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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2024

 

☐ TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _________________ to _________________

 

Commission file number: 001-14332

 

NOVELSTEM INTERNATIONAL CORP.

(Exact name of registrant as specified in its charter)

 

Florida   65-0385686

(State or other jurisdiction

of incorporation or organization)

  

(I.R.S. Employer

Identification No.)

 

2255 Glades Road, Suite 221A, Boca Raton, FL   33431
(Address of principal executive offices)   (Zip Code)

 

  Registrant’s telephone number, including area code (410) 598-9024  

 

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

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
None        

 

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 Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

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 was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filed, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer  ☒ Smaller reporting company  ☒
  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 ☐ No ☒

 

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 May 15, 2024
Common Stock, $0.01 par value per share   46,881,475

 

 

 

 

 

 

NOVELSTEM INTERNATIONAL CORP.

Quarterly Report on Form 10-Q

for the Quarterly Period Ended March 31, 2024

 

TABLE OF CONTENTS

 

    PAGE
     
Part I Financial Information    
     
Item 1. Unaudited Condensed Financial Statements:    
     
Condensed Balance Sheets as of March 31, 2024 and December 31, 2023   3
     
Condensed Statements of Operations for the three months ended March 31, 2024 and 2023   4
     
Condensed Statements of Changes in Shareholders’ Deficit for the three months ended March 31, 2024 and 2023   5
     
Condensed Statements of Cash Flows for the three months ended March 31, 2024 and 2023   6
     
Notes to Condensed Financial Statements   7
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations   15
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk   18
     
Item 4. Controls and Procedures   18
     
Part II Other Information    
     
Item 1. Legal Proceedings   18
     
Item 1A. Risk Factors   19
     
Item 6. Exhibits   19
     
Signatures   20

 

2

 

 

PART I

 

ITEM 1. UNAUDITED CONDENSED FINANCIAL STATEMENTS

 

NOVELSTEM INTERNATIONAL CORP.

CONDENSED BALANCE SHEETS

 

   March 31,   December 31, 
   As of 
   March 31,   December 31, 
   2024   2023 
   (Unaudited)     
         
ASSETS          
Current assets:          
Cash  $5,181   $53,063 
Accounts receivable, administrative fees   3,000    - 
Prepaid expenses   27,855    33,540 
Total current assets   36,036    86,603 
Investment in Netco Partners   132,358    133,709 
Note receivable, NewStem Ltd   500,000    250,000 
Investment in NewStem Ltd   1,732,375    1,784,234 
Total assets  $2,400,769   $2,254,546 
           
LIABILITIES AND SHAREHOLDERS’ DEFICIT          
Current liabilities:          
Accounts payable  $149,672   $54,257 
Notes payable   250,000    250,000 
Current portion of long-term notes payable, including accrued interest   2,850,916    - 
Accrued expenses   45,974    42,223 
Total current liabilities   3,296,562    346,480 
Long-term liabilities:          
Long-term notes payable, including accrued interest, net   810,527    3,324,599 
Derivative liability, guarantee   535,000    535,000 
Total long-term liabilities   1,345,527    3,859,599 
Total liabilities   4,642,089    4,206,079 
Commitments and contingencies (see Note 7)   -    - 
Shareholders’ deficit:          
Common stock, $.01 par value, 100,000,000 shares authorized, 50,316,672 shares issued, and 46,881,475 shares outstanding as of March 31, 2024 and December 31, 2023   468,815    468,815 
Additional paid-in capital   290,920,710    290,907,217 
Accumulated deficit   (293,431,091)   (293,127,811)
Treasury stock, at cost, 3,435,197 shares as of March 31, 2024 and December 31, 2023   (199,754)   (199,754)
Total shareholders’ deficit   (2,241,320)   (1,951,533)
Total liabilities and shareholders’ deficit  $2,400,769   $2,254,546 

 

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

 

3

 

 

NOVELSTEM INTERNATIONAL CORP.

CONDENSED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

   2024   2023 
   Three Months Ended 
   March 31, 
   2024   2023 
         
Administrative fee income   $3,000   $- 
Operating expenses:           
General and administrative expenses    183,306    164,792 
Total operating expenses    183,306    164,792 
Loss from operations    (180,306)   (164,792)
Other expenses:           
Gain on derivative instrument    (25,000)   - 
Interest expense    94,764    7,313 
Total other expenses    69,764    7,313 
Loss before income taxes    (250,070)   (172,105)
Provision for income tax    -    - 
Loss before equity in net income of equity method investees    (250,070)   (172,105)
Equity in net loss of equity method investees    (53,210)   (96,716)
Net loss   $(303,280)  $(268,821)
Basic and diluted net loss per share:           
Net loss per share - basic and diluted   $(0.01)  $(0.01)
Weighted average number of shares outstanding - basic and diluted    46,881,475    46,881,475 

 

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 Months Ended March 31, 2024:

 

   Number of   Common   Additional Paid-In   Accumulated   Number of Treasury   Treasury   Total Shareholders’ 
   Shares   Stock   Capital   Deficit   Shares   Stock   Equity 
                             
Balance, January 1, 2024   46,881,475   $468,815   $290,907,217   $(293,127,811)   3,435,197   $(199,754)  $(1,951,533)
Net loss   -    -    -    (303,280)   -    -    (303,280)
Stock option compensation   -    -    13,493    -    -    -    13,493 
Balance, March 31, 2024   46,881,475  

$

468,815   $290,920,710   $(293,431,091)   3,435,197   $(199,754)  $(2,241,320)

 

For the Three Months Ended March 31, 2023:

 

           Additional       Number of       Total 
   Number of   Common   Paid-In   Accumulated   Treasury   Treasury   Shareholders’ 
   Shares   Stock   Capital   Deficit   Shares   Stock   Equity 
                             
Balance, January 1, 2023   46,881,475   $468,815   $290,604,327   $(288,940,510)   3,435,197   $(199,754)  $1,932,878 
Net loss   -    -    -    (268,821)   -    -    (268,821)
Stock option compensation   -    -    15,077    -    -    -    15,077 
Balance, March 31, 2023   46,881,475   $468,815   $290,619,404   $(289,209,331)   3,435,197   $(199,754)  $1,679,134 

 

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

 

5

 

 

NOVELSTEM INTERNATIONAL CORP.

CONDENSED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

   2024   2023 
   Three Months Ended 
   March 31, 
   2024   2023 
         
Cash flows from operating activities:          
Net loss  $(303,280)  $(268,821)
Equity in net loss of equity method investees   53,210    96,716 
Distribution from NetCo Partners   -    7,875 
Accretion of discount on note payable   44,398    - 
Gain on derivative instrument   (25,000)   - 
Accrued interest added to long-term notes payable   42,446    7,079 
Stock-based compensation   13,493    15,077 
Change in operating assets and liabilities:          
Accounts receivable, administrative fees   (3,000)   12,000 
Prepaid expenses   5,685    994 
Accounts payable   95,415    107,296 
Accrued expenses   3,751    (6,000)
Net cash used in operating activities   (72,882)   (27,784)
           
Cash flows from investing activities:          
Loans made   (250,000)   - 
Net cash used in investing activities   (250,000)   - 
           
Cash flows from financing activities:          
Proceeds from long term notes payable   275,000    62,000 
Net cash provided by financing activities   275,000    62,000 
           
Net change in cash   (47,882)   34,216 
Cash at the beginning of the period   53,063    6,346 
Cash at the end of the period  $5,181   $40,562 
           
Supplemental cash flow information:          
Cash paid during the period for:          
Interest  $441   $234 

 

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 an approximate 31% equity interest in NewStem Ltd, an Israeli biotech company (“NewStem”), and a 50% equity interest in NetCo Partners (“NetCo”). NovelStem was formerly known as Hollywood Media Corp. The Company was incorporated in the State of Florida on January 22, 1993 and changed its name to NovelStem International Corp. in September 2018 as a result of its business focus shift from a media business to biotech.

 

NewStem focuses on the development and commercialization of diagnostic technology that can predict patients’ anti-cancer drug resistance, allowing for targeted cancer treatments and the potential to reduce resistance to chemotherapy. 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.

 

Going Concern, Liquidity and Management’s Plans

 

Since inception, the Company has accumulated a deficit of approximately $293,000,000. The accumulated deficit of the Company subsequent to its business focus shift and name change in September 2018 is approximately $6,750,000 which is comprised primarily of allocated losses from equity method investments and general and administrative costs incurred by the Company.

 

The Company will need to obtain additional funds to continue its operations. Management’s plans with regard to these matters include additional financing and fundraising until its equity investment in NewStem is profitable. Although management continues to pursue these plans, there is no assurance that the Company will be successful in obtaining sufficient cash from financing on terms acceptable to the Company, or that NewStem will be able to continue as a going concern and become profitable (see Note 3).

 

The Company has in place a finance agreement with two individuals who are shareholders and directors to borrow $650,000 and an additional finance agreement with a shareholder to borrow $300,000 for working capital needs (see Note 4). Additionally, the Company entered into additional finance agreements with unrelated parties in December 2023 and April 2024 to borrow an additional $350,000 for working capital needs and to fund NewStem (see Note 4). As of the date of these financial statements, these borrowings have been fully utilized and the Company will need to obtain additional funds to continue operations for the next 12 months.

 

In view of the matters described above, the Company’s ability to meet financing requirements is dependent upon the ability to complete additional fundraising or obtain additional financing, and/or monetize its investment in NetCo, along with NewStem continuing as a going concern. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence.

 

NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the unaudited condensed financial statements reflect all adjustments, which include only normal recurring adjustments necessary for the fair statement of the balances and results for the periods presented. Certain information and footnote disclosures normally included in the Company’s annual financial statements prepared in accordance with GAAP have been condensed or omitted. These condensed consolidated financial statement results are not necessarily indicative of results to be expected for the full fiscal year or any future period.

 

The accompanying unaudited condensed financial statements and related disclosures have been prepared with the presumption that users of the unaudited condensed financial statements have read or have access to the audited financial statements for the preceding fiscal year. Accordingly, these unaudited condensed consolidated financial statements should be read in conjunction with the Company’s Form 10-K, which was filed with the United States Securities and Exchange Commission (“SEC”) on April 1, 2024, from which the Company derived the balance sheet data at December 31, 2023.

 

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 10K filed with the Securities and Exchange Commission on April 1, 2024 for the years ended December 31, 2023 and 2022.

 

Equity Investments

 

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

 

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 50% partner in NetCo (which is accounted for pursuant to the equity method of accounting). See Note 3.

