UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
AMENDMENT NO. 4
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of The Securities Exchange Act of 1934
STEM CELL THERAPY INTERNATIONAL, INC.
(Name of Small Business Issuer in its charter)
NEVADA
(State or other jurisdiction of incorporation or organization)
88-0374180
(I. R. S. Employer Identification No.)
2203 N. LOIS AVENUE, 9TH FLOOR, TAMPA, FL 33607
(Address of principal executive offices) (Zip Code)
(Issuer's telephone number) (813) 600-4088
Securities to be registered pursuant to Section 12(b) of the Act:
None
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001 par value
------------------------------
(Title of Class)
1
TABLE OF CONTENTS
PART I 3
Item 1. Description of Business. 3
Item 2. Management's Discussion and Analysis or Plan of Operation. 36
Item 3. Description of Property. 42
Item 4. Security Ownership of Certain Beneficial Owners and Management. 43
Item 5. Directors and Executive Officers, Promoters and Control Persons. 44
Item 6. Executive Compensation. 48
Item 7. Certain Relationships and Related Transactions. 50
Item 8. Description of Securities. 50
PART II 53
Item 1. Market Price of and Dividends on the Registrant's Common
Equity and Related Stockholder Matters. 53
Item 2. Legal Proceedings. 54
Item 3. Changes in and Disagreements with Accountants. 54
Item 4. Recent Sales of Unregistered Securities. 54
Item 5. Indemnification of Directors and Officers. 57
PART F/S Financial Statements F-1
PART III 59
Item 1. Index to Exhibits. 59
Item 2. Description of Exhibits. 59
2
ITEM 1. DESCRIPTION OF BUSINESS.
COMPANY HISTORY
Stem Cell Therapy International, Inc. (the "Company") is engaged in the
licensing of stem cell technology, the sale of stem cell products, and the
referral of patients to affiliated stem cell clinics through it's wholly-owned
subsidiary Stem Cell Therapy International Corp ("Stem Cell Florida"), which the
Company acquired in 2005. The complete history of the Company and its operating
subsidiary is as follows:
The Company's operating subsidiary is Stem Cell Florida. Stem Sell Florida
was incorporated in Nevada on December 2, 2004, with the primary purpose of
establishing stem cell transplantation clinics and stem cell marketing. Prior
to the reverse acquisition and since inception, Stem Cell Florida was a
development stage company whose activities had been limited to raising capital,
organizational matters, and the structuring of its business plan. Stem Cell
Florida remains in a developmental stage, as the Company continues to focus
primarily on developing its business strategy and financing the Company.
The Company was originally incorporated in Nevada on December 28, 1992 as
Arklow Associates, Inc. On March 20, 1997, the Company changed its name to The
Ultimate Cigar Company, Inc. On July 22, 1999, the Company changed its name to
Ultimate Direct, Inc. On January 11, 2005, the Company changed its name to
Altadyne, Inc.
On March 20, 2005, R Capital Partners, Inc., a Nevada Corporation ("R
Capital"), acquired the Company (then Altadyne, Inc., a shell company).
Pursuant to the agreement, the Company issued 22,500,000 shares of Altadyne,
Inc. common stock to R Capital in exchange for $125,000.
On September 1, 2005, Stem Cell Florida acquired the Company (then
Altadyne, Inc.) from R Capital by way of a reverse acquisition. R Capital, Stem
Cell Florida, and the Company (then Altadyne, Inc.) entered into a
Reorganization and Stock Purchase Agreement. At that point, the Company had no
assets, liabilities or ongoing operations. Pursuant to the agreement, Altadyne
acquired 100% of the issued and outstanding shares of common stock of Stem Cell
Florida in a non-cash transaction and Stem Cell Florida became a wholly-owned
subsidiary of Altadyne. As consideration for 100% of the shares of Stem Cell
Florida, the shareholders of Stem Cell Florida acquired (1) shares newly issued
by the Company (then Altadyne, Inc.), and (2) certain shares transferred by R
Capital. Of the 22,500,000 shares originally held by R Capital, R Capital
retained 4,349,196 shares and transferred 4,000,000 shares to finders
unaffiliated with R Capital. R Capital transferred the remaining 14,150,804
shares held by it to the shareholders of Stem Cell Florida and others. In
addition, the Company issued 11,030,000 new shares to the shareholders of Stem
Cell Florida and others. The recipients of these 25,180,804 shares include the
shareholders of Stem Cell Florida, unaffiliated consultants in exchange for
services, and members of the President's family in exchange for a reduction in
debt owed to the President.
3
As a result of this transaction, Stem Cell Florida became a wholly owned
subsidiary of the Company (then Altadyne, Inc.), and the shareholders of Stem
Cell Florida became shareholders of the Company. The Company assumed operation
of the business of Stem Cell Florida, which was to establish stem cell therapy
clinics and stem cell marketing. On October 5, 2005, the Company changed its
name to Stem Cell Therapy International, Inc. to reflect the new business of the
Company.
COMPANY AND BUSINESS OVERVIEW
The Company's executive management team are: Calvin C. Cao, Chairman and
Chief Executive Officer; Daniel J. Sullivan, Chief Financial Officer; and Peter
K. Sidorenko, Chief Operating Officer. The Company's affiliate, ICT, also has
the following officers: Dr. Yuriv Gladkikh, Chief Scientist; Dr. Galina
Lobyntseva, Chief of Manufacture; Sergei Martynenko Director of Clinic in Kiev;
Dr. Vladimir Gladkikh, Medical Director; and Dr. Dimitriy Lobyntsev, Director of
Research. Although these persons are not employees of the Company, we consider
them vital to the success of our company.
We are indirectly involved, as a "middle man," in research and development
and practical application within the field of regenerative medicine. SCTI
provides allo (human) stem cell biological solutions that are currently being
used in the treatment of patients suffering from degenerative disorders of the
human body. 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.
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.
Our mission is to make available our stem cell products to treatment
facilities around the world, so that patients suffering from biological and
neurological disorders, previously deemed incurable by traditional medicine, may
find a solution to their disabling and crippling conditions within the new field
of stem cell transplantation therapy. Our products include solutions containing
allo stem cell biological solutions, adult stem cells (stem cells that remain
undifferentiated in a mature organism) and stem cells which are extracted from
umbilical cord blood.
Members of our U.S. and European Medical and Scientific Advisory Boards
review each patient's condition and medical history. They establish an
individual treatment protocol for each patient that includes the appropriate
stem cell transplantation therapy, the number of stem cell doses required,
special diet and lifestyle recommendations as well as physical therapy and
specific exercise and recovery programs. There are no set criteria to determine
these questions; the members of each Board use their professional expertise and
judgment to determine the treatment protocol on a case by case basis. The
Boards are independent consultants.
4
In the future we plan to introduce a number of different cures and
treatments, and develop vertical markets in all aspects of stem cell use, which
will improve the quality of life for thousands of patients around the world,
much sooner than later.
Stem cell transplantation therapy is a field of medicine which uses
techniques and technologies that rely on replacing diseased, damaged or
dysfunctional cells with healthy, functioning ones. This therapy is similar to
the process of organ transplantation where the treatment only consists of the
transplantation of allo stem cells into the body rather than entire organs, thus
eliminating any chance of rejection, or the need for expensive and potentially
dangerous immunosuppression drug therapy (the use of drug therapy to suppress
the immune system, in order to prevent the immune system from attacking a
transplanted organ). See Mayo Clinic Medical Services, "Stem Cell Transplant,"
at www.mayoclinic.com/health/stem-cell-transplant/CA00067.
These new techniques are being applied to potentially finding a cure for a
wide range of human disorders, including neurological diseases such as
Alzheimer's, Parkinson's Disease, ALS (which is also commonly known as Lou
Gehrig's disease), 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 and can alleviate the side
effects of chemotherapy. See "List of Diseases Potentially Treated by the
Company's Technology" below page 15 for a more complete discussion.
Our research and biological productions affiliate facility is located in
Kiev in the Republic of the Ukraine. This facility is the main location for the
members of our SCTI European Scientific and Medical Advisory Board and serves as
a working affiliate treatment facility as well.
Since 1981, the study and production of biological preparations from animal
and human cells were being carried out within the framework of the scientific
programs under the aegis of the National Academy of Sciences, the Medical
Academy of Sciences, the Ministry of Public Health and the Coordination Center
for Organ, Tissue, and Cells Transplantation within the Ukraine Ministry of
Public Health. The applications of biological stem cell preparations have been
sanctioned by the Ministry of Public Health of the Ukraine since 1991 (The end
of communist control in the Ukraine). See P. Filaroski, "ALS Victim Hunts for
Cure in Ukraine Clinic Offers Hope in Stem Cell Treatment," The Florida
Union-Times, July 17, 2002.
We also have an affiliate treatment facility in Tijuana, Mexico, we
currently have a Treating Physicians Agreement with Dr. Vargas and Dr. Quintero
to treat patients that we refer at the Tijuana clinic.
The Company's offices are presently located at 2203 N Lois Ave 9th Floor,
Tampa, FL 33607. The Company's website is HTTP://WWW.SCTICORP.COM.
-----------------------
5
PRINCIPAL PRODUCTS AND SERVICES
We do not directly offer any medical advise, diagnosis or treatment
involving Stem Cells, and we do not create stem cells. Instead, we have
obtained licenses for stem cell technology and essentially act as a "middle man"
between stem cell product suppliers, clinics, and patients. Our stem cell
products are presently manufactured only by Institute of Cell Therapy ("ICT").
We have a License Agreement with ICT with respect to distribution of their
biological solution of stem cell materials in many countries of the world, but
we have to date focused only on countries which allow use of such products.
To date, we have referred patients to ICT for treatment at their Kiev,
Ukraine facility. We have also referred patients to a facility in Tijuana,
Mexico. We have an affiliate agreement with the Institute of Cell Therapy, which
is the treatment facility in Kiev, Ukraine as well as an affiliate agreement
with the treatment facility in Tijuana, Mexico. Both of these clinics are
independently owned and operated by the treating physicians at each location.
Our involvement is to refer patients for treatment to either facility. We also
purchase the stem cell biological solution used for the treatment of the
patients from ICT for use by the local clinics in each location. Beyond the
referral service and the purchase of the stem cell biological solution, we have
no involvement or control on how the clinics are staffed or operated. That
function remains with the local treating physicians. These clinics operate
independently of our operations, receive patients from sources in addition to
our referrals and are controlled by their principals without management
assistance or direction from our operations.
While we may enter into relationships with other facilities in the future,
to date we only have utilized the services of the two independent clinics for
referrals of our patients.
Accordingly, our primary source of revenue comes from: (1) providing
referral services, including information and education services, to patients,
and (2) supplying the clinic with stem cell products that they will use on the
patients that we refer to them. The amount we charge for these services is
comparable to other companies providing this type of referral service. Other
than the ICT facility in Kiev, we have negotiated with the Tijuana clinic and
will negotiate with other future clinics we intend to utilize for the pricing of
the biological solution of stem cell materials which we supply to them. The
terms and conditions, including any potential volume discounts, are negotiated
on an individual basis.
We have established a Medical and Scientific Board of Advisors (the
Advisory Board) who act as consultants and whose responsibility is to determine
any potential patients' medical condition based on specific medical test results
and other information that is provided by the patient's treating physician.
These consultants are neurosurgeons, M.D.'s, Ph.D.'s, scientists and research
fellows, all of whom are currently working in the field of stem cell treatment
and research. The Advisory Board determines the viability of the stem cell
transplantation therapy for each potential patient and whether or not the
potential patient will benefit from stem cell treatment. If the Advisory Board
determines that a patient's condition will not improve upon receiving the stem
cell transplantation, then the patient is not accepted for treatment. However,
if the Advisory Board determines that the patient may benefit from stem cell
6
transplantation, then management, the Advisory Board and the patient determine
which treatment facility will provide the best possible treatment for the
patient's condition. Each member of the Advisory Board receives 10,000 shares
of restricted common stock as compensation for the services provided to the
Company. These shares are awarded without regard to how many patients are
recommended for stem cell therapy, if any. Management believes that it has
recruited industry respected individuals to form the Advisory Board and
encourages those members to recommend only what is in the best interest of each
patient. A potential conflict of interest may exist as the members of the
Advisory Board are compensated with restricted common stock and the value of
that common stock may be influenced by the number of patient procedures
recommended by the Advisory Board. In addition, two members of the Advisory
Board are located in Mexico and provide treatment services to patients, which
could result in an additional conflict of interest.
In addition, some members of the Advisory Board are requested to perform
additional services, such as evaluating new technologies and products that are
available for stem cell treatment. In exchange for these services, these
members are compensated with additional shares of restricted common stock
equivalent in value to the services provided, as determined by the Company's
management.
Although the market for our services is in its infancy and still
developing, the potential market includes any person with a disease or injury
that becomes treatable by stem cell therapy. Thus, our market depends largely
on the Research and Development efforts of our affiliates and others from which
we may obtain licenses in the future.
Information, Education and Referral Services
Through our website and organizations like the StrokeNetwork.org,
DifferentStrokes.org, the MS Society, we have a worldwide referral network of
potential patients seeking stem cell treatment at our affiliate clinics in Kiev,
Ukraine and Tijuana, Mexico. We offer information, education and referral
services for those individuals with degenerative conditions seeking stem cell
and related therapies in a lawful jurisdiction outside of the United States.
Sales of Stem Cell Products
Once we have referred patients to an affiliated clinic, we supply that
clinic with the stem cell products that they will use on the referred patients
(which in the case of the Kiev facility would be simply to have ICT supply the
product locally). Our principal stem cell products are solutions containing
allo stem cell biological solutions, either adult stem cells or stem cells which
are extracted from umbilical cord blood. We do not directly collect, culture or
clone stem cell lines. Instead, we have entered into a License Agreement with
the Institute of Cell Therapy ("ICT") in Kiev, Ukraine. The License operates as
both a license to use ICT's intellectual property, and as a distribution
agreement. Pursuant to the agreement, we purchase stem cell materials from ICT,
and sell the solutions to affiliated clinics. The material terms of the License
Agreement are explained in greater detail below. We only provide stem cell
products to clinics in Kiev and Tijuana (although we may have future
affiliations), which are highly specialized, professional medical treatment
facilities around the world in locations where Stem Cell Transplantation therapy
is approved by the appropriate local government agencies.
