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: December 31, 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:
37,295,369 shares of common stock, $0.001 par value, as of January 31, 2008.
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 December 31,
2007 (unaudited) and March 31, 2007 F-1
Condensed Consolidated Statements of Operations for the
three and nine months ended December 31, 2007 and 2006
(unaudited) and for the period from December 2, 2004
(Date of Inception) through December 31, 2007(unaudited) F-2
Condensed Consolidated Statements of Changes in Stockholders'
Deficit for the period from December 2, 2004 (Date
of Inception) through December 31, 2007 (unaudited) F-3
Condensed Consolidated Statements of Cash Flows for the nine
months ended December 31, 2007 and 2006 (unaudited), and
for the period from December 2, 2004 (Date of Inception)
through December 31, 2007 (unaudited) 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 19
Certificate Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002:
Chief Executive Officer 20
Chief Financial Officer and Chief Accounting Officer 21
Certificate Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002:
Chief Executive Officer and Chief Financial Officer
and Chief Accounting Officer 22
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 nine month
periods ended December 31, 2007 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
December 31, 2007 March 31, 2007
------------------- ----------------
(unaudited)
ASSETS
Current assets:
Cash $ - $ 27,905
Inventory - 5,988
Prepaid expenses 279,508 47,317
------------------- ----------------
Total current assets 279,508 81,210
Certificate of deposit, restricted - 3,919
Prepaid expenses and other assets 22,211 53,378
------------------- ----------------
Total assets $ 301,719 $ 138,507
=================== ================
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 51,198 $ 62,875
Accrued expenses 380,147 245,557
Deferred revenue - 50,000
Stockholder advances - 48,753
Due to related party 200,200 225,200
------------------- ----------------
Total current liabilities 631,545 632,385
------------------- ----------------
Commitments and contingencies
(Notes 4 and 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;
37,295,369 and 34,495,369 issued
and outstanding as of December
31, 2007 and March 31, 2007,
respectively 37,295 34,495
Additional paid-in capital 1,985,129 660,575
Deficit accumulated during
development stage (2,352,750) (1,189,448)
------------------- ----------------
Total stockholders' deficit (329,826) (493,878)
------------------- ----------------
Total liabilities and
stockholders' deficit $ 301,719 $ 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 NINE MONTHS ENDED DECEMBER 2, 2004
DECEMBER 31, DECEMBER 31, (DATE OF INCEPTION)
-------------------------- -------------------------- THROUGH
2007 2006 2007 2006 DECEMBER 31, 2007
------------ ------------ ------------ ------------ ------------------
Revenue $ 30,000 $ 90,000 $ 132,960 $ 236,260 $ 559,404
Cost of Goods Sold:
Cost of goods sold 13,000 32,435 52,268 125,060 278,361
Loss on firm purchase
commitment - - - 116,000 116,000
------------ ------------ ------------ ------------ ------------------
Gross margin 17,000 57,565 80,692 (4,800) 165,043
Operating expenses:
Selling, general
and administrative 362,080 157,363 1,242,360 601,706 2,519,939
------------ ------------ ------------ ------------ ------------------
Loss from operations (345,080) (99,798) (1,161,668) (606,506) (2,354,896)
------------ ------------ ------------ ------------ ------------------
Interest income (expense) (73) (219) (1,634) 2,235 (2,146)
------------ ------------ ------------ ------------ ------------------
Net loss before taxes (345,153) (100,017) (1,163,302) (604,271) (2,352,750)
Income tax expense - - - - -
------------ ------------ ------------ ------------ ------------------
Net loss (345,153) (100,017) (1,163,302) (604,271) (2,352,750)
Less: Dividends on
preferred stock - - - - (10,000)
------------ ------------ ------------ ------------ ------------------
Loss attributable to
common shareholders $ (345,153) $ (100,017) $(1,163,302) $ (604,271) $ (2,362,750)
------------ ------------ ------------ ------------ ------------------
Loss per share,
basic and diluted $ (.01) $ (.00) $ (.03) $ (.02) $ (.08)
============ ============ ============ ============ ==================
Weighted average number of
common shares outstanding,
basic and diluted 37,196,468 34,495,369 36,222,833 34,248,756 30,535,009
------------ ------------ ------------ ------------ ------------------
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 DECEMBER 31, 2007 (UNAUDITED)
DEFICIT
ACCUMULATED
COMMON STOCK PREFERRED STOCK 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
STEM CELL THERAPY INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT (CONTINUED)
FROM DECEMBER 2, 2004 (DATE OF INCEPTION) THROUGH DECEMBER 31, 2007 (UNAUDITED)
DEFICIT
ACCUMULATED
COMMON STOCK PREFERRED STOCK 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 - - - - 453,614 - 453,614
Exercise of warrants 250,000 250 - - (250) - -