 

Derivative Financial Instruments

 

The Company has in place a financial instrument, in the form of a note payable, with an identified embedded derivative in the form of a guarantee. The identified embedded derivative has been bifurcated and accounted for separately. Such derivative financial instruments are measured at fair value at each financial statement reporting date. If the fair value of a financial liability (the derivative) exceeds the proceeds received for the issuance of a hybrid instrument in an arms length transaction with no rights or privileges that require separate accounting recognition as an asset identified, then the embedded derivative is recorded at fair value with the excess of fair value over proceeds recognized as a loss in earnings. During the three months ended March 31, 2024, the Company recognized a gain on derivative financial instruments of $25,000. Proceeds from the note payable are shown as cash from financing instruments and the gain on derivative instrument is included as an adjustment to reconcile loss to net cash used in operating activities in the statements of cash flows for the three months ended March 31, 2024.

 

Basic and Diluted Net Loss Per Share

 

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 loss per share is computed by dividing the net 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.

 

The following data represents the amounts used in computing earnings per share and the effect on loss and the weighted average number of shares of dilutive potential common stock (unaudited):

 

         
   Three Months Ended March 31, 
   2024   2023 
Net loss attributable to common shareholders  $(303,280)  $(268,821)
           
Weighted average shares outstanding:          
-Basic   46,881,475    46,881,475 
Add: Warrants   -    - 
Add: Stock options   -    - 
-Diluted   46,881,475    46,881,475 
           
Basic and diluted net loss per share  $(0.01)  $(0.01)

 

8

 

 

Options and warrants excluded from the computation of earnings per share:

 

   2024   2023 
   Three Months Ended March 31, 
   2024   2023 
Warrants   3,000,000    3,000,000 
Stock options   5,760,000    5,760,000 

 

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 $4,000,000 to NewStem. This funding was to be provided through the sale of up to 50,000 common shares of NewStem to the Company representing 33% of New Stem’s outstanding shares. In 2018, the Company purchased 25,000 shares of NewStem for $2,000,000 acquiring an ownership interest of 20%. The Company made additional investments in 2019 and 2020 purchasing 12,500 shares each year for a $1,000,000 investment each year. NewStem sold and issued shares to third party investors in 2021, 2022 and 2023 resulting in the Company recognizing a gain on dilution of equity method investment. These transactions resulted in the Company having an ownership interest of 30.51% as of March 31, 2024 and December 31, 2023.

 

The Company accounts for its investment in NewStem under the equity method. As of March 31, 2024 and December 31, 2023, the carrying value of the investment in NewStem exceeded its portion of the underlying net assets of NewStem by approximately $1,655,000 and $1,800,000, respectively. The excess relates to identified intangible assets including license agreements, specialized work force (goodwill) and two separate projects of in process research and development (“IPR&D”) related to stem cell-based diagnostics and therapeutics for cancer chemotherapies.

 

The Company assesses its investment in NewStem for impairment on an annual basis or more frequently if indicators of impairment exist.

 

During the three months ended March 31, 2024, the Company recorded a reimbursement due to NewStem of approximately $36,000 (included in accounts payable in the accompanying balance sheet) for audit related costs. During the three months ended March 31, 2023, the Company reimbursed NewStem for audit related costs of approximately $37,000.

 

As disclosed in Note 8, the Company is in negotiations to acquire the remainder of NewStem in exchange for shares of Company stock. In anticipation of this transaction, the Company advanced $250,000 to NewStem in December 2023 and an additional $250,000 in March 2024. The related note agreement bears no interest and is payable on December 30, 2024. The agreement provides for discharge of the note upon the closing of the anticipated acquisition transaction. This note receivable has been presented as a noncurrent asset along with the investment in NewStem in the accompanying balance sheets. The second advance on the note was not received and recorded by NewStem until April 2024 and therefore is not reflected in the schedule of financial position of NewStem presented below.

 

NewStem is in the development stage and has incurred losses since its inception and has generated only minimal revenues under a licensing agreement. 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, licensing or financing on terms acceptable to the Company. NewStem obtained additional funding of approximately $1,450,000 in April 2022 through the sale of shares of ordinary stock. NewStem’s management has adopted a cost reduction plan in order to adjust future operation expenses to its cash balance. In October 2023, the NewStem board of directors unanimously resolved to dismiss most employees which occurred in December 2023.

 

The aforementioned events indicate significant difficulties to continue as a concern. Additionally, Israel declared a state of war in October 2023 which resulted in a decrease in Israel’s economic and business activity. The security situation in Israel led to a disruption in the chain of supply and production, a decrease in the volume of national transportation, and a shortage in manpower as well as a decrease in the value of financial assets. As a result of the movement and work restrictions, NewStem began operating on a limited scale. Additionally, the situation has brought further difficulties in management’s efforts to seek additional financing.

 

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

 

   2024   2023 
   Three Months Ended March 31, 2024   Year Ended December 31, 2023 
   (Unaudited)     
Investment in NewStem, beginning     $1,784,234   $2,090,286 
Allocation of net loss from NewStem, Ltd.      (51,859)   (342,191)
Gain on dilution of equity method investment    -    36,139 
Investment in NewStem, ending     $1,732,375   $1,784,234 

 

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The results of operations of the Company’s investment in NewStem is summarized below (unaudited):

 

   2024   2023 
   Three Months Ended March 31, 
   2024   2023 
Condensed income statement information:          
Net revenues  $-   $95,000 
Gross margin  $-   $84,000 
Net loss  $(170,000)  $(342,000)
Company’s allocation of net loss from NewStem, Ltd.  $(51,859)  $(104,591)

 

The financial position of the Company’s investment in NewStem is summarized below:

 

   2024   2023 
   As of 
   March 31,   December 31, 
   2024   2023 
   (Unaudited)     
Condensed balance sheet information:          
Current assets  $246,000   $353,000 
Non-current assets  $6,000   $9,000 
Current liabilities  $86,000   $284,000 
Non-current liabilities  $250,000   $- 

 

Investment in NetCo

 

NovelStem owns a 50% interest in NetCo, a joint venture that owns the Net Force publishing franchise. The Company accounts for its investment in NetCo under the equity method and recognizes nominal royalties and administrative fees from this arrangement. The Company assesses its investment in NetCo for impairment on an annual basis or more frequently if indicators of impairment exist.

 

The following table represents the Company’s investment in NetCo:

 

   Three Months Ended March 31, 2024   Year Ended December 31, 2023 
    (Unaudited)      
Investment in NetCo, beginning  $133,709   $137,011 
Allocation of net income (loss) from NetCo   (1,351)   3,573 
Distribution from NetCo   -    (6,875)
Investment in NetCo, ending  $132,358   $133,709 

 

The results of operations of the Company’s investment in NetCo is summarized below (unaudited):

 

   2024   2023 
   Three Months Ended March 31, 
   2024   2023 
Condensed income statement information:          
Net sales  $373   $15,750 
Gross margin  $373   $15,750 
Net income  $(2,702)  $15,750 
Company’s allocation of net income from NetCo  $(1,351)  $7,875 

 

The financial position of the Company’s investment in NetCo is summarized below:

 

   2024   2023 
   As of 
   March 31,   December 31, 
   2024   2023 
   (Unaudited)     
Condensed balance sheet information:          
Current assets  $2,042   $1,820 
Non-current assets  $272,799   $272,799 
Current liabilities  $3,249   $325 
Non-current liabilities  $-   $- 

 

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NOTE 4—NOTES PAYABLE

 

In December 2023, the Company entered into two short term notes payable with unrelated parties, Hewlett Fund and AIGH Investment Partners, LLC. The notes are for $125,000 each, 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. Interest expense related to these notes was $7,479 for the three months ended March 31, 2024.

 

Long-term notes payable are summarized as follows:

 

   As of 
   March 31,   December 31, 
   2024   2023 
   (Unaudited)     
Notes payable related parties:          
Notes payable director and Executive Chairman  $650,000   $400,000 
Accrued interest added to note balance   54,314    43,588 
Total notes payable director and Executive Chairman   704,314    443,588 
Note payable shareholder, principal amount   300,000    275,000 
Less unamortized discount   (193,787)   (213,185)
Total note payable shareholder   106,213    61,815 
Note payable, litigation funding agreement:          
Note payable Omni Bridgeway (Fund 4) Invt. 3 L.P.   2,819,196    2,819,196 
Accrued interest added to agreement balance   31,720    - 
Total note payable, litigation funding agreement   2,850,916    2,819,196 
Total notes payable   3,661,443    3,324,599 
Less current portion   (2,850,916)   - 
Long-term notes payable  $810,527   $3,324,599 

 

In May 2022, the Company entered into note agreements with two individuals who are related parties to borrow up to $600,000 for working capital needs. The 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 through November 11, 2022, at which time the interest rate increased to 10% per annum for subsequent advances. The agreements mature September 1, 2025. The Company received advances of $650,000 and $400,000, respectively, pursuant to these agreements through March 31, 2024 and December 31, 2023.

 

On May 5, 2023, the Company entered into a long term note payable with a shareholder for $300,000 in financing to be funded $150,000 at inception and $150,000 in October 2023. 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 which is reported separately on the balance sheet. The fair value of the note exceeds the proceeds, and the note has been discounted at inception so that the net liability is the fair value of the derivative. Accretion of the note discount of $44,398 has been reflected as part of interest expense in the statement of operations for three months ended March 31, 2024.

 

Note Payable, 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 arbitration proceeding disclosed in Note 7. The Agreement provides for Omni to fund all costs related to the arbitration up to $1,000,000 in exchange for an assignment of a certain portion of rights to and interest in claims related to this arbitration. The agreement provides for specific calculations of the portion of any claims collected to be received by Omni with the remainder collectible by the Company. Additionally, the agreement provides for repayment of funded costs pursuant to the same multiple calculations in the event of a favorable outcome that does not include the collection of claims.

 

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During July 2023, the arbitration was settled with a partially favorable outcome for the Company. As a result of the ruling disclosed in Note 7, the liability became probable and reasonably estimable, and the Company has recorded the full liability due to Omni as of December 31, 2023. This liability consists of expenses funded by Omni of $933,065, including $310,000 advanced for working capital, and related fees or investment return to Omni calculated as contractual multiples of funding totaling $1,886,131 as of December 31, 2023 for a total liability of $2,819,196. This agreement bears interest at 5% per annum beginning January 2024 and is payable on January 10, 2025.

 

NOTE 5—EQUITY

 

(a) General

 

At March 31, 2024 and December 31, 2023, the Company had issued and outstanding 46,881,475 shares of its common stock, par value $0.01 per share. Holders of outstanding common stock are entitled to receive dividends when, as and if declared by the Board and to share ratably in the assets of the Company legally available for distribution in the event of a liquidation, dissolution or winding up of the Company.