7
Our mission is to make available its stem cell products to treatment
facilities around the world, so that patients suffering from biological and
neurological disorders, previously deemed incurable by traditional medicine, may
find a solution to their disabling and crippling conditions within the new field
of stem cell transplantation therapy. We also intend to provide these products
in the United States to universities, institutes and privately funded laboratory
facilities for research purposes and clinical trials, to the extent allowed by
United States law.
OVERVIEW OF STEM CELLS AND THEIR BENEFITS
Stem Cell Transplantation is a minimal surgical procedure that has been
used successfully for more than 70 years as a treatment of many diseases for
which modern medicine has had no therapy, or in which traditional therapies
stopped being effective. A documented 5 million patients have already been
treated using Stem Cell Transplantaion worldwide to-date, evidenced by over
140,000 publications in MEDLINE. For a complete resource on stem cells and stem
cell transplantation, visit www.nlm.nih.gov/medlineplus/stemcellsandstemcell
transplantation.html.
Stem cell transplantation is not a "wonder drug," or a transplantation of
some "wonder cell" that will cure everything. The body of every member of the
animal kingdom, including man, is built from about 200 kinds of cells, see P.
Dasgupta, "Much Ado about Stem Cells," The Statesman SciTech Supplement, Aug.
20, 2001, available at http://cactus.eas.asu.edu/ Partha/columns.htm, and since
1998 the Company's affiliated entities have been able to prepare stem cell
transplants and make such transplants available for patient treatment, without
immunosuppression.
This is the result of more than 20 years of ongoing research by many
individuals and companies, and clinical experience with stem cell
transplantation in patients suffering from those diseases where physicians
recognized that their patient needed an outright transplantation of allo stem
cells to replace the dead or non-functioning cells, or a direct stimulation of
regeneration (i.e. repair) of the damaged cells and tissues of various organs.
There are crucial differences in the mechanism of the action of Stem Cell
Transplantation as opposed to traditional drug (chemical) therapy and organ
transplantation; Cell transplantation is a vastly different approach to existing
medical therapy. Everything in the living body is in constant motion:
electrons, protons, and other elementary particles of each atom, all atoms, all
molecules, all cell organelles (the specialized parts of a cell, analogous to a
cell's "organs"), as well as all fluids, which represent between 75% and 55% of
body weight. See University of Massachusetts, Amherst Dining Services, "The Six
Basic Nutrients," at
http://www.umass.edu/diningservices/nutrition/six_basic_nutrients.html.
Further, there is electromagnetic radiation associated with all such movement, a
subject almost completely neglected by medical science. The final result of all
of this activity is that every cell in your body (with the possible exception of
certain neurons) is programmed to die. All cells of our body are being
continuously replaced, albeit each kind with different speed. See generally
Christopher Potten and James Wilson, Apoptosis: the Life and Death of Cells,
Cambridge University Press (2004) for a complete discussion on the death and
replacement of the body's cells.
8
It is common knowledge among the medical community that generally in every
disease the principal cells of a diseased organ die faster than the sick body is
able to replace them. When the quantity of principal cells of a diseased organ
drops below a certain limit, the organ dies. If it is a vitally important organ,
without which one cannot live, such as the heart, liver or brain, for example,
and surgeons cannot replace such a dying organ, the sick organism will die, as
well. Current medicine knows of one treatment only when it becomes mandatory to
replace dead cells, tissues, or organs--transplantation. Transplantations of
organs from human donors, such as heart, kidney, liver, etc., have become fairly
common nowadays. See "The Future of Organ Transplantations," at
http://www.itvisus.com/programs/cemr/press_futureorgan.asp. These are life
saving major surgical procedures, usually done as a "treatment of last resort."
Besides the obvious surgical risk, there is always a problem of rejection.
See "Transplant Rejection," at
http://en.wikipedia.org/wiki/Transplant_rejection. The body of the recipient
patient rejecting a transplanted organ from another body is almost always
guaranteed as an issue in transplantation surgery, and the only way to prevent
it is by taking immunosuppressants (drugs used to suppress the immune system)
for the rest of the patient's life. These drugs can stop a rejection for some
time, but only at the expense of serious, often life-endangering, complications.
By suppressing the patients' immune system it leaves the patient vulnerable to
many types of infectious diseases. See "Immunosuppression," at
http://en.wikipedia.org/wiki/ Immunosuppression.
Some organs cannot be transplanted, such as the brain, spinal cord, eyes,
neural system or the immune system, so that many diseases cannot be treated by
organ transplantation. See "Whole Body Transplant" at
http://en.wikipedia.org/wiki/Brain_transfer; Boulder Eye Surgeons, "Basic Eye
Facts," at http://www.bouldereyesurgeons.com/basiceyefacts.htm; F. Wilt,
"Continuation of Discussion of Cloning," at
http://mcb.berkeley.edu/courses/mcb31/lect10.html.
Transplantation of bone marrow hematopoitic stem cells was introduced into
clinical practice in the 1950s, approximately the same time as the first
successful organ transplantation. See The Fred Hutchison Cancer Research
Center, "The History of Transplantation," at
http://www.fhcrc.org/science/clinical/ltfu/faqs/transplantation.html; The
Southeast Tissue Alliance, "History of Organ and Tissue Transplantation," at
http://www.donorcare.org/ about_history.html. The Company believes that stem
cell transplantation will dominate the medicine of the 21st century. The main
reasons for such statements are:
1) Stem cell transplantation is a minor procedure for a patient, (no more
than an Intra Muscular injection or an Intra Venus drip like a transfusion) and
for that reason the Company believes it can be, and should be, used in the
earlier stages of those diseases that current medicine cannot cure, or even
treat. It means that there is no logical reason to wait until the end-stage, as
is the case with organ transplantation, and has been the case with stem cell
transplantation until now.
2) One of the reasons why stem cell transplantation is such a simple
procedure for a patient to go through is the principle of "homing." Homing
means that the respective stem cells do not have to be implanted directly into a
damaged organ, (e.g. liver stem cells into liver), they can be implanted into
more accessible superficial tissues, (e.g. under certain connective tissues of
an abdominal muscle), because they will find their way into the damaged organ,
as if "attracted" by it. See National Heart, Lung, and Blood Institute, "Homing
Determinants in Stem/Progenitor Cells," 25 NIH Guide No. 24 (1996), available at
http://grants.nih.gov/grants/guide/rfa-files/RFA-HL-96-020.html.
9
3) The Company believes that every diseased organ in the human body can be
treated by stem cell transplantation.
4) Besides serving as a replacement for dead cells of a diseased organ, the
transplanted cells can bring back to life (or repair) those cells of such organ
which actually have not died, just stopped functioning properly as a result of
the disease. In other words, besides transplanting new stem cells there is
another mechanism of action of stem cell transplantation: a direct stimulation
of regeneration (or repair) of existing organs at the cellular level. See O.
Lindvall et al., "Stem Cells For the Treatment of Neurological Disorders," 441
Nature 1094 (2006), available at
http://www.nature.com/nature/journal/v441/n7097/full/nature04960.html
5) If stem cells are properly prepared, such as by the methods employed by
the Company, they can be implanted without immunosuppression, and thus avoid all
complications caused by the use of such medications. For clinical examples of
the use of stem cells without the need for immunosuppression, See Makkar, R. et
al., "Intramyocardial Injection of Allogenic Bone Marrow-Derived Mesenchymal
Stem Cells Without Immunosuppression Preserves Cardiac Function in a Porcine
Model of Myocardial Infarction," 10 J. Cardiovascular Pharmacology &
Therapeutics 225 (2005), available at http://cpt.sagepub.com; Johns Hopkins
Heart Institute, "Stem Cell Therapy Effectively Treats Heart Attacks in
Animals," at http://www.hopkinsmedicine.org/ Press_releases/2004/
The Company's stem cell transplants do not require immunosuppressant
medications after treatment. This methodology is patented in Russia and in the
Ukraine in licenses held by the Company. The Company has not discovered a new
procedure of Stem Cell Transplantation, but is using technology which has been
in existence for some period of time.
The Company utilizes a patented method to prepare Stem Cell Transplants of
any of the approximately 200 kinds of cells for clinical use, which can be
implanted with safety and without the need for immunosuppression medication to
prevent rejection of stem cells.
WHAT IS STEM CELL TRANSPLANTATION?
Stem cells can be compared to floating voters - they have yet to make up
their minds. They are unspecialized cells that can renew themselves indefinitely
and develop into specialized, more mature cells. They have the potential to be
useful in repairing or replacing damaged body parts, and the hope is that they
could be the basis for future treatments of many diseases, including Alzheimer's
and Parkinson's diseases, spinal cord injuries, multiple sclerosis and diabetes.
10
Stem cells can potentially be derived from several sources: (1) from
embryos while they are still microscopic clusters of cells; (2) from fetal
tissue, usually from aborted fetuses; and (3) perhaps with greater technical
difficulty, from adult organs, for example from bone marrow during
transplantation. See St. Jude's Children's Research Hospital, "Stem Cell
Sources," at http://www.stjude.org/stem-cell-trans/0,2527,419_4135_6103,00.html.
Possible sources of embryonic stem cells are embryos left over from
fertility treatment that would otherwise be discarded, and specially created
embryos. Embryos could be specially created using standard in vitro
fertilization (IVF) techniques, whereby a sperm cell and an egg cell are
combined. Other methods are cloning techniques, such as cell nuclear
replacement (where the nucleus of an adult cell is introduced into an
unfertilized egg), and parthenogenesis (where an egg cell is activated into
commencing development without being fertilized). A potential advantage of
cloning is that it could avoid the recognition by the recipient's immune system
of the tissue developed from the stem cells as foreign, and rejection of the
tissue. Once isolated, stem cells can be cultured and stored. As well as being
potentially useful in treating disease (therapeutic cloning), cloned embryos
could be implanted into a woman with a view to the birth of a child
(reproductive cloning). See The Royal Society, "Stem Cells and Cloning," at
http://www.royalsoc.ac.uk/landing.asp?id=1202 for a complete resource on stem
cells and cloning. Neither the Company nor its affiliates have any plans to
clone human embryos.
Human embryonic stem cells were successfully isolated and cultured from
embryos in the United States in 1998. These embryos were produced for clinical
purposes, and donated for the research. See "What is the History of Stem Cell
Research?" at http://www.allaboutpopular
issues.org/history-of-stem-cell-research-faq.htm.
In summary:
- Stem Cell Transplantation is a surgical procedure that has its origins in
bone marrow transplants first performed in the 1950s, and has the potential to
treat many conditions for which modern medicine has had no therapy, or for which
'state-of-art' therapies stopped being effective;
- Stem cell transplantation is not a 'wonder drug';
- Stem cell transplantation directly stimulates repair of the damaged cells
of any and all organs and tissues, and replaces dead or non-functioning cells;
- Stem cells can be of human (allo-) or animal (xeno-) origin; and
- Stem cell transplantation can be done through implantation by injection,
minor or major surgery, or by surface application.
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ILLUSTRATIONS OF STEM CELLS AND HOW THEY WORK
When an egg is fertilized, the cells start to divide, first into two, then
four, eight cells, and more and more cells. Cell division continues, after four
days from fertilization, the conceptus (fertilized, pre-birth entity) becomes a
multi-cell ball called a blastocyst. After ten days, the blastocyst will begin
to form an embryo. The precursor stem cells of any and all organs or tissues
are harvested along with other members of the cell family from the fetus at 27
days and can be transplanted into a patient to treat a variety of conditions.
Stem cells can regenerate into new cells, repairing or replacing the damaged
cells.
Chemokine
Receptors
HEART WITH DAMAGED OR INJURED CELLS (DIAGRAM 2)
-----------------------------------------------
HEALTHY STEM CELLS
------------------
Healthy stem cells circulate and are attracted to damaged or injured cells
Chemokine Receptors
[GRAPHIC OMITTED]
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BASIC STEM CELL CYCLE
[GRAPHIC OMITED]
[GRAPHIC OMITED]
The following photographs are an example of a topological application of stem
cells for burn patients. The patient depicted in the following graphics was
treated by our affiliate clinic in Kiev, which is run by ICT. All photographs
of the patient were produced by ICT.
Burn patient's state, before and after stem cell vs. traditional tissue
regeneration therapy.
(Course of this treatment was 30 days)
[GRAPHIC OMITED]
13
[GRAPHIC OMITED]
Burn patients condition 30 days after beginning stem cell therapy and
tissue regeneration therapy. Stem cell biological solution applied 10 days prior
to picture being taken.
STEM CELL INDUSTRY CONSIDERATIONS
In the nascent, but rapidly growing field of stem cell therapies, products
are a long way from being commercialized. However, the market potential for
stem cell therapies products is very large. See generally "Cell Therapy
Commercialization: Applying Stem Cell and Related Strategies," Drug and Market
Development Publishing, January, 2006.
Much has been made of President Bush's 2001 executive order limiting the
use of federal funds for human embryonic stem-cell research. With this absence
of federal funding for stem cell research, researchers and stem-cell supporters
are seeking private investment to drive the science and the industry forward.
According to an abundant and diverse body of clinical studies, scientists
believe embryonic stem cells, which can grow and assimilate into any type of
body tissue, could eventually provide a unique way to repair damaged or diseased
tissue and treat or cure ailments including Parkinson's disease, Alzheimer's,
14
diabetes and even spinal cord injuries. See "List of Diseases Potentially
Treatable by the Company's Technology," below page 15. Supporters say the
laboratory creation and study of these lines, which could number in the
hundreds, is crucial to the advancement of the research.
Private donations have also spurred discovery of new stem-cell lines at
Harvard, which subsequently created the Stem Cell Institute, and the University
of Wisconsin, the University of California and Johns Hopkins have all made
advancements in stem-cell research.
According to an editorial published in RED HERRING (Feb 2003), stem cell
therapies are poised to capture what could be the biggest new market to hit
biotech in a decade, nearly equal to the whole biotech industry at present.
