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, 2006
[ ] 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 [
]
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:
34,136,869 shares of common stock, $0.001 par value, as of June 30, 2006.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
1
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The accompanying unaudited condensed 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, 2006 and 2005 are not necessarily indicative of the results that
may be expected for the year ending March 31, 2007. For further information
refer to the financial statements and footnotes thereto included in the
Company's Registration Statement filed on Form 10-SB filed with the Securities
and Exchange Commission.
2
Stem Cell Therapy International Inc.
(a development stage enterprise)
Financial Statements
CONTENTS
Financial Statements:
Balance Sheets as of June 30, 2006 (unaudited) and March 31, 2006 F-1
Statements of Operations for the three months ended June 30, 2006 and 2005
(unaudited) and from Inception (December 2, 2004) through June 30, 2006
(unaudited) F-2
Statements of Changes in Stockholders' Equity for the three months ended
June 30, 2006 and 2005 (unaudited) F-3 to F-4
Statements of Cash Flows for the three months ended June 30, 2006 and 2005
(unaudited) and from Inception (December 2, 2004) through June 30, 2006
(unaudited) F-5
Notes to Financial Statements F-6 to F-15
F-i
Stem Cell Therapy International Inc.
(a development stage enterprise)
Balance Sheets
June 30, 2006 March 31, 2006
--------------- ----------------
(unaudited)
ASSETS
Current assets:
Cash $ 14,661 $ 32,642
Prepaid expenses 192,523 77,531
--------------- ----------------
Total current assets 207,184 110,173
Certificate of deposit, restricted 120,000 120,000
Deposits 1,589 1,589
Prepaid expenses, long-term 1,167 1,417
Intangible asset, net 4,583 4,708
--------------- ----------------
Total Assets $ 334,523 $ 237,887
=============== ================
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 50,789 $ 28,370
Accrued expenses 75,000 75,000
Accrued payroll 72,104 35,000
Deferred revenue 24,275 -
Stockholder advances 48,742 48,377
Due to related party 225,200 224,972
--------------- ----------------
Total current liabilities 496,110 411,719
--------------- ----------------
Commitments and contingencies (Note 9) - -
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 and 34,136,869 and 33,672,510 issued
and outstanding as of June 30, 2006 and
March 31, 2006, respectively 34,137 33,672
Additional paid-in capital 525,933 324,398
Deficit accumulated during development stage (722,157) (532,402)
--------------- ----------------
Total stockholders' deficit (161,587) (173,832)
--------------- ----------------
Total liabilities and stockholders' deficit $ 334,523 $ 237,887
=============== ================
The accompanying notes are an integral part of the financial statements.
F-1
Stem Cell Therapy International Inc.
(a development stage enterprise)
Statements of Operations
December 2, 2004
Three Months Ended (Date of Inception)
------------------------------------- Through June 30,
June 30, 2006 June 30, 2005 2006
-------------------- --------------- ------------------
(unaudited) (unaudited) (unaudited)
Sales $ 25,705 $ - $ 106,639
Cost of goods sold 14,525 - 66,625
-------------------- --------------- ------------------
Gross profit 11,180 - 40,014
Operating expenses:
Selling, general and administrative 200,749 $ 58,835 754,101
-------------------- --------------- ------------------
200,749 58,835 754,101
-------------------- --------------- ------------------
Loss from operations (189,569) (58,835) (714,087)
Other (expense) income:
Interest (expense) income, net (186) 101 (8,070)
-------------------- --------------- ------------------
Net loss before taxes (189,755) (58,734) (722,157)
Income tax expense - - -
-------------------- --------------- ------------------
Net loss (189,755) (58,734) (722,157)
Less: Dividends on preferred stock - - (10,000)
-------------------- --------------- ------------------
Loss attributable to common shareholders $ (189,755) $ (58,734) $ (732,157)
==================== =============== ==================
Loss per share, basic and diluted $ (.01) $ (.00) $ (.03)
==================== =============== ==================
Weighted average number
of common shares outstanding,
basic and diluted 33,813,490 16,862,667 25,928,721
==================== =============== ==================
The accompanying notes are an integral part of the financial statements.