 

(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, 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 5,760,000 options have been issued to directors and investor relations professionals as of March 31, 2024. An additional 600,000 options were issued to directors on April 1, 2024.

 

The Company utilized the Black-Scholes option-pricing model to estimate fair value, utilizing the following assumptions for the options issued during the three months ended March 31, 2023 (all in weighted averages):

 

Risk-free interest rate   3.5%
Expected term of options, in years   4.00 
Expected annual volatility   191.1%
Expected dividend yield   0%
Determined weighted average grant date fair value per option  $0.19 

 

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 7 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 0% 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.

 

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(c) Summary Option Information

 

A summary of the Company’s option plans for the three months ended March 31, 2024, is presented below (unaudited):

 

   Number   Weighted 
   of   Average 
   Options   Exercise 
   (in shares)   Price 
Outstanding, December 31, 2023   5,760,000   $0.14 
Granted   -    - 
Outstanding, March 31, 2024   5,760,000   $0.14 
Exercisable, March 31, 2024   5,760,000   $0.14 

 

Stock-based compensation expense was approximately $13,000 and $15,000 in the three months ended March 31, 2024 and 2023, respectively.

 

The total compensation cost related to non-vested awards not yet recognized was approximately $67,000 as of March 31, 2023. As of March 31, 2023, 360,000 options were unvested. These options vested during March 2024.

 

(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, 2023   3,000,000   $0.12 
Granted   -    - 
Exercised   -    - 
Forfeited or expired   -    - 
Outstanding, March 31, 2024   3,000,000   $0.12 

 

The warrant agreements were amended on May 12, 2023 to extend the expiration date to June 28, 2025. The warrants outstanding at March 31, 2024 have a weighted average remaining contractual life of approximately one year and three months.

 

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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):

 

   2024   2023 
   Three Months Ended March 31, 
   2024   2023 
Computed tax at the federal statutory rate of 21%  $(63,689)  $(56,452)
State income taxes, net of federal income tax benefit   (13,178)   (11,680)
Change in federal valuation allowance   85,164    87,972 
Foreign rate differential   (8,297)   (19,840)
Total provision for income tax  $-   $- 

 

NOTE 7—COMMITMENTS AND CONTINGENCIES

 

The Company was the claimant in an arbitration proceeding against their 50% partner in NetCo. The Company initiated the arbitration proceeding in an effort to maximize the total potential value to be derived from fully utilizing the NetCo intellectual property across publishing, entertainment, digital media, merchandising and other ancillary markets. Arbitration hearings were held at the end of July 2022. Arbitration proceedings for the joint owners of NetCo concluded during 2022 and the arbitrator rendered a decision in July 2023. The arbitrator ruled against the Company on certain key issues of the arbitration and in the Company’s favor on two key issues of the arbitration.

 

The Arbitrator ruled in NovelStem’s favor on the issue of contract interpretation of the Netco Partners JV Agreement. The Arbitrator also found that the Company’s joint venture partner failed to use “reasonable, good faith efforts” to license and exploit the Net Force concept, in breach of its contractual obligations under the Netco Partners’ Joint Venture Agreement. The Arbitrator confirmed NovelStem’s contractual right to use Tom Clancy’s name as a possessory credit in the Net Force title (Tom Clancy’s Net Force).

 

As a result of this ruling, the costs related to the litigation funding agreement disclosed in Note 4 were recognized and a total liability of $2,819,196 was recorded.

 

NOTE 8—SUBSEQUENT EVENTS

 

The Company evaluated subsequent events through the date these financial statements were available to be issued and filed with the SEC.

 

During the fourth quarter of 2023, the Company entered into negotiations with NewStem stockholders for the acquisition of the shares not held by the Company. The negotiations are ongoing for the transaction in which the Company would acquire all outstanding shares in exchange for shares of NovelStem stock. Company management anticipates the transaction to conclude in the second quarter of 2024. In anticipation of the Company acquiring the remaining ownership of NewStem, the Company has loaned $500,000 to NewStem to ensure continuing operations. See Note 3.

 

An additional 600,000 options were issued to directors on April 1, 2024 pursuant to the Company’s Equity Incentive Plan.

 

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.

 

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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 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.

 

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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.

 

16

 

 

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.

 

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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 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.

 

PART II

 

ITEM 1. LEGAL PROCEEDINGS

 

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

 

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

 

18

 

 

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

 

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

 

To fund efforts to maximize the value of NetCo, NovelStem has secured non-recourse litigation funding. As a result of this ruling, the costs related to the litigation funding agreement were recognized. All costs related to the litigation and the related litigation funding agreement were recorded by the Company for a total liability of $2,819,196.

 

 

ITEM 1A. RISK FACTORS

 

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.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

  (a) Not applicable.
     
  (b) Not applicable.
     
  (c) Not applicable.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

Not applicable.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. OTHER INFORMATION

 

None.

 

ITEM 6. EXHIBITS

 

#31.1 Certification of Principal Executive Officer and Executive Chairman pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
#31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
#32.1 Certification of Principal Executive Officer and Executive Chairman pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
#32.2 Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
#33.1 Condensed Financial Statements of NewStem Ltd. As of and for the three months ended March 31, 2024

 

#101.1 The following financial statements from NovelStem International Corp.’s Form 10-Q for the quarter ended March 31, 2024, filed on May 15, 2025, 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.

 

19

 

 

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: May 15, 2024 By: /s/ Jan Loeb
  Name: Jan Loeb
  Title: Executive Chairman

 

20

 

 

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: May 15, 2024  
     
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: May 15, 2024  
     
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 March 31, 2024, 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  
May 15, 2024  

 

 

 

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 March 31, 2024, 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  
May 15, 2024  

 

 

 

 

Exhibit 33.1

 

NewStem Ltd.

 

Condensed Interim Financial Statements

 

As of March 31, 2024

(Unaudited)

 

 
 

 

NewStem Ltd.

Condensed Interim Financial Statements as of March 31, 2024

 

(Unaudited)

 

Contents  
   
  Page
   
Condensed Interim Balance Sheets 2
   
Condensed Interim Statements of Operations 3
   
Condensed Interim Statements of Changes in Shareholders’ Equity (Deficiency) 4
   
Condensed Interim Statements of Cash Flows 5
   
Notes to the Condensed Interim Financial Statements 6

 

 
 

 

NewStem Ltd.

 

Condensed Interim Balance Sheets as of

 

(Unaudited)

 

      March 31,   December 31, 
      2024   2023 
   Note  US$ thousands   US$ thousands 
Assets           
            
Current assets             
Cash and cash equivalents      184    324 
Other current assets      62    29 
Total current assets      246    353 
              
Non-current assets             
Property and equipment, net      6    9 
              
Total assets      252    362 
              
Liabilities and shareholders’ equity (deficiency)             
              
Current liabilities             
Accounts payable      39    34 
Related party  3   250    250 
              
Total Liabilities      289    284 
              
Shareholders’ equity (Deficiency)             
Ordinary shares      *    * 
Additional paid-in capital      9,174    9,167 
Accumulated deficit      (9,211)   (9,089)
Total shareholders’ equity (Deficiency)      (37)   78 
              
Total liabilities and shareholders’ equity      252    362 

 

/s/ Jan Loeb   
Jan Loeb  
Chairperson of the Board  

 

Date of approval of the financial statements: May15, 2024.

 

* Represents an amount less 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)

 

   Three-month   Three-month 
   period ended   period ended 
   March 31,   March 31, 
   2024   2023 
   US$ thousands   US$ thousands 
Revenues  -   95 
           
Cost of revenues   -    11 
           
Gross profit   -    84 
           
Operating expenses:          
           
Research and development expenses   108    388 
           
General and administrative expenses, net   12    30 
           
Operating loss   120    334 
           
Financial expenses, net   2    8 
           
Loss for the period   122    342 

 

The accompanying notes are an integral part of the condensed interim financial statements.

 

3
 

 

NewStem Ltd.

 

Condensed Interim Statements of Changes in Shareholders’ Equity (Deficiency)

 

(Unaudited)

 

   Ordinary shares    Additional paid-in capital   Accumulated deficit    Total 
   Number of shares   US$ thousands   US$ thousands   US$ thousands   US$ thousands 
For the three - month period ended March 31, 2024                    
                          
Balance as of January 1, 2024   163,906    *    9,167    (9,089)   78 
                          
Stock based compensation   -    -    7    -    7 
Loss for the period   -    -    -    (122)   (122)
                          
Balance as of March 31, 2024   163,906    *    9,174    (9,211)   (37)
                          
For the three - month period ended March 31, 2023                         
                          
Balance as of January 1, 2023   163,494    *    8,686    (7,970)   716 
                          
Stock based compensation   -    -    78    -    78 
Loss for the period   -    -    -    (342)   (342)
                          
Balance as of March 31, 2023   163,494              *    8,764    (8,312)   452 

 

* 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)

 

   Three-month   Three-month 
   period ended   period ended 
   March 31,   March 31, 
   2024   2023 
   US$ thousands   US$ thousands 
Cash flows from operating activities          
           
Loss for the period   (122)   (342)
           
Adjustments required to reconcile loss to net cash used in operating activities:          
           
Depreciation   3    4 
Revaluation of convertible financial instrument   -    3 
Stock based compensation   7    78 
Increase in other current assets   (33)   (25)
Increase in accounts payable   5    25 
           
Net cash used in operating activities   (140)   (257)
           
Net decrease in cash and cash equivalents   (140)   (257)
           
Cash and cash equivalents at the beginning of the period   324    878 
           
Cash and cash equivalents at the end of the period   184    621 

 

The accompanying notes are an integral part of the condensed interim financial statement.

 

5
 

 

NewStem Ltd.

 

Notes to the Condensed Interim Financial Statements as of March 31, 2024

 

 

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. Going Concern

 

Since inception, the Company has accumulated losses of US$9,211 thousand. During the three-month period ended March 31, 2024, the Company has incurred losses of US$122 thousand. As of March 31, 2024, the Company’s cash and cash equivalents balance is US$184 thousand, and the net cash used in operating activities during the three-month period ended March 31, 2024, is US$140 thousand.

 

The Company will need to obtain additional funds to continue its operations over the next 12 months. 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, licensing or financing on terms acceptable to the Company (See also Note 1D). The Company’s management has adopted a cost reduction plan in order to adjust future operation expenses to its cash balance. On December 31, 2023, most employees were dismissed as per the board of directors resolution on October 23, 2023.

 

The above-mentioned events incur significant difficulties to continue to operate the Company’s business and there is a substantial doubt about its ability to continue as a going concern during the look-forward period. The financial statements do not include any adjustments to the carrying amounts and classification of assets, liabilities, and reported expenses that may be necessary if the Company were unable to continue as a going concern.