This estimate doesn't even address the market for stem cells capable of
repairing damaged vital organs like the brain, heart, and kidneys."
California's Proposition 71 currently allocates $3 billion funding for stem
cell research and development. Other states are rapidly following suit. On
April 7, 2006, for example, the governor of Maryland signed a new bill into law
setting aside $15 million for stem cell research.
According to the website of the U.S. NIDDK (National Institute of Diabetes,
Digestive & Kidney Diseases) 18.2 million people - 6.3% of the population -
suffer from diabetes mellitus in the U.S. in 2000 and over 194 million globally.
COMPANY STRATEGY
Stem Cell Therapy International, Inc. is currently earning revenue from
stem cell sales outside of the United States, as it has done since 2005. The
Company plans to expand its global operations to meet expanding market needs.
Growth plans include:
- Expansion of indirect manufacturing capability, by acquiring additional
licenses from cryobanks worldwide
- Establishment of "showcase" treatment clinics: We intend to establish
additional treatment clinics, either by creating additional affiliations with
independent clinics or by setting up and directly running our own clinics. We
intend for each clinic to become a source of both company and revenue growth,
and also literally a "showcase" to demonstrate the efficacy, safety, and overall
benefits of our products and Stem Cell Transplantation generally. To accomplish
these goals, the Company will hold these clinics to the highest standards of
quality patient care.
- Increased sales to clinics and physicians globally: We intend to create
additional affiliations with treatment facilities and clinics in lawful
jurisdictions where stem cell transplantation therapy is permitted by the
appropriate government agencies. We will refer patients to these clinics as
well as provide the supply of stem cell products to treat these patients.
- Increased sales of our stem cell products to university and private
laboratories globally, for use in research and clinical studies. We intend
increase sales by teaming up with global distributors of life science products
15
and focus on the sales and distribution of the biological solutions created at
ICT to be used for research and development programs at universities and private
laboratory facilities.
- Joint Ventures with Ministries of Health in different countries: We will
set up partnerships with different Ministries of Health that will allow stem
cell transplantation in their jurisdiction by trained medical professionals and
treating physicians. We will supply the stem cells and refer patients to be
treated in those countries as per our agreements.
- Expansion of involvement with research and development activities: Our
affiliates will continue to develop new stem cell products, and we will continue
to seek licenses for newly developed technology
- Increasing patent portfolio: We currently hold rights to 26 patents
registered in the Ukraine, pursuant to a License Agreement between the Company
and ICT. We intend to apply for patents based on the technologies behind these
26 Ukrainian patents in other countries, including the United States. As part
of this endeavor, we will seek to acquire technologies from government health
agencies. We currently plan to work with the National Institute of Health in
the United States, and will consider working with additional government health
agencies in the future.
- Licensing of technology to appropriate partners: Where appropriate and in
the best interest of the Company, we will enter into License Agreements with
various partners to allow them use of our intellectual property.
The Company was created to serve as a legal and distribution entity for an
ongoing project of stem cell transplantation by a group of physicians-experts in
this field from various western and eastern countries. The Company provides
stem cell solutions that are currently being used in the treatment of patients
suffering from degenerative disorders of the human body. 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 as well, to universities, institutes and privately funded
laboratory facilities for research purposes and clinical trials.
LIST OF DISEASES POTENTIALLY TREATED BY THE COMPANY'S TECHNOLOGY:
Together with independent clinical research studies, our affiliates'
successful clinical results with about thirty patients, which the company
considers quite an adequate number considering the developmental stage our
industry is in, have demonstrated several categories of diseases that
potentially can be cured or otherwise treated by the use of stem cell
transplantation therapy.
16
The following is a non-exhaustive list of diseases that have either
actually been treated with stem cell therapy, or have had positive clinical
results that indicate that the disease may be treatable in the not-so-distant
future:
Cancers and other Malignant Growths
- Acute and Chronic Leukemia
- Myelodysplastic Syndromes
(Pre-Leukemia)
- Hodgkin's Disease and other Lymphomas
- Neuroblastoma
- Brain Tumors
- Ewing Sarcoma
- Ovarian Cancer
- Renal Cell Carcinoma
- Small-Cell Lung Cancer
- Testicular Cancer
SOURCES: Family Cord Blood Services, "Stem Cell Applications," at
http://www.familycordbloodservices.com/applications_list.cfm (hereinafter
"FCBS"); Cord Blood Registry, "Current Stem Cell Applications," at
http://www.cordblood.com/cord_blood_banking_with_
cbr/banking/diseases_treated.asp (hereinafter "CBR"); Czyz, J. et al., "Outcome
and Prognostic Factors in Advanced Hodgkin's Disease Treated with High-Dose
Chemotherapy and Autologous Stem Cell Transplantation: a Study of 341 Patients"
15 Annals of Oncology 1222 (2004), available at
http://annonc.oxfordjournals.org.
Immunodeficiencies
- Autoimmune Diseases
o HIV/AIDs
o Multiple Sclerosis
o Rheumatoid Arthritis
o Systemic Lupus Erythematosus
- Histiocytic Disorders
o Familial Erythrophagocytic Lymphohistiocytosis
o Hemophagocytosis
o Histiocytosis-X
o Langerhans' Cell Histiocytosis
- Congenital Immunodeficiencies
o Absense of T & B Cells
o Absense of T Cells
o Ataxia-Telangiectasia
o Bare Lymphocyte Syndrome
o Common Variable Immunodeficiency
o DiGeorge Syndrome
o Kostmann Syndrome
o Leukocyte Adhesion Deficiency
o Omenn's Syndrome
o Severe Combined Immunodeficiency
o Wiskott-Aldrich Syndrome
o X-Linked Lympho-proliferative Disorder
- Other Immune Disorders
o Neutrophil Actin Dysgenesis
o Reticular Dysgenesis
o Chediak-Higashi Syndrome
o Chronic Granulomatous disease
SOURCES: CBR; FCBS; Hearthstone Communications, Ltd., "Women's Health
Information: Diseases Treated by Cord Blood," (2006) at
http://www.womens-health.co.uk/diseases_treated.html (hereinafter
"Hearthstone"); E. Rivero, "UCLA AIDS and Stem Cell Researchers Discover Way to
Develop T-cells From Human Embryonic Stem Cells, Raising Hopes for a Gene
Therapy to Combat AIDS," UCLA News, July 3, 2006, available at
http://www.newsroom.ucla.edu; Z. Galic, et al., "T lineage Differentiation from
Human Embryonic Stem Cells," Proc. Natl. Acad. Sci. (2006), published online
before print at http://www.pnas.org; R. Burt et al., "Hematopoietic Stem Cell
Transplantation: A New Therapy for Autoimmune Disease" 4 The Oncologist 77
(1999), available at http://alphamedpress.org.
17
Metabolic Diseases
- Endocrine Diseases:
o Diabetes Type 1 & 2
o Diabetic complications
o Hypothyroidism
o Suprarenal insufficiency
- Cystic Fibrosis
- Leukodystrophy:
o Krabbe's Disease (globoid cell leukodystrophy)
o Adrenoleukodystrophy
o Metachromatic Leukodystrophy
- Gaucher's disease
- Niemann-Pick Disease
- Mucoplysaccharide Deficiencies:
o Mucopolysaccharidoses (MPS)
o Hurler's Syndrome (MPS-IH)
o Scheie Syndrome (MPS-IS)
o Hunter's Syndrome (MPS-II)
o Sanfilippo Syndrome
(MPS-III)
o Morquio Syndrome
(MPS-IV)
o Maroteaux-Lamy Syndrome (MPS-VI)
o Sly Syndrome, Beta-Glucuronidase Deficiency (MPS-VII)
SOURCES: CBR; Hearthstone; D. Castillo, "In Stem Cells, Researchers see Hope
for Cures" Missourian News, April 28, 2006, available at
http://www.columbiamissourian.com/news/story.php?ID=19662 (hereinafter
"Castillo").
Neurological Diseases
- Adulthood/Age-Related:
o Alzheimer's Disease
o Huntington's Disease
o Lou Gehrig's Disease
o Parkinson's Disease
- Neurological Birth Defects:
o Autism
o Cerebral Palsy
o Down's Syndrome
o Epilepsy
- Serious traumas of the spinal cord and cerebrum
- Other Nervous System Disorders:
o Depression
o Loss of Memory
o Migraine
o Cerebral spastic infantile paralysis
o Neuritis
o Consequences of a cranio-cerebral trauma
o Encephalitis
o Stroke and its Consequences
SOURCES: CBR; Castillo; Business Communications Company, Inc., "Down's Syndrome
Stem Cells Studied," Applied Genetics News, Feb. 2002, available at
http://www.findarticles.com; R. Parker, "Depression Tied To Hippocampal Stem
Cells," Future Pundit, Oct. 30, 2002, available at
http://www.futurepundit.com/archives/000477.html; Harvard Stem Cell Institute,
"Nervous System Diseases Program," at
http://stemcell.harvard.edu/research/disease/neuro; Center for Immunotherapy and
Cell-Based Technologies, "Stem cell therapy for the spinal cord injury
treatment" at http://www.transplantation.ru/spinal-cord-injury-treatment.php.
18
Blood and Bone Marrow Disorders
- Myeloproliferative Disorders
o Acute Myelofibrosis
o Agnogenic Myeloid Metaplasia
o Essential Thromocythermia
o Polycythemia Vera
- Inherited Red Cell Abnormalities:
o Beta Thalassemia Major
o Blackfan-Diamond Anemia
o Pure Red Cell Aplasia
o Sickle Cell Anemia
- Inherited Platelet Abnormalities
o Amegakaryocytosis/ Congen-ital Thrombocytopenia
- Plasma Cell Disorders
o Multiple Myeloma
o Plasma Cell Leukemia
o Waldenstrom's Macroglobulinemia
- Stem Cell Disorders
o Congenital Cytopenia
o Dyskeratosis Congenita
o Fanconi Anemia
o Multiple Myeloma
o Paroxysmal Nocturnal Hemoglobinuria
o Plasma Cell Leukemia
o Severe Aplastic Anemi
SOURCES: CBR; FCBS; Hearthstone.
Other Organ-Specific Diseases
- Cardiovascular system diseases:
o Myocardial infarction
(heart attack)
o Cerebral atherosclerosis (Stroke)
o Essential hypertension
o Ischemic heart disease
o Neurocirculatory dystonia.
- Muscular Dystrophy
- Systemic diseases of connective tissue:
o Atrophic arthritis
o Systemic angiitis
o Systemic lupus
o Systemic scleroderma
o Systemic sclerosis
o Rheumatism
- Respiratory diseases:
o Bronchial Asthma
o Bronchitis
o Chronic Pneumonias
o Chronic Obstructive Pulmonary disease
o Congenital Lung Hyoplasia
o Pulmonary Fibrosis
- Liver diseases:
o Cirrhosis
o Viral and Toxic Hepatitis
o Liver Fibrosis
- Kidney and urinary tract diseases:
o Pyelonephritis
o Cystitis
o Urethritis
o Urinary Incontinence
- Obstetrics and gynecology:
o Premature detachment of the placenta
o Pre-term delivery
o Toxicosis of pregnancy
o Fetal hypotrophy
o Menopause
o Climacteric neuroses
- Skin diseases:
o Psoriasis
o Tropic ulcers
o Dermatitis
- Ocular diseases:
o Retinal Degeneration
- Dental and oral cavity diseases.
- Osteopetrosis
19
SOURCES: CBR; FCBS; Castillo; J. Morser et al., Eds., Stem Cells in
Reproduction and in the Brain (2006); S. Terai et al., "Improved Liver Function
in Liver Cirrhosis Patients after Autologous Bone Marrow Cell Infusion Therapy,"
Stem Cells (2006), electronically published ahead of print, abstract available
at http://stemcells.alphamedpress.org/cgi/content/abstract/2005-0542v1;The Royal
Society, "Dr Fiona Watt FRS - Getting under the skin," at
http://www.royalsoc.ac.uk/page.asp?id=1567 (2006); L. Hemphill, "Dental stem
cells have been characterized for tooth tissue engineering," at
http://www.eurekalert.org (2006); R. Nash et al., "Allogeneic Marrow
Transplantation in Patients with Severe Systemic Sclerosis: Resolution of Dermal
Fibrosis," 54 Arthritis & Rheumatism J. 1982 (2006); L. Bergeron, "Behind method
for activating adult stem cells, a shaggy-mouse story," Stanford Report, August
24, 2005, available at
http://news-service.stanford.edu/news/2005/august24/mice-082405.html; Home
Office (UK), "Stem Cell Therapy for Ocular Disease," Animals in Scientific
Procedures (2006), Abstract available at
http://scienceandresearch.homeoffice.gov.uk/animal-research/publications; S.
Ricardo, "Stem Cells in Renal Regeneration and Repair," at
http://www.med.monash.edu.au/anatomy/research/kidney-scarring.html (2005); Stem
Cell Network, "Research Overview," at
http://www.stemcellnetwork.ca/research/overview.php (2005); Harvard Stem Cell
Institute, "Cardiovascular Disease," at
http://stemcell.harvard.edu/research/disease/cardio (2005); "Stem Cells 'To
Treat Liver Harm'" BBC News, December 16, 2004, available at
http://news.bbc.co.uk; I. Neuringer and S. Randel, "Stem Cells and Repair of
Lung Injuries," 5 Respiratory Research 6 (2004), available at
http://respiratory-research.com; "Stem Cells Offer Hope for Urinary
Incontinence" Health Day News, Nov. 29, 2004, available at
http://www.medicineonline.com/conditions/article.html?articleID=3055; A. Perillo
et al., "Stem cells in gynecology and obstetrics," 46 Panminerva Medica 49
(2004), available at http://www.minervamedica.it/index2.t; "Healing the Heart
with Stem Cells" Blood Weekly, Sept. 4, 2003, available at
http://www.newsrx.com/newsletters/Blood-Weekly/2003-09-04.html; "Bone Marrow
Cells Capable of Becoming Kidney Cells," Daily University Science News, July 25,
2001, available at http://unisci.com; Department of Health and Human Services,
"Can Stem Cells Repair a Damaged Heart?" in "Stem Cells: Scientific Progress and
Future Research Directions" (2001), available at
http://stemcells.nih.gov/info/scireport; P. Goodenough, "Adult Stem Cells May
Help Treat Kidney Disease," at
http://www.cnsnews.com/Culture/archive/200107/CUL20010725b.html (2001);
Department of Health and Human Services, "Stem Cells and Diabetes," in "Stem
Cells: Scientific Progress and Future Research Directions," (2001), available at
http://stemcells.nih.gov/info/scireport; R. K. Burt et al., "Intense Immune
Suppression for Systemic Lupus--the Role of Hematopoietic Stem Cells," 20 J.
