10-Q: NovelStem Reduces Liabilities, Shifts Focus Post-Asset Sales

NovelStem International Corp. reported a significant reduction in liabilities and a net income for the nine months ended September 30, 2025, driven by asset sales and debt restructuring, despite ongoing going concern doubts.

Summary

• Reported a net income of $2,469,177 for the nine months ended September 30, 2025, a substantial improvement from a net loss of $3,070,027 in the prior year.
• Current liabilities significantly decreased to $2,067,209 as of September 30, 2025, from $5,304,486 at December 31, 2024, primarily due to debt settlement.
• The company sold its 50% interest in NetCo in May 2025 for $1,300,000, which fully settled a $2,959,625 litigation funding liability, resulting in $1,697,024 relief of indebtedness income and a $1,171,760 gain on disposal.
• NewStem Ltd., a key equity investment, was liquidated in August 2025, and NovelStem has an agreement to receive up to $3,750,000 from future monetization of NewStem's intangible assets.
• Cash balance remains critically low at $627 as of September 30, 2025.
• General and administrative expenses decreased significantly to $198,007 for the nine months ended September 30, 2025, from $893,887 in the prior year, mainly due to reduced legal and audit fees.

Sentiment

Score: 4

Explanation: While the company reported a net income and significantly reduced liabilities due to asset sales and debt restructuring, its cash position remains critically low, and it faces substantial doubt about its ability to continue as a going concern. The future is highly dependent on uncertain monetization of intangible assets and securing further financing. The identified material weaknesses in internal controls also add to the negative sentiment.

Positives

• Achieved a net income of $2,469,177 for the nine months ended September 30, 2025, a significant turnaround from a net loss of $3,070,027 in the same period of 2024.
• Successfully reduced total liabilities to $2,067,209 as of September 30, 2025, from $5,304,486 at December 31, 2024, improving the balance sheet.
• Settled a $2,959,625 litigation funding agreement through the sale of its NetCo interest, generating $1,697,024 in relief of indebtedness income and a $1,171,760 gain on disposal.
• General and administrative expenses decreased substantially by $695,880 for the nine months ended September 30, 2025, indicating improved cost management.
• Holds an agreement to receive up to $3,750,000 from the future monetization of NewStem's intangible assets, providing potential future revenue.

Negatives

• The company's ability to continue as a going concern is in substantial doubt, dependent on securing additional financing and monetizing assets.
• Current assets are very low at $14,849 as of September 30, 2025, a decrease from $31,871 at December 31, 2024.
• Cash balance is critically low at $627 as of September 30, 2025, raising immediate liquidity concerns.
• Accumulated deficit remains substantial at $293,891,676.
• NewStem Ltd., a former key equity investment, has been liquidated, and the investment was fully impaired, indicating a loss of a core asset.
• Identified material weaknesses in internal control over financial reporting due to insufficient resources for proper segregation of duties.

Risks

• Substantial doubt exists about the company's ability to continue as a going concern, requiring successful additional financing and asset monetization.
• Uncertainty surrounds the timing and recovery of any value from the retained interest in NewStem's intangible assets or technology.
• Reliance on continued financial support from shareholders and the ability to obtain additional outside funding is critical for ongoing operations.
• Material weaknesses in internal control over financial reporting could lead to material misstatements in financial statements and failure to meet reporting obligations.
• Note agreements with unrelated parties include a provision entitling noteholders to participate in a capital raise transaction at 133% of amounts owed, potentially diluting existing shareholders.

Future Outlook

The company's future operations are highly dependent on securing additional financing and successfully monetizing the intangible assets and technology formerly held by NewStem. Management is actively pursuing fundraising and potential merger or buyout transactions to address ongoing liquidity challenges and continue operations.

Management Comments

• "Our continuation as a going concern is dependent upon our ability to work with Yissum to monetize the former NewStem license agreement and intangible assets and the continuing financial support from our shareholders as well as obtaining additional outside funding."
• "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's technology will be monetized and become profitable."
• "We have identified material weaknesses in our internal control and procedures and internal control over financial reporting."

Industry Context

NovelStem International Corp. is transitioning from a holding company with equity interests in biotech (NewStem) and media (NetCo) to primarily focusing on monetizing intellectual property. The liquidation of NewStem and the sale of NetCo indicate a significant strategic shift away from direct operational involvement in these sectors. The company's future hinges on its ability to extract value from its remaining IP rights, a common challenge for development-stage biotech firms that fail to secure further funding or achieve commercialization.

Corporate Governance

Legal Proceedings

• The company was a claimant in an arbitration proceeding against its 50% partner in NetCo, which concluded in July 2023.
• The litigation funding agreement related to this arbitration was settled in May 2025, with the company's interest in NetCo sold for $1,300,000 to Omni Bridgeway in full settlement of all liabilities.
• No ongoing legal proceedings are reported as of the filing date.

Related Party Transactions

• Notes payable to Jan Loeb (Executive Chairman) and Jerry Wolasky (shareholder and board member) totaling $750,000 at 10% interest, maturing December 31, 2025.
• Promissory note with Stephen Gans (shareholder) for $300,000, amended to include fixed interest and later 10% interest, maturing December 31, 2026.
• Interim bridge loan from Jan Loeb (Executive Chairman) totaling $135,980 during the nine months ended September 30, 2025, with an additional $20,388 in October 2025, bearing 10% interest.
• Settlement of a derivative liability with a related party (Stephen Gans) resulted in a $650,000 gain recognized as an equity transaction.

Stakeholder Impact

• Shareholders face potential significant dilution if capital raise provisions in existing notes are triggered. The uncertainty regarding the monetization of NewStem's assets and the company's going concern status poses a risk to investment value.
• Creditors benefit from the significant reduction in liabilities due to the settlement of the Omni Bridgeway litigation funding agreement. However, the company's ability to repay other outstanding notes depends on future financing.
• Employees and management may experience uncertainty due to the company's ongoing financial challenges and the 'going concern' doubt, potentially impacting job security and operational stability.

Next Steps

• Obtain additional funds through financing and fundraising.
• Work with Yissum to monetize the former NewStem license agreement and intangible assets.
• Explore potential merger or buyout transactions.
• Address material weaknesses in internal control over financial reporting.

Key Dates

Recommendation

Despite reporting a net income for the period and a substantial reduction in liabilities, these improvements are largely due to one-time asset sales and debt restructuring rather than sustainable operational profitability. The company's cash position is critically low, and it explicitly states 'substantial doubt about the Company's ability to continue as a going concern.' Future operations are highly dependent on uncertain monetization of intangible assets and securing additional financing, which carries significant execution risk and potential for further shareholder dilution. The identified material weaknesses in internal controls also raise concerns about financial reporting reliability. Given the severe liquidity issues, reliance on future uncertain events, and governance weaknesses, a seasoned investor would likely recommend selling to avoid further downside risk.

Keywords

NovelStem International Corp, NSTM, SEC 10-Q, Quarterly Report, Financial Results, Debt Restructuring, Asset Sale, NetCo, NewStem, Going Concern, Convertible Debt, Related Party Transactions, Biotech, Publishing Franchise