UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
SECURITIES EXCHANGE ACT OF 1934
For
the quarterly period ended
For the transition period from _________________ to _________________
Commission
file number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
| (Address of principal executive offices) | (Zip Code) |
| Registrant’s telephone number, including area code | ( |
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 ☐
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).
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 ☐ |
| 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
☐
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
| Class | Outstanding at November 17, 2023 | |
| Common Stock, $0.01 par value per share |
NOVELSTEM INTERNATIONAL CORP.
Quarterly Report on Form 10-Q
for the Quarterly Period Ended September 30, 2023
TABLE OF CONTENTS
| 2 |
PART I
ITEM 1. UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOVELSTEM INTERNATIONAL CORP.
CONDENSED BALANCE SHEETS
| As of | ||||||||
| September 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, administrative fees | ||||||||
| Prepaid expenses | ||||||||
| Total current assets | ||||||||
| Investment in Netco Partners | ||||||||
| Investment in NewStem Ltd | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT) | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Current portion of long-term notes payable | ||||||||
| Accrued expenses | ||||||||
| Total current liabilities | ||||||||
| Long-term liabilities: | ||||||||
| Long-term notes payable, including accrued interest, net | ||||||||
| Derivative liability, guarantee | ||||||||
| Total long-term liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (see Note 7) | ||||||||
| Shareholders’ (deficit) equity: | ||||||||
| Common stock, $ par value, shares authorized, shares issued, and shares outstanding as of September 30, 2023 and December 31, 2022 | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Treasury stock, at cost, shares as of September 30, 2023 and December 31, 2022 | ( | ) | ( | ) | ||||
| Total shareholders’ (deficit) equity | ( | ) | ||||||
| Total liabilities and shareholders’ equity (deficit) | $ | $ | ||||||
The accompanying notes are an integral part of these condensed financial statements.
| 3 |
NOVELSTEM INTERNATIONAL CORP.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
| Nine Months Ended | Three Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Administrative fee income | $ | $ | $ | $ | ||||||||||||
| Operating expenses: | ||||||||||||||||
| General and administrative expenses | ||||||||||||||||
| Litigation expenses (contra expenses) (Note 7) | ( | ) | ||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other expenses: | ||||||||||||||||
| Loss on derivative instrument | ||||||||||||||||
| Interest expense | ||||||||||||||||
| Total other expenses | ||||||||||||||||
| Loss before income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Provision for income tax | ||||||||||||||||
| Loss before equity in net income of equity method investees | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Equity in net loss of equity method investees | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Basic and diluted net loss per share: | ||||||||||||||||
| Net loss per share - basic and diluted | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
| Weighted average number of shares outstanding - basic and diluted | ||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
| 4 |
NOVELSTEM INTERNATIONAL CORP.
CONDENSED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT)
(UNAUDITED)
| Additional | Number of | Total | ||||||||||||||||||||||||||
| Number of | Common | Paid-In | Accumulated | Treasury | Treasury | Shareholders’ | ||||||||||||||||||||||
| Shares | Stock | Capital | Deficit | Shares | Stock | Equity | ||||||||||||||||||||||
| Balance, January 1, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | | ||||||||||||||||||
| Net loss | - | ( | ) | - | ( | ) | ||||||||||||||||||||||
| Stock option compensation | - | - | ||||||||||||||||||||||||||
| Balance, March 31, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||
| Net loss | - | ( | ) | - | ( | ) | ||||||||||||||||||||||
| Stock option compensation | - | - | ||||||||||||||||||||||||||
| Balance, June 30, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||
| Net loss | - | ( | ) | - | ( | ) | ||||||||||||||||||||||
| Stock option compensation | - | - | ||||||||||||||||||||||||||
| Balance, September 30, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||
| Additional | Number of | Total | ||||||||||||||||||||||||||
| Number of | Common | Paid-In | Accumulated | Treasury | Treasury | Shareholders’ | ||||||||||||||||||||||
| Shares | Stock | Capital | Deficit | Shares | Stock | Equity | ||||||||||||||||||||||
| Balance, January 1, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||
| Net loss | - | ( | ) | - | ( | ) | ||||||||||||||||||||||
| Stock option compensation | - | - | ||||||||||||||||||||||||||
| Balance, March 31, 2022 | ( | ) | ( | ) | ||||||||||||||||||||||||
| Net loss | - | ( | ) | - | ( | ) | ||||||||||||||||||||||
| Stock option compensation | - | - | ||||||||||||||||||||||||||
| Balance, June 30, 2022 | ( | ) | ( | ) | ||||||||||||||||||||||||
| Net loss | - | ( | ) | - | ( | ) | ||||||||||||||||||||||
| Stock option compensation | - | - | ||||||||||||||||||||||||||
| Balance, September 30, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ |
The accompanying notes are an integral part of these condensed financial statements.
| 5 |
NOVELSTEM INTERNATIONAL CORP.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2023 | 2022 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Equity in loss of equity method investees | ||||||||
| Distribution from NetCo Partners | ||||||||
| Accretion of discount on note payable | ||||||||
| Loss on derivative instrument | ||||||||
| Legal fees and litigation funding fees funded by litigation funding agreement | ||||||||
| Accrued interest added to long-term note payable | ||||||||
| Stock-based compensation | ||||||||
| Change in operating assets and liabilities: | ||||||||
| Accounts receivable, administrative fees | ||||||||
| Prepaid expenses | ( | ) | ( | ) | ||||
| Accounts payable | ||||||||
| Accrued expenses | ||||||||
| Net cash (used in) provided by operating activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Repayment of short term note payable | ( | ) | ||||||
| Proceeds from long term notes payable | ||||||||
| Net cash from financing activities | ||||||||
| Net change in cash | ||||||||
| Cash at the beginning of the period | ||||||||
| Cash at the end of the period | $ | $ | ||||||
| Supplemental cash flow information: | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | $ | $ | ||||||
| Non-cash financing activities: | ||||||||
| Fair value of derivative liability | $ | |||||||
| Discount of long term note payable | $ | |||||||
The accompanying notes are an integral part of these condensed financial statements.
| 6 |
NOVELSTEM INTERNATIONAL CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1—NATURE OF OPERATIONS
Description of Business
NovelStem
International Corp. (“NovelStem” or the “Company”) is a holding company whose principal assets are a
NewStem focuses on the development and commercialization of diagnostic technology that can predict patients’ anti-cancer drug resistance, allowing for targeted cancer treatments and the potential to reduce resistance to chemotherapy. NewStem is collaborating with life sciences companies for the development of drugs and reagents. NetCo is a legacy media business interest which owns “Net Force”, a book publishing franchise.
Going Concern, Liquidity and Management’s Plans
Management
believes the accompanying condensed financial statements have been prepared in conformity with generally accepted accounting principles
in the United States of America (“GAAP”), which contemplate continuation of the Company as a going concern. Since inception,
the Company has accumulated a deficit of approximately $
The Company will need to obtain additional funds to continue its operations. Management’s plans with regard to these matters include additional financing and fundraising until its equity investment in NewStem is profitable. Although management continues to pursue these plans, there is no assurance that the Company will be successful in obtaining sufficient cash from financing on terms acceptable to the Company, or that NewStem will become profitable.
The
Company has in place a financing agreement with related parties to borrow up to $
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 condensed 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 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.
| 7 |
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 March 31, 2023, from which the Company derived the balance sheet data at December 31, 2022.
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.
Equity Investments
Investee
companies that are not consolidated, but over which the Company exercises significant influence, are accounted for under the equity method
of accounting. Whether or not the Company exercises significant influence with respect to an investee depends on an evaluation of several
factors, including, among others, representation on the
The Company reviews equity investments for impairment on an annual basis, or earlier if events or changes in circumstances indicate that the carrying amounts might not be recoverable.
The
Company holds a minority investment in an entity, NewStem, which is accounted for pursuant to the equity method of accounting. Additionally,
the Company is a
Basic net loss per share is computed by dividing the net loss by the weighted average number of shares outstanding during the period, excluding treasury stock. Diluted net 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 loss per share if the effect of doing so would be antidilutive.