Clinical Immunology 31 (2000); C. Padovan et al., "Angiitis of the Central
Nervous System after Allogeneic Bone Marrow Transplantation?" 30 Stroke 1651
(1999), available at http://stroke.ahajournals.org/cgi/content/full/30/8/1651;
J. Mastrandrea et al., "Hemopoietic Progenitor Cells in Atopic Dermatitis Skin
Lesions," 9 J. Investigational Allergology & Clinical Immunology 386 (1999).
Other Applications
- Surgical Diseases
o Osteomyelitis
o Fractures
o Reconstructive Operations on Bone Tissue
- Male and female sexuality:
o Impotency
o Sterility
o Contraception
- Gerontology and Anti-Aging
- Rejuvenation SC Therapy
o Increasing vitality
o Slowing down pre-senility
o Relieving age-related pathologies
o Prolonging life
o Improving memory
o Improving quality of life
SOURCES: C. Weinand et al., "Hydrogel-Beta-TCP Scaffolds and Stem Cells for
Tissue Engineering Bone," 38 Bone 555 (2006); T. Rando, "Stem Cells, Ageing and
the Quest for Immortality," 441 Nature 1080 (2006), available at
http://www.nature.com/nature/journal/v441 /n7097/full/nature04958.html; Center
for Immunotherapy and Cell-Based Technologies, "Stem Cell Therapy for Chronical
Osteomyelitis," at http://www.transplantation.ru/osteomyelitis.php
(2006);National Institutes of Health, Clinical Trials, "Autologous Implantation
of Mesenchymal Stem Cells for the Treatment of Distal Tibial Fractures" at
http://www.clinicaltrials.gov/ct/gui/show/NCT00250302 (2005); "Researchers
Identify Gene Linked To Sperm-producing Stem Cells In Mammals," Science Daily,
May 24, 2004, available at
http://www.sciencedaily.com/releases/2004/05/040524060300.htm; M. Mattson, Ed.,
Stem Cells: A Cellular Fountain of Youth (Advances in Cell Aging & Gerontology)
Elsevier Publishing Company (2002); R. Parker, "Depression Tied To Hippocampal
Stem Cells," at http://www.futurepundit.com/archives/000477.html (2002).
Based on the enormous amount of positive clinical studies in such a broad
array of different diseases, the Company firmly believes that every diseased
organ may become treatable with stem cells, including diseases of the digestive
tract, ear, nose and throat diseases, infectious diseases, allergies, and other
long-term chronic diseases of the internal organs.
Our affiliate clinics in Kiev, Ukraine and Tijuana, Mexico have treated
several different diseases, as described below. Even though the Company is
still in its developmental and planning stage, to date we have already referred
two patients for treatment to the Kiev clinic: one stroke patient and one
multiple sclerosis patient.
20
LICENSE AGREEMENT WITH INSTITUTE OF CELL THERAPY
In September, 2005, the Company acquired Stem Cell Therapy International
Corp., a Nevada Corporation ("Stem Cell Florida"), which became a wholly-owned
subsidiary of the Company and is currently the Company's operational business.
In doing so, the Company acquired the entirety of Stem Cell Florida's
intellectual property, which most significantly included a License Agreement
with the Institute of Cell Therapy, a Kiev, Ukraine corporation ("ICT"), the
material terms of which are as follows:
Effective August 5, 2005, Stem Cell Florida entered into a licensing
agreement with ICT. ICT is the owner of: (1) a unique process for producing
biological solution of human stem cells (the "Process"); (2) 26 Patents related
to stem cell transplantation (the "Patents"); and (3) products consisting of
biological solution of human stem cells (the "Products"). ICT is in the
business of producing biological solution of human stem cells and engages in
continuing research regarding the production and utilization of stem cells.
In accordance with the license agreement, Stem Cell Florida obtained
exclusive utilization in all but the Ukraine, Dominican Republic and three other
countries of the world (to be designated by ICT) of the Patents, the Products
and the Process of ICT for establishing clinics, marketing, treating and
administering stem cell products to customers, and selling certain limited
amounts to universities, for research or to private labs.
The licensing agreement also functions effectively as a distribution
agreement pursuant to which Stem Cell Florida purchases stem cell materials for
delivery to patients from ICT. Stem Cell Florida has a fixed pricing
arrangement with ICT and an exclusivity to the supply of those products provided
Stem Cell Florida meets certain annual minimums. The licensing agreement
guarantees a minimum purchase of 60 portions per twelve month period. The
biological component of a portion purchased from ICT is comprised of umbilical
cord blood and includes additional growth hormone additives and nerve growth
factors. In the event that the Company is unable to purchase the minimum
quantities, ICT will be entitled to draw upon an irrevocable letter of credit at
the rate of $2,000 for every portion less than the minimum required purchase.
The Company has provided ICT with a $120,000 irrevocable letter of credit in
ICT's favor for the first three year's of the agreement. In the event the
letter of credit is drawn upon, the Company agrees to replenish the letter of
credit to the extent of any such draws. We do not expect to incur additional
charges from ICT for not meeting the contractual minimum purchase requirements
as our sales have continued to increase.
The license agreement extends for ten years and may be renewed for an
additional ten year period. In consideration for the license agreement, Stem
Cell Florida issued 5,000,000 shares of common stock to ICT, which we valued at
$5,000, and which are subject to resale restrictions and limitations.
Stem Cell Florida recorded the $5,000 as a prepaid expense to be amortized
over the 120 month life of the agreement at $47.67. When the Company acquired
Stem Cell Florida, the Company re-classified the prepaid balance to show only
one year's worth of prepaid expense, with the remaining balance appearing as a
long-term item.
21
NUMBER OF PATIENTS TREATED BY THE COMPANY'S AFFILIATES:
The company does not directly treat patients with Stem Cell Therapy, but
instead refers patients to clinics affiliated with the Company. The following
table reflects the treatments to date by clinics affiliated with the Company,
including the types of diseases treated and the number of patients treated for
each disease:
DISEASES TREATED WITH SCTI PATIENT SPECIFIC NUMBERS OF PATIENTS
STEM CELL TRANSPLANTS TREATED
- ------------------------------------------- -------------------
Type 1 Diabetes & Type 2 Diabetic
complications 5
- ------------------------------------------- -------------------
Stroke 1
- ------------------------------------------- -------------------
Multiple Sclerosis 2
- ------------------------------------------- -------------------
Acute Leukemia 4
- ------------------------------------------- -------------------
Rectal Cancer 1
- ------------------------------------------- -------------------
Congenital Aplastic Anemia 2
- ------------------------------------------- -------------------
Acquired Aplastic Anemia 4
- ------------------------------------------- -------------------
Closed abdominal injury, traumatic kidney
rupture, nephrectomy 1
- ------------------------------------------- -------------------
Neuro-degenerative diseases 3
- ------------------------------------------- -------------------
Sigmoid colon cancer 1
- ------------------------------------------- -------------------
Severe Skin Burn Patient 1
- ------------------------------------------- -------------------
Liver cirrhosis 1
- ------------------------------------------- -------------------
Ovarian carcinoma 3
- ------------------------------------------- -------------------
The Company is presently affiliated with the following two clinics:
1. Kiev, Ukraine: Institute of Cell Technology,
2. Tijuana, Mexico: Dr. Salvador Vargas's clinic has been offering stem
cell transplants since 2000.
The clinics in Kiev, Ukraine and Tijuana, Mexico are independently owned
and operated. We have no ownership and we do not treat any patients. Our
affiliate clinics license our stem cell technology and we provide them with stem
cell products to treat patients.
Instead of treating patients, we provide information and education services
to patients interested in Stem Cell Therapy, and if they elect to pursue the
treatment we refer the patients to our Medical and Scientific Advisory Board, a
group of independent consultants. The Board determines if the patient is a good
candidate for Stem Cell Therapy, and if they are, the Company refers the
patients to one of our affiliated clinics. After we refer the patients to the
independent clinics, the Company has no further discretion regarding the
diagnosis, treatment, progress, or prognosis of the patient.
22
MANUFACTURING
Basic Approach
The basis of stem cell therapy is the presence of preparations of allo stem
cell biological solutions. The company's affiliate has developed and patented a
unique biological solution, which consists of hematopoietic human stem cells,
numerous low-molecular proteins, nutrients, hormones and human growth factors
(compounds made by the body to regulate cell division and cell survival). For
further reference this whole set will be called a "biological solution."
Stem cells are a fundamental principle of an organism; they give rise to
all 220 types of specialized cells and tissues of an organism. They are present
in the human embryo, placental complex, an adults' bone marrow and also in
insignificant number in other tissues. Their main feature is an ability to
regenerate: they are capable of making identical copies of themselves for the
lifetime of the organism. To put it simply, they are theoretically eternal. In
reality, as a result of enduring infections, traumas, hereditary infringements,
harmful factors of the environment and emotional stresses stem cells lose their
ability of endless regeneration and basically that is the starting point of the
aging processes and appearance of the long-term diseases which in turn stop the
processes of the stem cells division. If at birth their content equals one stem
cell to 10 thousand, then at the age of 50 it is already one to half a million
and at the age of 70, one to a million of the hematopoietic cells. See
generally Christopher Potten and James Wilson, Apoptosis: the Life and Death of
Cells, Cambridge University Press (2004).
The isolation process of stem cells for medical purposes is the most
expensive part of modern biotechnology for stem cells. Today there have been
effective methods worked out for the isolation of stem cells from an embryo,
fetus and umbilical cord blood (the rest of the blood in an umbilical cord and
placenta after delivery). Modern technology allows for the preparation of these
cells for the treatment of many diseases.
The Company believes that the most promising way to create this
individualized medication, which could be used in the case of disease or the
loss of any organ, is to keep stem cells in a frozen condition, collecting the
rest of the umbilical cord blood during a birth and using preparations created
on their basis. Upon introduction into the organism of a patient, stem cells
find the struck organs, the so-called target organs, where they migrate and
provide powerful restoration of whole biological structures, normalize the
metabolism, harmonize the immune status of an organism, and make active
antineoplastic factors (compounds that prevent the growth and development of
malignant cells). This way cell suspension introduction results in the increase
of the number of leukocytes (white blood cells) in ontological patients with
chemo rays depression of hemopoiesis (the formation of blood cells in the body)
from 2 to 5 thousand for two weeks.
23
Stem cells actively perform their main responsibility - they replace the
sick and old cells of an aging organism rejuvenating it, which cannot be done by
any other medicine. Also, highly active regulating factors are present within
the cells suspension which exist and work only during an embryonic period of the
organism's development. That is why the cells suspension introduction in the
adult organism and engraftment of stem cells among the aging and pathologically
altered cells of this organism creates a unique situation when the most powerful
development, renewal and functions' ensuring factors that only exist start
constantly influencing the cells and organs of the adult organism.
These biological preparations in their complex state influence:
- normalization and stimulation of the metabolism
- rise in the activity of the immune and neuro-endocrinal systems
- strongly marked antineoplastic action;
- delay pre-senility, dynamically rejuvenating the organism
- strongly marked medical effects upon diversified pathologies
In the Ukraine the study and production of biological preparations from the
animal and human cells were being carried out within the framework of the
scientific programs under the aegis of the National Academy of Sciences, Medical
Academy of Sciences, Ministry of Public Health, Coordination Center of the
organs, tissues, and cells transplantation of the Ministry of Public Health of
Ukraine.
The application of allo (human) biological preparations have been allowed
by the Ministry of Public Health of Ukraine since 1991.
Cryopreservation
The ICT Lab in Kiev has developed and received a number of patents for the
preparation, cryo-preservation and the thawing process for biological material
which results in a 99% survival rate of the original biological mass. It is a
unique process developed by ICT and the technology is licensed to us for a
period of 10 years with an option to renew for another 10 years.
Long-term methods of storage have been used in medical practice for a long
time. Among those commonly famous methods of storage there is lyophilization
(freeze-drying), treatment by alcohol or formalin solutions and some others.
But the basic drawback of such methods of storage is dehydration of protein
compounds which cause cells and tissues to completely lose their main biological
features - ability to function after transfusion.
Nowadays, low temperatures are the only way to allow for the storage of
cells and tissues for long time intervals (running for years) in a viable
condition. Storage in liquid nitrogen at the temperature of -196 C is the
basic method of the long-term storage of biological objects today. The
development of personal modern technologies of cryogenic-preservation,
24
corresponding to world standards as well as observing the demands of producing
biological preparations, their testing, marking and storing in accordance with
statements of the European Tissue Banks Association, allowed us to create the
supplies of high-quality cryogenically-preserved embryonic stem cells, tissue
preparations and extracts for clinical application. We have developed a system
of examination and treatment of patients with minimum risk and maximum effect
with the most diversified pathologies.
Quality Control
The efficiency of stem cell therapy is ensured through the latest special
methods of bacteriological and virological control which guarantee the highest
quality of preparations. Every preparation prepared for use is supplied with
its own certificate containing test results which certify the safety of this
biological preparation. The patient's safety assurance totally corresponds with
international Standards of Activity of the European and American Tissue Banks
Association.
We have developed a system with our Kiev affiliate that is based on total
confidentiality, provides production of biological preparations in accordance
with the necessary requirements concerning the selection, preparation for
storage, storage and distribution of preparations for use in various medical
institutions.
