UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[ x ] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended: June 30, 2007
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (D) OF THE EXCHANGE ACT
For the transition period from to
Commission file number 0-17232
STEM CELL THERAPY INTERNATIONAL, INC.
(Exact name of small business issuer as specified in its charter)
NEVADA 88-0374180
(State or other jurisdiction of (IRS Employer Identification
Incorporation or organization) Number)
2203 N. Lois Avenue, 9th Floor, Tampa, FL 33607
(Address of principal executive offices)
(813) 600-4088
(Issuer's telephone number)
Not applicable
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 [X] No [ ]
1
Indicate by check mark whether the registrant is a shell company (as defined by
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the last practicable date:
35,045,369 shares of common stock, $0.001 par value, as of August 13, 2007.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
2
STEM CELL THERAPY INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
TABLE OF CONTENTS
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 2007
(unaudited) and March 31, 2007 5
Condensed Consolidated Statements of Operations for the three
months ended June 30, 2007 and 2006 (unaudited) and
for the period from December 2, 2004 (Date of Inception)
through June 30, 2007 (unaudited) 6
Condensed Consolidated Statements of Changes in Stockholders'
(Deficit) for the period from December 2, 2004 (Date
of Inception) through June 30, 2007 (unaudited) 7
Condensed Consolidated Statements of Cash Flows for the three
months ended June 30, 2007 and 2006 (unaudited),
for the period from December 2, 2004 (Date of Inception)
through June 30, 2005 9
Notes to Condensed Consolidated Financial Statements 10
Item 2. Management's Discussion and Analysis 15
Item 3. Controls and Procedures 19
Part II. Other Information
Item 1. Legal Proceedings 19
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 19
Item 3. Defaults from Senior Securities 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 5. Other Information 20
Item 6. Exhibits 20
Signatures 23
3
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions for Form 10-QSB and Rule 10-01
of Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments considered
necessary for a fair presentation have been included. All such adjustments are
of a normal recurring nature. Operating results for the three month periods
ended June 30, 2007 and 2006 are not necessarily indicative of the results that
may be expected for the year ending March 31, 2008. For further information
refer to the consolidated financial statements and footnotes thereto included in
the Company's Form 10-KSB filed with the Securities and Exchange Commission.
4
Stem Cell Therapy International Inc.
(a development stage enterprise)
Condensed Consolidated Balance Sheets
June 30, 2007 March 31, 2007
------------- --------------
(unaudited)
ASSETS
Current assets:
Cash $ 5,218 $ 27,905
Inventory - 5,988
Prepaid expenses 177,662 47,317
------------- --------------
Total current assets 182,880 81,210
Certificate of deposit, restricted 45 3,919
Prepaid expenses and other assets 40,877 53,378
------------- --------------
Total Assets $ 223,802 $ 138,507
============= ==============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 109,014 $ 62,875
Accrued expenses 259,953 245,557
Deferred revenue 30,000 50,000
Stockholder advances 48,753 48,753
Due to related party 235,200 225,200
------------- --------------
Total current liabilities 682,920 632,385
------------- --------------
Commitments and contingencies (Note 6) - -
Stockholders' deficit:
Preferred stock; $.001 par
value; 10,000,000 shares
authorized and 500,000
issued and outstanding 500 500
Common stock; $.001 par value;
100,000,000 shares authorized;
35,045,369 and 34,495,369
issued and outstanding as of
June 30, 2007 and March 31,
2007, respectively 35,045 34,495
Additional paid-in capital 822,025 660,575
Deficit accumulated during
development stage (1,316,688) (1,189,448)
------------- --------------
Total stockholders' deficit (459,118) (493,878)
------------- --------------
Total liabilities and
stockholders' deficit $ 223,802 $ 138,507
============= ==============
The accompanying notes are an integral part of the condensed consolidated
financial statements.
5
Stem Cell Therapy International Inc.
(a development stage enterprise)
Condensed Consolidated Statements of Operations
(Unaudited)
December 2, 2004
(Date of Inception)
Three Months Ended Through June 30,
-------------------------------------
June 30, 2007 June 30, 2006 2007
-------------------- --------------- --------------------
Revenue $ 20,000 $ 25,705 $ 446,444
Cost of goods sold:
General 10,268 14,525 236,361
Loss on firm purchase commitment - - 116,000
-------------------- --------------- --------------------
Gross margin 9,732 11,180 94,083
Operating expenses:
Selling, general and administrative 135,411 200,749 1,412,990
-------------------- --------------- --------------------
Loss from operations (125,679) (189,569) (1,318,907)
Interest (expense) income, net (1,561) (186) 2,219
-------------------- --------------- --------------------
Net loss before taxes (127,240) (189,755) (1,316,688)
Income tax expense - - -
-------------------- --------------- --------------------
Net loss (127,240) (189,755) (1,316,688)
Less: Dividends on preferred stock - - (10,000)
-------------------- --------------- --------------------
Loss attributable to common shareholders $ (127,240) $ (189,755) $ (1,326,688)
==================== =============== ====================
Loss per share, basic and diluted $ (.00) $ (.01) $ (0.05)
==================== =============== ====================
Weighted average number
of common shares outstanding,
basic and diluted 34,650,925 33,813,490 29,253,613
==================== =============== ====================
The accompanying notes are an integral part of the condensed consolidated
financial statements.