Nine Months Ended September 30, | Three Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Net loss attributable to common shareholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average shares outstanding: | ||||||||||||||||
| -Basic | ||||||||||||||||
| Add: Warrants | ||||||||||||||||
| Add: Stock options | ||||||||||||||||
| -Diluted | ||||||||||||||||
| Basic and diluted net loss per share | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
| 8 |
Nine Months Ended September 30, |
Three Months Ended March 31, |
|||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Warrants | ||||||||||||||||
| Stock options | ||||||||||||||||
NOTE 3—EQUITY METHOD INVESTMENTS
Investment in NewStem
In
2018, the Company entered into a Share Purchase Agreement with NewStem and other related parties to provide aggregate funding of up to
$
The
Company accounts for its investment in NewStem under the equity method. At September 30, 2023 and December 31, 2022, the carrying
value of the investment in NewStem exceeded its portion of the underlying net assets of NewStem by approximately $
NewStem
is in the development stage and has incurred losses since its inception and has yet to generate revenues sufficient to support
operations. 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 NewStem’s management continues to pursue these plans, there is no assurance that the NewStem will be
successful in obtaining sufficient cash from sales of products or financing on terms acceptable to NewStem’s management.
NewStem obtained additional funding of approximately $
The following table represents the Company’s investment in NewStem:
| Nine Months Ended September 30, 2023 | Year Ended December 31, 2022 | |||||||
| (Unaudited) | ||||||||
| Investment in NewStem, beginning | $ | $ | ||||||
| Allocation of net loss from NewStem, Ltd. | ( | ) | ( | ) | ||||
| Gain on dilution of equity method investment | ||||||||
| Investment in NewStem, ending | $ | $ | ||||||
| 9 |
The results of operations of the Company’s investment in NewStem is summarized below (unaudited):
| Nine Months Ended September 30, | Three Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Condensed income statement information: | ||||||||||||||||
| Net revenues | $ | $ | $ | $ | ||||||||||||
| Gross margin | $ | $ | $ | $ | ||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Company’s allocation of net loss from NewStem, Ltd. | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
The financial position of the Company’s investment in NewStem is summarized below:
| As of | ||||||||
| September 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| (Unaudited) | ||||||||
| Condensed balance sheet information: | ||||||||
| Current assets | $ | $ | ||||||
| Non-current assets | $ | $ | ||||||
| Current liabilities | $ | $ | ||||||
| Non-current liabilities | $ | $ | ||||||
Investment in NetCo
NovelStem
owns a
The following table represents the Company’s investment in NetCo:
Nine Months Ended September 30, 2023 | Year Ended December 31, 2022 | |||||||
| (Unaudited) | ||||||||
| Investment in NetCo, beginning | $ | $ | ||||||
| Allocation of net income from NetCo | ||||||||
| Distribution from NetCo | ( | ) | ( | ) | ||||
| Investment in NetCo, ending | $ | $ | ||||||
| 10 |
The results of operations of the Company’s investment in NetCo is summarized below (unaudited):
Nine Months Ended September 30, | Three Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Condensed income statement information: | ||||||||||||||||
| Net sales | $ | $ | $ | $ | ||||||||||||
| Gross margin | $ | $ | $ | $ | ||||||||||||
| Net income | $ | $ | $ | $ | ||||||||||||
| Company’s allocation of net income from NetCo | $ | $ | $ | $ | ||||||||||||
The financial position of the Company’s investment in NetCo is summarized below:
| As of | ||||||||
| September 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| (Unaudited) | ||||||||
| Condensed balance sheet information: | ||||||||
| Current assets | $ | $ | ||||||
| Non-current assets | $ | $ | ||||||
| Current liabilities | $ | $ | ||||||
| Non-current liabilities | $ | $ | ||||||
NOTE 4—NOTES PAYABLE
Notes payable are summarized as follows:
| As of | ||||||||
| September 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| (Unaudited) | ||||||||
| Notes payable related parties: | ||||||||
| Notes payable director and Executive Chairman | $ | $ | ||||||
| Accrued interest added to note balance | ||||||||
| Total notes payable director and Executive Chairman | ||||||||
| Note payable shareholder, principal amount | ||||||||
| Less unamortized discount | ( | ) | ||||||
| Total note payable shareholder | ||||||||
| Note payable, litigation funding agreement: | ||||||||
| Note payable Omni Bridgeway (Fund 4) Invt. 3 L.P. | ||||||||
| Total notes payable | ||||||||
| Less current portion | ( | ) | ||||||
| Long-term notes payable | $ | $ | ||||||
| 11 |
Notes Payable Related Parties
On
April 12, 2021, the Company entered into a promissory note (the “Note”) with a related party (individual) for $
In
May 2022, the Company entered into long-term notes payable in the form of finance agreements (the “Agreements”) with two
individuals who are related parties, which were amended in July 2022, to borrow up to $
On May 5, 2023, the Company entered into a long term note payable with a shareholder for $ in financing to be funded $ at inception and $ in October 2023. This note bears interest at zero percent (%) and matures on . The note includes a guarantee which has been identified as an embedded derivative with a fair value of a liability of $ at September 30, 2023 which is reported separately on the condensed 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 $ and $, respectively, has been reflected as part of interest expense in the condensed statements of operations for the nine and three months ended September 30, 2023.
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 $
During
July 2023, the arbitration was settled with a favorable outcome for the Company. As a result of the favorable 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 September
30, 2023. This liability consists of expenses funded by Omni of $
| 12 |
NOTE 5—EQUITY (DEFICIT)
(a) General
At September 30, 2023 and December 31, 2022, the Company had issued and outstanding shares of its common stock, par value $ per share. Holders of outstanding common stock are entitled to receive dividends when, as and if declared by the Board and to share ratably in the assets of the Company legally available for distribution in the event of a liquidation, dissolution or winding up of the Company.
(b) Summary Employee Option Information
The Company’s stock option plan provides for the grant to officers, directors, third party contractors and other future key employees of options to purchase shares of common stock. The purchase price may be paid in cash or, 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 nine years from the date of the grant and generally vest on the first anniversary date of their issuance. Pursuant to the Equity Incentive Plan which the Company’s board of directors approved on November 12, 2018, an aggregate of options have been issued to directors and investor relations professionals.
Nine Months Ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Risk-free interest rate | % | % | ||||||
| Expected term of options, in years | ||||||||
| Expected annual volatility | % | % | ||||||
| Expected dividend yield | % | % | ||||||
| Determined weighted average grant date fair value per option | $ | $ | ||||||
The expected term of the options represents an estimate of the length of time until the expected date of exercising the options. Options granted have a maximum life of years. With respect to determining expected exercise behavior, the Company has grouped its option grants into certain groups to track exercise behavior and establish historical rates. The Company estimated volatility by considering historical stock volatility over the expected term of the option. The risk-free interest rates are based on the U.S. Treasury yields for a period consistent with the expected term. The dividend yield of 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.
| 13 |
(c) Summary Option Information
| Number | Weighted | ||||||||
| of | Average | ||||||||
| Options | Exercise | ||||||||
| (in shares) | Price | ||||||||
| Outstanding, December 31, 2022 | $ | ||||||||
| Granted | |||||||||
| Outstanding, September 30, 2023 | $ | ||||||||
| Exercisable, September 30, 2023 | $ | ||||||||
Stock-based compensation expense related to stock options was approximately $ and $ in the nine months and three months ended September 30, 2023, respectively. Stock-based compensation expense related to stock options was approximately $ and $ for the nine months and three months ended September 30, 2022, respectively.
The total compensation cost related to non-vested awards not yet recognized was approximately $ as of September 30, 2023. As of September 30, 2023, options were unvested. These options vest one year from their grant date which is March 2024.