The scientists, directors, executives and doctors at ICT, our affiliate in
the Ukraine, have a proven track record of more than 25 years in developing,
manufacturing, delivering worldwide and practically applying stem cell
transplants therapies. In 1981, ICT patented its first stem cell treatment
technology, and has been applying its processes ever since. Even before then,
ICT had obtained several patents relating to the preservation of various cell
and tissue types. To date, they have patented and practically applied 26
technologies regarding stem cells and related biological processes. To the best
of the Company's knowledge, most other stem cell research facilities have yet to
apply stem cell technology to actual medical practice; unlike most of its
competitors, our affiliate's experience with the practical application of its
stem cell transplants extends beyond research and development.
The Company warrants that a batch of allo stem cell biological solution for
transplants are individually prepared for a specific patient have been
manufactured in accordance with and in strict compliance with Good Manufacturing
Practice ("GMP"), and following the regulations of the U. S. Food and Drug
Administration (the "FDA") as well as the respective regulatory agencies of the
European Union. GMP is a set of guidelines established by the FDA regarding the
production or manufacture of any drug or biological products. The FDA certifies
and enforces US manufacturers that comply with the GMP standards. Although the
Company is not GMP certified or GMP enforceable since its manufacturing
facilities are located outside of the U.S., we have voluntarily complied with
all GMP standards. More information on GMP standards is available at
www.gmp-online-consultancy.com.
The Company follows all steps recommended by the FDA and the respective
counterpart regulatory agencies of the EU. We have put into practice all of
these recommendations to aid and assure top quality preparations of each allo
stem cell biological solution therapy batch. In addition, many other specimens,
samples of each stem cell transplant(s) prepared by the Company are kept in
liquid nitrogen at its laboratories, pursuant to FDA regulations.
25
RESEARCH AND DEVELOPMENT
We do not directly engage in Research and Development. Instead, we license
the technology that results from Research and Development activities performed
by ICT, our affiliate in the Ukraine, and possibly the technology that results
from such activities by other affiliates or other independent companies in the
future. ICT currently has a number of related projects that are currently under
development or contemplated for the near future. They are as follows:
1. ARTIFICIAL ORGANS:
Stem cell transplants prepared by our method of primary cell culture are used
with a bio-polymer base to produce artificial organs. All stem cell transplants
could be turned into an artificial organ (individual specific organs that are
grown outside of the human body). This project is still in the planning stage,
and ICT has yet to substantially commence this project.
2. BIOLOGICALLY ENHANCED BIO-POLYMER MATERIALS FOR SURGERY:
- Bio-degradable bio-polymers used together with an osteogenetic
(bone-producing) combination of stem cell transplants.
- Foam hydro gel used together with a chondrogenetic (cartilage-producing)
combination of stem cell transplants.
- Foam hydro gel used together with a soft tissue combination of stem cell
transplants.
This project is still in the planning stage, and ICT has yet to substantially
commence this project
3. TOPOLOGICAL STEM CELL TRANSPLANTS FOR BURN VICTIM PATIENTS AND
COSMETIC SURGERY.
Stem cells are transplanted topologically (outside the skin) onto burn victims
and other cosmetic surgery patients. This project has already been developed
and tested on one burn patient, as described and illustrated above in the
section entitled "Illustrations of Stem Cells and How They Work." We have filed
one provisional patent in the United States for the use of this stem cell-based
topological cream.
MARKETING AND PROMOTION
The Company intends to offer the Clients a compelling proposition with the
potential to be quite valuable for many patients with degenerative conditions:
our product offers a potential solution when all traditional medical options
have been exhausted. The Company seeks to increase the number of Clients that
make a purchase, to encourage repeat visits and purchases and to extend Client
retention. Loyal, satisfied Clients also generate word-of-mouth advertising and
awareness, and are able to reach thousands of other Clients and potential
26
Clients because of the reach of on-line communication. The Company plans to
employ a variety of media, program and product development, business development
and promotional activities to achieve these goals. We put out periodic Press
Releases on our activities that are distributed by MacReport to numerous on-line
publication sites as well as printed magazines, newspapers and newsletters. In
addition, we have an on-line distribution network that sends these releases to
subscribed potential patients, medical practitioners, patient networks and
associations (such as the StrokeNetwork, Different Strokes, and Multiple
Sclerosis Society). Finally, by invitation of these same organizations, we have
participated in various on-line "chat" seminars organized by these organizations
to help educate and answer questions on stem cell transplantation therapy.
Our marketing strategy will emphasize some basic directives to keep us
focused on our business model. The Plan and its implementation are described
below:
- The Company's clinics will be used as labs to develop the stem cell
transplantation therapies, be a training facility for other doctors and a base
for our Tele-Medicine and web based Support Application.
- Our goal is to cause the medical practitioners and clinics to network
together and propose stem cell transplantation to their patients as an
alternative regenerative medical procedure. We plan to achieve this goal by
continuing to develop the information available on our online distribution
network, by participating in further online seminars, and by any other means at
our disposal to increase awareness of stem cell therapy as an alternative to
traditional medicine.
- A related goal is to spread awareness of stem cell therapy to patients.
Many of our future patients may be totally unaware of the existence of stem cell
transplantation as a treatment and its many benefits. Many of them are
desperately seeking alternative treatment for their diseases, or have already
given up hope, as modern medicine failed them. Many have formed groups or
joined organizations, which are seeking help. Many are looking for anti-aging
therapies and need to be aware of the advantages of stem cell transplantation in
this context. All of our efforts outlined in this section are intended to
achieve this goal.
- Our marketing team will establish contact with existing patient
organizations. This direct marketing approach will be done on a
country-by-country basis, starting with Germany, which will be a springboard
into Europe and other countries, especially the United States. There is
currently no set plan as to which countries our team will establish our
marketing efforts in first. We will consider each country, region, or
particular organization and make an individualized determination as to where our
marketing efforts should focus after establishing themselves in Germany.
- Our marketing team will work directly with local specialists, ensuring an
efficient and rapid introduction in each country. Our team will develop a
marketing plan on a case-by-case basis, tailored to the particular culture,
demand, and laws of each country or region.
27
- Our website is connected to various internet search engines in order to
maximize exposure.
- In conjunction with accredited specialists in Information Technology, we
will set up a complete across-the-board computer-controlled logistics data bank
system. This system will be based in our affiliated clinics. It will cover the
steps of the process from order through manufacture, delivery and treatment,
concluding with follow-up records, always assuring patient privacy. Patients
and physicians will also be able to trace the procedure of timing and shipping
for their own preparations on the Internet.
Doctor and Clinic Support Services
The Company believes that a key objective is an ability to establish and
maintain long-term relationships with its doctors and clinics throughout the
world. The Company's planned team of customer support and service personnel
will be responsible for handling the education and training of doctors on our
Stem Cell Transplantation therapies and procedures. Doctor and clinic inquiries
and support will be addressed as part our global operations. The Company plans
to offer "Toll Free" phone numbers and through our website a Physician or
patient can research available therapies and how to contact us. The Company
plans to automate certain tools used by its Customer Support and Service staff
and intends to actively pursue enhancements to and further automation of its
Customer Support, Service and Operations.
PRICING
Our stem preparations are priced competitively with others in our industry,
reflecting pricing which has been the same as it has been in Germany for the
past approximate 10 years.
The complex approach to stem cell transplantation is based upon cleansing
and detoxification and balancing of all metabolic processes, whereby the patient
will be prepared to accept the stem transplants for their maximum healing
effects.
COMPETITION
We are unaware of any competitor that has the same business model in the
manufacturing process and cryo-preservation process of allo stem cell biological
solution and other products. To our knowledge, these procedures have only been
used by our affiliates. Further, we are unaware of any competitor engaged in
the business of providing educational, informational, and referral services to
potential candidates for stem cell therapy.
Although we have not noted any Companies that offer an identical array of
services, there are several stem cell companies that compete with us on an
individual service level. First, there are the stem cell research and
development companies that are only doing scientific work with stem cells, but
are not in the business of treating patients. Second, there are companies that
have their own treatment facilities and their own source of stem cells. Third,
there are the companies that supply the stem cells for research and treatment of
patients.
28
The Company's business model is not just to provide a referral service, but
to combine all aspects of the above mentioned areas in order to provide
value-added services to our patients with a minimum operating investment by the
Company. We plan to accomplish this by continuing to enter into various
licensing and treatment agreements with affiliate clinics and hospitals. We
will select which clinic and hospital facility we contract with based on the
resources available, IP and services that they each have available. This will
allow us to be able to have a number of global affiliate treatment facilties
that, when combined, provide the Company with all of the following value-added
services:
- Review and analysis of patient medical information
- Recommendation of treatment protocols
- Treatment of patients at multiple international locations
- Provide the stem cell biological solution to be used at our affiliate
treatment facilities
- Provide long-term tracking of patient's medical condition for data
collection and medical abstract development
There is no assurance that the Company will be able to compete successfully
against any such current and any developing future competitors, and competitive
pressures faced by the Company may have a material adverse effect on the
Company's business, prospects, financial condition and results of operations.
Further, as a strategic response to changes in the competitive environment, the
Company may from time to time make certain pricing, service or marketing
decisions or acquisitions that could have a material adverse effect on its
business, prospects, financial condition and results of operations. New
technologies and the expansion of existing technologies may increase the
competitive pressures on the Company.
In our research, the closest competitor that we have to our business model
is a company called VesCell (www.vescell.com). This company has licensed a
proprietary technology from their partner TheraVitae that uses the patients own
blood to draw out the stem cells which are then culture grown and are then used
as an injection back into the patient. VesCell has a number of affiliate
treatment facilities which are located in Thailand and Singapore where these
procedures are performed. VesCell also has a number of treating physicians at
each affiliate hospital or clinic facility that actually perform the stem cell
transplantation procedure. The cost of the VesCell therapy is $34,500. USD. per
treatment.
At the initial filing of this Registration Statement on Form 10-SB, the
Company had two affiliate treatment facilities outside of the United States:
Kiev, Ukraine and Tijuana, Mexico.
As part of our business model, we will continue to add and at times,
remove, affiliate treatment facilities that we do business with as per the needs
of the Company.
REGULATION
As the technological milestones for stem cell transplantation have been
announced, governments have begun to impose regulation. Many developed
countries have now drawn up legislation or codes, or signed up to Conventions,
regulating the creation and use of embryonic stem cells. Some regimes have
already been shown to be lagging behind the technology.
29
From a regulatory viewpoint stem cell transplant represents a very unique
product, which really is not really a "product" at all, because it does not
fulfill the legal definition of a medicinal "product." The FDA's regulations
label live cell transplants as products, while under German law they are
classified neither as drugs nor as medications, because:
- they are individually prepared for each patient,
- they are for one time use only, by implantation on a pre-determined date,
- the implantation is carried out by a physician who wrote a prescription
for the stem cell transplants used,
- stem cell transplants have no 'shelf-life', and
- they are not distributed through the usual channels.
The response of many governments to reproductive cloning is a complete ban,
but approaches to therapeutic cloning vary quite widely. The United States
presidency and various European bodies and institutions are taking a restrictive
approach to embryonic stem cells, while the United Kingdom has passed relatively
permissive legislation.
The United States
The United States' regulation falls into two main areas: control of federal
funds for research, and the broader question of regulation of the activities
themselves. Following an announcement by President Bush on August 9, 2001,
United States federal funds became available only for stem cell research on
embryonic cell lines already in existence. Before that, more liberal National
Institutes of Health ("NIH") Guidelines had recommended that funds were to be
available for the creation and use of stem cells from spare IVF embryos. The 64
embryonic cell lines identified by US officials as already being in existence,
and therefore a suitable subject for federally funded research, were generated
by various institutes in the United States, Sweden, Australia, India, and
Israel. We currently plan to seek research funding from the NIH, and will
consider seeking research funding from other government health agencies in the
future.
Separately from the funding issue, the regulation of embryonic stem cell
research is being actively considered by the US Government. On July 31, 2001,
the House of Representatives voted for a broad ban on human cloning that would
prohibit cloning for research purposes as well as for reproduction. The
resulting law imposes heavy financial penalties and terms of imprisonment on
those who generate cloned embryos, and thus affects both privately funded and
NIH-supported research. Fortunately, the Company's lines of allo transplants
are outside of this regulation, both because we do not engage in any cloning
activities, and because we do not engage in any stem cell production, research,
or development in the United States. Further, since all of our stem cell
activities are performed in jurisdictions where such activities are legal, we do
not currently have any obligation to obtain government approval for our
activities, and do not currently have any compliance costs. However, there is
no assurance that we will not face costs or the need for government approval
with regard to future regulations or the regulations of any country into which
we may expand our operations in the future.
30
Germany and the Rest of Europe
Germany's highest court re-affirmed its approval of therapeutic use of cell
allo transplantation on February 16, 2000, by its decision in the case number 1
BvR 420/97. Germany had previously approved of this use in the early fifties.
This German decision had serious implication for the remainder of the
European Community ("EC") as well. Under the European Community Council
Directives, all Member States of EC are obliged to accept laws and regulations
of other member States of European Community dealing with medical therapeutics
for human use, and that includes stem cell transplantation.
All applicable regulations of the Public Health Service, and EU Directives,
were incorporated in our manufacturing technology, and that was of enormous
importance in order to attain the heretofore unknown 'state-of-art' level of
safety of stem cell transplantation.
The European Community Council's Directives are in harmony with this German
legal concept, and thus European Community Member States do not classify stem
cell allo and/or xeno-transplants as 'products' either.
LEGAL PROCEEDINGS
The Company is not involved in any legal proceedings and is not aware of
any pending or threatened claims.
The Company expects to be subject to legal proceedings and claims from time
to time in the ordinary course of its business, including, but not limited to,
claims of alleged infringement of the trademarks and other intellectual property
rights of third parties by the Company and its licensees. Such claims, even if
not meritorious, could result in the expenditure of significant financial and
managerial resources.
INTELLECTUAL PROPERTY
Currently, we have the rights to 26 patents, filed in the Ukraine and other
countries, pursuant to our License Agreement with ICT. These patents concern
the production, storage, preservation, and practical application of stem cells.
Our agreement with ICT is for 10 years, and is renewable for another 10 years.