 

  D. “Iron Swords” war

 

Following the brutal attacks on Israel, the mobilization of army reserves, and the Government declaring a state of war (“Iron Swords” war) in October 2023, there was a decrease in Israel’s economic and business activity. The security situation has led, inter alia, to a disruption in the chain of supply and production, a decrease in the volume of national transportation, a shortage in manpower as well as a decrease in the value of financial assets.

The situation has brought further difficulties in management’s efforts to seek additional financing arrangements.

 

  E. Definitions

 

In these financial statements –

 

  1. The Company – NewStem Ltd.
  2. Related Party – Within its meaning in ASC 850, “Related Party Transactions”.

 

6
 

 

NewStem Ltd.

 

Notes to the Condensed Interim Financial Statements as of March 31, 2024

 

 

Note 2 - Basis of Presentation

 

The accompanying condensed interim balance sheet as of March 31, 2024, and the condensed interim statement of operations, changes in shareholders’ equity (deficiency) and cash flows for the three-month period ended March 31, 2024, are unaudited. These unaudited condensed interim financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America.

 

In the opinion of management, the accompanying unaudited condensed interim financial statements contain all adjustments, necessary for a fair statement of its financial position as of March 31, 2024. 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, 2023. 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 financial statements of the Company as of December 31, 2023.

 

Note 3 - Related Parties

 

The Company engaged with its shareholders to receive consulting services and lab renting.

 

In addition, the Company is required to pay a shareholder sublicense fees at a rate of up to 12% of sublicense.

 

  A. Transactions

 

   Three-month   Three-month 
   period ended   period ended 
   March 31,   March 31, 
   2024   2023 
   US$ thousands   US$ thousands 
Cost of revenues            -    11 
           
Research and development expenses   27    83 

 

  B. Balances

 

   March 31,   December 31, 
   2024   2023 
   US$ thousands   US$ thousands 
Other accounts receivable  50   14 
           
Accounts payable   11    11 
           
Related party (See C below)   250    250 

 

Note 3 - Related Parties (cont’d)

 

C.(1) The Company negotiated with a related party to make an additional investment in the Company. In December 2023, as part of this negotiation, the Company received funds from the related party in the amount of US$250 thousand. At the date of the approval of the financial statements as of December 31, 2023, since no binding agreement that determined the nature of such investment had been signed, the funds received were classified as a current liability.
     
   (2)On March 31, 2024, the Company signed a Loan Agreement (“the Loan”) in the amount of US$500 thousand with a related party. The loan amount shall bear no interest. The amount is made up of two equal payments in the amount of US$250 thousand, the first payment was received in December 2023 (see section 1 above), and the second payment was received in April 2024. The first payment may be used by the Company for its operations. The second payment shall be restricted for use and deposited in an escrow, until the related party directs the Company to use those US$250 thousand, or if the Company enters into a share purchase agreement (“SPA”) with the related party. The entire loan of US$500 thousand shall be repaid on December 30, 2024, unless the SPA is closed by June 30, 2024, when if so, the entire loan shall be forgiven.

 

7

 

 

v3.24.1.1.u2
Cover - shares
 3 Months Ended
Mar. 31, 2024
May 15, 2024
Cover [Abstract]    
Document Type 10-Q  
Amendment Flag false  
Document Quarterly Report true  
Document Transition Report false  
Document Period End Date Mar. 31, 2024  
Document Fiscal Period Focus Q1  
Document Fiscal Year Focus 2024  
Current Fiscal Year End Date --12-31  
Entity File Number 001-14332  
Entity Registrant Name NOVELSTEM INTERNATIONAL CORP.  
Entity Central Index Key 0000912544  
Entity Tax Identification Number 65-0385686  
Entity Incorporation, State or Country Code FL  
Entity Address, Address Line One 2255 Glades Road  
Entity Address, Address Line Two Suite 221A  
Entity Address, City or Town Boca Raton  
Entity Address, State or Province FL  
Entity Address, Postal Zip Code 33431  
City Area Code 410  
Local Phone Number 598-9024  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Non-accelerated Filer  
Entity Small Business true  
Entity Emerging Growth Company true  
Elected Not To Use the Extended Transition Period false  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding   46,881,475
v3.24.1.1.u2
Condensed Balance Sheets - USD ($)
Mar. 31, 2024
Dec. 31, 2023
Current assets:    
Cash $ 5,181 $ 53,063
Accounts receivable, administrative fees 3,000
Prepaid expenses 27,855 33,540
Total current assets 36,036 86,603
Investment in Netco Partners 132,358 133,709
Note receivable, NewStem Ltd 500,000 250,000
Investment in NewStem Ltd 1,732,375 1,784,234
Total assets 2,400,769 2,254,546
Current liabilities:    
Accounts payable 149,672 54,257
Notes payable 250,000 250,000
Current portion of long-term notes payable, including accrued interest 2,850,916
Accrued expenses 45,974 42,223
Total current liabilities 3,296,562 346,480
Long-term liabilities:    
Long-term notes payable, including accrued interest, net 810,527 3,324,599
Derivative liability, guarantee 535,000 535,000
Total long-term liabilities 1,345,527 3,859,599
Total liabilities 4,642,089 4,206,079
Commitments and contingencies (see Note 7)
Shareholders’ deficit:    
Common stock, $.01 par value, 100,000,000 shares authorized, 50,316,672 shares issued, and 46,881,475 shares outstanding as of March 31, 2024 and December 31, 2023 468,815 468,815
Additional paid-in capital 290,920,710 290,907,217
Accumulated deficit (293,431,091) (293,127,811)
Treasury stock, at cost, 3,435,197 shares as of March 31, 2024 and December 31, 2023 (199,754) (199,754)
Total shareholders’ deficit (2,241,320) (1,951,533)
Total liabilities and shareholders’ deficit $ 2,400,769 $ 2,254,546
v3.24.1.1.u2
Condensed Balance Sheets (Parenthetical) - $ / shares
Mar. 31, 2024
Dec. 31, 2023
Statement of Financial Position [Abstract]    
Common stock, par value $ 0.01 $ 0.01
Common stock, shares authorized 100,000,000 100,000,000
Common stock, shares issued 50,316,672 50,316,672
Common stock, shares outstanding 46,881,475 46,881,475
Treasury stock, shares 3,435,197 3,435,197
v3.24.1.1.u2
Condensed Statements of Operations (Unaudited) - USD ($)
 3 Months Ended
Mar. 31, 2024
Mar. 31, 2023
Income Statement [Abstract]    
Administrative fee income $ 3,000
Operating expenses:    
General and administrative expenses 183,306 164,792
Total operating expenses 183,306 164,792
Loss from operations (180,306) (164,792)
Other expenses:    
Gain on derivative instrument (25,000)
Interest expense 94,764 7,313
Total other expenses 69,764 7,313
Loss before income taxes (250,070) (172,105)
Provision for income tax
Loss before equity in net income of equity method investees (250,070) (172,105)
Equity in net loss of equity method investees (53,210) (96,716)
Net loss $ (303,280) $ (268,821)
Basic and diluted net loss per share:    
Net loss per share - basic $ (0.01) $ (0.01)
Net loss per share - diluted $ (0.01) $ (0.01)
Weighted Average Number of Shares Outstanding, Basic 46,881,475 46,881,475
Weighted Average Number of Shares Outstanding, Diluted 46,881,475 46,881,475
v3.24.1.1.u2
Condensed Statements of Shareholders' Equity (Unaudited) - USD ($)
Common Stock [Member]
Additional Paid-in Capital [Member]
Retained Earnings [Member]
Treasury Stock, Common [Member]
Total
Balance, value at Dec. 31, 2022 $ 468,815 $ 290,604,327 $ (288,940,510) $ (199,754) $ 1,932,878
Balance, shares at Dec. 31, 2022 46,881,475     3,435,197  
Net loss (268,821) (268,821)
Stock option compensation 15,077 15,077
Balance, value at Mar. 31, 2023 $ 468,815 290,619,404 (289,209,331) $ (199,754) 1,679,134
Balance, shares at Mar. 31, 2023 46,881,475     3,435,197  
Balance, value at Dec. 31, 2023 $ 468,815 290,907,217 (293,127,811) $ (199,754) (1,951,533)
Balance, shares at Dec. 31, 2023 46,881,475     3,435,197  
Net loss (303,280) (303,280)
Stock option compensation 13,493 13,493
Balance, value at Mar. 31, 2024 $ 468,815 $ 290,920,710 $ (293,431,091) $ (199,754) $ (2,241,320)
Balance, shares at Mar. 31, 2024 46,881,475     3,435,197  
v3.24.1.1.u2
Condensed Statements of Cash Flows (Unaudited) - USD ($)
 3 Months Ended
Mar. 31, 2024
Mar. 31, 2023
Cash flows from operating activities:    
Net loss $ (303,280) $ (268,821)
Equity in net loss of equity method investees 53,210 96,716
Distribution from NetCo Partners 7,875
Accretion of discount on note payable 44,398
Gain on derivative instrument (25,000)
Accrued interest added to long-term notes payable 42,446 7,079
Stock-based compensation 13,493 15,077
Change in operating assets and liabilities:    
Accounts receivable, administrative fees (3,000) 12,000
Prepaid expenses 5,685 994
Accounts payable 95,415 107,296
Accrued expenses 3,751 (6,000)
Net cash used in operating activities (72,882) (27,784)
Cash flows from investing activities:    
Loans made (250,000)
Net cash used in investing activities (250,000)
Cash flows from financing activities:    
Proceeds from long term notes payable 275,000 62,000
Net cash provided by financing activities 275,000 62,000
Net change in cash (47,882) 34,216
Cash at the beginning of the period 53,063 6,346
Cash at the end of the period 5,181 40,562
Cash paid during the period for:    
Interest $ 441 $ 234
v3.24.1.1.u2
NATURE OF OPERATIONS
 3 Months Ended
Mar. 31, 2024
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
NATURE OF OPERATIONS

NOTE 1—NATURE OF OPERATIONS

 

Description of Business

 

NovelStem International Corp. (“NovelStem” or the “Company”) is a holding company whose principal assets are an approximate 31% equity interest in NewStem Ltd, an Israeli biotech company (“NewStem”), and a 50% equity interest in NetCo Partners (“NetCo”). NovelStem was formerly known as Hollywood Media Corp. The Company was incorporated in the State of Florida on January 22, 1993 and changed its name to NovelStem International Corp. in September 2018 as a result of its business focus shift from a media business to biotech.

 

NewStem focuses on the development and commercialization of diagnostic technology that can predict patients’ anti-cancer drug resistance, allowing for targeted cancer treatments and the potential to reduce resistance to chemotherapy. 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.

