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: September 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 [ ]
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:
37,170,389 shares of common stock, $0.001 par value, as of October 30, 2007.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
-
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 September 30, 2007 (unaudited) and March 31, 2007 F-1
Condensed Consolidated Statements of Operations for the three and six months ended September 30, 2007
and 2006 (unaudited) and for the period from December 2, 2004 (Date of Inception) through
September 30, 2007 (unaudited) F-2
Condensed Consolidated Statements of Changes in Stockholders' Deficit for the period from
December 2, 2004 (Date of Inception) through September 30, 2007 (unaudited) F-3
Condensed Consolidated Statements of Cash Flows for the six months ended September 30, 2007 and 2006
(unaudited), and for the period from December 2, 2004 (Date of Inception) through
September 30, 2007 F-5
Notes to Condensed Consolidated Financial Statements F-6
Item 2. Management's Discussion and Analysis 13
Item 3. Controls and Procedures 17
Part II. Other Information
Item 1. Legal Proceedings 18
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 18
Item 3. Defaults from Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits 18
Signatures 21
Certificate Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002:
Chief Executive Officer 22
Chief Financial Officer and Chief Accounting Officer 23
Certificate Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002:
Chief Executive Officer 24
Chief Financial Officer and Chief Accounting Officer 24
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 and six month
periods ended September 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 for the year ended March 31, 2007, as
filed with the Securities and Exchange Commission on July 16, 2007.
Stem Cell Therapy International Inc.
(a development stage enterprise)
Condensed Consolidated Balance Sheets
September 30, 2007 March 31, 2007
------------------- --------------
(unaudited)
ASSETS
Current assets:
Cash $ 55,722 $27,905
Inventory -- 5,988
Prepaid expenses 132,542 47,317
------------ ------------
Total current assets 188,264 81,210
Certificate of deposit, restricted -- 3,919
Prepaid expenses and other assets 31,460 53,378
------------ ------------
Total assets $ 219,724 $ 138,507
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 84,031 $ 62,875
Accrued expenses 295,030 245,557
Deferred revenue 30,000 50,000
Stockholder advances -- 48,753
Due to related party 225,200 225,200
------------ ------------
Total current liabilities 634,261 632,385
------------ ------------
Commitments and contingencies (Note 8) - -
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; 37,170,369 and 34,495,369 issued
and outstanding as of September 30, 2007 and
March 31, 2007, respectively 37,170 34,495
Additional paid-in capital 1,555,390 660,575
Deficit accumulated during development stage (2,007,597) (1,189,448)
------------ ------------
Total stockholders' deficit (414,537) (493,878)
------------ ------------
Total liabilities and stockholders' deficit $ 219,724 $ 138,507
============ ============
The accompanying notes are an integral part of the condensed consolidated
financial statements.
F-1
Stem Cell Therapy International Inc.
(a development stage enterprise)
Condensed Consolidated Statements of Operations
(Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED DECEMBER 2, 2004
SEPTEMBER 30, SEPTEMBER 30, (DATE OF
------------------------- ------------------------- INCEPTION) THROUGH
SEPTEMBER 30,
2007 2006 2007 2006 2007
----------- ----------- ----------- ----------- ------------
Revenue $ 82,960 $ 120,555 $ 102,960 $ 146,260 $ 529,404
Cost of Goods Sold:
Cost of goods sold 29,000 78,100 39,268 92,625 265,361
Loss on firm purchase commitment -- 116,000 -- 116,000 116,000
----------- ----------- ----------- ----------- ------------
Gross margin 53,960 (73,545) 63,692 (62,365) 148,043
Operating expenses:
Selling, general and administrative 744,869 243,595 880,280 444,344 2,157,859
----------- ----------- ----------- ----------- ------------
Loss from operations (690,909) (317,140) (816,588) (506,709) (2,009,816)
Interest (income) expense -- (2,641) 1,561 (2,455) (2,219)
----------- ----------- ----------- ----------- ------------
Net loss before taxes $ (690,909) $ (314,499) $ (818,149) $ (504,254) $(2,007,597)
Income tax expense -- -- -- -- --
----------- ----------- ----------- ----------- ------------
Net loss (690,909) (314,499) (818,149) (504,254) (2,007,597)
Less: Dividends on preferred stock -- -- -- -- (10,000)
----------- ----------- ----------- ----------- ------------
Loss attributable to common
shareholders $ (690,909) $ (314,499) $ (818,149) $ (504,254) $(2,017,597)
=========== =========== =========== =========== ============
Loss per share, basic and diluted $ (0.02) $ (0.01) $ (0.02) $ (0.01) $ (0.07)
=========== =========== =========== =========== ============
Weighted average number of
common shares outstanding,
basic and diluted 36,806,358 34,447,080 35,730,809 34,129,150 29,940,608
=========== =========== =========== =========== ============
The accompanying notes are an integral part of the condensed consolidated
financial statements.