The following information reflects the status of the patents as of the date
hereof, and the countries where they are recognized. Some of these patents were
originally issued by the former Soviet Union, but are now recognized by the
countries listed. These patents are as follows:
1. Patent 560613. The method of erythrocytes preservation, 1977 (granted),
1975 (applied for), Russia
2. Patent 645633. The method of blood leukocytes preservation, 1978, 1977,
Russia
3. Patent 825081. The method of blood leukocytes preservation, 1981, 1979,
Russia
31
4. Patent 1 017251. The method of human ovary tissue preservation, 1981,
1979, Russia
5. Patent 1410954. The method of treatment of anemia's in pregnant woman
1983, 1981, Russia
6. Patent 13709. The method of treatment of anemia's in pregnant woman,
1997, 1997, Ukraine
7. Patent 1402781. The container for freezing of biological objects 1988,
1985, Russia
8. Patent 8457. The container for freezing of biological objects 1997, 1997,
Ukraine
9. Patent 1 706502. The method of preservation of human embryonic liver
hemopoietic cells, 1988, 1986, Russia
10. Patent 13687. The method of preservation of human embryonic liver
hemopoietic cells, 1991, 1989 Ukraine
11. Patent 1734621. Cryo-protector of hemopoietic cells, 1997, 1989, Russia
12. Patent 16859. Cryo-protector of hemopoietic cells, 1995, 1993 Ukraine
13. Application 93080788. The method of human immunodeficiency virus
treatment (HIV), 1995, 1993, Ukraine
14. Application 93090874 The method of treatment of cytostatic disease,
1997, 1995, Ukraine
15. Application 93251432. The method of treatment of pancreatic diabetes,
1995 Ukraine
16. Application 93121711. The method of treatment of aplastic anemia's,
1994, Ukraine
17. Application 95125139. The method of prevention of an acute radiation
sickness in lethally radiated animals, 1993, Ukraine
18. Patent 22981. The method of treatment of cerebral motional defects in
patients who have undergone craniocerebral injury 1997, 1993 Ukraine
19. Patent 46673 . The method of cryo preservation of human hemopoietic
cells 1997, 1995, Ukraine
20. Patent 2233589. The method of cryo preservation of human hemopoietic
cells, 2004, 2002, Russia
21. Patent 46675 A. The way of low-temperature cell bank operation, 2003,
2002, Ukraine
22. Patent 52502 A. The method of therapy of prostate gland cancer, 2003,
2002, Ukraine
23. Patent 56085 A. The method of obtaining a preparation of suspension of
placenta cells, 2003, 2003, Ukraine
24. Patent 59096 A. The method of biological preparations obtained from
placenta (variants), 2003, 2003, Ukraine
25. Patent 60238 A. The cryo-preservative content of hemopoietic cells of
donor's cord blood and its components, 2003, 2003, Ukraine
26. Patent 63844 A. Device for registration of processes in biological
tests, 2003, 2003, Ukraine
32
In addition, we currently have two provisional patent filings in the US:
- U.S. P&T Office Provisional Patent filing; Docket # 06011197, Customer #
26565. "STEM CELLS TO TREAT AND/OR PREVENT SYMPTOMS OF AVIAN INFLUENZA AND OTHER
DISEASES IN MAMALS AND OTHER ANIMALS"
- U.S. P&T Office Provisional Patent filing; Docket # 06061413, Customer #
26565. "COMPOSITION AND METHODS OF TREATING BURN VICTIMS USING STEM CELLS."
The Company is pursuing the registration of its trademark and service mark
in the U.S. and internationally, and has applied for the registration of its
"Cells For Life" trademark in China and the US. Effective Patent, trademark,
service mark, copyright and trade secret protection may not be available in
every country in which the Company's products and services are made available.
There is no assurance that the steps taken by the Company to protect: its
proprietary rights will be adequate or that third parties will not infringe or
misappropriate the Company's copyrights, trademarks, trade dress and similar
proprietary rights. In addition, there is no assurance that other parties will
not assert infringement claims against the Company.
EMPLOYEES
As of December 31, 2006, the Company employed seven full-time employees,
and no other employees. The Company also engages independent contractors and
other temporary employees in its operations and finance and administration
departments. None of the Company's employees is represented by a labor union,
and the Company considers its employee relations to be good. Competition for
qualified personnel in the Company's industry is intense, particularly among
Doctors and other technical staff. The Company believes that its future success
will depend in part on its continued ability to attract, hire and retain
qualified personnel.
33
RISK FACTORS
THE FOLLOWING RISK FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING THE
COMPANY, ITS BUSINESS, CONDITION AND PROSPECTS (FINANCIAL AND OTHERWISE). THESE
RISK FACTORS ARE NOT NECESSARILY EXHAUSTIVE AND ADDITIONAL RISK FACTORS, IF ANY,
MAY BE MATERIAL OR HAVE SIGNIFICANCE TO AN INDIVIDUAL INVESTOR. MANY INVESTMENT
OPPORTUNITIES INVOLVE RISK FACTORS OR A RISK OF LOSS AND THE EXISTENCE OF THE
NORMAL AND CERTAIN EXTRAORDINARY RISKS.
USE OF FORWARD-LOOKING LANGUAGE; FORECASTS UNRELIABLE: All statements,
trend analysis and other information contained in this document relative to
markets for the Company's products and trends in net sales, gross margin and
anticipated expense levels, as well as other statements including words such as
"anticipate," "believe," "plan," "estimate," "expect" and "intend" and other
similar expressions, constitute forward-looking statements. These
forward-looking statements are subject to business and economic risks, and the
Company's actual results of operations may differ materially from those
contained in the forward-looking statements.
LIMITED OPERATING HISTORY; ACCUMULATED DEFICIT; ANTICIPATED LOSSES: The
Company commenced operations upon execution of an exclusive global Licensing
Agreement with Institute of Cell Therapy (ICT). Accordingly, the Company has a
limited operating history on which to base an evaluation of its business and
prospects. The Company's prospects must be considered in light of the risks,
expenses and difficulties frequently encountered by companies in their early
stage of development. Nonetheless, there is no assurance that the Company will
be successful in addressing such risks, and the failure to do so could have a
material adverse effect on the Company's business, prospects, financial
condition and results of operations.
UNPREDICTABILITY OF FUTURE REVENUES; POTENTIAL FLUCTUATIONS IN QUARTERLY
OPERATING RESULTS; SEASONALITY; As a result of the Company's limited operating
history and the emerging nature of the biotechnological markets in which it
competes, the Company is unable to accurately forecast its revenues. The
Company's current and future expense levels are based largely on its investment
plans and estimates of future revenues and are to a large extent fixed and
expected to increase.
Sales and operating results generally depend on the volume of, timing of
and ability to fulfill the number of orders received for the biological solution
and the number of patients treated which are difficult to forecast. The Company
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 the Company's planned expenditures would have an
immediate adverse effect on the Company's business, prospects, financial
condition and results of operations. Further, as a strategic response to
changes in the competitive environment, the Company may from time to time make
certain pricing, service or marketing decisions which could have a material
adverse effect on its business, prospects, financial condition and results of
operations.
The Company expects to experience significant fluctuations in its future
quarterly operating results due to a variety of factors, many of which are
outside the Company's control. Factors that may adversely affect the Company's
quarterly operating results include (i) the Company's ability to retain existing
patients, attract new patients at a steady rate and maintain patient
34
satisfaction, (ii) the Company's ability to manage its 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 the Company's website, (viii) technical
difficulties, system downtime, (ix) the amount and timing of operating costs and
capital expenditures relating to expansion of the Company's business, operations
and infrastructure, (x) governmental regulation, and (xi) general economic
conditions.
MANAGEMENT OF POTENTIAL GROWTH: LIMITED SENIOR MANAGEMENT RESOURCES: While
we cannot be sure we will be successful in growing the Company's operations, our
goal is to rapidly and significantly expand our operations to address potential
growth and market opportunities. We intend to seek to accomplish this by adding
additional affiliate clinics, and by our marketing efforts. By adding
affiliates, our intention is to seek to not only increase the number of patients
that can be treated, but increase the visibility of stem cell therapy in
general. We believe that the combination of word of mouth and our marketing
efforts may lead to a significant growth in demand for our products and
services.
This expansion if successful could place a significant strain on the
Company's management, operational and financial resources. The Company may be
required to hire new employees including senior management, key managerial,
technical and operations personnel who would have to be fully integrated into
the Company, operational and financial systems, procedures and controls, and to
expand, train and manage its already growing employee base.
The Company also would be required to add finance, administrative and
operations staff. Further, the Company's management would be required to
maintain and expand its relationships with Affiliate Treatment Clinics and
Medical Facilities, University Labs, Private Labs and Treating Physicians
globally.
If we grow rapidly, there is no assurance that the Company's planned
personnel, systems, procedures and controls would be adequate to support the
Company's future operations, that the management would be able to hire train,
retain, motivate and manage required personnel or that Company management would
be able to successfully identify, manage and exploit existing and potential
market opportunities. If the Company is unable to manage growth effectively,
its business, prospects, financial condition and results of operations will be
materially adversely affected.
DEPENDENCE ON KEY PERSONNEL; NEED FOR ADDITIONAL PERSONNEL: The Company's
performance is substantially dependent on the continued services and on the
performance of its senior management and other key personnel, particularly the
Company's Chairman/CEO, Calvin C. Cao, and Chief Financial Officer, Daniel J.
Sullivan. The Company's performance also depends on the Company's ability to
employ, retain and motivate its other officers and key employees. The loss of
the services of any of its executive officers or future key employees could have
a material adverse effect on the Company's business, prospects, financial
condition and results of
35
operations. The Company has long-term employment agreements with its executive
officers and maintains "key person" life insurance policies. The Company's
future success also depends on its ability to identify, attract,
hire, train, retain and motivate other highly skilled doctors, scientists,
qualified PhD's, technical, managerial, marketing and customer service
personnel. Competition for such personnel is intense, and there is no assurance
that the Company will be able to successfully attract, assimilate or retain
sufficiently qualified personnel. The failure to retain and attract the
necessary doctors, scientists, qualified PhD's, technical, managerial, marketing
and customer service personnel could have a material adverse effect on the
Company's business, prospects, financial condition and results of operations.
COMPETITION: While we are presently unaware of any competitor that has
the same business model in the manufacturing process and cryo-preservation
process of allo stem cell biological solution and other products, competitors
may already exist or may develop with respect to our specific business model.
Although we have not noted any Companies that offer an identical array of
services, there are several stem cell companies that compete with us on an
individual service level. First, there are the stem cell research and
development companies that are only doing scientific work with stem cells, but
are not in the business of treating patients. Second, there are companies that
have their own treatment facilities and their own source of stem cells. Third,
there are the companies that supply the stem cells for research and treatment of
patients.
There is no assurance that the Company will be able to compete successfully
against any such current and any developing future competitors, and competitive
pressures faced by the Company may have a material adverse effect on the
Company's business, prospects, financial condition and results of operations.
Further, as a strategic response to changes in the competitive environment, the
Company may from time to time make certain pricing, service or marketing
decisions or acquisitions that could have a material adverse effect on its
business, prospects, financial condition and results of operations. New
technologies and the expansion of existing technologies may increase the
competitive pressures on the Company.
TRADEMARKS AND PROPRIETARY RIGHTS: The Company regards its copyrights,
service marks, trademarks, trade dress, trade secrets and similar intellectual
property as important, and critical to its success. In addition, certain
aspects of trademark and copyright law, trade secret protection and
confidentiality and/or license agreements with its employees may be relied upon
to protect its proprietary rights. The Company is pursuing the registration of
its trademarks and service marks in the U.S. and internationally, and has
applied for the registration of certain of its trademarks and service marks.
Effective trademark, service mark, copyright and trade secret protection may not
be available in every country. The Company expects that it may license in the
future certain parts of its proprietary rights, such as trademarks or
copyrighted material, to third parties.
36
There is no assurance that the steps taken by the Company to protect its
proprietary rights will be adequate or that third parties will not infringe or
misappropriate the Company's copyrights, trademarks, trade dress and similar
proprietary rights. In addition, there is no assurance that other parties will
not assert infringement claims against the Company. The Company is not currently
aware of any legal proceedings pending against it.
GOVERNMENTAL REGULATION AND LEGAL UNCERTAINTIES: The Company is subject to
regulation by domestic and foreign governmental agencies with respect to many
aspects of stem cell transplantation. In addition, new legislation or
regulation could occur. Any such new legislation or regulation, the application
of laws and regulations from jurisdictions whose laws do not currently apply to
the Company's business, or the application of existing laws and regulations to
stem cell transplantation technology could have a material adverse effect on the
Company's business, prospects, financial condition and results or operations.
CONTROL OF THE COMPANY: The Company's founders; Mr. Calvin Cao, Global
Capital Corp, together with Institute of Cell Therapy and the balance of the
Company's management, hold at least 51% percent of the outstanding voting power
of the Company. As a result, the founders and management will be able to (i)
elect, or defeat the election of, any of the Company's directors, (ii) amend or
prevent amendment of the Company's Restated Articles of Incorporation or Bylaws,
or (iii) affect or prevent a merger, sale of assets or other corporate
transaction.
The extent of ownership by the founders and the management may have the
effect of preventing a change in control of the Company or discouraging a
potential acquirer from making a tender offer or otherwise attempting to obtain
control of the Company, which in turn could have an adverse effect on the market
price of the Common Stock.
NO ASSURANCE OF PUBLIC MARKET FOR COMMON STOCK, POSSIBLE LACK OF MARKET
MAKERS; VOLATILITY. Although the Company's stock is currently quoted on the
pink sheets, there is no assurance that a public trading market will continue or
develop for the Common Stock. There is also no assurance that the existing
trading or any such future market will be characterized as active.
Development of an active trading market for the Company's Common Stock may
depend upon the interest of securities market makers and the investing public
which may depend in turn on the Company's revenues and profits. The prices of
securities of companies which are in limited supply in the public securities
markets, which could describe the Company, are typically volatile.