(d) Warrants
| Number of | Weighted | |||||||
| shares | Average | |||||||
| underlying | Exercise | |||||||
| warrants | Price | |||||||
| Outstanding, December 31, 2022 | $ | |||||||
| Granted | ||||||||
| Exercised | ||||||||
| Forfeited or expired | ||||||||
| Outstanding, September 30, 2023 | $ | |||||||
The warrant agreements were amended on May 12, 2023 to extend the expiration date to June 28, 2025. The warrants outstanding at September 30, 2023 have a weighted average remaining contractual life of approximately . The Company recognized $ in stock-based compensation expense related to the increase in fair value of warrants pursuant to the modification of the warrant term during the nine months ended September 30, 2023. No such expense was recognized related to the warrants during the three months ended September 30, 2023.
| 14 |
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):
Nine Months Ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Computed tax at the federal statutory rate of | $ | ( | ) | $ | ( | ) | ||
| State income taxes, net of federal income tax benefit | ( | ) | ( | ) | ||||
| Change in federal valuation allowance | ||||||||
| Foreign rate differential | ( | ) | ( | ) | ||||
| Total provision for income tax | $ | $ | ||||||
Three Months Ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Computed tax at the federal statutory rate of | $ | ( | ) | $ | ( | ) | ||
| State income taxes, net of federal income tax benefit | ( | ) | ( | ) | ||||
| Change in federal valuation allowance | ||||||||
| Foreign rate differential | ( | ) | ( | ) | ||||
| Total provision for income tax | $ | $ | ||||||
NOTE 7—COMMITMENTS AND CONTINGENCIES
The
Company was the claimant in an arbitration proceeding against their
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. Total costs related
to the litigation and the related litigation funding agreement of $
NOTE 8—SUBSEQUENT EVENTS
The Company has reviewed subsequent events through November 17, 2023, the date of this filing.
As disclosed in Note 3, during October 2023, the Company began negotiations with the NewStem board of directors for a plan whereby NewStem research activities will continue and NewStem assets will be purchased or merged into the Company.
| 15 |
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 $4,240,000 and $682,000 for the nine months ended September 30, 2023 and 2022 and approximately $1,096,000 and $295,000 for the three months ended September 30, 2023 and 2022, respectively. We had current assets of approximately $50,000 and current liabilities of $1,954,000 as of September 30, 2023. As of December 31, 2022, our current assets and current liabilities were approximately $59,000 and $65,000, respectively.
We have prepared our financial statements for the nine and three months ended September 30, 2023 assuming that we will continue as a going concern. Our continuation as a going concern is dependent upon the ability to successfully develop and commercialize NewStem’s products, improving our profitability and the continuing financial support from our shareholders as well as our ability to utilize the NetCo intellectual property. 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, litigation funding and related party debt. We believe that our current financing resources are sufficient for the operations of the Company until April 2024.
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.
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.
| 16 |
RESULTS OF OPERATIONS
The following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes thereto and other financial information appearing elsewhere in this Form 10-Q. In the discussion below, general and administrative expenses are referred to as “G&A expenses”.
| Nine Months Ended September 30, | Three Months Ended September 30, | |||||||||||||||||||||||
| 2023 | 2022 | Change | 2023 | 2022 | Change | |||||||||||||||||||
| Administrative fee income | $ | 9,000 | $ | - | $ | 9,000 | $ | 9,000 | $ | - | $ | 9,000 | ||||||||||||
| Operating expenses: | ||||||||||||||||||||||||
| G&A expenses | $ | 635,360 | $ | 574,741 | $ | 60,619 | $ | 84,208 | $ | 206,210 | $ | (122,002 | ) | |||||||||||
| Litigation expenses (contra expenses) | 2,805,884 | (310,000 | ) | 3,115,884 | 473,221 | - | 473,221 | |||||||||||||||||
| Total operating expenses | 3,441,244 | 264,741 | 3,176,503 | 557,429 | 206,210 | 351,219 | ||||||||||||||||||
| Loss from operations | (3,432,244 | ) | (264,741 | ) | (3,167,503 | ) | (548,429 | ) | (206,210 | ) | (342,219 | ) | ||||||||||||
| Other expenses: | ||||||||||||||||||||||||
| Loss on derivative instrument | 500,000 | - | 500,000 | 445,205 | - | 445,205 | ||||||||||||||||||
| Interest expense | 56,274 | 5,542 | 50,732 | 28,450 | 3,530 | 24,920 | ||||||||||||||||||
| Total other expenses | 556,274 | 5,542 | 550,732 | 473,655 | 3,530 | 470,125 | ||||||||||||||||||
| Net loss before equity in net loss of equity method investees | (3,988,518 | ) | (270,283 | ) | (3,718,235 | ) | (1,022,084 | ) | (209,740 | ) | (812,344 | ) | ||||||||||||
| Equity in net loss of equity method investees | (251,527 | ) | (411,788 | ) | 160,261 | (74,381 | ) | (85,532 | ) | 11,151 | ||||||||||||||
| Net loss | $ | (4,240,045 | ) | $ | (682,071 | ) | $ | (3,557,974 | ) | $ | (1,096,465 | ) | $ | (295,272 | ) | $ | (801,193 | ) | ||||||
We are a holding company whose primary assets are our ownership of equity interests in NewStem and NetCo. We conduct no other business and as a result, we have no revenue or cost of revenue.
The Company incurs G&A expenses primarily related to professional fees and insurance. We incurred G&A expenses of approximately $635,000 and $575,000 for the nine months ended September 30, 2023 and 2022, respectively. Specifically, the increase of approximately $60,000 is comprised primarily of a reduction of nonrecurring professional fees related to the filing of our Form 10 in 2022 of approximately $26,000 combined with an increase in stock compensation expense related to a modification of our outstanding warrants as described below.
We incurred G&A expenses of approximately $84,000 and $206,000 for the three months ended September 30, 2023 and 2022, respectively. The decrease in G&A expenses relates primarily an decrease in stock compensation expense combined with a decrease in professional fees compared to those incurred in the previous period related to the filing of our Form 10 which are non-recurring. Specifically, professional fees decreased by approximately $60,000 in the three months ended September 30, 2023 as compared to the three months ended September 30, 2022. Stock compensation expense decreased as described below, which when combined with the decrease in professional fees, comprises our decrease in G&A expenses of approximately $122,000 for the three months ended September 30, 2023 compared to the three months ended September 30, 2022.
Total stock compensation expense, included in G&A expenses, increased by approximately $94,000 in the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022 due to a smaller number of options awarded in the current period as compared to the prior period offset by the recognition of $243,000 in stock compensation expense related to the increased value of our outstanding warrants due to the amendment of the agreements to extend the due date by two years.
Total stock compensation expense, included in G&A expenses, decreased by approximately $58,000 in the three months ended September 30, 2023 as compared to the three months ended September 30, 2022 due to a smaller number of options awarded in the current period as compared to the prior period.
| 17 |
We incurred costs related to litigation and the litigation funding agreement involving our arbitration with our NetCo joint venture partner of approximately $2,806,000 for the nine months ended September 30, 2023. We recognized contra expenses of $310,000 during the nine months ended September 30, 2022 in relation to the same litigation and related litigation funding agreement. We incurred costs related to the litigation funding agreement of approximately $473,000 during the three months ended September 30, 2023. No related costs were incurred in the three months ended September 30, 2022. Specifically, the increase of approximately $3,116,000 for the nine months ended September 30, 2023 as compared to 2022 is comprised of legal fees related to our NetCo arbitration including litigation funding fees due to Omni pursuant to the litigation funding agreement combined with the reversal of the contra expenses recognized in the previous period. These expenses and contra expenses were funded by a litigation funding agreement. The increase of approximately $473,000 in the three months ended September 30, 2023 compared to 2022 is comprised of additional fees pursuant to the 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 had no obligation to repay any funds received under the agreement unless the NetCo arbitration resulted in a favorable outcome. These amounts are included in the note payable to Omni which was recorded in June 2023 as a result of the favorable arbitration ruling.
The Company has recorded a loss on derivative instrument of approximately $500,000 and $445,000, respectively, for the nine and three months ended September 30, 2023 related to a guarantee included in the note payable shareholder entered into in May 2023. No such instrument was in effect in the nine and three months ended September 30, 2022.
Interest expense increased by approximately $50,000 and $25,000, respectively, in the nine and three months ended September 30, 2023 as compared to the nine and three months ended September 30, 2022. The increases in interest expense are related to increased debt incurred for operations.
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 nine months ended September 30, 2023 included income of $5,362 from NetCo which was offset by net loss of $256,889 from NewStem. The net losses reported for the nine months ended September 30, 2022 were fully comprised of net losses from NewStem.
The net loss from equity method investees reported for the three months ended September 30, 2023 was comprised of net loss of $2,513 from NetCo and net loss of $71,868 from NewStem. The net loss reported for the three months ended September 30, 2022 was fully comprised of net losses from NewStem.
