain on derivative instrument | (25,000) | - | (25,000) |
| Interest expense | 94,764 | 7,313 | 87,451 |
| Total other expenses | 69,764 | 7,313 | 62,451 |
| Net loss before equity in net |  |  |  |
| loss of equity method investees | (250,070) | (172,105) | (77,965) |
| Equity in net loss of equity method investees | (53,210) | (96,716) | 43,506 |
| Net loss | $(303,280) | $(268,821) | $(34,459) |

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. We do charge annual administrative fees to an affiliated entity.

The Company incurs G&A expenses primarily related to professional fees, insurance and stock based compensation. We incurred G&A expenses of approximately $183,000 and $165,000 for the three months ended March 31, 2024 and 2023, respectively. Specifically, professional fees increased by approximately $22,000 in the three months ended March 31, 2024 as compared to the three months ended March 31, 2023. Primarily due to an increase in audit fees and general counsel legal fees. Other miscellaneous G&A expenses decreased by approximately $2,000.

Stock compensation expense, included in G&A expenses, decreased by approximately $2,000 in the three months ended March 31, 2024 as compared to the three months ended March 31, 2023 due to a smaller number of options awarded in the current period as compared to the prior period.

Interest expense increased by approximately $87,000 in the three months ended March 31, 2024 as compared to the three months ended March 31, 2023 due to the increased debt incurred through March 31, 2024.

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

We reported net losses from equity method investees in all periods presented. The net losses reported for the three months ended March 31, 2024 included a loss from NetCo of $1,351 and a loss from NewStem of $51,859. The net losses reported for the three months ended March 31, 2023 included net income of $7,875 from NetCo which was offset by net loss of $104,591 from NewStem.

### 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.

We expect to continue to incur greater expenses in the near future as we expand our business, including funding NewStem, or enter into strategic partnerships. We also expect our G&A expenses to increase as we expand our administrative staff and add infrastructure.

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 our 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 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 8% per annum, increased to 10% per annum for advances subsequent to November 11, 2022, and mature September 1, 2025. As of the date of this Quarterly 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 $535,000 at March 31, 2024 and December 31, 2023.

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 mature December 21, 2024, at which time all principal and accrued interest are due and payable. 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. These agreements bear interest at $10% per annum and mature December 30, 2025. The unpaid principal balance of these notes and any accrued interest may be converted into shares of the Company’s common stock at a conversion price of $0.13 per share.

#### Net Cash Used In Operating Activities.

For the three months ended March 31, 2024, net cash used in operating activities was approximately $73,000, which consisted primarily of a net loss of approximately $303,000, offset by noncash equity in loss of equity method investees of approximately $53,000, accretion of discount on notes payable of approximately $44,000, stock based compensation of approximately $14,000 and interest added to notes payable of approximately $42,000 and reduced by gain on derivative instrument of $25,000. Additionally, cash was used in operations related to an increase in current assets of approximately $3,000 and an increase in accrued liabilities and other payables of approximately $95,000.

For the three months ended March 31, 2023, net cash used in operating activities was approximately $28,000, which consisted primarily of a net loss of approximately $269,000, offset by noncash equity in loss of equity method investees of approximately $97,000 and distributions from equity method investees of approximately $8,000, stock based compensation of approximately $15,000 and interest added to notes payable of approximately $7,000. Additionally, cash was used in operations related to an increase in current assets of approximately $13,000 and an increase in accrued liabilities and other payables of approximately $101,000.

#### Net Cash Used In Investing Activities.

During the three months ended March 31, 2024, $250,000 was loaned to NewStem in an investing activity. For the three months ended March 31, 2023, no net cash was used in investing activities.

#### Net Cash Provided By Financing Activities.

For the three months ended March 31, 2024, net cash provided by financing activities was $275,000, consisting of long-term borrowings from two directors and a significant stockholder totaling $275,000.

For the three months ended March 31, 2023, net cash provided by financing activities was $62,000, consisting of long-term borrowings from two directors.

## Controls and procedures

As filed, 1,897 characters.

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

Maintaining effective internal control over financial reporting and effective disclosure controls and procedures are necessary for us to produce reliable financial statements. We have re-evaluated our internal control over financial reporting and our disclosure controls and procedures and concluded that they were not effective as of March 31, 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.

### 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.

## Risk factors

As filed, 144 characters.

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

Filed May 15, 2024.
Source: SEC EDGAR, the filing index for accession 0001493152-24-019729. Last ingested by Listed: Oct 24, 2026, 15:00 ET. No prices; not investment advice.