POSSIBLE NEGATIVE EFFECT OF COMMON STOCK AVAILABLE FOR FUTURE SALE: A
substantial component of the Common Stock issued by the Company is "restricted
stock" as defined in SEC Rule 144, promulgated under the Securities Act of 1933.
The offer of a significant number of restricted shares of Common Stock in the
37
future in the public market, at or about the same time pursuant to Rule 144 or
pursuant to a subsequent registration statement under the Securities Act of 1933
could have a depressive effect on the public market price of the Company's
common stock.
TRADING LIMITATIONS ON STOCK AT A MARKET PRICE OF LESS THAN $5.00 PER
SHARE: Management cannot predict the market price of the Common Stock in the
public market. At any time that the market price is less than $5.00 per share,
certain larger stock brokerage firms may prohibit purchase or sale of the Shares
within their clients' accounts.
All securities brokerage firms effecting purchase orders for clients in the
Company's common stock at a time when the common stock has a market bid price of
less than $5.00 per share are required by federal law to send a standardized
notice to such clients regarding the risks of investing in "penny stocks", to
provide additional bid, ask and broker compensation and other information to the
patients and to make a written determination that the Company's common stock is
a suitable investment for the client and receive the client's written agreement
to the transaction, unless the client is an established client of the firm,
prior to effecting a transaction for the client. These business practices may
inhibit the development of a public trading market for the Company's common
stock during periods that the price of the common stock in the public market is
less than $5.00 by both limiting the number of brokerage firms which may
participate in the market and increasing the difficulty in selling the Company's
common stock.
DEPENDENCE ON LICENSE AGREEMENT. Our business depends on our relationship
with ICT who is the principal supplier of stem cell biological solution that we
use with our patients and clients. Although we believe that alternative sources
of product are available, the loss of this supplier would have a material
adverse effect on our business, financial condition and results of operations.
LOSS OF FINANCING. We cannot guarantee that additional financing will be
available to us when needed or, if available, that it can be obtained on
commercially reasonable terms. Even if we are able to expand our business, we
cannot provide certainty that we will be successful or that investors will
derive a profit from an investment in our equity.
38
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
THE FOLLOWING INFORMATION SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED
FINANCIAL STATEMENTS OF STEM CELL THERAPY INTERNATIONAL, INC. AND THE NOTES
THERETO APPEARING ELSEWHERE IN THIS FILING. STATEMENTS IN THIS MANAGEMENT'S
DISCUSSION AND ANALYSIS OR PLAN OF OPERATION AND ELSEWHERE IN THIS REGISTRATION
STATEMENT THAT ARE NOT STATEMENTS OF HISTORICAL OR CURRENT FACT CONSTITUTE
"FORWARD-LOOKING STATEMENTS."
The following management discussion should be read together with the Stem Cell
Therapy International, Inc. financial statements included in this registration
statement See "Index to Financial Statements" at page F-1. Those financial
statements have been prepared in accordance with generally accepted accounting
principles of the United States of America.
GENERAL OVERVIEW
Stem Cell Therapy International, Inc. (the "Company") was originally
incorporated in Nevada on December 28, 1992 as Arklow Associates, Inc., and
after several name changes was renamed Altadyne, Inc. By March, 2005, the
Company (then Altadyne, Inc.) had no assets, liabilities, or ongoing business.
On March 20, 2005, R Capital Partners ("R Capital") acquired the Company (then
Altadyne, Inc.), and on September 1, 2005, the Company (then Altadyne), acquired
Stem Cell Therapy International Corp., a Nevada corporation ("Stem Cell
Florida") in what was effectively a reverse acquisition. Following the
transaction, Stem Cell Florida became a wholly owned subsidiary of the Company,
and Stem Cell Florida's shareholders became shareholders of the Company. On
October 5, 2005, the Company changed its name to Stem Cell Therapy
International, Inc. to reflect the new business of the Company. This
transaction is accounted for as a reverse merger, with Stem Cell Florida treated
as the accounting acquirer for financial statement purposes.
Stem Cell Florida was incorporated in Nevada on December 2, 2004. Following
the reverse acquisition, the Company assumed and is continuing the operations of
Stem Cell Florida. The Company's executive management team are: Calvin C. Cao,
Chairman and Chief Executive Officer and Daniel J. Sullivan, Chief Financial
Officer. The Company's affiliate in the Ukraine also has the following
non-executive officers: Dr. Yuriv Gladkikh, Chief Scientist; Dr. Galina
Lobyntseva, Chief of Manufacture; Sergei Martynenko, Director of Clinic in Kiev;
Dr. Vladimir Gladkikh, Medical Director; and Dr. Dimitriy Lobyntsev, Director of
Research. Although these individuals are not employees of the Company, we
consider them vital to the success of our business.
We are indirectly involved, as a "middle man," in research and development
and practical application within the field of regenerative medicine. We provide
allo (human) stem cell biological solutions that are currently being used in the
treatment of patients suffering from degenerative disorders of the human body.
39
We have established agreements with highly specialized, professional medical
treatment facilities around the world in locations where Stem Cell
Transplantation therapy is approved by the appropriate local government
agencies.
We intend to provide these biological solutions containing allo stem cell
products also in the United States to universities, institutes and privately
funded laboratory facilities for research purposes and clinical trials.
We will initially devote most of our efforts toward organization and fund
raising for planned clinics and patient operations and limited revenues have
been generated from any such operations. The Company has experienced recurring
losses from operations since its inception and as at December 31, 2006, we had a
working capital deficit of $508,597 and an accumulated deficit from operations
of $1,136,673. As noted in the independent audit report for the audited Stem
Cell Therapy International, Inc. financial statements for the period from
inception to March 31, 2006, these factors raise doubt about the ability of the
Company to continue as a going concern. Realization of the Company's business
plan is dependent upon the Company's ability to meet its future financing
requirements, and the success of future operations. This is because we have not
generated substantial revenues since inception. Our only other source for cash
at this time is through investments or loans from management. We must raise
cash to implement our project and stay in business.
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, which ever
is more evident on the day that the transactions are executed. The certificates
must be issued subsequent to the transaction date.
We apply Staff Accounting Bulletin No. 104 "Revenue Recognition" ("SAB No.
104") to our revenue arrangements. Currently, our only revenue transactions
derive from the licensing of stem cell technology, the sale of stem cell
products, and providing informational and referral services; we have no plans to
enter into any other revenue transaction in the near future. In accordance with
SAB No. 104, we recognize revenue related to these licenses, sales and services
upon delivering the license or product, or rendering the services, respectively,
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.
40
Research and development costs are charged to operations when incurred and
are included in operating expenses.
RESULTS OF OPERATIONS
As of December 31, 2006 and for the nine months ended December 31, 2006 and 2005
We had revenue of $236,260 during the nine months ended December31, 2006 as
compared to $50,934 of revenue for the comparable period in 2005. Our cost from
ICT for the stem cell biological material delivered during the nine months ended
December 31, 2006 was $241,060 as compared to $34,600 for the same period ended
2005. The increase in cost of goods sold is due to the increased number of
treatments and a $116,000 charge for an additional payment made to ICT for not
meeting the contractual minimum purchase requirement. Our net loss for the
nine month period ended December 31, 2006 was $604,271 as compared to $256,022
during the same period in 2005. The loss primarily reflects increases in
payroll, professional fees and the additional payment to ICT for not meeting the
minimum purchase requirement. Revenues during 2006 reflected the treatment of
nine patients' and only two patients were treated during the same period ended
2005.
Gross margin for the nine months ended December 31, 2006 was a negative
$4,800 as compared to a positive $16,334 for the nine months ended December 31,
2005. The decreased gross margin is primarily due to the $116,000 charge for an
additional payment made to ICT for not meeting the contractual minimum purchase
requirement. We anticipate positive gross margins on future patient services
and delivery of our stem cell biological products as we do not expect to incur
additional charges from ICT for not meeting the contractual minimum purchase
requirements as our sales continue to increase.
As of December 31, 2006 and for the three months ended December 31, 2006 and
2005
We had revenues of $90,000 during the three months ended December 31, 2006
as compared to $27,464 of revenue for the comparable period in 2005. Our cost
from ICT for the stem cell biological material delivered during the three months
ended December 31, 2006 was $32,435 as compared to $17,500 for the same period
ended 2005. Our net loss for the three month period ended December 31, 2006
was $100,017, compared to $105,033 during the same period in 2005.
Gross margins for the three months ended December 31, 2006 was $57,565 as
compared to $9,964 for three months ended December 31, 2005. The increased
gross margin is primarily due to an increase in the number of patient's treated
in 2006 as compared to 2005.
41
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, 2006 and the period since December 2, 2004 (date of inception) through
December 31, 2006, the Company has had a net loss of $604,271 and $1,136,673,
respectively and cash used by operations of $65,003 and $227,260, respectively,
and negative working capital of $508,597 at December 31, 2006..
Effective September 1, 2005, the Company entered into a ten year licensing
agreement with the Institute of Cell Therapy, a company incorporated and
organized under the laws of Kiev, Ukraine ("ICT"). The agreement grants the
Company an exclusive right and license in most parts of the world to utilize
patents, processes and products owned or produced by ICT in connection with the
operation of the Company's business. In exchange for the license, the Company
agrees to exclusively purchase all biological solution of stem cell Allo
Transplant materials from ICT for a three year period. Such Allo Transplant
materials shall be at a cost of $6,500 per patient per condition. The 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
shall 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
has 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 agrees to replenish the letter of credit to the extent
of any such draws. As of December 31, 2006, the Company did not meet the
minimum purchase requirement and ICT has drawn on the letter of credit for
$116,000.
As of December 31, 2006, the Company has not emerged from the development
stage. In view of these matters, recoverability of recorded asset amounts shown
in the accompanying financial statements is dependent upon the Company's ability
to begin operations and to achieve a level of profitability. Since inception,
the Company has financed its activities principally from shareholder advances
and some relatively minor sales of equity securities (as set forth below). The
Company intends on financing its future development activities and its working
capital needs largely from the sale of equity securities until such time that
funds provided by operations are sufficient to fund working capital
requirements.
Unpredictability of future revenues; Potential fluctuations in quarterly
operating results; Seasonality
As a result of the Company's limited operating history and the emerging
nature of the biotechnological markets in which it competes, the Company is
unable to accurately forecast its revenues. The Company's current and future
expense levels are based largely on its investment plans and estimates of future
revenues and are to a large extent fixed and expected to increase.
Sales and operating results generally depend on the volume of, timing of
and ability to fulfill the number of orders received for the biological solution
and the number of patients treated which are difficult to forecast. The Company
may be unable to adjust spending in a timely manner to compensate for any
unexpected revenue shortfall. Accordingly, any significant shortfall in
42
revenues in relation to the Company's planned expenditures would have an
immediate adverse effect on the Company's business, prospects, financial
condition and results of operations. Further, as a strategic response to
changes in the competitive environment, the Company may from time to time make
certain pricing, service or marketing decisions which could have a material
adverse effect on its business, prospects, financial condition and results of
operations.
The Company expects to experience significant fluctuations in its future
quarterly operating results due to a variety of factors, many of which are
outside the Company's control. Factors that may adversely affect the Company's
quarterly operating results include (i) the Company's ability to retain existing
patients, attract new patients at a steady rate and maintain patient
satisfaction, we cannot be sure that we will be able to attract sufficient
patients to maintain or grow revenue and consequently our long term growth and
success may be negatively impacted (ii) the announcement or introduction of new
treatments and/or patents by the Company and its competitors, as this is an ever
changing field of innovation, we cannot be sure that our competition will not
significantly impact our customer base, and thereby negatively impact our
revenues, with new and improved treatments; (iii) price competition or higher
prices in the industry, with additional research into this field of treatment,
we cannot be sure that we will be able to maintain our current pricing structure
and gross margins to be able to compete with new competitors and treatment
options at reasonable prices; (iv) the Company's ability to upgrade and develop
its systems and infrastructure and attract new personnel in a timely and
effective manner, the Company cannot be sure that it will be able to raise
sufficient capital in order for it to grow it's infrastructure and continually
offer the most innovative procedures and treatment options to patients. (v)
governmental regulation, the Company is continually working with various
government agencies to ensure approval of these procedures, but there is no
assurance that the approvals will not change or become more restrictive in the
future, thereby limiting the ability of the Company to perform these procedures
in certain locations, and (vi) general economic conditions, there can be no
assurance that the Company will continually be able to attract patient's whose
financial health will allow them to pursue these costly treatments.
The key operating indicators that management currently focuses on are our
cash flow and our patient referral pipeline. In the past, the Company was
dependent on advances from shareholders and proceeds from the sale of restricted
stock to provide the necessary operating capital to fund operations. Management
monitors cash flow received from patient referrals and expenditures for
operations. The patient referral pipeline represents the potential referral
fees that may be earned in the future. Building the patient referral pipeline
is an operating indicator of our future growth, if any. Based on management's
understanding of the stem cell therapy industry, management believes that the
use of stem cell therapy will continue to gain additional acceptance in the
medical community that may result increased patient procedures in the future for
the industry. As acceptance of stem cell therapy treatments in the medical
community increases, management believes the patient referral pipeline should
also increase.
CAPITAL STOCK
As of March 20, 2005, the Company (then named Altadyne, Inc.) had 50,804
issued and outstanding shares of common stock, no outstanding shares of
preferred stock, and no options, warrants, conversion privileges, or other
rights to purchase common stock.
43
On March 20, 2005, R Capital acquired the Company. Pursuant to the
agreement, in June 2005, the Company (then Altadyne, Inc.) issued 22,500,000
shares of common stock to R Capital, in exchange for $125,000. This issuance
was completed without any public offering in accordance with Section 4(2) and
Regulation D promulgated under the Securities Act of 1933, as amended.
On September 1, 2005, Stem Cell Florida acquired the Company (then
Altadyne, Inc.) from R Capital by way of a reverse acquisition. R Capital, Stem
Cell Florida, and the Company (then Altadyne, Inc.) entered into a
Reorganization and Stock Purchase Agreement. At that point, the Company had no
On September 15, 2005, the Company issued 500,000 shares of Series A
Preferred Stock to RHL Management Corp., an accredited investor, in
consideration for $25,000. The Series A Preferred Stock is convertible into
common stock on a one for one basis after a certain waiting period. This
issuance was completed without any public offering in accordance with Section
4(2) and Regulation D promulgated under the Securities Act of 1933, as amended.