6
STEM CELL THERAPY INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
FROM DECEMBER 2, 2004 (DATE OF INCEPTION) THROUGH JUNE 30, 2007 (UNAUDITED)
COMMON STOCK PREFERRED STOCK
--------------------- ------------------
DEFICIT
ACCUMULATED
ADDITIONAL DURING
PAID-IN DEVELOPMENT
SHARES AMOUNT SHARES AMOUNT CAPITAL STAGE TOTAL
----------- -------- --------- ------- ------------ ------------------- -----------
Issuance of common
stock for cash 13,550,000 $13,550 - $ - $ - $ - $ 13,550
Exercise of stock
options for services 500,000 500 - - - - 500
Issuance of common
stock and options
for acquisition deposit 5,000,000 5,000 - - 2,749 - 7,749
Stock options issued
for services - - - - 906 - 906
Issuance of common
stock for services 2,170,000 2,170 - - - - 2,170
Net loss for the period - - - - - (26,241) (26,241)
----------- -------- --------- ------- ------------ ------------------- -----------
Balance, March 31, 2005 21,220,000 $21,220 - $ - $ 3,655 $ (26,241) $ (1,366)
Cancellation of common
stock issued and options
awarded for services (5,600,000) (5,600) - - (2,749) - (8,349)
Issuance of common
stock for services 8,741,832 8,741 - - 299,898 - 308,639
Reverse acquisition,
September 1, 2005 6,310,678 6,311 - - (906) - 5,405
Issuance of common
stock for a reduction
in shareholder advances 3,000,000 3,000 - - - - 3,000
Issuance of preferred
stock for cash - - 500,000 500 34,500 - 35,000
Dividend on preferred stock - - - - (10,000) - (10,000)
7
STEM CELL THERAPY INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT (CONTINUED)
FROM DECEMBER 2, 2004 (DATE OF INCEPTION) THROUGH JUNE 30, 2007 (UNAUDITED)
COMMON STOCK PREFERRED STOCK
--------------------- ------------------
DEFICIT
ACCUMULATED
ADDITIONAL DURING
PAID-IN DEVELOPMENT
SHARES AMOUNT SHARES AMOUNT CAPITAL STAGE TOTAL
----------- -------- --------- ------- ------------ ------------------- -----------
Net loss for the year
ended March 31, 2006 - - - - - (506,161) ($506,161)
----------- -------- --------- ------- ------------ ------------------- -----------
Balance, March 31, 2006 33,672,510 $33,672 500,000 $ 500 $ 324,398 ($532,402) (173,832)
Issuance of common
stock for services 822,859 823 - - 336,177 - 337,000
Net loss for the year
ended March 31, 2007 - - - - - (657,046) (657,046)
----------- -------- --------- ------- ------------ ------------------- -----------
Balance, March 31, 2007 34,495,369 $34,495 500,000 $ 500 $ 660,575 ($1,189,448) ($493,878)
Issuance of common
stock for services 550,000 550 - - 161,450 - 162,000
Net loss for the three
months ended June
30, 2007 - - - - - (127,240) (127,240)
----------- -------- --------- ------- ------------ ------------------- -----------
Balance, June 30, 2007 35,045,369 $35,045 500,000 $ 500 $ 822,025 ($1,316,688) (459,118)
=========== ======== ========= ======= ============ =================== ===========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
8
Stem Cell Therapy International Inc.
(a development stage enterprise)
Condensed Consolidated Statements of Cash Flows
(unaudited)
December 2, 2004
Three Months Three Months (Date of Inception)
Ended Ended Through June 30,
June 30, 2007 June 30, 2006 2007
--------------- --------------- --------------------
OPERATING ACTIVITIES:
Net loss $ (127,240) $ (189,755) $ (1,316,688)
Adjustments to reconcile net loss to net
cash used by operating activities:
Stock based compensation 44,156 64,848 606,968
Investment income reinvested - - (2,943)
Amortization - 125 667
Write off of intangible asset - - 4,333
(Increase) decrease in:
Inventory 5,988 - -
Prepaid expenses - 22,410 (12,318)
Deposits - - (2,169)
Increase (decrease) in:
Accounts payable 46,139 22,419 109,014
Accrued payroll 14,396 37,104 184,953
Accrued expenses - - 75,000
Deferred revenue (20,000) 24,275 30,000
--------------- --------------- --------------------
Net cash used by operating activities (36,561) (18,574) (323,183)
--------------- --------------- --------------------
INVESTING ACTIVITIES:
Proceeds from (investment in)
certificate of deposit, restricted 3,874 - 2,898
--------------- --------------- --------------------
Net cash provided (used) by
investing activities 3,874 - 2,898
--------------- --------------- --------------------
FINANCING ACTIVITIES:
Proceeds from advances from stockholder - 365 52,528
Payments to stockholder - - (775)
Advances from related party 10,000 228 235,200
Proceeds from sale of stock - - 38,550
--------------- --------------- --------------------
Net cash provided by financing
activities 10,000 593 325,503
--------------- --------------- --------------------
NET (DECREASE) INCREASE IN CASH (22,687) (17,981) 5,218
CASH AT BEGINNING OF PERIOD 27,905 32,642 -
--------------- --------------- --------------------
CASH AT OF END OF PERIOD $ 5,218 $ 14,661 $ 5,218
=============== =============== ====================
Cash paid for interest $ 1,572 $ - $ 3,235
=============== =============== ====================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION AND NON-CASH FINANCING ACTIVITIES:
Common stock issued for a reduction
in advance from shareholder $ - $ - $ 3,000
=============== =============== ====================
Common stock issued for purchase of
intangible assets $ - $ - $ 5,000
=============== =============== ====================
The accompanying notes are an integral part of the condensed consolidated
financial statements.