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 nine
months ended December 31,
2007 - - - - - (1,163,302) (1,163,302)
----------- -------- ------- --------- ------------ ------------- ------------
Balance, December 31, 2007 37,295,369 $37,295 500,000 $ 500 $ 1,985,129 $ (2,352,750) $ (329,826)
=========== ======== ======= ========= ------------ ------------- ------------
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)
Nine Months Ended Nine Months Ended Through December 31,
December 31, 2007 December 31, 2006 2007
------------------- ------------------- ----------------------
OPERATING ACTIVITIES:
Net loss $ (1,163,302) $ (604,271) $ (2,352,750)
Adjustments to reconcile net loss to net
cash used by operating activities:
Share-based compensation to non-employees 398,001 315,205 960,813
Share-based compensation to employees 505,716 505,716
Investment income reinvested - (2,884) (2,943)
Amortization - 375 667
Write off of intangible asset - - 4,333
(Increase) decrease in:
Inventory 5,988 (5,988) -
Prepaid expenses 16,589 (236) 4,271
Deposits - - (2,169)
Increase (decrease) in:
Accounts payable (11,677) 16,191 51,198
Accrued payroll 110,590 132,355 281,147
Accrued expenses 24,000 - 99,000
Deferred revenue (50,000) 84,250 -
------------------- ------------------- ----------------------
Net cash used by operating activities (164,095) (65,003) (450,717)
------------------- ------------------- ----------------------
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 - 376 52,528
Repayment of stockholder advances (48,753) - (49,528)
(Repayment) advances from related party, net (25,000) 228 200,200
Payment of stock offering costs (43,976) - (43,976)
Proceeds from sale of stock 250,000 - 288,550
------------------- ------------------- ----------------------
Net cash provided by financing activities 132,271 604 447,774
------------------- ------------------- ----------------------
NET INCREASE (DECREASE) IN CASH (27,905) 54,625 -
CASH AT BEGINNING OF PERIOD 27,905 32,642 -
------------------- ------------------- ----------------------
CASH AT OF END OF PERIOD $ - $ 87,267 $ -
=================== =================== ======================
Cash paid for interest $ 1,645 $ 900 $ 3,308
=================== =================== ======================
Supplemental disclosure of cash flow information and non-cash investing and financing activities:
Common stock issued for a reduction
in advance from stockholder $ - $ - $ 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 Nine Months Ended December 31, 2007 and 2006 (unaudited)
and the period from December 2, 2004 (Date of Inception)
through December 31, 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 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, 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 Nine Months Ended December 31, 2007 and 2006 (unaudited)
and the period from December 2, 2004 (Date of Inception)
through December 31, 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 nine months ended December 31,
2007 are not necessarily indicative of the results for a full year.
The condensed consolidated financial statements for the period ended December
31, 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 nine months
ended December 31, 2007 and the period since December 2, 2004 (date of
inception) through December 31, 2007, the Company has had net losses of
$1,163,302 and $2,352,750, respectively and cash used by operations of $164,095
and $450,717, respectively, and negative working capital of $352,037 at December
31, 2007. As of December 31, 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 sale of equity securities 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. NEW ACCOUNTING STANDARDS:
In December 2007, the FASB issued Statement No. 160, Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB No. 51 (SFAS No. 160).
The standard changes the accounting for noncontrolling (minority) interests in
consolidated financial statements including the requirements to classify
noncontrolling interests as a component of consolidated stockholders' equity,
and the elimination of "minority interest" accounting in results of operations
with earnings attributable to noncontrolling interests reported as part of
consolidated earnings. Additionally, SFAS No. 160 revises the accounting for
both increases and decreases in a parent's controlling ownership interest. SFAS
No. 160 is effective for fiscal years beginning after December 15, 2008, with
early adoption prohibited. Management is currently evaluating the effect, if any
the adoption will have on the Company's financial position and results of
operations.
F-7
Stem Cell Therapy International, Inc.
(a development stage enterprise)
Notes to Condensed Consolidated Financial Statements
Three and Nine Months Ended December 31, 2007 and 2006 (unaudited)
and the period from December 2, 2004 (Date of Inception)
through December 31, 2007 (unaudited)
4. EQUITY
During the nine months ended December 31, 2007, the Company issued 550,000
shares of common stock valued at $162,000 for consulting services that were
provided through December 25, 2007.