F-2
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 SEPTEMBER 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)
(Continued)
F-3
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 consulting
services 550,000 550 - - 161,450 - 162,000
Issuance of warrants for consulting services - - - - 23,750 - 23,750
Exercise of warrants 125,000 125 - - (125) - -
Issuance of common stock for cash, net of
offering costs 2,000,000 2,000 - - 204,024 - 206,024
Share-based compensation to employees - - - - 505,716 - 505,716
Net loss for the six months ended September
30, 2007 - - - - - (818,149) (818,149)
---------- ------- ------- ----- ---------- ------------------- ------------
Balance, September 30, 2007 37,170,369 $37,170 500,000 $500 $1,555,390 ($2,007,597 ) ($414,537)
========== ======= ======= ===== ========== =================== ============
The accompanying notes are an integral part of the condensed consolidated
financial statements.
F-4
Stem Cell Therapy International Inc.
(a development stage enterprise)
Condensed Consolidated Statements of Cash Flows
(unaudited)
December 2, 2004
(Date of Inception)
Six Months Ended Six Months Ended Through September 30,
September 30, 2007 September 30, 2006 2007
---------- ---------- ----------
OPERATING ACTIVITIES:
Net loss $(818,149) $(504,254) $(2,007,597)
Adjustments to reconcile net loss to net
cash used by operating activities:
Share-based compensation to non-employees 126,250 240,823 689,063
Share-based compensation to employees 505,716 - 505,716
Investment income reinvested - (2,840) (2,943)
Amortization - 250 667
Write off of intangible asset - - 4,333
(Increase) decrease in:
Inventory 5,988 (11,977) -
Prepaid expenses (3,808) 600 (16,126)
Deposits - - (2,169)
Increase (decrease) in:
Accounts payable 21,156 30,611 84,031
Accrued payroll 49,474 84,729 220,030
Accrued expenses - - 75,000
Deferred revenue (20,000) 24,275 30,000
---------- ---------- ----------
Net cash used by operating activities (133,373) (137,783) (419,995)
---------- ---------- ----------
INVESTING ACTIVITIES:
Proceeds from certificate of deposit, restricted 3,919 119,024 2,943
---------- ---------- ----------
Net cash provided by investing activities 3,919 119,024 2,943
---------- ---------- ----------
FINANCING ACTIVITIES:
Proceeds from advances from stockholder - 365 52,528
Repayment of stockholder advances (48,753) - (49,528)
Advances from related party, net - 228 225,200
Payment of stock offering costs (43,976) - (43,976)
Proceeds from sale of stock 250,000 - 288,550
---------- ---------- ----------
Net cash provided by financing activities 157,271 593 472,774
---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH 27,817 (18,166) 55,722
CASH AT BEGINNING OF PERIOD 27,905 32,642 -
---------- ---------- ----------
CASH AT OF END OF PERIOD $ 55,722 $ 14,476 $ 55,722
========== ========== ==========
Cash paid for interest $ 1,572 $ 300 $ 979
========== ========== ==========
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.
F-5
Stem Cell Therapy International, Inc.
(a development stage enterprise)
Notes to Condensed Consolidated Financial Statements
Three and Six Months Ended September 30, 2007 and 2006 (unaudited)
and the period from December 2, 2004 (Date of Inception)
through September 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.
F-6
Stem Cell Therapy International, Inc.
(a development stage enterprise)
Notes to Condensed Consolidated Financial Statements
Three and Six Months Ended September 30, 2007 and 2006 (unaudited)
and the period from December 2, 2004 (Date of Inception)
through September 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 six months ended September 30,
2007 are not necessarily indicative of the results for a full year.
The condensed consolidated financial statements for the period ended September
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 condensed consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. For the six months
ended September 30, 2007 and the period since December 2, 2004 (date of
inception) through September 30, 2007, the Company has had net losses of
$818,149 and $2,007,597, respectively and cash used by operations of $133,373
and $419,995, respectively, and negative working capital of $445,997 at
September 30, 2007. As of September 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. The Company has adopted FIN 48
effective April 1, 2007 and there is no impact of adoption FIN 48 on our
financial statements to date.
