EX-33.1 6 ex33-1.htm

 

Exhibit 33.1

 

NewStem Ltd.

 

Condensed Interim Financial Statements

 

As of March 31, 2023

(Unaudited)

 

 

 

 

NewStem Ltd.

 

Condensed Interim Financial Statements as of March 31, 2023

 

 

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 
   2023   2022 
   US$ thousands   US$ thousands 
         
Assets          
           
Current assets          
Cash and cash equivalents   621    878 
Other accounts receivable   58    33 
Total current assets   679    911 
           
Non-current assets          
Property and equipment, net   19    23 
           
Total assets   698    934 
           
Liabilities and shareholders’ equity          
           
Current liabilities          
Accounts payable   122    97 
           
Non-current liabilities          
Convertible financial instrument   124    121 
Total liabilities   246    218 
           
Shareholders’ equity          
Ordinary shares   *    * 
Additional paid-in capital   8,764    8,686 
Accumulated deficit   (8,312)   (7,970)
Total shareholders’ equity   452    716 
           
Total liabilities and shareholders’ equity   698    934 

 

      
Ayelet Dilion Mashiah  
CEO  

 

Date of approval of the financial statements: May 8, 2023.

 

* 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,  
          2023     2022  
    Note     US$ thousands     US$ thousands  
                   
Revenues   5B       95       -  
                       
Cost of revenues   5B       11       -  
                       
Gross profit           84       -  
                       
Operating expenses:                      
                       
Research and development expenses           388       1,176  
                       
General and administrative expenses, net           30       49  
                       
Operating loss           334       1,225  
                       
Financial expenses, net           8       3  
                       
Loss for the period           342       1,228  

 

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)

 

           Additional         
           paid-in   Accumulated     
   Ordinary shares   capital   deficit   Total 
   Number of shares   US$ thousands   US$ thousands   US$ thousands   US$ thousands 
                     
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 
                          
For the three - month period ended March 31, 2022                         
                          
Balance as of January 1, 2022   158,696     *    6,734    (5,629)   1,105 
                          
Stock based compensation   -    -    74    -    74 
Loss for the period   -    -    -    (1,228)   (1,228)
                          
Balance as of March 31, 2022   158,696    

*

    6,808    (6,857)   (49)

 

* 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, 
   2023   2022 
   US$ thousands   US$ thousands 
         
Cash flows from operating activities          
           
Loss for the period   (342)   (1,228)
           
Adjustments required to reconcile loss to net cash used in operating activities:          
           
Depreciation   4    5 
Revaluation of convertible financial instrument   3    (3)
Stock based compensation   78    845 
Increase in other accounts receivable   (25)   (32)
Increase in other liabilities   -    100 
Increase (decrease) in accounts payable   25    (8)
           
Net cash used in operating activities   (257)   (321)
           
Cash flows from investing activities          
           
Net cash used in investing activities   -    - 
           
Cash flows from financing activities          
           
Net cash used in financing activities   -    - 
           
Net decrease in cash and cash equivalents   (257)   (321)
           
Cash and cash equivalents at the beginning of the period   878    601 
           
Cash and cash equivalents at the end of the period   621    280 

 

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

 

5

 

 

NewStem Ltd.

 

Notes to the Condensed Interim Financial Statements as of March 31, 2023

 

 

Note 1 - General

 

  A. NewStem Ltd. (“the Company”) was incorporated in September 2016 under the laws of the State of Israel and commenced its business operations in July 2018.

 

  B. The Company is a development stage company utilizing its pioneering intellectual property related to haploid human embryonic stem cells for the development of personalized diagnostics and therapeutics for genetic and epigenetic diseases.

 

  C. Since inception, the Company has accumulated a deficit of $8,312 thousand.

 

The Company will need to obtain additional funds to continue its operations. Management’s plans with regard to these matters include continued development, marketing and licensing of its products, as well as seeking additional financing arrangements. Although management continues to pursue these plans, there is no assurance that the Company will be successful in obtaining sufficient cash from sales, licensing or financing on terms acceptable to the Company. The Company’s management has approved a contingent cost reduction in order to adjust future operation expenses to its cash balance. Following the fund-raising mentioned in Note 5A and those made in 2022, and the Company’s adjustment of its future operation expenses, the Company believes that its cash resources are sufficient for the operations of the next 12 months.

 

  D. Definitions

 

In these financial statements –

 

  1. The Company – NewStem Ltd.

 

  2. Related Party – Within its meaning in ASC 850, “Related Party Transactions”.

 

Note 2 - Basis of Presentation

 

The accompanying condensed interim balance sheet as of March 31, 2023, and the condensed interim statement of operations, changes in shareholders’ equity (deficiency) and cash flows for the three-month period ended March 31, 2023, are unaudited. These unaudited condensed interim financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America.

 

The unaudited condensed interim financial statements contain all adjustments which, in the opinion of management, are necessary to present fairly, the financial information included therein. It is suggested that these condensed interim financial statements be read in conjunction with the audited financial statements and accompanying notes included in the Company’s report for the year ended December 31, 2022. 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, 2022. See also note 5B.