F-2
STEM CELL THERAPY INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE PERIOD FROM DECEMBER 2, 2004 (DATE OF INCEPTION) THROUGH JUNE 30, 2006
(UNAUDITED)
DEFICIT
COMMON STOCK PREFERRED STOCK 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 stockholder 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)
----------- -------- -------- -------- ------------ ------------- ----------
F-3
DEFICIT
COMMON STOCK PREFERRED STOCK 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 (unaudited) 464,359 465 - - 201,535 - 202,000
----------- -------- -------- -------- ------------ ------------- ----------
Net loss for the three months
ended June 30, 2006 (unaudited) - - - - - (189,755) (189,755)
----------- -------- -------- -------- ------------ ------------- ----------
34,136,869 $34,137 500,000 $ 500 $ 525,933 ($722,157) ($161,587)
The accompanying notes are an integral part of the financial statements.
F-4
Stem Cell Therapy International Inc.
(a development stage enterprise)
Statements of Cash Flows
December 2, 2004
Three Months Three Months (Date of Inception)
Ended Ended Through June 30,
June 30, 2006 June 30, 2005 2006
--------------- --------------- --------------------
(unaudited) (unaudited) (unaudited)
OPERATING ACTIVITIES
Net loss $ (189,755) $ (58,734) $ (722,157)
Adjustments to reconcile net loss to net
cash used by operating activities:
Stock based compensation 64,848 1,301 337,995
Amortization 125 - 417
(Increase) decrease in:
Prepaid expenses 22,410 (195) (17,665)
Deposits - 7,749 (1,589)
Increase in:
Accounts payable 22,419 16,570 50,789
Accrued payroll 37,104 - 72,104
Accrued expenses - - 75,000
Deferred revenue 24,275 - 24,275
--------------- --------------- --------------------
Net cash used by operating activities (18,574) (33,309) (180,831)
--------------- --------------- --------------------
INVESTING ACTIVITIES
Investment in certificate of deposit,
restricted - - (120,000)
--------------- --------------- --------------------
Net cash used by investing activities - - (120,000)
--------------- --------------- --------------------
FINANCING ACTIVITIES
Proceeds from advances from stockholder 365 20,793 52,517
Payments to stockholder - - (775)
Advances from related party 228 12,297 225,200
Proceeds from sale of stock - 1,850 38,550
--------------- --------------- --------------------
Net cash provided by financing
activities 593 34,940 315,492
--------------- --------------- --------------------
NET (DECREASE) INCREASE IN CASH (17,981) 1,631 14,661
CASH AT BEGINNING OF PERIOD 32,642 7,310 0
--------------- --------------- --------------------
CASH AT OF END OF PERIOD $ 14,661 $ 8,941 $ 14,661
=============== =============== ====================
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW INFORMATION AND
NON-CASH FINANCING ACTIVITIES:
Cash paid for interest $ - $ - $ 79
=============== =============== ====================
Common stock issued for a reduction
in advance from stockholder $ - $ 3,000 $ 3,000
=============== =============== ====================
Common stock issued (returned) for
acquisition deposit $ - ($7,749) $ 7,749
=============== =============== ====================
Common stock issued for purchase of
intangible assets $ - $ - $ 5,000
=============== =============== ====================
Common stock issued for services to be
rendered over subsequent periods $ 202,000 $ - $ 507,709
=============== =============== ====================
F-5
Stem Cell Therapy International, Inc.
(a development stage enterprise)
Notes to Financial Statements
For the Three Months Ended June 30, 2006 and 2005 (unaudited)
and for the period from December 2, 2004 (Date of Inception)
through June 30, 2006 (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 is Stem Cell Therapy International Corp.
("Stem Cell Florida") a wholly owned subsidiary which is a development stage
enterprise and was incorporated 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 and educate and consult with
physicians and patients in the clinical aspects of stem cell transplantation.