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.
The Company has accrued $24,000 in accrued expenses as the value of the
underlying shares of common stock to be issued for the Company being unable to
meet the registration statement filing requirements. This amount represents the
maximum penalty allowed under the agreement.
During the nine months ended December 31, 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
During the nine months ended December 31, 2007, the Company issued 2,900,000
stock options to employees and 2,650,000 common stock warrants to consultants.
The options and warrants entitle the holders to purchase 5,550,000 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 term is based upon the use of
the simplified method.
Expected volatility 102.9%
Expected dividends 0
Expected term 10 years
Risk-free interest rate 4.59%
The value of the options granted totaled $505,716 and has been included in
selling, general and administrative expenses in the accompanying Condensed
Consolidated Statement of Operations for the months ended December 31, 2007.
F-8
Stem Cell Therapy International, Inc.
(a development stage enterprise)
Notes to Condensed Consolidated Financial Statements
Three and Nine Months Ended December 31, 2007 and 2006 (unaudited)
and the period from December 2, 2004 (Date of Inception)
through December 31, 2007 (unaudited)
5. Stock Options and Warrants (continued)
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE GRANT DATE
SHARES PRICES PRICE FAIR VALUE
--------- --------- --------- -----------
OUTSTANDING AND EXERCISABLE
---------------------------
Outstanding at
March 31, 2007 -- -- -- --
Options granted 2,900,000 $ 0.19 $ 0.19 $ 0.19
Options exercised -- -- -- --
Options cancelled
or expired -- -- -- --
---------
Outstanding at
December 31, 2007 2,900,000 $ 0.19 $ 0.19
---------
Exercisable at
December 31, 2007 2,900,000 $ 0.19
---------
The following table summarizes information about options outstanding and
exercisable as of December 31, 2007:
OUTSTANDING OPTIONS EXERCISABLE OPTIONS
------------------------------ ------------------------------
WEIGHTED WEIGHTED
RANGE OF NUMBER AVERAGE WEIGHTED AVERAGE NUMBER WEIGHTED
EXERCISE OUTST- REMAINING AVERAGE REMAINING EXERC- AVERAGE
PRICE ANDING LIFE PRICE LIFE ISABLE PRICE
-------- --------- --------- --------- --------- --------- --------
$ 0.19 2,900,000 10 Years $ 0.19 10 Years 2,900,000 $ 0.19
There was no aggregate intrinsic value of options outstanding at December 31,
2007, based on the Company's closing stock price of $0.09. Intrinsic value is
the amount by which the fair value of the underlying stock exceeds the exercise
price of the options.
The fair value of each warrant 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 38% - 102.9%
Expected dividends 0
Expected term 1 - 10 years
Risk-free interest rate 3.16% - 4.71%
The value of the warrants granted totaled $453,614, of which $212,023 has been
included in operating expenses in the accompanying condensed consolidated
statement of operations for the nine months ended December 31, 2007 and
$241,591, is included in prepaid expenses in the accompanying December 31, 2007
condensed consolidated balance sheet.
F-9
Stem Cell Therapy International, Inc.
(a development stage enterprise)
Notes to Condensed Consolidated Financial Statements
Three and Nine Months Ended December 31, 2007 and 2006 (unaudited)
and the period from December 2, 2004 (Date of Inception)
through December 31, 2007 (unaudited)
5. STOCK OPTIONS AND WARRANTS (CONTINUED)
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE GRANT DATE
SHARES PRICES PRICE FAIR VALUE
--------- -------------- --------- -----------
OUTSTANDING AND EXERCISABLE
---------------------------
Outstanding at
March 31, 2007 -- -- -- --
Options granted 2,650,000 $0.001 - $0.15 $ 0.02 $ 0.22
Options exercised (250,000) $ 0.001 $ 0.001 --
Options cancelled
or expired -- -- -- --
---------
Outstanding at
December 31, 2007 2,400,000 $0.001 - $0.15 $ 0.03
---------
Exercisable at
December 31, 2007 2,400,000 $0.001 - $0.15 $ 0.03
---------
The following table summarizes information about options outstanding and
exercisable as of December 31, 2007:
OUTSTANDING OPTIONS EXERCISABLE OPTIONS
------------------------------ ------------------------------
WEIGHTED WEIGHTED
RANGE OF NUMBER AVERAGE WEIGHTED AVERAGE NUMBER WEIGHTED
EXERCISE OUTST- REMAINING AVERAGE REMAINING EXERC- AVERAGE
PRICE ANDING LIFE PRICE LIFE ISABLE PRICE
-------------- --------- --------- --------- --------- --------- --------
$0.001 - $0.15 2,400,000 10 Years $ 0.03 10 Years 2,400,000 $ 0.03
The aggregate intrinsic value of warrants outstanding at December 31, 2007,
based on the Company's closing stock price of $0.09 was $178,000. Intrinsic
value is the amount by which the fair value of the underlying stock exceeds the
exercise price of the warrants.