9
Stem Cell Therapy International, Inc.
(a development stage enterprise)
Notes to Condensed Consolidated Financial Statements
Three Months Ended June 30, 2007 and 2006 (unaudited)
and the period from December 2, 2004 (Date of Inception)
through June 30, 2007 (unaudited)
1. BACKGROUND INFORMATION AND BASIS OF PRESENTATION
Company Background
Stem Cell Therapy International, Inc. (the "Company"), was originally
incorporated in the state of Nevada on December 28, 1992 as Arklow Associates,
Inc. The Company's operating business. The Company's operating business is Stem
Cell Therapy International Corp. ("Stem Cell Florida") a wholly owned subsidiary
which is a development stage enterprise and was incorporate in the state of
Nevada on December 2, 2004. To date, the Company's activities have been limited
to raising capital, organizational matters, and the structuring of its business
plan. The corporate headquarters is located in Tampa, Florida.
The Company is engaged in the licensing of stem cell technology, the sales of
stem cell products, and information, education, and referral services relating
to potential stem cell therapy patients. The Company manufactures allo stem cell
biological solutions that are currently being used in the treatment of patients
suffering from degenerative disorders of the human body such as Alzheimer's,
Parkinson's Disease, ALS, leukemia, muscular dystrophy, multiple sclerosis,
arthritis, spinal cord injuries, brain injury, stroke, heart disease, liver and
retinal disease, diabetes as well as certain types of cancer. The Company has
established agreements with highly specialized, professional medical treatment
facilities around the world in locations where stem cell transplantation therapy
is approved by the appropriate local government agencies. The Company intends to
provide these biological solutions containing stem cell products in the United
States to universities, institutes and privately funded laboratory facilities
for research purposes and clinical trials. Its products, which are available
now, include various allo stem cell biological solutions (containing human stem
cells), low-molecular proteins and human growth factor hormones. The Company
intends to deliver stem cell transplants worldwide, educate and consult with
physicians and patients in the clinical aspects of stem cell transplantation.
Business reorganization:
Effective September 1, 2005, Stem Cell Florida entered into a Reorganization and
Stock Purchase Agreement (the "Agreement") with the Company, then named
Altadyne, Inc., a company quoted on the Pink Sheets, which had no assets,
liabilities or ongoing operations. Under the terms of the agreement, the
Company, (then Altadyne) acquired 100% of the issued and outstanding shares of
common stock of Stem Cell Florida in a non-cash transaction and Stem Cell
Florida became a wholly owned subsidiary of the Company. Subsequent to the
merger, Altadyne changed its name to Stem Cell Therapy International Inc. This
transaction is accounted for as a reverse merger, with Stem Cell Florida treated
as the accounting acquirer for financial statement purposes.
The results of operations for Stem Cell Florida, the accounting acquirer, for
the period from December 2, 2004 (Date of Inception) have been included in the
consolidated statements of operations of the Company.
10
Stem Cell Therapy International, Inc.
(a development stage enterprise)
Notes to Condensed Consolidated Financial Statements
Three Months Ended June 30, 2007 and 2006 (unaudited)
and the period from December 2, 2004 (Date of Inception)
through June 30, 2007 (unaudited)
1. BACKGROUND INFORMATION AND BASIS OF PRESENTATION (CONTINUED):
Basis of presentation:
In the opinion of management, the accompanying consolidated financial statements
include all adjustments, consisting only of normal recurring items, necessary
for their fair presentation in conformity with generally accepted accounting
principles. The results of operations for the three months ended June 30, 2007
are not necessarily indicative of the results for a full year.
The year-end condensed balance sheet data was derived from audited financial
statements, but does not include all disclosures required by accounting
principals generally accepted in the United States of America.
The condensed consolidated financial statements for the period ended June 30,
2007 and notes thereto should be read in conjunction with the consolidated
financial statements and notes thereto for the year ended March 31, 2007 as
filed in the Form 10-KSB, filed with the Securities and Exchange Commission on
July 16, 2007.
Principles of consolidation:
The accompanying consolidated financial statements include the accounts of Stem
Cell Therapy International, Inc. and its wholly-owned subsidiary, Stem Cell
Therapy International Corp. All intercompany accounts and transactions have
been eliminated.
2. LIQUIDITY AND MANAGEMENT'S PLANS:
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. For the three months ended
June 30, 2007 and the period since December 2, 2004 (date of inception) through
June 30, 2007, the Company has had net losses of $127,240 and $1,316,688,
respectively and cash used by operations of $36,561 and $323,183, respectively,
and negative working capital of $500,040 at June 30, 2007. As of June 30, 2007,
the Company has not emerged from the development stage. In view of these
matters, the ability of the Company to continue as a going concern is dependent
upon the Company's ability to generate additional financing and ultimately
increase operations and to achieve a level of profitability. Since inception,
the Company has financed its activities principally from the use of equity
securities to pay for services and related party advances. The Company intends
on financing its future development activities and its working capital needs
largely from the sale of equity securities, debt financing and loans from the
Company's Chief Executive Officer, until such time that funds provided by
operations are sufficient to fund working capital requirements. There can be no
assurance that the Company will be successful at achieving its financing goals
at reasonably commercial terms, if at all.