F-7
Stem Cell Therapy International, Inc.
(a development stage enterprise)
Notes to Condensed Consolidated Financial Statements
Three and Six Months Ended September 30, 2007 and 2006 (unaudited)
and the period from December 2, 2004 (Date of Inception)
through September 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 September 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 six months ended September 30, 2007, the Company issued 550,000
shares of common stock valued at $162,000 for consulting services to be provided
through December 25, 2007. As of September 30, 2007, the Company has included
$58,500 in prepaid expenses.
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.
During the six months ended September 30, 2007, the Company completed its
private placement offering of 2,000,000 shares of common stock for total cash
proceeds of $250,000. Offering costs paid in cash amounted to $43,976 and have
been taken as a reduction of proceeds. In addition, offering costs paid
through the issuance of 400,000 warrants amounted to approximately $121,000.
5. STOCK OPTIONS AND WARRANTS
In December 2004, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 123 (Revised 2004),
"Share-Based Payment" (SFAS 123R). SFAS 123R requires all share-based payments
to employees, including grants of employee stock options, to be recognized as
compensation expense in the consolidated financial statements based on their
fair values. That expense will be recognized over the period during which an
employee is required to provide services in exchange for the award, known as the
requisite service period (usually the vesting period). The Company adopted SFAS
123R effective beginning April 1, 2006.
F-8
Stem Cell Therapy International, Inc.
(a development stage enterprise)
Notes to Condensed Consolidated Financial Statements
Three and Six Months Ended September 30, 2007 and 2006 (unaudited)
and the period from December 2, 2004 (Date of Inception)
through September 30, 2007 (unaudited)
5. STOCK OPTIONS AND WARRANTS (CONTINUED)
During the six months ended September 30, 2007, the Company issued 2,900,000
stock options to employees and 525,000 common stock warrants to consultants. The
options and warrants entitle the holders to purchase 3,425,000 shares of the
Company's common stock, at any time, at an exercise price of between $0.001 --
$0.19 per share and expire in 2017.
The fair value of each option was estimated on the date of grant using the Black
Scholes model that uses assumptions noted in the following table. Expected
volatility is based on the weekly trading of two similar Company's underlying
common stock (as the Company does not have an adequate trading history for an
accurate calculation) and other factors.
Expected volatility 102.9%
Expected dividends 0
Expected term 10 years
Risk-free interest rate 4.59%
The value of the options, $505,716 has been included in stock compensation
expense in the accompanying Statement of Operations.
WEIGHTED
AVERAGE
EXERCISE EXERCISE WEIGHTED AVERAGE
SHARES PRICES PRICE GRANT DATE FAIR VALUE
--------- ------- -------- ---------------------
OUTSTANDING AND EXERCISABLE
---------------------------
Outstanding at March 31, 2007 -- -- -- --
Options granted 2,900,000 $0.19 $0.19 $.17
Options exercised -- -- -- --
Options cancelled or expired -- -- -- --
Outstanding at September 30, 2007 2,900,000 $0.19 $0.19
=========
Exercisable at September 30, 2007 2,900,000 $0.19 $0.19
=========
The following table summarizes information about options outstanding and
exercisable as of September 30, 2007:
OUTSTANDING OPTIONS EXERCISABLE OPTIONS
-------------------------------------------------- --------------------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED WEIGHTED
RANGE OF NUMBER REMAINING AVERAGE AVERAGE NUMBER AVERAGE
EXERCISE PRICE OUTSTANDING LIFE PRICE REMAINING LIFE EXERCISABLE PRICE
------------------- -------------------
..19 2,900,000 10 Years $ .19 10 Years 2,900,000 $ 0.19
--------------- ------------------- ------------------- --------- -------------- ----------- ---------
The aggregate intrinsic value of options outstanding at September 30, 2007,
based on the Company's closing stock price of $0.19 was $0. Intrinsic value is
the amount by which the fair value of the underlying stock exceeds the exercise
price of the options.
F-9
Stem Cell Therapy International, Inc.
(a development stage enterprise)
Notes to Condensed Consolidated Financial Statements
Three and Six Months Ended September 30, 2007 and 2006 (unaudited)
and the period from December 2, 2004 (Date of Inception)
through September 30, 2007 (unaudited)
5. STOCK OPTIONS AND WARRANTS (CONTINUED)
The fair value of each warrant was estimated on the measurement date using the
Black Scholes model that uses assumptions noted in the following table. Expected
volatility is based on the weekly trading of two similar Company's underlying
common stock (as the Company does not have an adequate trading history for an
accurate calculation) and other factors.