Effective September 1, 2005, Stem Cell Florida entered into a Reorganization and
Stock Purchase Agreement (the Agreement) with the Company, which was then named
Altadyne, Inc., a company quoted on the Pink Sheets and which has no ongoing
operations. Under the terms of the agreement, the Company (then Altadyne, Inc.)
acquired Stem Cell Florida and changed its name to Stem Cell Therapy
International, Inc.
Effective September 1, 2005, Stem Cell Therapy International, Inc. revised its
Articles of Incorporation to reflect the establishment of 500,000 shares of
Series A Participating Preferred Stock with $.001 par value.
F-6
Stem Cell Therapy International, Inc.
(a development stage enterprise)
Notes to Financial Statements
For the Three Months Ended June 30, 2006 and 2005 (unaudited)
and for the period from December 2, 2004 (Date of Inception)
through June 30, 2006 (unaudited)
1. BACKGROUND INFORMATION AND BASIS OF PRESENTATION (CONTINUED):
Basis of presentation:
In the opinion of management, the accompanying 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, 2006 are not
necessarily indicative of the results for a full year.
The financial statements for the period ended June 30, 2006 and notes thereto
should be read in conjunction with the financial statements and notes thereto
for the year ended March 31, 2006 as filed in the Form 10-SB, filed with the
Securities and Exchange Commission on July 31, 2006.
2. LIQUIDITY AND MANAGEMENT'S PLANS:
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. For the three months ended June 30,
2006 and the period since December 2, 2004 (date of inception) through June 30,
2006, the Company has had a net loss of $189,755 and $732,157, respectively and
cash used by operations of $18,574 and $180,831, respectively, and negative
working capital of $288,926 at June 30, 2006. As of June 30, 2006, 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 operations and to
achieve a level of profitability. Since inception, the Company has financed its
activities principally from the sale of equity securities and shareholder
advances. The Company intends on financing its future development activities
and its working capital needs largely from the sale of equity securities 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 commereical terms, if at all.
3. SIGNIFICANT ACCOUNTING POLICIES:
Use of estimates:
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.
F-7
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Concentration of credit risk:
The majority of cash is maintained with a major financial institution in the
United States. Deposits with this bank may exceed the amount of insurance
provided on such deposits. Generally, these deposits may be redeemed upon
demand and, therefore, bear minimal risk.
Intangible asset:
Intangible asset consists of licensing rights. Intangibles are amortized using
the straight-line method over a period of 10 years, the term of the licensing
rights agreement.
Impairment of long-lived assets:
The Company evaluates the recoverability of its long-lived assets or asset
groups whenever adverse events or changes in business climate indicate that the
expected undiscounted future cash flows from the related assets may be less than
previously anticipated. If the net book value of the related assets exceeds the
undiscounted future cash flows of the assets, the carrying amount would be
reduced to the present value of their expected future cash flows and an
impairment loss would be recognized. There has been no impairment losses in the
period presented.
Revenue recognition:
Revenue is derived from the licensing of stem cell technology, the sale of stem
cell products, and providing informational and referral services; we have no
plans to enter into any other revenue transaction in the near future. In
accordance with Staff Accounting Bulletin No. 104 "Revenue Recognition" ("SAB
No. 104") revenue related to these licenses, sales and services is recognized
upon delivering the license or product, or rendering the services, respectively.
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.
F-8
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Income taxes:
Deferred tax assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial statements
carrying amounts of existing assets and liabilities and their respective income
tax bases. 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 tax rates is recognized as income in the
period that included the enactment date.
Loss per common share:
Basic and diluted earnings per share are computed based on the weighted average
number of common stock outstanding during the period. Common stock equivalents
are not considered in the calculation of diluted earnings per share for the
periods presented because their effect would be anti-dilutive.
Stock-based compensation:
In April 2006, the Company adopted the accounting provisions of Statement of
Financial Accounting Standards No. 123R - Share-based Payments (FAS 123R)
replacing Accounting for Stock-Based Compensation ("FAS 123"), which are similar
and require the use of the fair-value based method to determine compensation for
all arrangements under which employees and others receive shares of stock or
equity instruments (warrants and options). The adoption of this standard had no
significant impact on the Company's results of operations during the three
months ended June 30, 2006.