Liquidity and Capital Resources
We have not paid dividends on our common stock since our name change and shift in business to biotech in September 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 or enter into strategic partnerships. We expect our G&A expenses to remain consistent in the near term as we have expanded our finance and administrative staff and incurred additional costs related to being a reporting act company, including directors’ and officers’ insurance and increased professional fees, which should all now be normalized for our current operations.
| 18 |
The Company will need to obtain additional funds to continue its operations. Management’s plans with regard to these matters include additional financing and fundraising until its equity investment in NewStem is profitable. Although management continues to pursue these plans, there is no assurance that the Company will be successful in obtaining sufficient cash from financing on terms acceptable to the Company, or that NewStem will become profitable.
In May 2022, the Company entered into an agreement with Jan Loeb, our Executive Chairman and Jerry Wolasky, a member of the Board, which was amended in July 2022, to borrow up to an aggregate of $600,000 for working capital needs. This agreement provides for funding through January 31, 2024, provides for interest at a rate of 8% per annum, increased to 10% per annum for advances subsequent to November 11, 2022, and matures the earlier of January 31, 2024 or twenty months from the date of the first funded amount unless the lenders agree to extend the due date at that time. As of the date of this Form 10-Q, the Company has drawn $400,000 pursuant to the aforementioned agreement.
On May 5, 2023 the Company entered into a financing agreement with a shareholder to borrow $300,000 consisting of advances of $150,000 in May 2023 and $150,000 in October 2023. This agreement bears no interest and matures May 5, 2025. The agreement includes a guarantee which has been identified as an embedded derivative with a fair value of a liability of $281,057 at September 30, 2023.
In July 2023 the Company received a favorable ruling on our arbitration related to NetCo, as such, the contingent litigation funding note payable became probable and reasonably estimable. A liability of approximately $2,800,000 has been recorded for litigation costs funded by the agreement along with fees and investment return to Omni related to the litigation funding agreement (note payable). The ruling did not provide any claim recovery to the Company. This note is payable in four quarterly installments beginning April 2024. Management plans to work to maximize the potential of the NetCo assets based on the favorable arbitration ruling in order to service this debt and future operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
This section is not applicable.
ITEM 4. CONTROLS AND PROCEDURES
Our Principal Executive Officer and Chief Financial Officer conducted an evaluation of our controls and procedures. We have identified material weaknesses in our internal control and procedures and internal control over financial reporting. If not remediated, our failure to establish and maintain effective disclosure controls and procedures and internal control over financial reporting could result in material misstatements in our financial statements and a failure to meet our reporting and financial obligations, each of which could have a material adverse effect on our financial condition and the trading price of our common stock.
Maintaining effective internal control over financial reporting and effective disclosure controls and procedures are necessary for us to produce reliable financial statements. We have re-evaluated our internal control over financial reporting and our disclosure controls and procedures and concluded that they were not effective as of September 30, 2023 and we concluded there was a material weakness in the design of our internal control over financial reporting.
A material weakness is defined as a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
The material weaknesses identified included insufficient resources to employ proper segregation of duties over the processing of transactions and financial reporting.
Changes in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
| 19 |
PART II
ITEM 1. LEGAL PROCEEDINGS
NetCo owns all rights in all media to the NetForce intellectual property including film, television, and video games. Consistent with our contractual and statutory rights, NovelStem is intent on commercially exploiting the full array of media rights relating to Net Force. We initiated an arbitration proceeding against our 50% partner in Netco, C.P. Group, in an effort to maximize the total potential value to be derived from fully utilizing the Netco intellectual property across video games, streaming, entertainment, digital media, merchandising and other ancillary markets. Arbitration proceedings for the joint owners of NetCo began in July 2022 and a ruling was issued in July 2023. To fund efforts to maximize the value of Netco, NovelStem has secured non-recourse litigation funding.
Arbitration proceedings for the joint owners of NetCo concluded during 2022 with final briefs being filed in January 2023. In July 2023 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).
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
#101.1 The following financial statements from NovelStem International Corp.’s Form 10-Q for the quarter ended September 30, 2023, filed on November 17, 2023, 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. |
| 20 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized.
| NOVELSTEM INTERNATIONAL CORP. | ||
| Date: November 17, 2023 | By: | /s/ Jan Loeb |
| Name: | Jan Loeb | |
| Title: | Executive Chairman | |
| 21 |
Exhibit 31.1
I, Jan H. Loeb, the Principal Executive Officer and Executive Chairman of NovelStem International Corp. certify that:
| 1. | I have reviewed this report on Form 10-Q of NovelStem International Corp.; | |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a- 15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and l have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Dated: November 17, 2023 | ||
| By: | /s/ JAN H. LOEB | |
| Jan H Loeb | ||
| Principal Executive Officer and Executive Chairman | ||
Exhibit 31.2
I, Christine T. Jenkins, the Chief Financial Officer of NovelStem International Corp. certify that:
| 1. | I have reviewed this report on Form 10-Q of NovelStem International Corp.; | |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a- 15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and l have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Dated: November 17, 2023 | ||
| By: | /s/ CHRISTINE T. JENKINS | |
| Christine T. Jenkins | ||
| Chief Financial Officer |
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of NovelStem International Corp. (the “Company”) for the quarterly period ended September 30, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jan H. Loeb, Principal Executive Officer and Executive Chairman of the Company, hereby certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. |
| /s/ Jan H. Loeb | |
| Jan H. Loeb | |
| Principal Executive Officer and Executive Chairman | |
| November 17, 2023 |
Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of NovelStem International Corp. (the “Company”) for the quarterly period ended September 30, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Christine T. Jenkins, Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. |
| /s/ Christine T. Jenkins | |
| Christine T. Jenkins | |
| Chief Financial Officer | |
| November 17, 2023 |
Exhibit 33.1
NewStem Ltd.
Condensed Interim Financial Statements
As of September 30, 2023
(Unaudited)
NewStem Ltd.
Condensed Interim Financial Statements as of September 30, 2023
Contents
NewStem Ltd.
Condensed Interim Balance Sheets as of
(Unaudited)
| September 30 | December 31 | |||||||
| 2023 | 2022 | |||||||
| US$ thousands | US$ thousands | |||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | 217 | 878 | ||||||
| Other current assets | 30 | 33 | ||||||
| Total current assets | 247 | 911 | ||||||
| Non-current assets | ||||||||
| Property and equipment, net | 11 | 23 | ||||||
| Total assets | 258 | 934 | ||||||
| Liabilities and shareholders’ equity | ||||||||
| Current liabilities | ||||||||
| Accounts payable | 54 | 97 | ||||||
| Non-current liabilities | ||||||||
| Convertible financial instrument | 122 | 121 | ||||||
| Total liabilities | 176 | 218 | ||||||
| Shareholders’ equity | ||||||||
| Ordinary shares | * | * | ||||||
| Additional paid-in capital | 8,892 | 8,686 | ||||||
| Accumulated deficit | (8,810 | ) | (7,970 | ) | ||||
| Total shareholders’ equity | 82 | 716 | ||||||
| Total liabilities and shareholders’ equity | 258 | 934 | ||||||
| Ayelet Dilion Mashiah | |
| CEO |
Date of approval of the financial statements: November 10, 2023
* Represents an amount lower than $1 thousand.
The accompanying notes are an integral part of the condensed interim financial statements.
| 2 |
NewStem Ltd.
Condensed Interim Statements of Operations for the
(Unaudited)
| Nine-month | Nine-month | |||||||||
| period ended | period ended | |||||||||
| September 30, | September 30, | |||||||||
| 2023 | 2022 | |||||||||
| US$ thousands | US$ thousands | |||||||||
| Revenues | 5B | 95 | - | |||||||
| Cost of revenues | 5B | 11 | - | |||||||
| Gross profit | 84 | - | ||||||||
| Operating expenses: | ||||||||||
| Research and development expenses | 770 | 1,917 | ||||||||
| Less – grants and participations received | - | (183 | ) | |||||||
| Research and development expenses, net | 770 | 1,734 | ||||||||
| General and administrative expenses, net | 149 | 209 | ||||||||
| Operating loss | 835 | 1,943 | ||||||||
| Financial expenses (income), net | 5 | (8 | ) | |||||||
| Loss for the period | 840 | 1,935 | ||||||||
The accompanying notes are an integral part of the condensed interim financial statements.
| 3 |
NewStem Ltd.