 

Going Concern, Liquidity and Management’s Plans

 

Since inception, the Company has accumulated a deficit of approximately $293,000,000. The accumulated deficit of the Company subsequent to its business focus shift and name change in September 2018 is approximately $6,750,000 which is comprised primarily of allocated losses from equity method investments and general and administrative costs incurred by the Company.

 

The Company will need to obtain additional funds to continue its operations. Management’s plans with regard to these matters include additional financing and fundraising until its equity investment in NewStem is profitable. Although management continues to pursue these plans, there is no assurance that the Company will be successful in obtaining sufficient cash from financing on terms acceptable to the Company, or that NewStem will be able to continue as a going concern and become profitable (see Note 3).

 

The Company has in place a finance agreement with two individuals who are shareholders and directors to borrow $650,000 and an additional finance agreement with a shareholder to borrow $300,000 for working capital needs (see Note 4). Additionally, the Company entered into additional finance agreements with unrelated parties in December 2023 and April 2024 to borrow an additional $350,000 for working capital needs and to fund NewStem (see Note 4). As of the date of these financial statements, these borrowings have been fully utilized and the Company will need to obtain additional funds to continue operations for the next 12 months.

 

In view of the matters described above, the Company’s ability to meet financing requirements is dependent upon the ability to complete additional fundraising or obtain additional financing, and/or monetize its investment in NetCo, along with NewStem continuing as a going concern. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence.

 
v3.24.1.1.u2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 3 Months Ended
Mar. 31, 2024
Accounting Policies [Abstract]  
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the unaudited condensed financial statements reflect all adjustments, which include only normal recurring adjustments necessary for the fair statement of the balances and results for the periods presented. Certain information and footnote disclosures normally included in the Company’s annual financial statements prepared in accordance with GAAP have been condensed or omitted. These condensed consolidated financial statement results are not necessarily indicative of results to be expected for the full fiscal year or any future period.

 

The accompanying unaudited condensed financial statements and related disclosures have been prepared with the presumption that users of the unaudited condensed financial statements have read or have access to the audited financial statements for the preceding fiscal year. Accordingly, these unaudited condensed consolidated financial statements should be read in conjunction with the Company’s Form 10-K, which was filed with the United States Securities and Exchange Commission (“SEC”) on April 1, 2024, from which the Company derived the balance sheet data at December 31, 2023.

 

 

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 10K filed with the Securities and Exchange Commission on April 1, 2024 for the years ended December 31, 2023 and 2022.

 

Equity Investments

 

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

 

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 50% partner in NetCo (which is accounted for pursuant to the equity method of accounting). See Note 3.

 

Derivative Financial Instruments

 

The Company has in place a financial instrument, in the form of a note payable, with an identified embedded derivative in the form of a guarantee. The identified embedded derivative has been bifurcated and accounted for separately. Such derivative financial instruments are measured at fair value at each financial statement reporting date. If the fair value of a financial liability (the derivative) exceeds the proceeds received for the issuance of a hybrid instrument in an arms length transaction with no rights or privileges that require separate accounting recognition as an asset identified, then the embedded derivative is recorded at fair value with the excess of fair value over proceeds recognized as a loss in earnings. During the three months ended March 31, 2024, the Company recognized a gain on derivative financial instruments of $25,000. Proceeds from the note payable are shown as cash from financing instruments and the gain on derivative instrument is included as an adjustment to reconcile loss to net cash used in operating activities in the statements of cash flows for the three months ended March 31, 2024.

 

Basic and Diluted Net Loss Per Share

 

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 loss per share is computed by dividing the net 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.

 

The following data represents the amounts used in computing earnings per share and the effect on loss and the weighted average number of shares of dilutive potential common stock (unaudited):

 

         
   Three Months Ended March 31, 
   2024   2023 
Net loss attributable to common shareholders  $(303,280)  $(268,821)
           
Weighted average shares outstanding:          
-Basic   46,881,475    46,881,475 
Add: Warrants   -    - 
Add: Stock options   -    - 
-Diluted   46,881,475    46,881,475 
           
Basic and diluted net loss per share  $(0.01)  $(0.01)

 

 

Options and warrants excluded from the computation of earnings per share:

 

   2024   2023 
   Three Months Ended March 31, 
   2024   2023 
Warrants   3,000,000    3,000,000 
Stock options   5,760,000    5,760,000 

 
v3.24.1.1.u2
EQUITY METHOD INVESTMENTS
 3 Months Ended
Mar. 31, 2024
Equity Method Investments and Joint Ventures [Abstract]  
EQUITY METHOD INVESTMENTS

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 $4,000,000 to NewStem. This funding was to be provided through the sale of up to 50,000 common shares of NewStem to the Company representing 33% of New Stem’s outstanding shares. In 2018, the Company purchased 25,000 shares of NewStem for $2,000,000 acquiring an ownership interest of 20%. The Company made additional investments in 2019 and 2020 purchasing 12,500 shares each year for a $1,000,000 investment each year. NewStem sold and issued shares to third party investors in 2021, 2022 and 2023 resulting in the Company recognizing a gain on dilution of equity method investment. These transactions resulted in the Company having an ownership interest of 30.51% as of March 31, 2024 and December 31, 2023.

 

The Company accounts for its investment in NewStem under the equity method. As of March 31, 2024 and December 31, 2023, the carrying value of the investment in NewStem exceeded its portion of the underlying net assets of NewStem by approximately $1,655,000 and $1,800,000, respectively. The excess relates to identified intangible assets including license agreements, specialized work force (goodwill) and two separate projects of in process research and development (“IPR&D”) related to stem cell-based diagnostics and therapeutics for cancer chemotherapies.

 

The Company assesses its investment in NewStem for impairment on an annual basis or more frequently if indicators of impairment exist.

 

During the three months ended March 31, 2024, the Company recorded a reimbursement due to NewStem of approximately $36,000 (included in accounts payable in the accompanying balance sheet) for audit related costs. During the three months ended March 31, 2023, the Company reimbursed NewStem for audit related costs of approximately $37,000.

 

As disclosed in Note 8, the Company is in negotiations to acquire the remainder of NewStem in exchange for shares of Company stock. In anticipation of this transaction, the Company advanced $250,000 to NewStem in December 2023 and an additional $250,000 in March 2024. The related note agreement bears no interest and is payable on December 30, 2024. The agreement provides for discharge of the note upon the closing of the anticipated acquisition transaction. This note receivable has been presented as a noncurrent asset along with the investment in NewStem in the accompanying balance sheets. The second advance on the note was not received and recorded by NewStem until April 2024 and therefore is not reflected in the schedule of financial position of NewStem presented below.

 

NewStem is in the development stage and has incurred losses since its inception and has generated only minimal revenues under a licensing agreement. 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, licensing or financing on terms acceptable to the Company. NewStem obtained additional funding of approximately $1,450,000 in April 2022 through the sale of shares of ordinary stock. NewStem’s management has adopted a cost reduction plan in order to adjust future operation expenses to its cash balance. In October 2023, the NewStem board of directors unanimously resolved to dismiss most employees which occurred in December 2023.

 

The aforementioned events indicate significant difficulties to continue as a concern. Additionally, Israel declared a state of war in October 2023 which resulted in a decrease in Israel’s economic and business activity. The security situation in Israel led to a disruption in the chain of supply and production, a decrease in the volume of national transportation, and a shortage in manpower as well as a decrease in the value of financial assets. As a result of the movement and work restrictions, NewStem began operating on a limited scale. Additionally, the situation has brought further difficulties in management’s efforts to seek additional financing.

 

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

 

   2024   2023 
   Three Months Ended March 31, 2024   Year Ended December 31, 2023 
   (Unaudited)     
Investment in NewStem, beginning     $1,784,234   $2,090,286 
Allocation of net loss from NewStem, Ltd.      (51,859)   (342,191)
Gain on dilution of equity method investment    -    36,139 
Investment in NewStem, ending     $1,732,375   $1,784,234 

 

 

The results of operations of the Company’s investment in NewStem is summarized below (unaudited):

 

   2024   2023 
   Three Months Ended March 31, 
   2024   2023 
Condensed income statement information:          
Net revenues  $-   $95,000 
Gross margin  $-   $84,000 
Net loss  $(170,000)  $(342,000)
Company’s allocation of net loss from NewStem, Ltd.  $(51,859)  $(104,591)

 

The financial position of the Company’s investment in NewStem is summarized below:

 

   2024   2023 
   As of 
   March 31,   December 31, 
   2024   2023 
   (Unaudited)     
Condensed balance sheet information:          
Current assets  $246,000   $353,000 
Non-current assets  $6,000   $9,000 
Current liabilities  $86,000   $284,000 
Non-current liabilities  $250,000   $- 

 

Investment in NetCo

 

NovelStem owns a 50% interest in NetCo, a joint venture that owns the Net Force publishing franchise. The Company accounts for its investment in NetCo under the equity method and recognizes nominal royalties and administrative fees from this arrangement. The Company assesses its investment in NetCo for impairment on an annual basis or more frequently if indicators of impairment exist.

 

The following table represents the Company’s investment in NetCo:

 

   Three Months Ended March 31, 2024   Year Ended December 31, 2023 
    (Unaudited)      
Investment in NetCo, beginning  $133,709   $137,011 
Allocation of net income (loss) from NetCo   (1,351)   3,573 
Distribution from NetCo   -    (6,875)
Investment in NetCo, ending  $132,358   $133,709 

 

The results of operations of the Company’s investment in NetCo is summarized below (unaudited):

 

   2024   2023 
   Three Months Ended March 31, 
   2024   2023 
Condensed income statement information:          
Net sales  $373   $15,750 
Gross margin  $373   $15,750 
Net income  $(2,702)  $15,750 
Company’s allocation of net income from NetCo  $(1,351)  $7,875 

 

The financial position of the Company’s investment in NetCo is summarized below:

 

   2024   2023 
   As of 
   March 31,   December 31, 
   2024   2023 
   (Unaudited)     
Condensed balance sheet information:          
Current assets  $2,042   $1,820 
Non-current assets  $272,799   $272,799 
Current liabilities  $3,249   $325 
Non-current liabilities  $-   $- 

 

 
v3.24.1.1.u2
NOTES PAYABLE
 3 Months Ended
Mar. 31, 2024
Debt Disclosure [Abstract]  
NOTES PAYABLE

NOTE 4—NOTES PAYABLE

 

In December 2023, the Company entered into two short term notes payable with unrelated parties, Hewlett Fund and AIGH Investment Partners, LLC. The notes are for $125,000 each, 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. Interest expense related to these notes was $7,479 for the three months ended March 31, 2024.