Reclassifications:
Certain reclassifications have been made to the March 31, 2006 balance sheet to
conform with the June 30, 2006 presentation. Such reclassifications had no
impact on net income as previously reported.
F-9
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Recently issued accounting pronouncements:
In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error
Corrections. SFAS No. 154 changes the requirements for the accounting for and
reporting of a change in accounting principle. In addition, it carries forward
without change the guidance contained in APB Opinion No. 20 for reporting the
correction of an error in previously issued financial statements and a change in
accounting estimate. SFAS No. 154 requires retrospective application to prior
periods' financial statements of changes in accounting principle in most
circumstances. The provisions of SFAS No. 154 are effective in fiscal years
beginning after December 15, 2005. The Company plans to prospectively adopt SFAS
No. 154 at the beginning of the 2007 fiscal year.
The Financial Accounting Standards Board ("FASB") has recently announced a new
interpretation, FASB Interpretation No. 48, "Accounting for Uncertainty in
Income Taxes" (FIN 48), which will be effective for fiscal years beginning after
December 15, 2006, FIN 48 clarifies the accounting for uncertainty in income
taxes recognized in an enterprise's financial statements in accordance with FASB
Statement No 109, "Accounting for Income Taxes". FIN 48 prescribes a recognition
threshold and measurement of a tax position taken or expected to be taken in a
tax return. FIN 48 also provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods, disclosure and
transition. The Company has not determined the impact of the adoption of FIN 48
on its consolidated financial statements.
4. 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 inception (December 2, 2004) have been included in the
statement of operations of the Company.
F-10
5. INTANGIBLE ASSET
Intangible asset consists of the following:
June 30, 2006 March 31, 2006
(unaudited) _
----------- --------------
Licensing rights $ 5,000 $ 5,000
Less: accumulated amortization ( 417) ( 292)
----------- --------------
$ 4,583 $ 4,708
=========== ==============
Expected future amortization of the intangible asset is as follow:
Year ending June 30,
--------------------
2007 $ 500
2008 500
2009 500
2010 500
2011 500
Thereafter 2,083
-----------
$ 4,583
===========
6. RELATED PARTY TRANSACTION
Stockholder advances consist of advances from an officer and stockholder of the
Company to assist with its financial obligations. These advances are
non-interest bearing, unsecured and due on demand.
Due to related party is a demand note to a consulting company owned by a
significant stockholder. The note is non-interest bearing and unsecured.
F-11
7. EQUITY:
Capitalization:
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, 2006, 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 , as the preferred stock can be converted at any
time after the issue date.
Stock options:
The following table summarizes the activity related to all Company stock options
for the three months ended June 30, 2006 and 2005 and the period from December
2, 2004 (Date of Inception) through June 30, 2006:
Weighted Average
Exercise Price Exercise Price
Stock per Share per Share
--------------- -----------------
Options Options Options
----------- --------------- -----------------
Outstanding at December 2, 2004 -
Granted 6,000,000 $ 0.001-0.75 $ 0.18
Exercised (500,000) 0.001 0.001
----------- --------------- -----------------
Outstanding at March 31, 2005 5,500,000 $ 0.003-0.75 $ 0.196
Canceled or expired (5,500,000)
-----------
Outstanding at June 30, 2006 -
===========
F-12
8. INCOME TAXES
The income tax provision differs from the amount of tax determined by applying
the Federal statutory rate as follows:
Period from
Three Months Ended December 2, 2004
-------------------------------------- through
June 30, 2006 June 30, 2005 June 30, 2006
-------------------- ---------------- ------------------
Income tax provision at statutory rate ($65,077) ($19,970) ($246,114)
Increase (decrease) in income tax due to:
Nondeductible expenses
State income taxes, net (6,307) (2,132) (25,570)
Change in valuation allowance 71,384 22,102 271,684
----------------------------------------- -------------------- ---------------- ------------------
$ 0 $ 0 $ 0
-------------------- ---------------- ------------------
June 30, 2006 March 31, 2006
Deferred tax (liability) asset:
Accrued payroll $ 27,133 $ 13,200
Net operating loss carryforward 244,551 187,100
----------------------------------------- -------------------- ----------------
271,684 200,300
Valuation allowance (271,684) (200,300)
----------------------------------------- -------------------- ----------------
Total deferred taxes $ 0 $ 0
----------------------------------------- -------------------- ----------------
Income taxes are based on estimates of the annual effective tax rate and
evaluations of possible future events and transactions and may be subject to
subsequent refinement or revision.