Condensed Interim Statements of Changes in Shareholders’ Equity
(Unaudited)
| Additional | ||||||||||||||||||||
| paid-in | Accumulated | |||||||||||||||||||
| Ordinary shares | capital | deficit | Total | |||||||||||||||||
| Number of shares | US$ thousands | US$ thousands | US$ thousands | US$ thousands | ||||||||||||||||
| For the nine - month period ended September 30, 2023 | ||||||||||||||||||||
| Balance as of January 1, 2023 | 163,494 | * | 8,686 | (7,970 | ) | 716 | ||||||||||||||
| Share based compensation | - | - | 206 | - | 206 | |||||||||||||||
| Loss for the period | - | - | - | (840 | ) | (840 | ) | |||||||||||||
| Balance as of September 30, 2023 | 163,494 | * | 8,892 | (8,810 | ) | 82 | ||||||||||||||
| For the nine - month period ended September 30, 2022 | ||||||||||||||||||||
| Balance as of January 1, 2022 | 158,696 | * | 6,734 | (5,629 | ) | 1,105 | ||||||||||||||
| Issuance of ordinary shares, net | 2,647 | * | 800 | - | 800 | |||||||||||||||
| Share based compensation | - | - | 414 | - | 414 | |||||||||||||||
| Loss for the period | - | - | - | (1,935 | ) | (1,935 | ) | |||||||||||||
| Balance as of September 30, 2022 | 161,343 | * | 7,948 | (7,564 | ) | 384 | ||||||||||||||
* Represents an amount less than $1 thousand.
The accompanying notes are an integral part of the condensed interim financial statements.
| 4 |
NewStem Ltd.
Condensed Interim Statements of Cash Flows for the
(Unaudited)
| Nine-month | Nine-month | |||||||
| period ended | period ended | |||||||
| September 30, | September 30, | |||||||
| 2023 | 2022 | |||||||
| US$ thousands | US$ thousands | |||||||
| Cash flows from operating activities | ||||||||
| Loss for the period | (840 | ) | (1,935 | ) | ||||
| Adjustments required to reconcile loss for the period to net cash used in operating activities: | ||||||||
| Depreciation | 12 | 14 | ||||||
| Revaluation of convertible financial instrument | 1 | (22 | ) | |||||
| Share based compensation | 206 | 1,185 | ||||||
| Decrease (increase) in other current assets | 3 | (1 | ) | |||||
| Decrease in accounts payable | (43 | ) | (40 | ) | ||||
| Decrease in other liabilities | - | (83 | ) | |||||
| Net cash used in operating activities | (661 | ) | (882 | ) | ||||
| Cash flows from financing activities | ||||||||
| Proceeds from issuance of ordinary shares, net | - | 800 | ||||||
| Net cash provided by financing activities | - | 800 | ||||||
| Net decrease in cash and cash equivalents | (661 | ) | (82 | ) | ||||
| Cash and cash equivalents at the beginning of the period | 878 | 601 | ||||||
| Cash and cash equivalents at the end of the period | 217 | 519 | ||||||
The accompanying notes are an integral part of the condensed interim financial statements.
| 5 |
NewStem Ltd.
Notes to the Condensed Interim Financial Statements as of September 30, 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 losses of US$8,810 thousand. As of September 30, 2023, the Company’s cash and cash equivalents balance is US$217 thousand, and the net cash used in operating activities during the nine-month period ended September 30, 2023, is US$661 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 5A regarding the Convertible Loan Agreement which was not executed. The Company’s management has adopted a cost reduction plan in order to adjust future operation expenses to its cash balance. On October 23, 2023, the board of directors of the Company unanimously resolved, due to the financial status of the Company, to hold a hearing for all Company’s employees to be followed by a dismissal notice, which will occur on or around December 31, 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 condensed interim 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. | Definitions |
In these financial statements –
| 1. | The Company – NewStem Ltd. | |
| 2. | Related Party – Within its meaning in ASC 850, “Related Party Transactions”. |
Note 2 - Basis of Presentation
The accompanying condensed interim balance sheet as of September 30, 2023, and the condensed interim statements of operations, changes in shareholders’ equity and cash flows for the nine-month period ended September 30, 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.
| 6 |
NewStem Ltd.
Notes to the Condensed Interim Financial Statements as of September 30, 2023
Note 2 - Basis of Presentation (cont’d)
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, except the application for the first time of ASC 606 Revenue from Contracts with Customers, as stated in note 5B.
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 |
| Nine-month | Nine-month | |||||||
| period ended | period ended | |||||||
| September 30, | September 30, | |||||||
| 2023 | 2022 | |||||||
| US$ thousands | US$ thousands | |||||||
| Cost of revenues | 11 | - | ||||||
| Research and development expenses | 173 | 267 | ||||||
| B. | Balances |
| September 30, | September 30, | |||||||
| 2023 | 2022 | |||||||
| US$ thousands | US$ thousands | |||||||
| Other current assets | 13 | 24 | ||||||
| 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$134 thousands).
The convertible financial instrument is presented at fair value. The convertible financial instrument is considered a Level 3 fair value measurement.
The changes in the liability measured at fair value for which the Company has used Level 3 inputs to determine fair value are as follows:
| 2023 | 2022 | |||||||
| US$ thousands | US$ thousands | |||||||
| Balance as of January 1, | 121 | 134 | ||||||
| Change in fair value | 1 | (22 | ) | |||||
| Balance as of September 30, | 122 | 112 | ||||||
| 7 |
NewStem Ltd.
Notes to the Condensed Interim Financial Statements as of September 30, 2023
Note 5 - Events during the period
| A. | Convertible Loan Agreement |
On March 20, 2023, the Company signed a Convertible Loan Agreement (“the Loan” or “the Agreement”) with a related party 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 Agreement), the interest rate shall increase to 20% per annum.
As of the date of the approval of the condensed interim financial statements, the lender didn’t transfer the Loan amount and as such the Agreement was not executed.
| 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. Subsequent changes in the fair value of the Exit Fee will be recorded as financial income. As of September 30, 2023, the fair value of the Exit Fee 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.
| 8 |
NewStem Ltd.
Notes to the Condensed Interim Financial Statements as of September 30, 2023
Note 5 - Events during the period (cont’d)
| B. | Sub-License Agreement (cont’d) |
Therefore, the Company recognized revenues of $95 thousand in the nine-month period ending September 30, 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.
Note 6 - Subsequent events
“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 and a rise in the exchange rate of foreign currencies in relation to the shekel.
As a result of the movement and work restrictions, the Company began operating on a limited scale, and most of the employees were instructed to work from home. In addition, the situation has brought further difficulties in management’s efforts to seek additional financing arrangements.