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 basic and
diluted weighted average number of shares was 36,222,833, 34,248,756 and
30,535,009 for the nine months ended December 31, 2007 and 2006 and the period
from December 2, 2004 (Date of Inception) through December 31, 2007,
respectively.
Common stock equivalents for the nine months ended December 31, 2007 and 2006
and the period from December 2, 2004 (Date of Inception) through December, 2007
were anti-dilutive due to the net losses sustained by the Company during these
periods.
F-10
Stem Cell Therapy International, Inc.
(a development stage enterprise)
Notes to Condensed Consolidated Financial Statements
Three and Nine Months Ended December 31, 2007 and 2006 (unaudited)
and the period from December 2, 2004 (Date of Inception)
through December 31, 2007 (unaudited)
7. 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 $1,351,000 at December 31, 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
and the Company's historical losses, the Company has placed a full valuation
allowance against that asset of approximately $876,400.
The income tax provision differs from the amount of tax determined by applying
the Federal statutory rate as follows:
Period from
Nine Months Ended December 2, 2004
------------------------------ through
December 31, December 31, December 31,
2007 2006 2007
-------------- -------------- ------------------
Income tax provision
at statutory rate ($387,400) ($205,400) ($791,800)
Increase (decrease) in
income tax due to:
Nondeductible expenses 600 1,400 1,300
State income taxes, net (41,400) (21,900) (84,600)
Change in valuation
allowance 428,200 225,900 875,100
-------------- -------------- ------------------
$ - $ - $ -
============== ============== ==================
There was no current or deferred provision or benefit for income taxes for the
nine months ended December 31, 2007 and 2006 and for the period from December 2,
2004 (Date of Inception) through December 31, 2007. The components of deferred
tax assets as of December 31, 2007 and March 31, 2007 are as follows:
December 31, 2007 March 31, 2007
------------------- ----------------
Deferred tax (liability) asset:
Accrued payroll $ 105,800 $ 64,200
Options and warrants 260,600
Net operating loss carryforward 508,700 382,700
------------------- ----------------
875,100 446,900
Valuation allowance (875,100) (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.
F-11
Stem Cell Therapy International, Inc.
(a development stage enterprise)
Notes to Condensed Consolidated Financial Statements
Three and Nine Months Ended December 31, 2007 and 2006 (unaudited)
and the period from December 2, 2004 (Date of Inception)
through December 31, 2007 (unaudited)
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 December 31, 2007, the Company had
issued these shares of common stock and has included $57,708 in prepaid expenses
for services not yet performed pursuant to the agreements.
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. The warrant was valued at $419,864 using the
Black Scholes pricing model and will be recognized over the service period of
nine months. As of December 31, 2007, the Company has included $233,258 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 December 31, 2007,
no funding has been secured; however, Westminster did facilitate the acquisition
of Altadyne, Inc. 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 December 31,
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.
F-12
Stem Cell Therapy International, Inc.
(a development stage enterprise)
Notes to Condensed Consolidated Financial Statements
Three and Nine Months Ended December 31, 2007 and 2006 (unaudited)
and the period from December 2, 2004 (Date of Inception)
through December 31, 2007 (unaudited)
8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
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 December 31, 2007, the Company has not entered into any funding
agreements, and therefore the third party is not owed any consideration.
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 December 31,
2007, 250,000 of the warrants valued as $33,750 have been issued, with the
remaining 250,000 warrants to be issued in 125,000 increments at the end of each
90 day period beginning March 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 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. RELATED PARTY TRANSACTIONS
The due to related party account of $200,200 is made up of advances from the
majority stockholder to assist the Company with its financial obligations.
These advances are non-interest bearing, unsecured and due on demand.
The above amount is not necessarily indicative of the amount that would have
been incurred had a comparable transaction been entered into with independent
parties.
F-13
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
13
and at December 31, 2007, we had a working capital deficit of $352,037 and an
accumulated deficit from operations of $2,352,750. As noted in the Report of the
Independent Registered Certified 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.