Expected volatility 102.9%
Expected dividends 0
Expected term 1 to 10 years
Risk-free rate 4.59% - 4.71%
WEIGHTED
AVERAGE
EXERCISE EXERCISE WEIGHTED AVERAGE
SHARES PRICES PRICE GRANT DATE FAIR VALUE
--------- ------- -------- ---------------------
OUTSTANDING AND EXERCISABLE
---------------------------
Outstanding at March 31, 2007 - -- -- --
Warrants granted 525,000 $0.001 - $0.15 $0.11 $0.29
Warrants exercised 125,000 $0.001 $0.001 --
Options cancelled or expired -- -- -- --
Outstanding at September 30, 2007 400,000 $0.15 $0.15
=========
Exercisable at September 30, 2007 400,000 $0.15 $0.15
=========
The following table summarizes information about warrants outstanding and
exercisable as of September 30, 2007:
OUTSTANDING OPTIONS EXERCISABLE OPTIONS
-------------------------------------------------- --------------------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED WEIGHTED
RANGE OF NUMBER REMAINING AVERAGE AVERAGE NUMBER AVERAGE
EXERCISE PRICE OUTSTANDING LIFE PRICE REMAINING LIFE EXERCISABLE PRICE
------------------- -------------------
..15 400,000 10 Years $ .15 10 Years 400,000 $ 0.15
--------------- ------------------- ------------------- --------- -------------- ----------- ---------
The aggregate intrinsic value of warrants outstanding at September 30, 2007,
based on the Company's closing stock price of $0.19 was $16,000. Intrinsic value
is the amount by which the fair value of the underlying stock exceeds the
exercise price of the warrants.
F-10
Stem Cell Therapy International, Inc.
(a development stage enterprise)
Notes to Condensed Consolidated Financial Statements
Three and Six Months Ended September 30, 2007 and 2006 (unaudited)
and the period from December 2, 2004 (Date of Inception)
through September 30, 2007 (unaudited)
6. EARNINGS PER SHARE
Earnings per common share are computed in accordance with SFAS No. 128,
"Earnings per Share," which requires companies to present basic earnings per
share and diluted earnings per share. Basic earnings per share are computed by
dividing net income by the weighted average number of shares of common stock
outstanding during the year. Diluted earnings per common share are computed by
dividing net income by the weighted average number of shares of common stock
outstanding and dilutive options outstanding during the year. The diluted
weighted average number of shares was 35,858,281, 34,129,150 and 29,963,110 for
the six months ended September 30, 2007 and 2006 and the period from December 2,
2004 (Date of Inception) through September 30, 2007, respectively.
Common stock equivalents for the six months ended September 30, 2007 and 2006
and the period from December 2, 2004 (Date of Inception) through September 30,
2007 were anti-dilutive due to the net losses sustained by the Company during
these periods.
7. INCOME TAXES
The Company adopted the provisions of FIN 48 on April 1, 2007. The
implementation of FIN 48 had no effect on Company's financial position or
results of operations.
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 $1,250,000 at September 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 $753,000.
The income tax provision differs from the amount of tax determined by applying
the Federal statutory rate as follows:
Period from
Six Months Ended December 2, 2004
---------------- through
September 30, September 30, September 30,
2007 2006 2007
Income tax provision at statutory rate ($275,000) ($171,500) ($679,400)
Increase (decrease) in income tax due to:
Nondeductible expenses 100 700 800
State income taxes, net (30,000) (18,300) (73,200)
Other (1,200) - (1,200)
Change in valuation allowance 306,100 189,100 753,000
---------- ------------------ ------------------
$ - $ - $ -
========== ================== ==================
There was no current or deferred provision or benefit for income taxes for the
six months ended September 30, 2007 and 2006 and for the period from December 2,
2004 (Date of Inception) through September 30, 2007. The components of deferred
tax assets as of September 30, 2007 and March 31, 2007 are as follows:
F-11
Stem Cell Therapy International, Inc.
(a development stage enterprise)
Notes to Condensed Consolidated Financial Statements
Three and Six Months Ended September 30, 2007 and 2006 (unaudited)
and the period from December 2, 2004 (Date of Inception)
through September 30, 2007 (unaudited)
7. INCOME TAXES (CONTINUED)
September 30, 2007 March 31, 2007
-------------------- ----------------
Deferred tax (liability) asset:
Accrued payroll $ 82,000 $ 64,200
Options and warrants 205,000 0
Net operating loss carryforward 466,000 382,700
-------------------- ----------------
753,000 446,900
Valuation allowance (753,000) (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.