3. SIGNIFICANT ACCOUNTING POLICIES:
Adoption of FASB Interpretation No. 48:
Effective April 1, 2007, the Company adopted the accounting provisions of FASB
Interpretation No. 48, Accounting for Uncertainties in Income Taxes (FIN 48).
FIN 48 clarifies the accounting for uncertainty in income taxes recognized,
prescribes a recognition threshold and measurement attribute for financial
statement recognition of tax positions taken or expected to be taken by the
Company in its income tax returns. The Company recognizes income taxes on tax
positions which have not been considered more-likely-than-not to be sustained
upon examination, including resolution of any related appeals or litigation
processes, based on the technical merits of the positions. The tax position is
measured at the largest amount of benefit that is greater than 50 percent likely
of being realized upon ultimate settlement.
11
Stem Cell Therapy International, Inc.
(a development stage enterprise)
Notes to Condensed Consolidated Financial Statements
Three Months Ended June 30, 2007 and 2006 (unaudited)
and the period from December 2, 2004 (Date of Inception)
through June 30, 2007 (unaudited)
4. EQUITY:
The Company has 100,000,000 shares of common stock authorized. In addition,
there are 10,000,000 authorized shares of participating convertible preferred
stock, $.001 par value, the issuance of which is subject to approval by the
Board of Directors. The Board of Directors has the authority to declare
dividends. The voting rights of the convertible preferred stockholders are
equivalent to that of the common stockholders. The convertible preferred stock
can be converted at any time by the holder into one share of common stock. As
of June 30, 2007, the Company had 500,000 shares of convertible preferred stock
issued and outstanding. Management determined that the convertible preferred
stock contained a beneficial conversion feature based on the effective
conversion price and the fair value of the convertible preferred stock. The
beneficial conversion was recorded in an amount equal to the difference between
the calculated fair value and the book value, which was $10,000 and was recorded
as additional paid in capital and interest expense, as the preferred stock can
be converted at any time after the issue date.
During the three months ended June 30, 2007, the Company issued 250,000 shares
of common stock valued at $45,000, in exchange for consulting services to be
provided through August 11, 2007. As of June 30, 2007, the Company has included
$22,500 in prepaid expenses. The Company also issued 300,000 shares of common
stock valued at $117,000 for consulting services to be provided through December
25, 2007. As of June 30, 2007, the Company has included $117,000 in prepaid
expenses.
5. INCOME TAXES
The Company adopted the provisions of FASB Interpretation No. 48, Accounting for
Uncertainties in Income Taxes (FIN 48). FIN 48, on April 1, 2007. The
implementation of FIN No. 48 had no effect on the Company's financial position
or results of operations. The Company classifies interest and penalties incurred
on tax deficiencies in interest expense and other expense, respectively.
Taxes on income are provided in accordance with SFAS No. 109, Accounting for
Income Taxes. Deferred income tax assets and liabilities are recognized for the
expected future tax consequences of events that have been reflected in the
consolidated financial statements. Deferred tax assets and liabilities are
determined based on the differences between the book values and the tax bases of
particular assets and liabilities and the tax effects of net operating loss and
capital loss carry forwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in the tax rate is
recognized as income or expense in the period that included the enactment date.
The Company has incurred operating losses since its inception and, therefore, no
tax liabilities have been incurred for the periods presented. The amount of
unused tax losses available to carry forward and apply against taxable income in
future years totaled approximately $1,130,000 at June 30, 2007. The loss carry
forwards expire beginning in 2025. Internal Revenue Code Sec. 382 places
limitations on the utilization of net operating losses. Due to the limitation
the Company has placed a full valuation allowance against that asset of
approximately $494,300.
The income tax provision differs from the amount of tax determined by applying
the Federal statutory rate as follows:
Period from
December 2,
Three Months Ended 2004 through
--------------------------------
June 30, 2007 June 30, 2006 June 30, 2007
--------------- --------------- ---------------
Income tax provision
at statutory rate ($43,262) ($65,077) ($404,412)
Increase (decrease) in
income tax due to:
Nondeductible expenses 481 - 670
State income taxes, net (4,619) (6,307) (43,177)
Change in valuation
allowance 47,400 71,384 446,919
--------------- --------------- ---------------
$ 0 $ 0 $ 0
=============== =============== ===============
12
Stem Cell Therapy International, Inc.
(a development stage enterprise)
Notes to Condensed Consolidated Financial Statements
Three Months Ended June 30, 2007 and 2006 (unaudited)
and the period from December 2, 2004 (Date of Inception)
through June 30, 2007 (unaudited)
5. INCOME TAXES (CONTINUED)
There was no current or deferred provision or benefit for income taxes for the
three months ended June 30, 2007 and 2006 and for the period from December 2,
2004 (Date of Inception) through June 30, 2007. The components of deferred tax
assets as of June 30, 2007 and March 31, 2007:
June 30, 2007 March 31, 2007
--------------- ----------------
Deferred tax (liability) asset:
Accrued payroll $ 68,300 $ 64,200
Net operating loss carryforward 426,000 382,700
--------------- ----------------
494,300 446,900
Valuation allowance (494,300) (446,900)
--------------- ----------------
Total deferred taxes $ 0 $ 0
=============== ================
Income taxes are based on estimates of the quarterly effective tax rate and
evaluations of possible future events and transactions and may be subject to
subsequent refinement or revision.