 

6

 

 

NewStem Ltd.

 

Notes to the Condensed Interim Financial Statements as of March 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, 
   2023   2022 
   US$ thousands   US$ thousands 
         
Cost of revenues   11    - 
           
Research and development expenses   83    68 

 

  B. Balances

 

   March 31,   March 31, 
   2023   2022 
   US$ thousands   US$ thousands 
         
Other accounts receivable   44    - 
           
Accounts payable   11    - 

 

Note 4 - Convertible Financial Instrument

 

In November 2021, the Company signed a Simple Agreement for Future Equity (“SAFE”) with an investor in the amount of 100 thousand Great British Pound (“GBP”) (approximately US$134 thousands).

 

The convertible financial instrument is presented at fair value. The convertible financial instrument is considered a Level 3 fair value measurement.

 

The changes in the liability measured at fair value for which the Company has used Level 3 inputs to determine fair value are as follows:

 

   Three-month   Three-month 
   period ended   period ended 
   March 31,   March 31, 
   2023   2022 
   US$ thousands   US$ thousands 
         
Balance as of January 1,   121    134 
Change in fair value   3    (3)
           
Balance as of March 31,   124    131 

 

7

 

 

NewStem Ltd.

 

Notes to the Condensed Interim Financial Statements as of March 31, 2023

 

 

Note 5 - Events during the period

 

  A. Convertible Loan Agreement

 

On March 20, 2023, the Company signed a Convertible Loan Agreement (“the Loan”) in the amount of US$200 thousands which bear simple interest at the rate of 12.5% per annum, paid in kind. At the end of a period of 24 months after the date on which the loan funds are provided or in M&A Event, the Loan together with the accrued interest (“Outstanding Amount”) shall convert into shares of the Company’s then most senior class of shares at the price per share paid by the investors in the last financing.

 

If the Company obtains financing at an earlier date, then the Outstanding Amount shall convert into shares of the Company’s most senior class as shall be issued in such financing transaction, at a price per share equal to 75% of the lowest price per share paid by the investors participating in the financing.

 

In an event of liquidation only (as defined in the Convertible Loan Agreement), the interest rate shall increase to 20% per annum.

 

As of March 31, 2023, the Loan has not yet been received. Therefore, no balances were recorded for this commitment in the condensed interim financial statements.

 

  B. Sub-License Agreement

 

On December 23, 2022, The Company signed a Sub-License Agreement (the “Agreement”), which entered into effect in January 2023, for a sub-license of the Company’s intellectual property related to Fragile X Syndrome (“IP”).

 

In consideration for the grant of each period of the sub-license, the Company will be entitled to license fees of a lump sum of US$95 thousands for years 1-5 (“First License Period”), US$50 thousand per year for years 6-7, US$100 thousand per year for year 8 and onwards. The Company is also entitled for reimbursement of patent costs that were incurred in the past relating the intellectual property, of approximately $24 thousand and will entitled for reimbursement of future patent costs. These reimbursements will be accounted for as reduction of General and administrative expenses.

 

In addition, the Company will be entitled to royalties upon future sales of products that are based on the Company’s licensed intellectual property at a rate of 3.5% of the net sales or 50% of sales-based sub-license income, sublicense fees at a rate of up to 13.2% - 22.0% of sublicense consideration, subject to certain terms, as outlined in the Agreement. Moreover, the Company is entitled to certain future milestones payments, partly based on sales and partly based on reaching Phase III clinical trials. The Company also received a right to receive a fee equal to 0.5% of the customer’s exit consideration (“Exit Fee”), which will be received upon an exit event of the customer, as defined in the Agreement. Based on the estimated date of the customer’s exit event and the discount rate used to calculate the current value of the Exit Fee, the fair value of the Exit Fee as of the inception date of the Agreement was considered to be immaterial.

 

In addition, according to this Agreement, it was acknowledged that the Company received US$200 thousand to support certain research activities (performed and accounted for during 2022), and will acquire certain services from the customer for US$100 thousand to evaluate the toxicity of potential drugs candidates.

 

The Company views granting of licenses and sublicenses as outputs of its ordinary business activities, and recipients of such licenses as customers. Thus, the Company considered this Agreement to be in the scope of ASC 606 Revenue from Contracts with Customers (“ASC 606”). The Company determined that the customer has received rights of use of the IP, which are functional in nature, since the Company will not perform any activities to change functionality of the IP during the terms of the sub-license. As prescribed by ASC 606, revenue from right to use IP is recognized at a point in time, when the customer receives access to the IP. The Company did not identify a promise to provide future services in the Agreement, and hence the rights to use the IP are the only performance obligations in the Agreement. Therefore, the Company recognized revenues of $95 thousand in the three-month period ending March 31, 2023, for the First License Period. Sales-based royalties and milestone payments dependent of future sales will be recognized upon the occurrence of applicable future sales, under the royalty exception. Other milestone payments are currently fully constrained under the variable consideration guidance.

 

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