 

Long-term notes payable are summarized as follows:

 

   As of 
   March 31,   December 31, 
   2024   2023 
   (Unaudited)     
Notes payable related parties:          
Notes payable director and Executive Chairman  $650,000   $400,000 
Accrued interest added to note balance   54,314    43,588 
Total notes payable director and Executive Chairman   704,314    443,588 
Note payable shareholder, principal amount   300,000    275,000 
Less unamortized discount   (193,787)   (213,185)
Total note payable shareholder   106,213    61,815 
Note payable, litigation funding agreement:          
Note payable Omni Bridgeway (Fund 4) Invt. 3 L.P.   2,819,196    2,819,196 
Accrued interest added to agreement balance   31,720    - 
Total note payable, litigation funding agreement   2,850,916    2,819,196 
Total notes payable   3,661,443    3,324,599 
Less current portion   (2,850,916)   - 
Long-term notes payable  $810,527   $3,324,599 

 

In May 2022, the Company entered into note agreements with two individuals who are related parties to borrow up to $600,000 for working capital needs. The 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 through November 11, 2022, at which time the interest rate increased to 10% per annum for subsequent advances. The agreements mature September 1, 2025. The Company received advances of $650,000 and $400,000, respectively, pursuant to these agreements through March 31, 2024 and December 31, 2023.

 

On May 5, 2023, the Company entered into a long term note payable with a shareholder for $300,000 in financing to be funded $150,000 at inception and $150,000 in October 2023. 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 which is reported separately on the balance sheet. The fair value of the note exceeds the proceeds, and the note has been discounted at inception so that the net liability is the fair value of the derivative. Accretion of the note discount of $44,398 has been reflected as part of interest expense in the statement of operations for three months ended March 31, 2024.

 

Note Payable, 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 arbitration proceeding disclosed in Note 7. The Agreement provides for Omni to fund all costs related to the arbitration up to $1,000,000 in exchange for an assignment of a certain portion of rights to and interest in claims related to this arbitration. The agreement provides for specific calculations of the portion of any claims collected to be received by Omni with the remainder collectible by the Company. Additionally, the agreement provides for repayment of funded costs pursuant to the same multiple calculations in the event of a favorable outcome that does not include the collection of claims.

 

 

During July 2023, the arbitration was settled with a partially favorable outcome for the Company. As a result of the ruling disclosed in Note 7, the liability became probable and reasonably estimable, and the Company has recorded the full liability due to Omni as of December 31, 2023. This liability consists of expenses funded by Omni of $933,065, including $310,000 advanced for working capital, and related fees or investment return to Omni calculated as contractual multiples of funding totaling $1,886,131 as of December 31, 2023 for a total liability of $2,819,196. This agreement bears interest at 5% per annum beginning January 2024 and is payable on January 10, 2025.

 
v3.24.1.1.u2
EQUITY
 3 Months Ended
Mar. 31, 2024
Equity [Abstract]  
EQUITY

NOTE 5—EQUITY

 

(a) General

 

At March 31, 2024 and December 31, 2023, the Company had issued and outstanding 46,881,475 shares of its common stock, par value $0.01 per share. Holders of outstanding common stock are entitled to receive dividends when, as and if declared by the Board and to share ratably in the assets of the Company legally available for distribution in the event of a liquidation, dissolution or winding up of the Company.

 

(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, 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 5,760,000 options have been issued to directors and investor relations professionals as of March 31, 2024. An additional 600,000 options were issued to directors on April 1, 2024.

 

The Company utilized the Black-Scholes option-pricing model to estimate fair value, utilizing the following assumptions for the options issued during the three months ended March 31, 2023 (all in weighted averages):

 

Risk-free interest rate   3.5%
Expected term of options, in years   4.00 
Expected annual volatility   191.1%
Expected dividend yield   0%
Determined weighted average grant date fair value per option  $0.19 

 

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 7 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 0% 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.

 

 

(c) Summary Option Information

 

A summary of the Company’s option plans for the three months ended March 31, 2024, is presented below (unaudited):

 

   Number   Weighted 
   of   Average 
   Options   Exercise 
   (in shares)   Price 
Outstanding, December 31, 2023   5,760,000   $0.14 
Granted   -    - 
Outstanding, March 31, 2024   5,760,000   $0.14 
Exercisable, March 31, 2024   5,760,000   $0.14 

 

Stock-based compensation expense was approximately $13,000 and $15,000 in the three months ended March 31, 2024 and 2023, respectively.

 

The total compensation cost related to non-vested awards not yet recognized was approximately $67,000 as of March 31, 2023. As of March 31, 2023, 360,000 options were unvested. These options vested during March 2024.

 

(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, 2023   3,000,000   $0.12 
Granted   -    - 
Exercised   -    - 
Forfeited or expired   -    - 
Outstanding, March 31, 2024   3,000,000   $0.12 

 

The warrant agreements were amended on May 12, 2023 to extend the expiration date to June 28, 2025. The warrants outstanding at March 31, 2024 have a weighted average remaining contractual life of approximately one year and three months.

 

 
v3.24.1.1.u2
INCOME TAXES
 3 Months Ended
Mar. 31, 2024
Income Tax Disclosure [Abstract]  
INCOME TAXES

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):

 

   2024   2023 
   Three Months Ended March 31, 
   2024   2023 
Computed tax at the federal statutory rate of 21%  $(63,689)  $(56,452)
State income taxes, net of federal income tax benefit   (13,178)   (11,680)
Change in federal valuation allowance   85,164    87,972 
Foreign rate differential   (8,297)   (19,840)
Total provision for income tax  $-   $- 

 
v3.24.1.1.u2
COMMITMENTS AND CONTINGENCIES
 3 Months Ended
Mar. 31, 2024
Commitments and Contingencies Disclosure [Abstract]  
COMMITMENTS AND CONTINGENCIES

NOTE 7—COMMITMENTS AND CONTINGENCIES

 

The Company was the claimant in an arbitration proceeding against their 50% partner in NetCo. The Company initiated the arbitration proceeding in an effort to maximize the total potential value to be derived from fully utilizing the NetCo intellectual property across publishing, entertainment, digital media, merchandising and other ancillary markets. Arbitration hearings were held at the end of July 2022. Arbitration proceedings for the joint owners of NetCo concluded during 2022 and the arbitrator rendered a decision in July 2023. The arbitrator ruled against the Company on certain key issues of the arbitration and in the Company’s favor on two key issues of the arbitration.

 

The Arbitrator ruled in NovelStem’s favor on the issue of contract interpretation of the Netco Partners JV Agreement. The Arbitrator also found that the Company’s joint venture partner failed to use “reasonable, good faith efforts” to license and exploit the Net Force concept, in breach of its contractual obligations under the Netco Partners’ Joint Venture Agreement. The Arbitrator confirmed NovelStem’s contractual right to use Tom Clancy’s name as a possessory credit in the Net Force title (Tom Clancy’s Net Force).

 

As a result of this ruling, the costs related to the litigation funding agreement disclosed in Note 4 were recognized and a total liability of $2,819,196 was recorded.

 
v3.24.1.1.u2
SUBSEQUENT EVENTS
 3 Months Ended
Mar. 31, 2024
Subsequent Events [Abstract]  
SUBSEQUENT EVENTS

NOTE 8—SUBSEQUENT EVENTS

 

The Company evaluated subsequent events through the date these financial statements were available to be issued and filed with the SEC.

 

During the fourth quarter of 2023, the Company entered into negotiations with NewStem stockholders for the acquisition of the shares not held by the Company. The negotiations are ongoing for the transaction in which the Company would acquire all outstanding shares in exchange for shares of NovelStem stock. Company management anticipates the transaction to conclude in the second quarter of 2024. In anticipation of the Company acquiring the remaining ownership of NewStem, the Company has loaned $500,000 to NewStem to ensure continuing operations. See Note 3.

 

An additional 600,000 options were issued to directors on April 1, 2024 pursuant to the Company’s Equity Incentive Plan.

 

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.
v3.24.1.1.u2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)
 3 Months Ended
Mar. 31, 2024
Accounting Policies [Abstract]  
Basis of Presentation

Basis of Presentation

 

The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the unaudited condensed financial statements reflect all adjustments, which include only normal recurring adjustments necessary for the fair statement of the balances and results for the periods presented. Certain information and footnote disclosures normally included in the Company’s annual financial statements prepared in accordance with GAAP have been condensed or omitted. These condensed consolidated financial statement results are not necessarily indicative of results to be expected for the full fiscal year or any future period.

 

The accompanying unaudited condensed financial statements and related disclosures have been prepared with the presumption that users of the unaudited condensed financial statements have read or have access to the audited financial statements for the preceding fiscal year. Accordingly, these unaudited condensed consolidated financial statements should be read in conjunction with the Company’s Form 10-K, which was filed with the United States Securities and Exchange Commission (“SEC”) on April 1, 2024, from which the Company derived the balance sheet data at December 31, 2023.

 

 

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 10K filed with the Securities and Exchange Commission on April 1, 2024 for the years ended December 31, 2023 and 2022.

 
Equity Investments

Equity Investments

 

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

 

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 50% partner in NetCo (which is accounted for pursuant to the equity method of accounting). See Note 3.

 
Derivative Financial Instruments

Derivative Financial Instruments

 

The Company has in place a financial instrument, in the form of a note payable, with an identified embedded derivative in the form of a guarantee. The identified embedded derivative has been bifurcated and accounted for separately. Such derivative financial instruments are measured at fair value at each financial statement reporting date. If the fair value of a financial liability (the derivative) exceeds the proceeds received for the issuance of a hybrid instrument in an arms length transaction with no rights or privileges that require separate accounting recognition as an asset identified, then the embedded derivative is recorded at fair value with the excess of fair value over proceeds recognized as a loss in earnings. During the three months ended March 31, 2024, the Company recognized a gain on derivative financial instruments of $25,000. Proceeds from the note payable are shown as cash from financing instruments and the gain on derivative instrument is included as an adjustment to reconcile loss to net cash used in operating activities in the statements of cash flows for the three months ended March 31, 2024.

 
Basic and Diluted Net Loss Per Share

Basic and Diluted Net Loss Per Share

 

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 loss per share is computed by dividing the net 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.