8. 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 September 30, 2007, the Company had
issued these shares of common stock and has included $125,708 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 September 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 September 30,
F-12
Stem Cell Therapy International, Inc.
(a development stage enterprise)
Notes to Condensed Consolidated Financial Statements
Three and Six Months Ended September 30, 2007 and 2006 (unaudited)
and the period from December 2, 2004 (Date of Inception)
through September 30, 2007 (unaudited)
8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
2007. However, ICT was unable to provide the product as requested and the
Company was required to purchase the 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 a three year
agreement with a consultant to locate financing. 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 September 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.
During the six months ended September 30, 2007, Newbridge assisted the Company
in raising $250,000 of proceeds from a private placement offering. The Company
incurred $43,976 of offering costs, which have been netted against the proceeds
and is included in the Condensed Consolidated Statement of Changes in
Stockholders' Deficit.
Consulting Agreement:
Effective September 12, 2007, the Company entered into a consulting agreement
with Newbridge for business and financial related advice and services through
September 11, 2008. As compensation for these services, the Company has agreed
to pay $4,000 per month and issue a total of 500,000 warrants. At September 30,
2007, 125,000 of the warrants valued as $23,750 have been issued, with the
remaining 375,000 warrants to be issued in 125,000 increments at the end of each
90 day period beginning January 2008 until the contract expires. In the event
Newbridge assists with an offering or sale of the Company's securities,
Newbridge will be entitled to receive a financing fee to be determined at the
time of such financing. Also, should any transactions be consumated by the
Company, in which Newbridge introduced the other party, during the six months
following termination of the agreement, Newbridge will be entitled to receive a
transaction fee based on the aggregate consideration received, computed as
follows: 5% for the first million dollars; 4% for the second million dollars;
3% for the third million dollars; 2% for the fourth million dollars and 1% of
the balance of the value of the transaction.
Employment Agreements
In September 2007, the Company entered into employment agreements with the
Company's Chief Executive Officer, Chief Financial Officer and Chief Operating
Officer. Under the employment agreement for the Chief
F-13
Stem Cell Therapy International, Inc.
(a development stage enterprise)
Notes to Condensed Consolidated Financial Statements
Three and Six Months Ended September 30, 2007 and 2006 (unaudited)
and the period from December 2, 2004 (Date of Inception)
through September 30, 2007 (unaudited)
8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Executive Officer, the employment term is five years and with an annual base
salary of $150,000, with minimum annual increases of $10,000. The Chief
Financial Officer and Chief Operating Officer each have employment agreements
for a term of two years, with an annual base salary of $60,000. Additional
performance-based bonuses are provided for, and the employees were granted
options to purchase 2,900,000 shares of Company stock. Benefits under the
agreement are accelerated on a change of control, and the employee is subject to
certain non-competition covenants.
9. SUBSEQUENT EVENT
During October 2007, the Company entered into an agreement with an attorney to
compensate for services provided from September 2007 through May 2008 in
exchange for a 2,000,000 common stock warrant with an exercise price of $.001
and a 10 contractual year term. On September 30, 2007, the warrant was valued at
$379,163 using the Black Scholes pricing model and will be recognized over the
service period of nine months. As of September 30, 2007, the Company has accrued
$42,179 as accounts payable for the value of services received through the
period end.
F-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 members are: Calvin
C. Cao, Chairman and Chief Executive Officer, Andrew J. Norstrud, 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 and at September 30, 2007, we had a
working capital deficit of $445,997 and an accumulated deficit from operations
of $2,007,597. As noted in the Report of the Independent Registered Certified
13
Public Accountants 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 advances
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.
Revenue transactions are derived from providing informational and referral
services; we have no plans to enter into any other revenue transaction in the
near future. 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 September 30, 2007 and for the six months ended September 30, 2007 and
2006
We had revenue of $102,960 during the six months ended September 30, 2007
as compared to $146,260 of revenue for the comparable period in 2006. Revenues
during 2007 reflected the treatment of four patients whereas there were six
patients treated during the same period ended 2006.
14
Our cost of goods sold for the stem cell biological material delivered
during the six months ended September 30, 2007 was $39,268 as compared to
$92,625 for the same period ended 2006. The decrease in cost of goods sold is
due to the decrease in the number of patients in 2007 compared to the same
period in 2006 and the Company has begun purchasing the stem cell biological
solution from less expensive vendors located in Mexico and China.