6. COMMITMENTS AND CONTINGENCIES
Consulting agreements:
The Company has entered into several consulting agreements with other companies
and individuals to provide consulting and advisory services to the Company. The
agreements provide for terms ranging from one to three years. Additionally, the
consulting agreements required the issuance of 4,789,000 shares of the Company's
common stock valued at $544,409 on the date of the agreement as the shares are
non-forfeitable and non-cancelable. As of June 30, 2007, the Company had issued
these shares of common stock and has included $216,208 in prepaid expenses for
services not yet performed pursuant to the agreements.
Effective May 4, 2005, the Company entered into an agreement with Westminster
Securities Corporation (Westminster) for consulting services and to secure
funding and/or lines of credit. In exchange for these services, the Company
paid Westminster a $20,000 retainer and will pay 10% of any equity-based
funding, 8% of any debt-based convertible funding, 5% of any nonconvertible
debt-based funding, as well as, issue warrants equal to 10% of the number of
shares of stock issued in connection with the funding. As of June 30, 2007, no
funding has been secured, however, Westminster did facilitate the acquisition of
Altadyne, and therefore received 379,000 shares of common stock in September
2005.
Licensing agreement:
Effective September 1, 2005, the Company entered into a ten year licensing
agreement with the Institute of Cell Therapy, a company incorporated and
organized under the laws of Kiev, Ukraine ("ICT"). Pursuant to the agreement,
the Company issued ICT 5,000,000 shares of the Company's common stock recorded
at the fair market value of the Company's common stock of $5,000. The agreement
grants the Company a right and license in most parts of the world to utilize
patents, processes and products owned or produced by ICT in connection with the
operation of the Company's business. In exchange for the license, the Company
agrees to exclusively purchase all biological solution of stem cell Allo
Transplant materials from ICT. Such Allo Transplant materials shall be at a cost
of $6,500 per patient per condition. The licensing agreement guarantees a
minimum purchase of 60 portions per twelve month period. In the event that the
Company is unable to purchase the minimum quantities, ICT will be entitled to
draw upon the irrevocable letter of credit at the rate of $2,000 for every
portion less than the minimum required purchase. The Company had provided ICT
with a $120,000 irrevocable letter of credit in ICT's favor for the first three
years of the agreement. In the event the Letter of Credit is drawn upon, the
Company agreed to replenish the Letter of Credit to the extent of any such
draws. As of September 2006, the Company had not met the first year's minimum
purchase requirement and ICT withdrew $116,000 on the letter of credit, which
has been included in the cost of goods sold in the accompanying Consolidated
Statements of Operations for the period from inception through June 30, 2007.
However, ICT was unable to provide the product as requested and the Company was
required to purchase the
13
Stem Cell Therapy International, Inc.
(a development stage enterprise)
Notes to Condensed Consolidated Financial Statements
Three Months Ended June 30, 2007 and 2006 (unaudited)
and the period from December 2, 2004 (Date of Inception)
through June 30, 2007 (unaudited)
6. Commitments and Contingencies (continued)
stem cell materials from alternative sources. Management believes that ICT's
inability to provide the requested stem cell materials relieves the Company of
its obligations to replenish the letter of credit and to fulfill the minimum
purchase requirements. As such, the accompanying consolidated financial
statements do not reflect any liability for the Company's failure to purchase
the minimum amount of stem cell materials under the above mentioned license
agreement.
Financing agreements:
During the year ended March 31, 2007, the Company entered into an agreement to
locate financing with a third party for three years. As consideration for these
consulting services, the Company has agreed to issue 500,000 shares of
restricted common stock and a 10% finder's fee for any funds brought into the
Company. As of June 30, 2007, the Company has not entered into any funding
agreements, and therefore the third party is not owed any consideration.
Effective June 27, 2007, the Company entered into an agreement with Newbridge
Securities, Corp. ("Newbridge") to assist the Company on a "best efforts" basis
in raising approximately $250,000 in a private offering of up to 2 million
shares of restricted common stock at a price of $.125 per share. Newbridge is
entitled to a selling concession of 10% of the gross proceeds of the offering, a
3% non-accountable expense allowance and warrant coverage equal to 20% of the
total securities placed in the offering, including any penalty shares, at an
exercise price of $.15 per share. The Company is required to file a
registration statement covering the above securities within 45 days of the
completion of the offering. If the Company fails to have the registration
statement deemed effective by the Securities and Exchange Commission within 135
days after the completion of the offering, the Company will issue to the holders
of the securities, additional shares of restricted common stock equal to 1.5% of
the number of shares purchased for each thirty-day period until the registration
statement is deemed effective, up to a maximum of eight such thirty-day periods.
Subsequent to June 30, 2007, Newbridge assisted the Company in raising
approximately $226,000 of proceeds from a private placement offering.