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 $649,884. The loss carry forwards expire
beginning in 2025. Due to the Company's continued losses, management has
established a valuation allowance equal to the amount of deferred tax asset
because it is more likely than not that the Company will not realize this
benefit.
F-13
9. COMMITMENTS AND CONTINGENCIES
Letter of credit:
As of June 30, 2006, the Company had a standing letter of credit with a
financial institution for $120,000 which is available to be drawn against
accounts maintained by the Company with the financial institution. This letter
of credit serves as a guarantee of payment for a third party vendor. This
standing letter of credit is collateralized by a $120,000 certificate of
deposit.
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 3,939,000 shares of the Company's
common stock valued at $271,409 on the date of the performance commitment. As
of June 30, 2006, the Company had issued these shares of common stock and has
included $138,001 in prepaid expenses for services not yet performed pursuant to
the agreements.
The Company has entered into several consulting agreements with doctors to
provide consulting and advisory services to the Company. The agreements provide
for six months to one year service terms. In exchange for these services, the
Company issued a total of 110,000 shares of common stock valued at $114,230 on
the date of the performance commitment. As of June 30, 2006, the Company had
issued these shares of common stocks and included $38,024 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, 2006, 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.
F-14
9. COMMITMENTS AND CONTINGENCIES (CONTINUED):
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"). The agreement grants the
Company an exclusive 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 for a three year period. Such Allo Transplant
materials shall be at a cost of $6,500 per patient per condition. The Company
has provided ICT with a $120,000 irrevocable letter of credit in ICT's favor for
the first three year's of the agreement. 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 and is included as
intangible assets in the accompanying balance sheet.
F-15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
THE FOLLOWING INFORMATION SHOULD BE READ IN CONJUNCTION WITH THE 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."
The following management discussion should be read together with the Stem Cell
Therapy International, Inc. financial statements included in this Form 10QSB.
See "Index to Financial Statements". Those financial statements have been
prepared in accordance with generally accepted accounting principles of the
United States of America.
3
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, Stem Cell Therapy International
Corp., a Nevada corporation ("Stem Cell Florida") acquired the Company by way of
a reverse acquisition. Following the transaction, Stem Cell Florida was 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 Peter K. Sidorenko, Chief Operating Officer. The
Company's affiliate in the Ukraine also has the following non-executive
officers: Dr. Yuriv Gladkikh, Chief Scientist; Dr. Galina Lobyntseva, Chief of
Manufacture; Sergei Martynenko, Director of Clinic in Kiev; Dr. Vladimir
Gladkikh, Medical Director; and Dr. Dimitriy Lobyntsev, Director of Research.
Although these individuals are not employees of the Company, we consider them
vital to the success of our business.
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 and as at June 30, 2006, we had a
working capital deficit of $288,926 and an accumulated deficit from operations
of $722,157. As noted in the financial statements for the period from inception
to June 30, 2006 , 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.
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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:
Revenue recognition:
We derive revenue from the licensing of stem cell technology, the sale of
stem cell products, and providing informational and referral services. We have
no plans to enter into any other revenue transaction in the near future. In
accordance with Staff Accounting Bulletin No. 104 "Revenue Recognition" ("SAB
No. 104"), we recognize revenue related to these licenses, sales and services
upon delivering the license or product, or rendering the services, respectively.
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.
Stock-based compensation:
In April 2006, we adopted the accounting provisions of Statement of
Financial Accounting Standards No. 123R - Share-based Payments (FAS 123R)
replacing Accounting for Stock-Based Compensation ("FAS 123"), which are similar
and require the use of the fair-value based method to determine compensation for
all arrangements under which employees and others receive shares of stock or
equity instruments (warrants and options).