 

The following data represents the amounts used in computing earnings per share and the effect on loss and the weighted average number of shares of dilutive potential common stock (unaudited):

 

         
   Three Months Ended March 31, 
   2024   2023 
Net loss attributable to common shareholders  $(303,280)  $(268,821)
           
Weighted average shares outstanding:          
-Basic   46,881,475    46,881,475 
Add: Warrants   -    - 
Add: Stock options   -    - 
-Diluted   46,881,475    46,881,475 
           
Basic and diluted net loss per share  $(0.01)  $(0.01)

 

 

Options and warrants excluded from the computation of earnings per share:

 

   2024   2023 
   Three Months Ended March 31, 
   2024   2023 
Warrants   3,000,000    3,000,000 
Stock options   5,760,000    5,760,000 

 
v3.24.1.1.u2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)
 3 Months Ended
Mar. 31, 2024
Accounting Policies [Abstract]  
SCHEDULE OF WEIGHTED AVERAGE NUMBER OF SHARES OF DILUTIVE

The following data represents the amounts used in computing earnings per share and the effect on loss and the weighted average number of shares of dilutive potential common stock (unaudited):

 

         
   Three Months Ended March 31, 
   2024   2023 
Net loss attributable to common shareholders  $(303,280)  $(268,821)
           
Weighted average shares outstanding:          
-Basic   46,881,475    46,881,475 
Add: Warrants   -    - 
Add: Stock options   -    - 
-Diluted   46,881,475    46,881,475 
           
Basic and diluted net loss per share  $(0.01)  $(0.01)
SCHEDULE OF WARRANTS AND STOCK OPTIONS

Options and warrants excluded from the computation of earnings per share:

 

   2024   2023 
   Three Months Ended March 31, 
   2024   2023 
Warrants   3,000,000    3,000,000 
Stock options   5,760,000    5,760,000 
v3.24.1.1.u2
EQUITY METHOD INVESTMENTS (Tables)
 3 Months Ended
Mar. 31, 2024
New Stem Ltd [Member]  
SCHEDULE OF INVESTMENTS

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

 

   2024   2023 
   Three Months Ended March 31, 2024   Year Ended December 31, 2023 
   (Unaudited)     
Investment in NewStem, beginning     $1,784,234   $2,090,286 
Allocation of net loss from NewStem, Ltd.      (51,859)   (342,191)
Gain on dilution of equity method investment    -    36,139 
Investment in NewStem, ending     $1,732,375   $1,784,234 
SCHEDULE OF OPERATIONS AND FINANCIAL POSITION INVESTMENT

The results of operations of the Company’s investment in NewStem is summarized below (unaudited):

 

   2024   2023 
   Three Months Ended March 31, 
   2024   2023 
Condensed income statement information:          
Net revenues  $-   $95,000 
Gross margin  $-   $84,000 
Net loss  $(170,000)  $(342,000)
Company’s allocation of net loss from NewStem, Ltd.  $(51,859)  $(104,591)

 

The financial position of the Company’s investment in NewStem is summarized below:

 

   2024   2023 
   As of 
   March 31,   December 31, 
   2024   2023 
   (Unaudited)     
Condensed balance sheet information:          
Current assets  $246,000   $353,000 
Non-current assets  $6,000   $9,000 
Current liabilities  $86,000   $284,000 
Non-current liabilities  $250,000   $- 
NetCo Partners [Member]  
SCHEDULE OF INVESTMENTS

The following table represents the Company’s investment in NetCo:

 

   Three Months Ended March 31, 2024   Year Ended December 31, 2023 
    (Unaudited)      
Investment in NetCo, beginning  $133,709   $137,011 
Allocation of net income (loss) from NetCo   (1,351)   3,573 
Distribution from NetCo   -    (6,875)
Investment in NetCo, ending  $132,358   $133,709 
SCHEDULE OF OPERATIONS AND FINANCIAL POSITION INVESTMENT

The results of operations of the Company’s investment in NetCo is summarized below (unaudited):

 

   2024   2023 
   Three Months Ended March 31, 
   2024   2023 
Condensed income statement information:          
Net sales  $373   $15,750 
Gross margin  $373   $15,750 
Net income  $(2,702)  $15,750 
Company’s allocation of net income from NetCo  $(1,351)  $7,875 

 

The financial position of the Company’s investment in NetCo is summarized below:

 

   2024   2023 
   As of 
   March 31,   December 31, 
   2024   2023 
   (Unaudited)     
Condensed balance sheet information:          
Current assets  $2,042   $1,820 
Non-current assets  $272,799   $272,799 
Current liabilities  $3,249   $325 
Non-current liabilities  $-   $- 
v3.24.1.1.u2
NOTES PAYABLE (Tables)
 3 Months Ended
Mar. 31, 2024
Debt Disclosure [Abstract]  
SCHEDULE OF LONG TERM NOTES PAYABLE

Long-term notes payable are summarized as follows:

 

   As of 
   March 31,   December 31, 
   2024   2023 
   (Unaudited)     
Notes payable related parties:          
Notes payable director and Executive Chairman  $650,000   $400,000 
Accrued interest added to note balance   54,314    43,588 
Total notes payable director and Executive Chairman   704,314    443,588 
Note payable shareholder, principal amount   300,000    275,000 
Less unamortized discount   (193,787)   (213,185)
Total note payable shareholder   106,213    61,815 
Note payable, litigation funding agreement:          
Note payable Omni Bridgeway (Fund 4) Invt. 3 L.P.   2,819,196    2,819,196 
Accrued interest added to agreement balance   31,720    - 
Total note payable, litigation funding agreement   2,850,916    2,819,196 
Total notes payable   3,661,443    3,324,599 
Less current portion   (2,850,916)   - 
Long-term notes payable  $810,527   $3,324,599 
v3.24.1.1.u2
EQUITY (Tables)
 3 Months Ended
Mar. 31, 2024
Equity [Abstract]  
SCHEDULE OF FAIR VALUE OF OPTION USING VALUATION ASSUMPTIONS

The Company utilized the Black-Scholes option-pricing model to estimate fair value, utilizing the following assumptions for the options issued during the three months ended March 31, 2023 (all in weighted averages):

 

Risk-free interest rate   3.5%
Expected term of options, in years   4.00 
Expected annual volatility   191.1%
Expected dividend yield   0%
Determined weighted average grant date fair value per option  $0.19 
SCHEDULE OF STOCK OPTION ACTIVITIES

A summary of the Company’s option plans for the three months ended March 31, 2024, is presented below (unaudited):

 

   Number   Weighted 
   of   Average 
   Options   Exercise 
   (in shares)   Price 
Outstanding, December 31, 2023   5,760,000   $0.14 
Granted   -    - 
Outstanding, March 31, 2024   5,760,000   $0.14 
Exercisable, March 31, 2024   5,760,000   $0.14 
SUMMARY OF WARRANTS ACTIVITY

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, 2023   3,000,000   $0.12 
Granted   -    - 
Exercised   -    - 
Forfeited or expired   -    - 
Outstanding, March 31, 2024   3,000,000   $0.12 
v3.24.1.1.u2
INCOME TAXES (Tables)
 3 Months Ended
Mar. 31, 2024
Income Tax Disclosure [Abstract]  
SCHEDULE OF INCOME BEFORE INCOME TAX

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):

 