14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
THE FOLLOWING INFORMATION SHOULD BE READ IN CONJUNCTION WITH THE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS OF STEM CELL THERAPY INTERNATIONAL, INC. AND
THE NOTES THERETO APPEARING ELSEWHERE IN THIS FILING. STATEMENTS IN THIS
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION AND ELSEWHERE IN THIS
FILING ON FORM 10-QSB THAT ARE NOT STATEMENTS OF HISTORICAL OR CURRENT FACT
CONSTITUTE "FORWARD-LOOKING STATEMENTS."
GENERAL OVERVIEW
Stem Cell Therapy International, Inc. (the "Company") was originally
incorporated in Nevada on December 28, 1992 as Arklow Associates, Inc., and
after several name changes was renamed Altadyne, Inc. By March, 2005, the
Company (then Altadyne, Inc.) had no assets, liabilities, or ongoing business.
On March 20, 2005, R Capital Partners ("R Capital") acquired the Company (then
Altadyne, Inc.), and on September 1, 2005, the Company (then Altadyne), acquired
Stem Cell Therapy International Corp., a Nevada corporation ("Stem Cell
Florida") in what was effectively a reverse acquisition. Following the
transaction, Stem Cell Florida became a wholly owned subsidiary of the Company,
and Stem Cell Florida's shareholders became shareholders of the Company. On
October 5, 2005, the Company changed its name to Stem Cell Therapy
International, Inc. to reflect the new business of the Company. This transaction
is accounted for as a reverse merger, with Stem Cell Florida treated as the
accounting acquirer for financial statement purposes.
Stem Cell Florida was incorporated in Nevada on December 2, 2004. Following
the reverse acquisition, the Company assumed and is continuing the operations of
Stem Cell Florida. The Company's executive management team are: Calvin C. Cao,
Chairman and Chief Executive Officer, Daniel J. Sullivan, Chief Financial
Officer, and Lixian Jiang, Chief Operating Officer and Patent Trademark Counsel.
We are indirectly involved, as a "middle man," in research and development
and practical application within the field of regenerative medicine. We provide
allo (human) stem cell biological solutions that are currently being used in the
treatment of patients suffering from degenerative disorders of the human body.
We have established agreements with highly specialized, professional medical
treatment facilities around the world in locations where Stem Cell
Transplantation therapy is approved by the appropriate local government
agencies.
We intend to provide these biological solutions containing allo stem cell
products also in the United States to universities, institutes and privately
funded laboratory facilities for research purposes and clinical trials.
We will initially devote most of our efforts toward organization and fund
raising for planned clinics and patient operations and limited revenues have
been generated from any such operations. The Company has experienced recurring
losses from operations since its inception
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and at June 30, 2007, we had a working capital deficit of $500,040 and an
accumulated deficit from operations of $1,316,668. As noted in the independent
audit report for the audited Stem Cell Therapy International, Inc. financial
statements for the period from inception to March 31, 2007, these factors raise
doubt about the ability of the Company to continue as a going concern.
Realization of the Company's business plan is dependent upon the Company's
ability to meet its future financing requirements, and the success of future
operations. This is because we have not generated substantial revenues since
inception. Our only other source for cash at this time is through investments or
loans from management. We must raise cash to implement our project and stay in
business.
CRITICAL ACCOUNTING POLICIES
The accounting policies of the Company are in accordance with generally
accepted accounting principles of the United States of America, and their basis
of application is consistent. Outlined below are those policies considered
particularly significant:
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Common stock transactions for services are recorded at either the fair
value of the stock issued or the fair value of the services rendered, whichever
is more evident on the day that the transactions are executed. The certificates
must be issued subsequent to the transaction date.
We apply Staff Accounting Bulletin No. 104 "Revenue Recognition" ("SAB No.
104") to our revenue arrangements. Currently, our only revenue transactions
derive from providing informational and referral services; we have no plans to
enter into any other revenue transaction in the near future. In accordance with
SAB No. 104, we recognize revenue related to these services upon rendering the
services, as long as (1) there is persuasive evidence of an arrangement, (2) the
sales price is fixed or determinable, and (3) collection of the related
receivable is reasonably assured. Any payments received prior to delivery of the
products or services are included in deferred revenue and recognized once the
products are delivered or the services are performed.
Research and development costs are charged to operations when incurred and
are included in operating expenses.
RESULTS OF OPERATIONS
As of June 30, 2007 and for the three months ended June 30, 2007 and 2006
We had revenue of $20,000 during the three months ended June 30, 2007 as
compared to $25,705 of revenue for the comparable period in 2006. Revenues
during 2007 reflected the
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treatment of one patient whereas there were two patients treated during the same
period ended 2006.
Our cost of goods sold for the stem cell biological material delivered
during the three months ended June 30, 2007 was $10,268 as compared to $14,525
for the same period ended 2006. The decrease in cost of goods sold is due to
the decrease in patient treatments in 2007 compared to the same period in 2006.
Gross margins for the three months ended June 30, 2007 was 49% compared to
43% for the three months ended June 30, 2006. The increase in gross margin is
due to the Company purchasing the stem cell biological materials from less
expensive vendors.