Gross margins for the six months ended September 30, 2007 was 62% compared
to a negative gross profit margin of (43%) for the six months ended September
30, 2006. The increase in gross margin is due to the Company purchasing the
stem cell biological materials from less expensive vendors located in Mexico and
China. The increased gross margin is also due to the $116,000 charge for an
additional payment made to ICT for not meeting the contractual minimum purchase
requirement during the six months ended September 30, 2006, there is no such
charge during the six months ended September 30, 2007.
Selling, general and administrative expenses increased $435,936 to $880,280
for the six months ended September 30, 2007 as compared to $444,344 for the six
months ended September 30, 2006. The increase in selling, general and
administrative expenses for the six months ended September 30, 2007 is primarily
due to an approximate $506,000 increase in share based compensation for options
awarded to executives.
Our net loss for the six months ended September 30, 2007 was $818,149 as
compared to $504,254 during the same period in 2006. The loss primarily reflects
an increase in share based compensation.
As of September 30, 2007 and for the three months ended September 30, 2007 and
2006
We had revenue of $82,960 during the three months ended September 30, 2007
as compared to $120,555 of revenue for the comparable period in 2006. Revenues
during 2007 reflected the treatment of three patients whereas there were four
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 September 30, 2007 was $29,000 as compared to
$78,100 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 and the Company has begun purchasing the stem cell biological solution from
less expensive vendors located in Mexico and China.
Gross margins for the three months ended September 30, 2007 was 65%
compared to a negative gross profit margin of (61%) for the three months ended
September 30, 2006. The increase in gross margin is due to the Company
purchasing the stem cell biological materials from less expensive vendors.
Also, the increased gross margin is due to the $116,000 charge for an additional
payment made to ICT for not meeting the contractual minimum purchase requirement
during the three months ended September 30, 2006, there is no such charge during
the three months ended September 30, 2007.
15
Selling, general and administrative expenses increased $501,274 to $744,869
for the three months ended September 30, 2007 as compared to $243,595 for the
three months ended September 30, 2006. The increase in selling, general and
administrative expenses for the three months ended September 30, 2007 is
primarily due to an approximate $506,000 increase in share based compensation.
Our net loss for the three months ended September 30, 2007 was $690,909 as
compared to $314,499 during the same period in 2006. The loss primarily reflects
increase in share based compensation to executive officers.
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial statements have been prepared assuming that the
Company will continue as a going concern. For the six months ended September 30,
2007 and the period since December 2, 2004 (date of inception) through September
the Company has had a net loss of $818,149 and $2,007,597, respectively and cash
used by operations of $133,373 and $419,995, respectively, and negative working
capital of $445,997 at September 30, 2007.
As of September 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, 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.
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. As
of September 30, 2007, the Company has received $206,024 of proceeds, which
represents $250,000 gross proceeds less $43,976 of offering costs.
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 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
16
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.
ITEM 3. CONTROLS AND PROCEDURES
As required by Rule 13a-15 under the Securities Exchange Act of 1934 (the
"Exchange Act"), as of September 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.
17
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.
During the six months ended September 30, 2007, the Company issued
2,000,000 shares of common stock to accredited investors in connection with a
private placement offering in exchange for $250,000, this amount includes
$43,976 of offering costs. These shares were issued under Regulation D.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
In September 2007, the Company entered into employment agreements with the
Company's Chief Executive Officer, Chief Financial Officer and Chief Operating
Officer. Under the employment agreement for the Chief Executive Officer, the
employment term is five years and with an annual base salary of $150,000, with
minimum annual increases of $10,000. The Chief Financial Officer and Chief
Operating Officer each have employment agreements for a term of two years, with
an annual base salary of $60,000. Additional performance-based bonuses are
provided for, and the employees were granted options to purchase 2,900,000
shares of Company stock. Benefits under the agreement are accelerated on a
change of control, and the employee is subject to certain non-competition
covenants.
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:
10.31 Business Advisory Agreement with Newbridge Securities Corporation
10.32 Employment Agreement - Calvin Cao
18
10.33 Employment Agreement - Lixian Jiang
10.34 Employment Agreement - Andrew J. Norstrud
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
_______________________
(b) Reports on Form 8-K.
--------------------
None
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: November 19, 2007
By: /s/Calvin Cao
-------------
Name: Calvin Cao
Title: President
Date: November 19, 2007
By: /s/Andrew J. Norstrud
---------------------
Name: Andrew J. Norstrud
Title: Chief Financial Officer