| 9 |
Condensed Balance Sheets (Parenthetical) - $ / shares |
Sep. 30, 2023 |
Dec. 31, 2022 |
|---|---|---|
| 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 |
Condensed Statements of Operations (Unaudited) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
Sep. 30, 2023 |
Sep. 30, 2022 |
|
| Income Statement [Abstract] | ||||
| Administrative fee income | $ 9,000 | $ 9,000 | ||
| Operating expenses: | ||||
| General and administrative expenses | 84,208 | 206,210 | 635,360 | 574,741 |
| Litigation expenses (contra expenses) (Note 7) | 473,221 | 2,805,884 | (310,000) | |
| Total operating expenses | 557,429 | 206,210 | 3,441,244 | 264,741 |
| Loss from operations | (548,429) | (206,210) | (3,432,244) | (264,741) |
| Other expenses: | ||||
| Loss on derivative instrument | 445,205 | 500,000 | ||
| Interest expense | 28,450 | 3,530 | 56,274 | 5,542 |
| Total other expenses | 473,655 | 3,530 | 556,274 | 5,542 |
| Loss before income taxes | (1,022,084) | (209,740) | (3,988,518) | (270,283) |
| Provision for income tax | ||||
| Loss before equity in net income of equity method investees | (1,022,084) | (209,740) | (3,988,518) | (270,283) |
| Equity in net loss of equity method investees | (74,381) | (85,532) | (251,527) | (411,788) |
| Net loss | $ (1,096,465) | $ (295,272) | $ (4,240,045) | $ (682,071) |
| Basic and diluted net loss per share: | ||||
| Net loss per share - diluted | $ (0.02) | $ (0.01) | $ (0.09) | $ (0.01) |
| Net loss per share - basic | $ (0.02) | $ (0.01) | $ (0.09) | $ (0.01) |
| Weighted average number of shares outstanding - diluted | 46,881,475 | 46,881,475 | 46,881,475 | 46,881,475 |
| Weighted average number of shares outstanding - basic | 46,881,475 | 46,881,475 | 46,881,475 | 46,881,475 |
Condensed Statements of Shareholders' Equity (Deficit) (Unaudited) - USD ($) |
Common Stock [Member] |
Additional Paid-in Capital [Member] |
Retained Earnings [Member] |
Treasury Stock, Common [Member] |
Total |
|---|---|---|---|---|---|
| Balance at Dec. 31, 2021 | $ 468,815 | $ 290,321,665 | $ (288,174,780) | $ (199,754) | $ 2,415,946 |
| Balance, shares at Dec. 31, 2021 | 46,881,475 | 3,435,197 | |||
| Net loss | (217,464) | (217,464) | |||
| Stock option compensation | 49,011 | 49,011 | |||
| Balance at Mar. 31, 2022 | $ 468,815 | 290,370,676 | (288,392,244) | $ (199,754) | 2,247,493 |
| Balance, shares at Mar. 31, 2022 | 46,881,475 | 3,435,197 | |||
| Balance at Dec. 31, 2021 | $ 468,815 | 290,321,665 | (288,174,780) | $ (199,754) | 2,415,946 |
| Balance, shares at Dec. 31, 2021 | 46,881,475 | 3,435,197 | |||
| Net loss | (682,071) | ||||
| Balance at Sep. 30, 2022 | $ 468,815 | 290,520,159 | (288,856,851) | $ (199,754) | 1,932,369 |
| Balance, shares at Sep. 30, 2022 | 46,881,475 | 3,435,197 | |||
| Balance at Mar. 31, 2022 | $ 468,815 | 290,370,676 | (288,392,244) | $ (199,754) | 2,247,493 |
| Balance, shares at Mar. 31, 2022 | 46,881,475 | 3,435,197 | |||
| Net loss | (169,335) | (169,335) | |||
| Stock option compensation | 74,333 | 74,333 | |||
| Balance at Jun. 30, 2022 | $ 468,815 | 290,445,009 | (288,561,579) | $ (199,754) | 2,152,491 |
| Balance, shares at Jun. 30, 2022 | 46,881,475 | 3,435,197 | |||
| Net loss | (295,272) | (295,272) | |||
| Stock option compensation | 75,150 | 75,150 | |||
| Balance at Sep. 30, 2022 | $ 468,815 | 290,520,159 | (288,856,851) | $ (199,754) | 1,932,369 |
| Balance, shares at Sep. 30, 2022 | 46,881,475 | 3,435,197 | |||
| Balance 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 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 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 | (4,240,045) | ||||
| Balance at Sep. 30, 2023 | $ 468,815 | 290,896,833 | (293,180,555) | $ (199,754) | (2,014,661) |
| Balance, shares at Sep. 30, 2023 | 46,881,475 | 3,435,197 | |||
| Balance 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 | |||
| Net loss | (2,874,759) | (2,874,759) | |||
| Stock option compensation | 260,282 | 260,282 | |||
| Balance at Jun. 30, 2023 | $ 468,815 | 290,879,686 | (292,084,090) | $ (199,754) | (935,343) |
| Balance, shares at Jun. 30, 2023 | 46,881,475 | 3,435,197 | |||
| Net loss | (1,096,465) | (1,096,465) | |||
| Stock option compensation | 17,147 | 17,147 | |||
| Balance at Sep. 30, 2023 | $ 468,815 | $ 290,896,833 | $ (293,180,555) | $ (199,754) | $ (2,014,661) |
| Balance, shares at Sep. 30, 2023 | 46,881,475 | 3,435,197 |
NATURE OF OPERATIONS |
9 Months Ended |
|---|---|
Sep. 30, 2023 | |
| 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 a 30.58% 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
Management believes the accompanying condensed financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America (“GAAP”), which contemplate continuation of the Company as a going concern. 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 $6,500,000 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 become profitable.
The Company has in place a financing agreement with related parties to borrow up to $600,000 for working capital needs (see Note 4). Additionally, in May 2023, the Company entered into a financing agreement with a shareholder to borrow $300,000 consisting of advances of $150,000 in May 2023 and $150,000 in October 2023 (see Note 9). Following this financing, the Company believes that its cash resources are sufficient for the operations of the Company until April 2024.
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 condensed 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.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 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 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 March 31, 2023, from which the Company derived the balance sheet data at December 31, 2022.
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.
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.
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 loss per share if the effect of doing so would be antidilutive.
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
EQUITY METHOD INVESTMENTS |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 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 common shares of NewStem to the Company representing % of New Stem’s outstanding shares. In 2018, the Company purchased shares of NewStem for $2,000,000 acquiring an ownership interest of 20%. The Company made additional investments in 2019 and 2020 purchasing shares each year for a $1,000,000 investment each year. NewStem sold and issued shares to third party investors in 2021 and 2022 resulting in the Company recognizing a gain on dilution of equity method investment. These transactions resulted in the Company having an ownership interest of 30.58% as of September 30, 2023 and December 31, 2022.
The Company accounts for its investment in NewStem under the equity method. At September 30, 2023 and December 31, 2022, the carrying value of the investment in NewStem exceeded its portion of the underlying net assets of NewStem by approximately $1,800,000 and $1,900,000, 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.
NewStem is in the development stage and has incurred losses since its inception and has yet to generate revenues sufficient to support operations. 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 NewStem’s management continues to pursue these plans, there is no assurance that the NewStem will be successful in obtaining sufficient cash from sales of products or financing on terms acceptable to NewStem’s management. NewStem obtained additional funding of approximately $1,450,000 in 2022 through the sale of shares of ordinary stock. The current state of war in Israel has caused further difficulties in NewStem management’s efforts to seek additional financing arrangements. On October 23, 2023, the board of directors of NewStem resolved to implement a plan of dismissal of all employees effective December 31, 2023 and is in negotiations with the Company for a plan whereby NewStem research will continue and NewStem assets will be purchased or merged into the Company. The effect of this transaction to the Company’s financial reporting is continuing to be reviewed by Company management as negotiations continue.
The following table represents the Company’s investment in NewStem:
The results of operations of the Company’s investment in NewStem is summarized below (unaudited):
The financial position of the Company’s investment in NewStem is summarized below:
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 from this arrangement. The Company assesses its investment in NetCo for impairment on an annual basis.
The following table represents the Company’s investment in NetCo:
The results of operations of the Company’s investment in NetCo is summarized below (unaudited):
The financial position of the Company’s investment in NetCo is summarized below:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
NOTES PAYABLE |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| NOTES PAYABLE | NOTE 4—NOTES PAYABLE
Notes payable are summarized as follows:
Notes Payable Related Parties
On April 12, 2021, the Company entered into a promissory note (the “Note”) with a related party (individual) for $100,000. The Note accrued interest at 8% per annum and matured on April 12, 2022. The proceeds of this Note were used to pay operating expenses of the Company. Interest expense related to this Note was $1,198 for the nine months ended September 30, 2022. The Note and accrued interest of $6,752 were paid in full on February 16, 2022.
In May 2022, the Company entered into long-term notes payable in the form of finance agreements (the “Agreements”) with two individuals who are related parties, which were amended in July 2022, to borrow up to $600,000 for working capital needs. One of the individuals is a director and shareholder, the other is our Executive Chairman who is also a shareholder. These agreements provide for funding through January 31, 2024, 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 the earlier of January 31, 2024 or twenty months from the date of the first funded amount (May 2022) unless the shareholders agree to extend the due date at that time. The Company received advances of $120,000 and $280,000, respectively, pursuant to this agreement during the nine months ended September 30, 2023 and the year ended December 31, 2022. Interest expense related to the agreements was $25,056 and $9,208, respectively, for the nine and three months ended September 30, 2023. Pursuant to the Agreements, accrued interest is added to the note balances.
On May 5, 2023, the Company entered into a long term note payable with a shareholder for $ in financing to be funded $ at inception and $ in October 2023. This note bears interest at zero percent (%) and matures on . The note includes a guarantee which has been identified as an embedded derivative with a fair value of a liability of $ at September 30, 2023 which is reported separately on the condensed 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 $ and $, respectively, has been reflected as part of interest expense in the condensed statements of operations for the nine and three months ended September 30, 2023.