Selling, general and administrative expenses decreased $65,338 or 33% to
$135,411 for the three months ended June 30, 2007 as compared to $200,749 for
the three months ended June 30, 2006. The decrease in selling, general and
administrative expenses for the three months ended June 30, 2007 is primarily
due to an approximate $72,000 decrease in professional fees as the Company has
not yet renewed the doctor's consulting agreements and is not entering into as
many investor relations and finance consulting agreements as in the prior year.
The decrease is also due to the decrease of approximately $6,000 in payroll
expenses. The decrease in payroll expenses is due to the loss of an employee
during the year ended March 31, 2007. These decreases are partially offset by
an increase of approximately $6,000 in research and development costs and $3,400
increase in travel and entertainment expenses.
Our net loss for the three months ended June 30, 2007 was $127,240 as
compared to $189,755 during the same period in 2006. The loss primarily reflects
decreases in professional fees and payroll expenses.
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial statements have been prepared assuming that the
Company will continue as a going concern. For the three months ended June 30,
2007 and the period since December 2, 2004 (date of inception) through June 30,
2007, the Company has had a net loss of $127,240 and $1,316,688, respectively
and cash used by operations of $36,561 and $323,183, respectively, and negative
working capital of $500,040 at June 30, 2007.
As of June 30, 2007, the Company has not emerged from the development
stage. In view of these matters, recoverability of recorded asset amounts shown
in the accompanying financial statements is dependent upon the Company's ability
to begin significant operations and to achieve a level of profitability. Since
inception, the Company has financed its activities principally from shareholder
advances and some relatively minor sales of equity securities (as set forth
below). The Company intends on financing its future development activities and
its working capital needs largely from the sale of equity securities until such
time that funds provided by operations are sufficient to fund working capital
requirements.
Effective June 27, 2007, the Company entered into an agreement with
Newbridge Securities, Corp. ("Newbridge") to assist the Company on a "best
efforts" basis in raising
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approximately $250,000 in a private offering of up to 2 million shares of
restricted common stock at a price of $.125 per share.
Subsequent to June 30, 2007, the Company has received approximately
$226,000 of proceeds from the private placement offering.
Unpredictability of future revenues; Potential fluctuations in quarterly
operating results; Seasonality
As a result of our limited operating history and the emerging nature of the
biotechnological markets in which we compete, we are unable to accurately
forecast future revenues. Our current and future expense levels are based
largely on our investment plans and estimates of future revenues and are to a
large extent fixed and expected to increase.
Sales and operating results generally depend on the volume of, timing of
and ability to fulfill the number of orders received for the biological solution
and the number of patients treated which are difficult to forecast. We may be
unable to adjust spending in a timely manner to compensate for any unexpected
revenue shortfall. Accordingly, any significant shortfall in revenues in
relation to our planned expenditures would have an immediate adverse effect on
our business, prospects, financial condition and results of operations.
Further, as a strategic response to changes in the competitive environment, we
may from time to time make certain pricing, service or marketing decisions which
could have a material adverse effect on our business, prospects, financial
condition and results of operations.
We expect to experience significant fluctuations in our future quarterly
operating results due to a variety of factors, many of which are outside our
control. Factors that may adversely affect our quarterly operating results
include (i) our ability to retain existing patients, attract new patients at a
steady rate and maintain patient satisfaction, (ii) our ability to manage our
affiliated production facility and maintain gross margins, (iii) the
announcement or introduction of new treatments and/or patents by the Company and
its competitors, (iv) price competition or higher prices in the industry, (v)
the level of use of the Internet and on-line patient services, (vi) the
Company's ability to upgrade and develop its systems and infrastructure and
attract new personnel in a timely and effective manner, (vii) the level of
traffic on our website, (viii) technical difficulties, system downtime, (ix) the
amount and timing of operating costs and capital expenditures relating to
expansion of our business, operations and infrastructure, (x) governmental
regulation, and (xi) general economic conditions.
OFF-BALANCE SHEET ARRANGEMENTS
The Company is not currently engaged in any off-balance sheet arrangements,
as defined by Item 303(c)(2) of Regulation S-B. The Company has not engaged in
any off-balance sheet arrangement during the last fiscal year, and is not
reasonably likely to engage in any off-balance sheet arrangement in the near
future.
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ITEM 3. CONTROLS AND PROCEDURES
As required by Rule 13a-15 under the Securities Exchange Act of 1934 (the
"Exchange Act"), as of June 30, 2007, the Company carried out an evaluation of
the effectiveness of the design and operation of the Company's disclosure
controls and procedures. This evaluation was carried out under the supervision
and with the participation of the Company's management, including the Company's
Chief Financial Officer (who has served as the principal financial and
accounting officer) and its President (who serves as the principal operating
officer). Based upon that evaluation, the Company's President and Chief
Financial Officer have concluded that the Company's disclosure controls and
procedures are effective in alerting them to material information regarding the
Company's financial statement and disclosure obligation in order to allow the
Company to meet its reporting requirements under the Exchange Act in a timely
manner.
The Company's management, with the participation of its President and Chief
Financial Officer, has determined that there has been no change in the Company's
internal control over financial reporting that occurred during the Company's
last fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the Company's internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Effective May 11, 2007, the Company issued 250,000 shares of common stock
to Mirador Consulting Group in connection with consulting services to be
provided to the Company. These shares were issued without any public offering
in accordance with Section 4(2) of the Securities Act of 1933, as amended.
