NOVELSTEM INTERNATIONAL CORP. Statements in the following discussion and throughout this Form 10-Q that are not historical in nature are "forward-looking statements." You can identify forward-looking statements by the use of words such as "expect," "anticipate," "estimate," "may," "will," "should," "intend," "believe," and similar expressions. Although we believe the expectations reflected in these forward-looking statements are reasonable, such statements are inherently subject to risk and we can give no assurances that our expectations will prove to be correct. Actual results could differ from those described in this Form 10-Q because of numerous factors, many of which are beyond our control. We undertake no obligation to update these forward-looking statements to reflect events or circumstances after the date of this Form 10-Q or to reflect actual outcomes. Overview
We are a development stage company and reported net losses of$877,000 and$736,000 for the nine months endedSeptember 30, 2022 and 2021, respectively, and$295,000 and$332,000 for the three months endedSeptember 30, 2022 and 2021, respectively. We had current assets of$66,000 and current liabilities of$126,00 as ofSeptember 30, 2022 . As ofDecember 31, 2021 , our current assets and current liabilities were$37,000 and$193,000 , respectively. We have prepared our financial statements for the three and nine months endedSeptember 30, 2022 assuming that we will continue as a going concern. Our continuation as a going concern is dependent upon improving our profitability and the continuing financial support from our shareholders as well as NewStem's ability to successfully develop and commercialize its products. Our sources of capital in the past have included the sale of equity securities, which include common stock sold in private transactions, large alternative minimum tax refunds, and short-term debt. NewStem is a development stage Israeli biotech limited liability company focused on pioneering intellectual property related to haploid human embryonic stem cells for the development of personalized diagnostics and therapeutics for genetic and epigenetic diseases. NewStem has incurred losses related to in process research and development since inception and the Company records our percentage allocation of these net losses as incurred. We have included the condensed financial statements of NewStem as an exhibit to this Form 10-Q.
RESULTS OF OPERATIONS
The following discussion of our financial condition and results of operations
should be read in conjunction with our financial statements and the related
notes thereto and other financial information appearing elsewhere in this Form
10-Q. In the discussion below, general and administrative expenses are referred
to as "G&A expenses".
Nine Months Ended Three Months Ended
September 30 September 30
2022 2021 Change 2022 2021 Change
Operating expenses:
G&A expenses $ 376,247 $ 138,252 $ 237,995 $ 131,060 $ 60,133 $ 70,927
Contra expenses - legal fees (310,000 ) - (310,000 ) - - -
Stock compensation expense 198,494 229,891 (31,397 ) 75,150 73,045 2,105
Total operating expenses 264,741 368,143 (103,402 ) 206,210 133,178 73,032
Loss from operations (264,741 ) (368,143 ) (103,402 ) (206,210 ) (133,178 ) 73,032
Interest expense 5,542 2,212 3,330 3,530 2,205 1,325
Net loss before equity in net
loss of equity method investees (270,283 ) (370,355 ) 100,072 (209,740 ) (135,383 ) (74,357 )
Equity in net loss of equity
method investees (606,736 ) (365,543 ) (241,193 ) (85,532 ) (196,333 ) 110,801
Net loss $ (877,019 ) $ (735,898 ) $ (141,121
)
We are a holding company whose primary assets are our ownership of equity
interests in NewStem and
The Company incurs G&A expenses primarily related to professional fees and insurance. We incurred G&A expenses of$376,000 and$138,000 for the nine months endedSeptember 30, 2022 and 2021, respectively, and$131,000 and$60,000 for the three months endedSeptember 30, 2022 and 2021, respectively. Specifically, professional fees increased by$199,000 in the nine months endedSeptember 30, 2022 as compared to the nine months endedSeptember 30, 2021 and$57,000 in the three months endedSeptember 30, 2022 as compared to the three months endedSeptember 30, 2021 . Insurance costs increased by$34,000 in the nine months endedSeptember 30, 2022 as compared to the same period in 2021 and$12,000 in the three months endedSeptember 30, 2022 as compared to the three months endedSeptember 30, 2021 . Our increase in G&A expenses relates primarily to professional fees incurred in the audit of our financial statements for the years endedDecember 31, 2021 and 2020 and, in the preparation, and filing of our Form 10 registration statement. 15 Stock compensation expense decreased by$31,000 in the nine months endedSeptember 30, 2022 as compared to the nine months endedSeptember 30, 2021 due to a smaller number of options awarded in the current period as compared to
the prior period. During the nine months endedSeptember 30, 2022 we recorded a contra expense of$310,000 which is comprised of funds from a litigation funding agreement. This agreement was signed during the first quarter of 2022 with Omni Bridgeway to fund our arbitration against our 50% joint venture partner,C.P. Group . This is a nonrecourse agreement and the Company has no obligation to repay any funds received under the agreement. In the event of a favorable outcome, Omni Bridgeway would recover disbursed funding as part of their investment return.
As part of that funding arrangement, Omni Bridgeway agreed to reimburse
The Company has recorded no income tax expense as we have incurred operating losses and all deferred tax assets are fully offset by an income tax valuation allowance. We reported net losses from equity method investees in all periods presented. The net losses reported for the three and nine months endedSeptember 30, 2022 were fully comprised of net losses from NewStem. The net losses reported for the nine months endedSeptember 30, 2021 included net income of$9,000 fromNetCo which was offset by net loss of$375,000 from NewStem.
Liquidity and Capital Resources
We have never paid dividends on our common stock. Our present policy is to apply cash to investments in product development at NewStem, acquisitions or expansion; consequently, we do not expect to pay dividends on common stock
in the foreseeable future. We expect to continue to incur greater expenses in the near future as we expand our business or enter into strategic partnerships. We also expect our G&A expenses to increase as we expand our finance and administrative staff, add infrastructure, and incur additional costs related to being a reporting act company, including directors' and officers' insurance and increased professional fees. The Company will need to obtain additional funds to continue its operations. Management's plans with regard to these matters include additional financing and fundraising until its equity investment in NewStem is profitable. Although management continues to pursue these plans, there is no assurance that the Company will be successful in obtaining sufficient cash from financing on terms acceptable to the Company, or that NewStem will become profitable. InMay 2022 , the Company entered into an agreement withJan Loeb , our Executive Chairman andJerry Wolasky , a member of the Board, which was amended inJuly 2022 , to borrow up to an aggregate of$600,000 for working capital needs. This agreement provides for funding throughJanuary 31, 2024 , provides for interest at a rate of 8% per annum, increased to 10% per annum for advances subsequent toNovember 11, 2022 , and matures the earlier ofJanuary 31, 2024 or twenty months from the date of the first funded amount unless the lenders agree to extend the due date at that time. As of the date of this Form 10-Q, the Company has drawn down$200,000 under the aforementioned agreement.
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