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 the nine months ended September 30, 2022, the Company received $310,000 pursuant to this agreement for the reimbursement of legal costs and working capital expenditures, including previously incurred general and administrative costs.
During July 2023, the arbitration was settled with a favorable outcome for the Company. As a result of the favorable 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 September 30, 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 $1,866,131 as of September 30, 2023 for a total liability of $2,799,196. This agreement bears interest at 5% per annum beginning January 2024 and is payable in four quarterly installments beginning April 4, 2024.
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
EQUITY (DEFICIT) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| EQUITY (DEFICIT) | NOTE 5—EQUITY (DEFICIT)
(a) General
At September 30, 2023 and December 31, 2022, the Company had issued and outstanding shares of its common stock, par value $ per share. Holders of outstanding common stock are entitled to receive dividends when, as and if declared by the Board and to share ratably in the assets of the Company legally available for distribution in the event of a liquidation, dissolution or winding up of the Company.
(b) Summary Employee Option Information
The Company’s stock option plan provides for the grant to officers, directors, third party contractors and other future key employees of options to purchase shares of common stock. The purchase price may be paid in cash or, 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 nine years from the date of the grant and generally vest on the first anniversary date of their issuance. Pursuant to the Equity Incentive Plan which the Company’s board of directors approved on November 12, 2018, an aggregate of options have been issued to directors and investor relations professionals.
The expected term of the options represents an estimate of the length of time until the expected date of exercising the options. Options granted have a maximum life of years. With respect to determining expected exercise behavior, the Company has grouped its option grants into certain groups to track exercise behavior and establish historical rates. The Company estimated volatility by considering historical stock volatility over the expected term of the option. The risk-free interest rates are based on the U.S. Treasury yields for a period consistent with the expected term. The dividend yield of 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
Stock-based compensation expense related to stock options was approximately $ and $ in the nine months and three months ended September 30, 2023, respectively. Stock-based compensation expense related to stock options was approximately $ and $ for the nine months and three months ended September 30, 2022, respectively.
The total compensation cost related to non-vested awards not yet recognized was approximately $ as of September 30, 2023. As of September 30, 2023, options were unvested. These options vest one year from their grant date which is March 2024.
(d) Warrants
The warrant agreements were amended on May 12, 2023 to extend the expiration date to June 28, 2025. The warrants outstanding at September 30, 2023 have a weighted average remaining contractual life of approximately . The Company recognized $ in stock-based compensation expense related to the increase in fair value of warrants pursuant to the modification of the warrant term during the nine months ended September 30, 2023. No such expense was recognized related to the warrants during the three months ended September 30, 2023.
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
INCOME TAXES |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 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):
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
COMMITMENTS AND CONTINGENCIES |
9 Months Ended |
|---|---|
Sep. 30, 2023 | |
| 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 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. Total costs related to the litigation and the related litigation funding agreement of $2,805,884, including a reversal of the prior period contra expenses, were recorded during the nine months ended September 2023 and were separately stated in the condensed statement of operations (unaudited).
|
SUBSEQUENT EVENTS |
9 Months Ended |
|---|---|
Sep. 30, 2023 | |
| Subsequent Events [Abstract] | |
| SUBSEQUENT EVENTS | NOTE 8—SUBSEQUENT EVENTS
The Company has reviewed subsequent events through November 17, 2023, the date of this filing.
As disclosed in Note 3, during October 2023, the Company began negotiations with the NewStem board of directors for a plan whereby NewStem research activities will continue and NewStem assets will be purchased or merged into the Company. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Basis of Presentation | Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared in accordance with 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 March 31, 2023, from which the Company derived the balance sheet data at December 31, 2022.
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.
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 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.
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 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 loss per share if the effect of doing so would be antidilutive.
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF WEIGHTED AVERAGE NUMBER OF SHARES OF DILUTIVE |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF WARRANTS AND STOCK OPTIONS |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
EQUITY METHOD INVESTMENTS (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| New Stem Ltd [Member] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF INVESTMENTS | The following table represents the Company’s investment in NewStem:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF OPERATIONS AND FINANCIAL POSITION INVESTMENT | The results of operations of the Company’s investment in NewStem is summarized below (unaudited):
The financial position of the Company’s investment in NewStem is summarized below:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net Co Partners [Member] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF INVESTMENTS | The following table represents the Company’s investment in NetCo:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF OPERATIONS AND FINANCIAL POSITION INVESTMENT | The results of operations of the Company’s investment in NetCo is summarized below (unaudited):
The financial position of the Company’s investment in NetCo is summarized below:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
NOTES PAYABLE (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF NOTES PAYABLE | Notes payable are summarized as follows:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
EQUITY (DEFICIT) (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Equity [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF FAIR VALUE OF OPTION USING VALUATION ASSUMPTIONS |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF STOCK OPTION ACTIVITIES |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SUMMARY OF WARRANTS ACTIVITY |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
INCOME TAXES (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 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):
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
NATURE OF OPERATIONS (Details Narrative) - USD ($) |
Oct. 31, 2023 |
Sep. 30, 2023 |
May 31, 2023 |
Dec. 31, 2022 |
Jul. 31, 2022 |
Sep. 30, 2018 |
|---|---|---|---|---|---|---|
| Accumulated deficit | $ 293,180,555 | $ 288,940,510 | $ 6,500,000 | |||
| Working capital | $ 600,000 | $ 600,000 | ||||
| Borrowings | $ 300,000 | |||||
| Advance from borrowings | $ 150,000 | |||||
| Forecast [Member] | ||||||
| Advance from borrowings | $ 150,000 | |||||
| New Stem Ltd [Member] | ||||||
| Equity interest percentage | 30.58% | |||||
| Net Co Partners [Member] | ||||||
| Equity interest percentage | 50.00% |
SCHEDULE OF WEIGHTED AVERAGE NUMBER OF SHARES OF DILUTIVE (Details) - USD ($) |