Recently issued accounting pronouncements
In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error
Corrections. SFAS No. 154 changes the requirements for the accounting for and
reporting of a change in accounting principle. In addition, it carries forward
without change the guidance contained in APB Opinion No. 20 for reporting the
correction of an error in previously issued financial statements and a change in
accounting estimate. SFAS No. 154 requires retrospective application to prior
periods' financial statements of changes in accounting principle in most
circumstances. The provisions of SFAS No. 154 are effective in fiscal years
beginning after December 15, 2005. We plan to prospectively adopt SFAS No. 154
at the beginning of the 2007 fiscal year.
The Financial Accounting Standards Board ("FASB") has recently announced a
new interpretation, FASB Interpretation No. 48, "Accounting for Uncertainty in
Income Taxes" (FIN 48), which will be effective for fiscal years beginning after
December 15, 2006. FIN 48 clarifies the accounting for uncertainty in income
taxes recognized in an enterprise's financial statements in accordance with FASB
Statement No 109, "Accounting for Income Taxes". FIN 48 prescribes a
recognition threshold and measurement of a tax position taken or expected to be
taken in a tax return. FIN 48 also provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods,
disclosure and transition. We have not determined the impact of the adoption of
FIN 48 will have on our consolidated financial statements.
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RESULTS OF OPERATIONS
As of June 30, 2006 and for the three months ended June 30, 2006 and 2005
-------------------------------------------------------------------------
We had sales of $25,705 during the three months ended June 30, 2006
compared to no sales for the comparable period in 2005. Our cost from ICT for
the stem cell biological material delivered during the period was of $14,525.
Our net loss for the three month period ended June 30, 2006 was $189,755,
compared to $58,734 during the same period in 2005. The loss primarily reflects
selling, general and administrative expenses as we begin the process of opening
our offices and moving forward with our business plan. Sales reflected
treatment of one patient during the period at our Affiliate's clinical facility
in Kiev, Ukraine.
Gross margins for the three months ended June 30, 2006 was 43.5% compared
to 35.6% for the year ended March 31, 2006 (and none for the comparable three
month period in 2005). We anticipate comparable margins on future patient
services and delivery of our stem cell biological products.
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,
2006 and the period since December 2, 2004 (date of inception) through June 30,
2006, the Company has had a net loss of $189,755 and $732,157, respectively and
cash used by operations of $18,574 and $180,831, respectively, and negative
working capital of $288,926 at June 30, 2006. As of June 30, 2006, 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 our ability to begin operations and to achieve a
level of profitability. Since inception, we have financed our activities
principally from shareholder advances and some relatively minor sales of equity
securities. We intend on financing our future development activities and our
working capital needs largely from the sale of equity securities and loans from
the Company's Chief Executive Officer, until such time that funds provided by
operations are sufficient to fund working capital requirements.
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
6
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, 2006, 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.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Effective June 9, 2006 the Company issued 150,000 shares of common stock to
Global Business Partners Holdings, Inc. and 150,000 shares to Cutler Law Group
in connection with consulting services 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
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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.*
10.25 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.***
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 Form 10-SB, file number
000-51931, filed on April 25, 2006, and incorporated by this reference as an
exhibit to this Form 10-QSB.
** Previously filed with the Company's Amendment no. 1 to Form 10-SB, file
number 000-51931, filed on July 31, 2006, and incorporated by this reference as
an exhibit to this Form 10-QSB.
(b) Reports on Form 8-K.
--------------------
Form 8-K filed on August 4, 2006 reporting that effective July 19, 2006, the
Company terminated its prior accounting firm Pender Newkirk and Company LLP, as
its accounting firm and engaged Aidman, Piser & Company, P.A. , Certified Public
Accountants, Tampa, FL, as its new auditors.
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 21, 2006
By: /s/Calvin Cao
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Name: Calvin Cao
Title: President
Date: August 21, 2006
By: /s/Daniel Sullivan
------------------
Name: Daniel Sullivan
Title: Chief Financial Officer
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