   2024   2023 
   Three Months Ended March 31, 
   2024   2023 
Computed tax at the federal statutory rate of 21%  $(63,689)  $(56,452)
State income taxes, net of federal income tax benefit   (13,178)   (11,680)
Change in federal valuation allowance   85,164    87,972 
Foreign rate differential   (8,297)   (19,840)
Total provision for income tax  $-   $- 
v3.24.1.1.u2
NATURE OF OPERATIONS (Details Narrative) - USD ($)
 3 Months Ended
Mar. 31, 2024
Apr. 30, 2024
Dec. 31, 2023
Dec. 31, 2018
Sep. 30, 2018
Accumulated deficit $ 293,431,091   $ 293,127,811   $ 6,750,000
Advance from borrowings     $ 350,000    
Subsequent Event [Member]          
Advance from borrowings   $ 350,000      
Shareholders And Directors [Member]          
Borrow for working capital needs 650,000        
Additional Borrowings for working capital needs $ 300,000        
New Stem Ltd [Member]          
Equity interest percentage 30.51%   30.51% 20.00%  
NetCo Partners [Member]          
Equity interest percentage 50.00%        
v3.24.1.1.u2
SCHEDULE OF WEIGHTED AVERAGE NUMBER OF SHARES OF DILUTIVE (Details) - USD ($)
 3 Months Ended
Mar. 31, 2024
Mar. 31, 2023
Accounting Policies [Abstract]    
Net loss attributable to common shareholders $ (303,280) $ (268,821)
Weighted average shares outstanding:    
-Basic 46,881,475 46,881,475
Add: Warrants
Add: Stock options
-Diluted 46,881,475 46,881,475
Basic net loss per share $ (0.01) $ (0.01)
Diluted net loss per share $ (0.01) $ (0.01)
v3.24.1.1.u2
SCHEDULE OF WARRANTS AND STOCK OPTIONS (Details) - shares
 3 Months Ended
Mar. 31, 2024
Mar. 31, 2023
Warrant [Member]    
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]    
Anti-dilutive securities 3,000,000 3,000,000
Equity Option [Member]    
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]    
Anti-dilutive securities 5,760,000 5,760,000
v3.24.1.1.u2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative)
 3 Months Ended
Mar. 31, 2024
USD ($)
Equity method investment description investee company’s board of directors and ownership level, which is generally a 20% to 50% interest in the voting securities of the investee company.
Loss on derivative instrument $ 25,000
NetCo Partners [Member]  
Equity interest percentage 50.00%
v3.24.1.1.u2
SCHEDULE OF INVESTMENTS (Details) - USD ($)
 3 Months Ended 12 Months Ended
Mar. 31, 2024
Dec. 31, 2023
New Stem Ltd [Member]    
Investment in NetCo, beginning $ 1,784,234 $ 2,090,286
Allocation of net income (loss) from NetCo (51,859) (342,191)
Gain on dilution of equity method investment 36,139
Investment in NetCo, ending 1,732,375 1,784,234
NetCo Partners [Member]    
Investment in NetCo, beginning 133,709 137,011
Allocation of net income (loss) from NetCo (1,351) 3,573
Distribution from NetCo (6,875)
Investment in NetCo, ending $ 132,358 $ 133,709
v3.24.1.1.u2
SCHEDULE OF OPERATIONS AND FINANCIAL POSITION INVESTMENT (Details) - USD ($)
 3 Months Ended
Mar. 31, 2024
Mar. 31, 2023
Dec. 31, 2023
Net income $ (303,280) $ (268,821)  
Company’s allocation of net income from NetCo (53,210) (96,716)  
Current assets 36,036   $ 86,603
Current liabilities 3,296,562   346,480
Non-current liabilities 1,345,527   3,859,599
New Stem Ltd [Member]      
Net sales 95,000  
Gross margin 84,000  
Net income (170,000) (342,000)  
Company’s allocation of net income from NetCo (51,859) (104,591)  
Current assets 246,000   353,000
Non-current assets 6,000   9,000
Current liabilities 86,000   284,000
Non-current liabilities 250,000  
NetCo Partners [Member]      
Net sales 373 15,750  
Gross margin 373 15,750  
Net income (2,702) 15,750  
Company’s allocation of net income from NetCo (1,351) $ 7,875  
Current assets 2,042   1,820
Non-current assets 272,799   272,799
Current liabilities 3,249   325
Non-current liabilities  
v3.24.1.1.u2
EQUITY METHOD INVESTMENTS (Details Narrative) - USD ($)
 1 Months Ended 3 Months Ended 12 Months Ended
Apr. 30, 2022
Mar. 31, 2024
Dec. 31, 2020
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2023
Schedule of Equity Method Investments [Line Items]            
Advance payable   $ 250,000       $ 250,000
New Stem Ltd [Member]            
Schedule of Equity Method Investments [Line Items]            
Sale of stock         50,000  
Percentage of outstanding shares         33.00%  
Shares acquisitions shares     12,500 12,500 25,000  
Shares acquisitions     $ 1,000,000 $ 1,000,000 $ 2,000,000  
Equity interest percentage   30.51%     20.00% 30.51%
Audit and audit related costs   $ 37,000        
Advance payable   $ 250,000       $ 250,000
Debt instrument maturity date   Dec. 30, 2024        
Additional funding $ 1,450,000          
New Stem Ltd [Member] | Accounts Payable [Member]            
Schedule of Equity Method Investments [Line Items]            
Reimbursement due   $ 36,000        
New Stem Ltd [Member] | Investment, Affiliated Issuer, Controlled, Not Majority-Owned [Member]            
Schedule of Equity Method Investments [Line Items]            
Carrying value of investment   $ 1,655,000       $ 1,800,000
NetCo Partners [Member]            
Schedule of Equity Method Investments [Line Items]            
Equity interest percentage   50.00%        
Maximum [Member] | New Stem Ltd [Member]            
Schedule of Equity Method Investments [Line Items]            
Equity method investments         $ 4,000,000  
v3.24.1.1.u2
SCHEDULE OF LONG TERM NOTES PAYABLE (Details) - USD ($)
Mar. 31, 2024
Dec. 31, 2023
Total notes payable $ 3,661,443 $ 3,324,599
Less current portion (2,850,916)
Long-term notes payable 810,527 3,324,599
Omni Bridgeway (Fund 4) Invt. 3 L.P. [Member]    
Total notes payable 2,819,196 2,819,196
Director and Executive Chairman [Member]    
Total notes payable 704,314 443,588
Director and Executive Chairman [Member] | Omni Bridgeway (Fund 4) Invt. 3 L.P. [Member]    
Total notes payable 2,850,916 2,819,196
Related Party [Member] | Omni Bridgeway (Fund 4) Invt. 3 L.P. [Member]    
Accrued interest added to note balance 31,720
Related Party [Member] | Director and Executive Chairman [Member]    
Total notes payable 650,000 400,000
Accrued interest added to note balance 54,314 43,588
Note payable, principal amount 300,000 275,000
Less unamortized discount (193,787) (213,185)
Related Party [Member] | Shareholder [Member]    
Total notes payable $ 106,213 $ 61,815
v3.24.1.1.u2
NOTES PAYABLE (Details Narrative) - USD ($)
 1 Months Ended 3 Months Ended 12 Months Ended
May 05, 2023
Nov. 11, 2022
Feb. 11, 2022
May 31, 2022
Mar. 31, 2024
Mar. 31, 2023
Dec. 31, 2023
Oct. 31, 2023
Short-Term Debt [Line Items]                
Notes payable         $ 250,000   $ 250,000  
Long term note payable         810,527   3,324,599  
Accretion of discount on note payable         44,398    
Liability         $ 4,642,089   $ 4,206,079  
Two Short Term Notes Payable [Member]                
Short-Term Debt [Line Items]                
Interest rate             12.00%  
Maturity date           Dec. 21, 2024    
Debt instrument, description         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.      
Interest expense debt         $ 7,479      
New Stem Ltd [Member]                
Short-Term Debt [Line Items]                
Notes payable         $ 250,000   $ 250,000  
Maturity date         Dec. 30, 2024      
Hewlett Fund [Member]                
Short-Term Debt [Line Items]                
Notes payable             125,000  
AIGH Investment Partners, LLC [Member]                
Short-Term Debt [Line Items]                
Notes payable             125,000  
Two Individuals [Member]                
Short-Term Debt [Line Items]                
Notes payable       $ 600,000 $ 650,000      
Interest rate       8.00%        
Maturity date       Sep. 01, 2025        
Short term debt, interest rate increase   10.00%            
Proceeds form related party         650,000   400,000  
Shareholder [Member]                
Short-Term Debt [Line Items]                
Maturity date May 05, 2025              
Long term note payable $ 300,000              
Advance of long term note payable $ 150,000             $ 150,000
Derivative fair value liability         $ 535,000   535,000  
Related Party [Member]                
Short-Term Debt [Line Items]                
Interest rate 0.00%              
Omni Bridgeway (Fund 4) Invt. 3 L.P. [Member]                
Short-Term Debt [Line Items]                
Notes payable             $ 310,000  
Interest rate             5.00%  
Maturity date             Jan. 10, 2025  
Litigation settlement, expense     $ 1,000,000          
Due to related parties             $ 933,065  
Investment return due             1,886,131  
Liability             $ 2,819,196  
v3.24.1.1.u2
SCHEDULE OF FAIR VALUE OF OPTION USING VALUATION ASSUMPTIONS (Details) - $ / shares
 3 Months Ended
Mar. 31, 2024
Mar. 31, 2023
Equity [Abstract]    
Risk-free interest rate   3.50%
Expected term, in years   4 years
Risk-free interest rate   191.10%
Risk-free interest rate 0.00% 0.00%
Risk-free interest rate   $ 0.19
v3.24.1.1.u2
SCHEDULE OF STOCK OPTION ACTIVITIES (Details)
 3 Months Ended
Mar. 31, 2024
$ / shares
shares
Equity [Abstract]  
Number of Options Outstanding beginning | shares 5,760,000
Weighted Average Exercise Price Outstanding beginning | $ / shares $ 0.14
Number of Options, Granted | shares
Weighted Average Exercise Price, Granted | $ / shares
Number of Options Outstanding ending | shares 5,760,000
Weighted Average Exercise Price Outstanding ending | $ / shares $ 0.14
Number of Options Exercisable | shares 5,760,000
Weighted Average Exercise Price, Exercisable | $ / shares $ 0.14
v3.24.1.1.u2
SUMMARY OF WARRANTS ACTIVITY (Details) - Warrant [Member]
 3 Months Ended
Mar. 31, 2024
$ / shares
shares
Accumulated Other Comprehensive Income (Loss) [Line Items]  
Number of shares underlying warrants, Beginning balance 3,000,000
Weighted average exercise price, Beginning balance | $ / shares $ 0.12
Number of shares underlying warrants, Granted
Weighted average exercise price, Granted | $ / shares
Number of shares underlying warrants, Exercised
Number of shares underlying warrants, Forfeited or expired
Number of shares underlying warrants, Ending balance 3,000,000
Weighted average exercise price, Ending balance | $ / shares $ 0.12
v3.24.1.1.u2
EQUITY (Details Narrative) - USD ($)
 3 Months Ended
Apr. 01, 2024
Nov. 12, 2018
Mar. 31, 2024
Mar. 31, 2023
Dec. 31, 2023
Accumulated Other Comprehensive Income (Loss) [Line Items]          
Common stock, shares issued     46,881,475   46,881,475
Common stock, shares outstanding     46,881,475   46,881,475
Common stock, par value     $ 0.01   $ 0.01
Number of option granted        
Granted term     7 years    
Expected dividend yield     0.00% 0.00%  
Stock-based compensation expense     $ 13,493 $ 15,077  
Compensation cost       $ 67,000  
Options unvested       360,000  
Warrant [Member]          
Accumulated Other Comprehensive Income (Loss) [Line Items]          
Maturity date     Jun. 28, 2025    
Directot and Investor [Member]          
Accumulated Other Comprehensive Income (Loss) [Line Items]          
Number of option granted   5,760,000      
Director [Member] | Subsequent Event [Member]          
Accumulated Other Comprehensive Income (Loss) [Line Items]          
Number of option granted 600,000        
v3.24.1.1.u2
SCHEDULE OF INCOME BEFORE INCOME TAX (Details) - USD ($)
 3 Months Ended
Mar. 31, 2024
Mar. 31, 2023
Income Tax Disclosure [Abstract]    
Computed tax at the federal statutory rate of 21% $ (63,689) $ (56,452)
State income taxes, net of federal income tax benefit (13,178) (11,680)
Change in federal valuation allowance 85,164 87,972
Foreign rate differential (8,297) (19,840)
Total provision for income tax
v3.24.1.1.u2
SCHEDULE OF INCOME BEFORE INCOME TAX (Details) (Parenthetical)
 3 Months Ended
Mar. 31, 2024
Mar. 31, 2023
Income Tax Disclosure [Abstract]    
Computed tax at the federal statutory rate 21.00% 21.00%
v3.24.1.1.u2
COMMITMENTS AND CONTINGENCIES (Details Narrative) - USD ($)
Mar. 31, 2024
Dec. 31, 2023
Liability $ 4,642,089 $ 4,206,079
Omni Bridgeway (Fund 4) Invt. 3 L.P. [Member]    
Liability   $ 2,819,196
NetCo Partners [Member]    
Equity interest percentage 50.00%  
v3.24.1.1.u2
SUBSEQUENT EVENTS (Details Narrative) - USD ($)
 1 Months Ended 3 Months Ended
Apr. 01, 2024
Apr. 30, 2024
Mar. 31, 2024
Dec. 31, 2023
Subsequent Event [Line Items]        
[custom:NoteReceivableNonCurrent-0]     $ 500,000 $ 250,000
Number of option granted      
Subsequent Event [Member] | Convertible Debt Agreements [Member]        
Subsequent Event [Line Items]        
Long term debt unrelated parties   $ 100,000    
Debt instrumental stated percentage   1000.00%    
Debt instrument maturity date   Dec. 30, 2025    
Debt conversion price $ 0.13      
Director [Member] | Subsequent Event [Member]        
Subsequent Event [Line Items]        
Number of option granted 600,000      
New Stem Ltd [Member]        
Subsequent Event [Line Items]        
[custom:NoteReceivableNonCurrent-0]       $ 500,000
Debt instrument maturity date     Dec. 30, 2024  
NovelStem (PK) (USOTC:NSTM)
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