Details of NewStem Investment
NovelStem/HMC completed a $2 million investment in NewStem Ltd., securing an initial 20% ownership in the company at a $10.0 million post-money valuation. NovelStem also secured the right to increase its NewStem ownership up to 33%, based on the completion of up to $2 million in follow-on investments. Pending the achievement of certain development milestones, NovelStem will invest an additional $1 million in NewStem on each of the 12-month and 18-month anniversaries of its initial investment.
Details of Investment in NovelStem/HMC
The NewStem investment was funded with available cash and proceeds from a $1.925 million investment in HMC at $0.10 per share by an investor group led by Leap Tide Capital Management LLC. The new investors purchased 19.25 million shares, or approximately 54.4% of HMC’s 35.4 million shares outstanding after the investment. Terms of the new investment were based on HMC’s estimated per share value of its current cash position, plus the present value of $600,000 in expected holdback payments from the previous sale of an online ticketing business, which represented approximately $0.10 per share as of June 30, 2018. HMC’s share of the total potential holdback is $1.5 million and any funds received by HMC in excess of $600,000 would be paid to HMC shareholders, excluding those who participated in the recent private placement. There were 16,131,477 HMC shares outstanding prior to the private placement.
Investors in the HMC financing have agreed to an 18-month resale prohibition on their shares, in addition to waving participation in any profits generated by the Netco Partners publishing joint venture over the next 18 months. If publishing revenues are reasonably expected to exceed $500,000 over the next three years, then the allocation of 100% of these profits to HMC shareholders, excluding new investors in the private placement, will become permanent. The resale and Netco Partners profit provisions were put in place to ensure that existing HMC investors would be the sole beneficiaries of any value derived from the joint venture in the event its expected income is suffiently large ($500,000 or greater) to warrant a permanent carveout to all shareholders, excluding new investors in the private placement.