3 Months Ended | 9 Months Ended | ||||||
|---|---|---|---|---|---|---|---|---|
Sep. 30, 2023 |
Jun. 30, 2023 |
Mar. 31, 2023 |
Sep. 30, 2022 |
Jun. 30, 2022 |
Mar. 31, 2022 |
Sep. 30, 2023 |
Sep. 30, 2022 |
|
| Accounting Policies [Abstract] | ||||||||
| Net loss attributable to common shareholders | $ (1,096,465) | $ (2,874,759) | $ (268,821) | $ (295,272) | $ (169,335) | $ (217,464) | $ (4,240,045) | $ (682,071) |
| Weighted average shares outstanding: | ||||||||
| -Basic | 46,881,475 | 46,881,475 | 46,881,475 | 46,881,475 | ||||
| Add: Warrants | ||||||||
| Add: Stock options | ||||||||
| -Diluted | 46,881,475 | 46,881,475 | 46,881,475 | 46,881,475 | ||||
| Diluted net loss per share | $ (0.02) | $ (0.01) | $ (0.09) | $ (0.01) | ||||
| Basic net loss per share | $ (0.02) | $ (0.01) | $ (0.09) | $ (0.01) | ||||
SCHEDULE OF WARRANTS AND STOCK OPTIONS (Details) - shares |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
Sep. 30, 2023 |
Sep. 30, 2022 |
|
| Warrant [Member] | ||||
| Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||||
| Stock options | 3,000,000 | 3,000,000 | 3,000,000 | 3,000,000 |
| Equity Option [Member] | ||||
| Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||||
| Stock options | 5,760,000 | 5,400,000 | 5,760,000 | 5,400,000 |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) |
9 Months Ended |
|---|---|
Sep. 30, 2023 | |
| 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. |
| Net Co Partners [Member] | |
| Equity interest percentage | 50.00% |
SCHEDULE OF INVESTMENTS (Details) - USD ($) |
9 Months Ended | 12 Months Ended |
|---|---|---|
Sep. 30, 2023 |
Dec. 31, 2022 |
|
| New Stem Ltd [Member] | ||
| Investment in NetCo, beginning | $ 2,090,286 | $ 2,435,155 |
| Allocation of net income from NetCo | (256,890) | (732,393) |
| Gain on dilution of equity method investment | 387,524 | |
| Investment in NetCo, ending | 1,833,396 | 2,090,286 |
| Net Co Partners [Member] | ||
| Investment in NetCo, beginning | 137,011 | 137,011 |
| Allocation of net income from NetCo | 5,362 | 12,591 |
| Investment in NetCo, ending | 135,498 | 137,011 |
| Distribution from NetCo | $ (6,875) | $ (12,591) |
SCHEDULE OF OPERATIONS AND FINANCIAL POSITION INVESTMENT (Details) - USD ($) |
3 Months Ended | 9 Months Ended | |||||||
|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2023 |
Jun. 30, 2023 |
Mar. 31, 2023 |
Sep. 30, 2022 |
Jun. 30, 2022 |
Mar. 31, 2022 |
Sep. 30, 2023 |
Sep. 30, 2022 |
Dec. 31, 2022 |
|
| Net income (loss) | $ (1,096,465) | $ (2,874,759) | $ (268,821) | $ (295,272) | $ (169,335) | $ (217,464) | $ (4,240,045) | $ (682,071) | |
| Company’s allocation of net income from NetCo | (74,381) | (85,532) | (251,527) | (411,788) | |||||
| Current assets | 49,982 | 49,982 | $ 58,907 | ||||||
| Current liabilities | 1,953,528 | 1,953,528 | 64,876 | ||||||
| Non-current liabilities | 2,080,009 | 2,080,009 | 288,450 | ||||||
| New Stem Ltd [Member] | |||||||||
| Net sales | 95,000 | ||||||||
| Gross margin | 84,000 | ||||||||
| Net income (loss) | (235,000) | (276,000) | (840,000) | (1,935,000) | |||||
| Company’s allocation of net income from NetCo | (71,868) | $ (85,532) | (256,890) | (606,736) | |||||
| Current assets | 247,000 | 247,000 | 911,000 | ||||||
| Non-current assets | 11,000 | 11,000 | 23,000 | ||||||
| Current liabilities | 54,000 | 54,000 | 97,000 | ||||||
| Non-current liabilities | 122,000 | 122,000 | 121,000 | ||||||
| Net Co Partners [Member] | |||||||||
| Net sales | 25,328 | ||||||||
| Gross margin | 19,924 | ||||||||
| Net income (loss) | 10,724 | ||||||||
| Company’s allocation of net income from NetCo | 5,362 | ||||||||
| Current assets | 8,322 | 8,322 | 13,475 | ||||||
| Non-current assets | 272,799 | 272,799 | 272,799 | ||||||
| Current liabilities | 4,250 | 4,250 | 12,252 | ||||||
| Non-current liabilities | |||||||||
SCHEDULE OF NOTES PAYABLE (Details) - USD ($) |
Sep. 30, 2023 |
May 05, 2023 |
Dec. 31, 2022 |
|---|---|---|---|
| Defined Benefit Plan Disclosure [Line Items] | |||
| Total notes payable | $ 3,263,113 | $ 288,450 | |
| Less current portion | (1,833,104) | ||
| Long-term notes payable | 1,430,009 | 288,450 | |
| Omni Bridgeway (Fund 4) Invt. 3 L.P. [Member] | |||
| Defined Benefit Plan Disclosure [Line Items] | |||
| Total notes payable | 2,799,196 | ||
| Director and Executive Chairman [Member] | |||
| Defined Benefit Plan Disclosure [Line Items] | |||
| Total notes payable | 433,506 | 288,450 | |
| Related Party [Member] | |||
| Defined Benefit Plan Disclosure [Line Items] | |||
| Accrued interest added to note balance | 33,506 | 8,450 | |
| Note payable shareholder, principal amount | 150,000 | ||
| Less unamortized discount | (119,589) | ||
| Related Party [Member] | Director and Executive Chairman [Member] | |||
| Defined Benefit Plan Disclosure [Line Items] | |||
| Total notes payable | 400,000 | 280,000 | |
| Related Party [Member] | Shareholder [Member] | |||
| Defined Benefit Plan Disclosure [Line Items] | |||
| Total notes payable | $ 30,411 | ||
| Long-term notes payable | $ 300,000 |
SCHEDULE OF FAIR VALUE OF OPTION USING VALUATION ASSUMPTIONS (Details) - $ / shares |
9 Months Ended | |
|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
|
| Equity [Abstract] | ||
| Risk-free interest rate | 3.50% | 1.50% |
| Expected term, in years | 4 years | 3 years 10 months 24 days |
| Expected annual volatility | 191.10% | 185.80% |
| Expected dividend yield | 0.00% | 0.00% |
| Determined weighted average grant date fair value per option | $ 0.19 | $ 0.27 |
SCHEDULE OF STOCK OPTION ACTIVITIES (Details) - $ / shares |
9 Months Ended | |
|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
|
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | ||
| Weighted Average Exercise Price, Granted | $ 0.19 | $ 0.27 |
| Equity Option [Member] | ||
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | ||
| Number of Options Outstanding beginning | 5,400,000 | |
| Weighted Average Exercise Price Outstanding beginning | $ 0.14 | |
| Number of Options, Granted | 360,000 | |
| Weighted Average Exercise Price, Granted | $ 0.20 | |
| Number of Options Outstanding ending | 5,760,000 | |
| Weighted Average Exercise Price Outstanding ending | $ 0.14 | |
| Number of Options Exercisable | 5,400,000 | |
| Weighted Average Exercise Price, Exercisable | $ 0.14 | |
SUMMARY OF WARRANTS ACTIVITY (Details) - Warrant [Member] |
9 Months Ended |
|---|---|
|
Sep. 30, 2023
$ / 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 |
SCHEDULE OF INCOME BEFORE INCOME TAX (Details) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
Sep. 30, 2023 |
Sep. 30, 2022 |
|
| Income Tax Disclosure [Abstract] | ||||
| Computed tax at the federal statutory rate of 21% | $ (203,809) | $ (62,007) | $ (812,931) | $ (184,174) |
| State income taxes, net of federal income tax benefit | (42,169) | (12,829) | (168,199) | (38,106) |
| Change in federal valuation allowance | 257,476 | 77,971 | 1,022,232 | 231,592 |
| Foreign rate differential | (11,499) | (3,135) | (41,102) | (9,312) |
| Total provision for income tax | ||||
SCHEDULE OF INCOME BEFORE INCOME TAX (Details) (Parenthetical) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
Sep. 30, 2023 |
Sep. 30, 2022 |
|
| Income Tax Disclosure [Abstract] | ||||
| Computed tax at the federal statutory rate | 21.00% | 21.00% | 21.00% | 21.00% |
COMMITMENTS AND CONTINGENCIES (Details Narrative) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
Sep. 30, 2023 |
Sep. 30, 2022 |
|
| Litigation expenses | $ 473,221 | $ 2,805,884 | $ (310,000) | |
| Net Co Partners [Member] | ||||
| Equity interest percentage | 50.00% | 50.00% | ||
_..?M??%BWMZZM\+D? 9!8<:NT='9:="6;[<@
M7?O;8Z.)[R+_6/#EC\89\/M, 13-4X,8W$$R"*U?.8;TVHF7$K@W;A59IXLX9B79,
MW$C C_#=&9\LV%DTMPS)?QD&)E)?:FTX$P)/QGFM4HKPZA'>PP9
M(IMR@XJ"C2>#R7 \>(MN;Z9CW;^7BT.4:5SI.&6@ >5.ZI,"71#F\$WKFPF#4EDJ
M0/HW<&*N90&U-Q4=ZH3ZGFU:NCKH$H%191U@X6PE:+WKX,0AAR$FJ2;!@N<4
M244 ?K&90@QA[SUK K03](&R#960\-BW'<H';4=
UC^Q%!BC(CJTS/&XSL8O398E9K'U:M?0B3/)V8MFT,"0L@80021H%@EK"^
M5\]LO5=(GV4E0,*#T@)0&@&E42B:+?Z.K>$[[^L9*X176LR_-NKJC&^M*R0M
M*&F#G5S7,+8FH)52*)HM&*X%PT[!+JLG7":;6&NE63[[0&K)3(6-&CJ1K36$
MI 4ES7[T]7J/)82LDT+1; EK#\AWFT"S7"C$YB;9JGP.J5SB@=I!)6WWEO'Q
MX/$M$S04RTK]<&>!>CA0-%N6VL7QG79!DRR->H :-27-,@@\[\