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 December 31, 2007 and for the nine months ended December 31, 2007 and 2006
We had revenue of $132,960 during the nine months ended December 31, 2007
as compared to $236,260 of revenue for the comparable period in 2006. Revenues
during 2007 reflected the treatment of five patients whereas there were nine
patients treated during the same period ended 2006.
14
Our cost of goods sold for the stem cell biological material delivered
during the nine months ended December 31, 2007 was $52,268 as compared to
$125,060 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 nine months ended December 31, 2007 was 61% compared
to a negative gross profit margin of (2%) for the nine months ended December 31,
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 nine months ended December 31, 2006, there is no such
charge during the nine months ended December 31, 2007.
Selling, general and administrative expenses increased $640,654 to
$1,242,360 for the nine months ended December 31, 2007 as compared to $601,706
for the nine months ended December 31, 2006. The increase in selling, general
and administrative expenses for the nine months ended December 31, 2007 is
primarily due to an approximate $506,000 increase in share based compensation
for options awarded to executives.
Our net loss for the nine months ended December 31, 2007 was $1,163,302 as
compared to $604,271 during the same period in 2006. The loss primarily reflects
an increase in share based compensation.
As of December 31, 2007 and for the three months ended December 31, 2007 and
2006
We had revenue of $30,000 during the three months ended December 31, 2007
as compared to $90,000 of revenue for the comparable period in 2006. Revenues
during 2007 reflected the treatment of one patient whereas there were three
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 December 31, 2007 was $13,000 as compared to
$32,435 for the same period ended 2006. The decrease in cost of goods sold is
due to the decrease in patient treatments in 2007 compared to the same period in
2006.
Gross margins for the three months ended December 31, 2007 was 56% compared
to a gross profit margin of 63% for the three months ended December 31, 2006.
The decrease in gross margin is due to decrease in the number of patients and a
higher cost associated with the current year patients than in the prior year.
Selling, general and administrative expenses increased $204,717 to $362,080
for the three months ended December 31, 2007 as compared to $157,363 for the
three months ended December 31, 2006. The increase in selling, general and
administrative expenses for the three months ended December 31, 2007 is
primarily due to an approximate $184,000 increase in professional fees.
15
Our net loss for the three months ended December 31, 2007 was $345,153 as
compared to $100,017 during the same period in 2006. The loss primarily reflects
decrease in patients and the increase in professional fees.
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial statements have been prepared assuming that the
Company will continue as a going concern. For the nine months ended December 31,
2007 and the period since December 2, 2004 (date of inception) through December
31 the Company has had a net loss of $1,163,302 and $2,352,750, respectively and
cash used by operations of $164,095 and $450,717, respectively, and negative
working capital of $352,037 at December 31, 2007.
As of December 31, 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 December 31, 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
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.
16
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 December 31, 2007, the Company carried out an evaluation
of the effectiveness of the design and operation of the Company's disclosure
controls and procedures. This evaluation was carried out under the supervision
and with the participation of the Company's management, including the Company's
Chief Financial Officer (who has served as the principal financial and
accounting officer) and its President (who serves as the principal operating
officer). Based upon that evaluation, the Company's President and Chief
Financial Officer have concluded that the Company's disclosure controls and
procedures are effective in alerting them to material information regarding the
Company's financial statement and disclosure obligation in order to allow the
Company to meet its reporting requirements under the Exchange Act in a timely
manner.
The Company's management, with the participation of its President and Chief
Financial Officer, has determined that there has been no change in the Company's
internal control over financial reporting that occurred during the Company's
last fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the Company's internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
17
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 nine months ended December 31, 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:
10.30 Newbridge Securities Agreement*
10.31 Business Advisory Agreement with Newbridge Securities Corporation**
18
10.32 Employment Agreement - Calvin Cao**
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 and Chief Financial Officer certification pursuant
to 18 U.S.C. Section 1350
* Filed with the Company's quarterly report on form 10-QSB for the quarter ended
June 30, 2007, filed August 16, 2007 as file number 000-51931.
** Filed with the Company's quarterly report on form 10-QSB for the quarter
ended September 30, 2007, filed November 20, 2007 as file number 000-51931.
_______________________
(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: February 19, 2008
By: /s/Calvin Cao
-------------
Name: Calvin Cao
Title: President
Date: February 19, 2008
By: /s/Andrew J. Norstrud
---------------------
Name: Andrew J. Norstrud
Title: Chief Financial Officer
19