Effective June 25, 2007, the Company issued 300,000 shares of common stock
to Interactive Resources Group Inc. in connection with consulting services to be
provided to the Company. These shares were issued without any public offering
in accordance with Section 4(2) of the Securities Act of 1933, as amended.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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ITEM 5. OTHER INFORMATION
Not Applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit Index. The following exhibits are filed with or incorporated by
reference into this quarterly report:
3.1 Articles of Incorporation of Stem Cell Therapy International, Inc., as
amended*
3.2 Articles of Incorporation of Stem Cell Therapy Corp.*
3.3 Certificate of Designation of Series A Preferred Stock*
3.4 By-laws of Stem Cell Therapy International, Inc.*
10.1 Business Consulting and Services Agreement dated as of December 16, 2004
between Stem Cell Therapy International Corp. and PMS SA.*
10.2 Consulting Agreement dated as of January 4, 2005 between Stem Cell Therapy
International Corp. and RES Holdings Corp.*
10.3 Investor and Media Relations Contract dated as of February 10, 2005 between
Stem Cell Therapy International Corp. and Stern & Co.*
10.4 Executive Suite Lease Agreement dated as of February 15, 2005 between Stem
Cell Therapy International Corp. and Wilder Corporation.*
10.5 Engagement Letter dated as of May 3, 2005 between the Company and
Westminster Securities Corporation.*
10.6 Reorganization and Stock Purchase Agreement dated as of September 1, 2005
between the Company (then Altadyne, Inc.), Stem Cell Therapy International
Corp. and R Capital Partners, Inc.*
10.7 Licensing Agreement dated as of September 1, 2005 between the Company and
Institute of Cell Therapy.*
10.8 Consulting Agreement dated as of September 1, 2005 between the Company and
European Consulting Group, LLC.*
10.9 Consulting Agreement dated as of September 1, 2005 between the Company and
Global Management Enterprises, LLC.*
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10.10 Consulting Agreement dated as of September 1, 2005 between the Company and
USA Consulting Group, LLC.*
10.11 Professional Services Agreement dated as of September 7, 2005 between the
Company and Bridgehead Group Limited, Inc.*
10.12 Public Relations Agreement dated as of September 19, 2005 between the
Company and Stern & Co.*
10.13 Advisory Physician Agreement dated as of October 4, 2005 between the
Company and Alexey Bersenev.*
10.14 Medical and Scientific Advisory Board Member Agreement dated as of October
10, 2005, between the Company and Dr. Weiwen Deng.*
10.15 Medical and Scientific Advisory Board Member Agreement dated as of October
24, 2005, between the Company and Dr. Jorge Quintero.*
10.16 Medical and Scientific Advisory Board Member Agreement dated as of October
24, 2005, between the Company and Dr. Salvador Vargas.*
10.17 Medical and Scientific Advisory Board Member Agreement dated as of
December 2, 2005 between the Company and Dr. Igor Katkov.*
10.18 Medical and Scientific Advisory Board Member Agreement dated as of
December 2, 2005, between the Company and Dr. Nikita Tregubov.*
10.19 Business Advisory Board Agreement dated as of December 5, 2005 between the
Company and Fred J. Villella.*
10.20 Business Development Advisory Agreement dated as of January 1, 2006
between the Company and Alexander Kulik.*
10.21 Termination and Modification of Engagement Letter dated January 4, 2006
between the Company and Westminster Securities Corporation.*
10.22 Business Consulting and Services Agreement dated January 20, 2006 between
the Company and Julio C. Ferreira dba Sphaera Inte-Par.*
10.23 Business Development Advisory Agreement dated as of February 7, 2006
between the Company and Gus Yepes.*
10.24 Medical and Scientific Advisory Board Member Agreement dated as of April
5, 2006 between the Company and Dr. Nicholas Kipshidze, M.D.*
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10.25 Treating Physician Agreement dated as of October 24, 2005 between the
Company and Dr. Salvador Vargas.*
10.26 Treating Physician Agreement dated as of October 24, 2005 between the
Company and Dr. Jorge Quintero.*
10.27 Consulting Agreement dated as of June 9, 2006 between the Company and Rick
Langley.**
10.28 Patient Treatment Agreement dated November 1, 2006 between the Company and
Shenzhen Beike Biotechnology Company Limited.**
10.29 Consulting Agreement dated as of October 12, 2006 between the Company and
SOS Resource Services, Inc.**
10.30 Newbridge Securities Agreement
21. List of Subsidiaries
31.1 Chief Executive Officer certification pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2 Chief Financial Officer certification pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32.1 Chief Executive Officer certification pursuant to 18 U.S.C. Section 1350
32.2 Chief Financial Officer certification pursuant to 18 U.S.C. Section 1350
_______________________
* Previously filed with the Company's initial filing of this Registration
Statement on Form 10-SB, file number 000-51931, filed on April 25, 2006, and
incorporated by this reference as an exhibit.
**Previously filed with the Company's annual report on Form 10-KSB filed on July
16, 2007, and incorporated by this reference as an exhibit.
(b) Reports on Form 8-K.
--------------------
None
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: August 14, 2007
By: /s/Calvin Cao
-------------
Name: Calvin Cao
Title: President
Date: August 14, 2007
By: /s/Daniel Sullivan
------------------
Name: Daniel Sullivan
Title: Chief Financial Officer
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