On January 1, 2006, the Company issued a total of 20,000 shares to two
consultants unaffiliated with the company, for consulting services valued at
$17,800. This issuance was completed without any public offering in accordance
with Section 4(2) and Regulation D promulgated under the Securities Act of 1933,
as amended.
On January 20, 2006, the Company issued 20,000 shares to a consultant
unaffiliated with the Company, for consulting services valued at $20,000. This
issuance was completed without any public offering in accordance with Section
4(2) and Regulation D promulgated under the Securities Act of 1933, as amended.
On February 2, 2006, the Company issued 120,000 shares to Westminster
Securities (24,000) and certain employees of Westminster Securities Corporation
(2 x 48,000) in connection with the termination of an agreement between the
Company and Westminster. The Company valued these shares at $0.85 per share,
the current fair value of the underlying common stock less a 15% thinly trading
discount, which approximates the fair value of the services provided. This
issuance was completed without any public offering in accordance with Section
4(2) and Regulation D promulgated under the Securities Act of 1933, as amended.
On February 2, 2006, the Company issued a total of 70,000 shares to six
consultants who assisted the Company on the medical advisory board or who
performed other medical services on behalf of the Company. Although issued on
February 2, 2006, we valued these shares at market price as of the date the
services were performed, pursuant to EITF Issue No. 96-18, as follows:
CONSULTANT DATE SERVICES WERE PROVIDED NUMBER OF SHARES MARKET PRICE
- ----------------- --------------------------- ---------------- ------------
Alexey Bersenev 10/04/05 10,000 $ 1.75
Weiwen Deng 10/10/05 10,000 $ 1.45
Salvador Vargas MD 10/24/05 10,000 $ 1.05
Jorge Quintero MD 10/24/05 10,000 $ 1.05
Dr. Igor Katkov PhD 12/02/05 20,000 $ 0.97
Dr. Nikita Tregubov, MD 12/02/05 10,000 $ 0.97
The total value of the services rendered, and the total market price of these
shares on dates they were earned, was $85,100. This issuance was completed
without any public offering in accordance with Section 4(2) and Regulation D
promulgated under the Securities Act of 1933, as amended.
The Company has engaged a public relations firm to perform services in
exchange for $12,000 worth of the Company's common shares, at market price
(average of the previous 20 days), per month. Accordingly, the Company has
issued the following shares:
45
MONTH AVERAGE MARKET PRICE NUMBER OF SHARES
September, 2005 $ 1.88 6,400
October, 2005 $ 1.01 11,882
November, 2005 $ 0.86 13,953
December, 2005 $ 1.00 12,000
January, 2006 $ 0.85 14,118
February, 2006 $ 0.85 14,118
March, 2006 $ 0.40 30,361
Pursuant to this arrangement, on February 2, 2006, the Company issued a total of
44,234 to the public relations firm engaged by the Company for the services
performed from September through December, 2005. This issuance was completed
without any public offering in accordance with Section 4(2) and Regulation D
promulgated under the Securities Act of 1933, as amended.
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. DESCRIPTION OF PROPERTY.
We lease office space and office equipment under an operating lease on a
month-to-month basis. We lease the executive office suite from Wilder
Corporation for approximately $1,775.61. Our office is located at 2203 N. Lois
Avenue, Suite #901, Tampa, FL 33607. The office is approximately three hundred
seventy-four (374) square feet and is in a condition adequate to our needs. The
terms of the lease agreement require 30 days written notice to terminate the
lease.
Rent expense amounted to $15,874 and $19,314 for the nine months ended
December 31, 2006 and the period from December 2, 2004 (Date of Inception)
through December 31, 2006.
The Company is not involved in investments in (i) real estate or interests
in real estate, (ii) real estate mortgages, and (iii) securities of or interests
in persons primarily engaged in real estate activities, as all of its land
rights are used for production purposes.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table shows the beneficial ownership of Stem Cell Therapy
International, Inc. common stock as of December 31, 2006. The table shows each
person known to us who owns beneficially more than five percent of the
outstanding common stock of Stem Cell Therapy International, Inc. based on
46
33,563,234 shares being outstanding as of December 31, 2006, and the total
amount of common stock of Stem Cell Therapy International, Inc. owned by each of
its Directors and Executive Officers and for all of its Directors and Executive
Officers as a group.
ACTUAL ACTUAL
IDENTITY OF PERSON AMOUNT OF PERCENT OF
OR GROUP SHARES OWNED SHARES OWNED CLASS
- --------------------------------- -------------- ------------- ---------
Global Capital Corp.
2203 N. Lois Avenue, 9th Floor
Tampa, FL 33607 4,000,000 11.9% Common
- --------------------------------- -------------- ------------- ---------
Institute of Cell Therapy
c/o Alan Brutten, Attorney at Law
1341 Ocean Parkway
Brooklyn, NY 11230 5,000,000 14.9% Common
- --------------------------------- -------------- ------------- ---------
Thuy-Van Chau
2203 N. Lois Avenue, 9th Floor
Tampa, FL 33607 3,000,000 8.9% Common
- --------------------------------- -------------- ------------- ---------
Vivian Cao Irrevocable Trust
2203 N. Lois Avenue, 9th Floor
Tampa, FL 33607 2,000,000 6.0% Common
- --------------------------------- -------------- ------------- ---------
Christopher Cao Irrevocable Trust
2203 N. Lois Avenue, 9th Floor 2,000,000
Tampa, FL 33607 6.0% Common
- --------------------------------- -------------- ------------- ---------
Calvin C. Cao
2203 N. Lois Avenue, 9th Floor
Tampa, FL 33607 11,000,000 (1) 17.9% Common
- --------------------------------- -------------- ------------- ---------
Daniel J. Sullivan
2203 N. Lois Avenue, 9th Floor
Tampa, FL 33607 200,000 0.6%% Common
- --------------------------------- -------------- ------------- ---------
M. Richard Cutler
c/o Cutler Law Group
3206 West Wimbledon Dr
Augusta, GA 30909 2,674,196 (2) 7.9% Common
- --------------------------------- -------------- ------------- ---------
RHL Management, Inc.
c/o Cutler Law Group Series A
3206 West Wimbledon Dr Preferred
Augusta, GA 30909 500,000 (3) 100% Stock
- --------------------------------- -------------- ------------- ---------
Officers and Directors as a Group
(three persons) 11,200,000 34.4% Common
- --------------------------------- -------------- ------------- ---------
(1) Mr. Cao's shares consist of 4,000,000 shares held by Global Capital
Corp., 2,000,000 shares held by Vivian Cao Irrevocable Trust; 2,000,000 shares
held by Christopher Cao Irrevocable Trust and 3,000,000 shares held by Thuy-Van
Chau, the wife of Mr. Calvin Cao. Mr. Cao is deemed the beneficial owner of the
shares owned by Global Capital because he is an officer and shareholder of
Global Capital. Mr. Cao is deemed the beneficial owner of the other shares
because they are otherwise beneficially owned by a family member sufficiently
closely related to Mr. Cao such that he is deemed the beneficial owner.
47
(2) Mr. Cutler's shares consist of 1,292,259 shares held by Cutler Law Group
and 1,381,937 shares held by R Capital Partners, Inc. Mr. Cutler is deemed the
beneficial owner of each of the shares owned by Cutler Law Group and R Capital
Partners as he is the President, a director and a shareholder of each of those
entities and would consequently be considered the beneficial owner under the
securities laws.
(3) The Series A Preferred Stock held by RHL Management is convertible into
common stock on a one for one basis only upon 61 days notice to the Company
Other than noted above, no beneficial owner of the Company's securities has the
right to acquire any shares from options, warrants, rights, conversion
privileges, or any similar obligations.
BENEFICIAL OWNERSHIP OF SECURITIES: Pursuant to Rule 13d-3 under the Securities
Exchange Act of 1934, involving the determination of beneficial owners of
securities, includes as beneficial owners of securities, any person who directly
or indirectly, through any contract, arrangement, understanding, relationship or
otherwise has, or shares, voting power and/or investment power with respect to
the securities, and any person who has the right to acquire beneficial ownership
of the security within sixty days through means including the exercise of any
option, warrant or conversion of a security.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
The following table sets forth the names and ages of our current directors and
executive officers, their principal offices and positions and the date each such
person became a director or executive officer. The Board of Directors elects
our executive officers annually. Our directors serve one-year terms or until
their successors are elected and accept their positions. The executive officers
serve terms of one year or until their death, resignation or removal by the
Board of Directors. There are no family relationships or understandings between
any of the directors and executive officers. In addition, there was no
arrangement or understanding between any executive officer and any other person
pursuant to which any person was selected as an executive officer.
NAME OF DIRECTOR OR EXECUTIVE OFFICER AGE CURRENT POSITION AND OFFICE
------------------------------------- --- ---------------------------
Calvin C. Cao 39 Chief Executive Officer, President and Chairman
------------- -- -----------------------------------------------
Daniel J. Sullivan 50 Chief Financial Officer and Director
------------------ -- ------------------------------------
Lixian (John) Jiang 35 Chief Operating Officer and Patent Trademark
Counsel, China Division
48
CHAIRMAN AND CHIEF EXECUTIVE OFFICER - CALVIN CAO:
Calvin Cao founded Stem Cell Therapy International Corp., Tampa, Florida in
2004. After graduating from the University of South Florida in 1991, with a
BSEE degree in electrical engineering, Mr. Cao launched Cao Computer Technology,
Tampa, FL, a company that provides engineering and business technology strategy,
product development and designing mission-critical enterprise systems. The
company has provided services for large businesses and universities as well as
state and local governments. He ran that company until 1996, when it merged
with International Net Corp, Tampa, FL, which is a worldwide distributor of IT
products and other high-quality electronic products; of which Mr. Cao was also a
co-founder. As president and Chief Operating Officer of International Net, he
was engaged in mergers and acquisitions as well as raising capital until 1999
when he sold his shares back to the company.
In the same year, he formed Micronet Capital Corp., an investment-banking
firm that specialized in helping start-up companies with private placements, M&A
and other financial services. In 2004, Micronet Capital Corp. merged with
Global Capital Corp. to better position and reflects the global presence of its
services and offerings. Global Capital Corp. remains in operation.
In 2004, Mr. Cao co-founded Vasular Relief Centers Corp., which changed its
name to Vein Associates of America, Inc. ("Vein Associates"). Vein Associates
is the parent company of Vein Associates, PA, headquartered in Heathrow, FL,
which operates a chain of vascular clinics. Vein Associates' clinics specialize
in the diagnosis and non-surgical treatment of hemorrhoids, varicose and spider
veins using minimally invasive procedures.
In 2005, Mr. Cao decided to dedicate his energies to working full time with
Stem Cell Florida. Mr. Cao became president and chairman of the Company on the
closing date of the Reorganization and Stock Purchase agreement between the
Company and Stem Cell Florida, September 9, 2005. He was reelected as chairman
in March, 2006 and his term expires March, 2007, or when his replacement is duly
elected and qualified. He was reappointed as president in March, 2006 and his
term expires March, 2007, or when his replacement is duly appointed and
qualified.
CHIEF FINANCIAL OFFICER AND DIRECTOR - DANIEL J. SULLIVAN
Mr. Sullivan is a senior financial executive with 25 years of industry
experience.
After graduating from San Diego State University in 1980, in January 1981
Mr. Sullivan became an Accountant at KPMG Peat Marwick in Costa Mesa, California
where he became a manager in 1985 and left in September 1986. From September
1986 through November 1987, Mr. Sullivan was Controller for Security Etch
International, Inc. in Irvine, California, a manufacturer of automobile security
devices. From November 1987 until October 1988, Mr. Sullivan was a Manager at
Wurth and Company in Orange, California, a certified public accounting firm.
From October 1988 through February 1993, Mr. Sullivan was Vice President and
Chief Financial Officer of Trillium Management, Inc., in Los Angeles,
California, a $75 million trailer manufacturer and truck/trailer leasing
company, which was acquired by Oshkosh Truck Corporation in Oshkosh, Wisconsin,
49
a $60 million freight trailer manufacturer, where Mr. Sullivan remained as Chief
Financial Officer. From February 1993 through February 1994, Mr. Sullivan was
Chief Financial Officer for Bitec Southeast, Inc. in Tampa, Florida, and
industrial and medical gases and welding equipment distributor. From February
1994 until November 1995, Mr. Sullivan was Chief Financial Officer for Quality
Products, Inc. in Tampa, Florida, a holding company with industrial machinery
manufacturing, steel service and consumer products operations. From November
1995 through November 1997, Mr. Sullivan was Chief Financial Officer for
Stacey's Buffet, Inc. in Largo, Florida, a public buffet restaurant chain. From
November 1997 through October 2003, Mr. Sullivan was Chief Financial Officer for
Selective HR Solutions, Inc., a professional employer organization. From
November 2003 to November 2004, Mr. Sullivan was employed by Skylynx
Communications, Inc. in Sarasota, Florida as Chief Financial Officer, a start-up
public wireless communications company.
Mr. Sullivan became CFO and a director of the Company on December 2004.
He was reelected as a director in March, 2006 and his term expires March, 2007,
or when his replacement is duly elected and qualified. He was reappointed as
CFO in March, 2006 and his term expires March, 2007, or when his replacement is
duly appointed and qualified. Mr. Sullivan is a full-time employee of the
Company.
50
CHIEF OPERATING OFFICER AND PATENT TRADEMARK COUNSEL, CHINA DIVISION - LIXIAN
(JOHN) JIANG
Lixian (John) Jiang is a senior Attorney from China and a Patent Agent in
the United States. Mr. Jiang specializes in intellectual property law, China tax
law and corporate law. He has worked in a number of top specialty law firms
before he joined the Company in June of 2006. In addition, Mr. Jiang is a stem
cell scientist with a PhD Candidate who is expecting to get his formal degree
certificate in August 2006 Convocation Ceremony from the University of South
Florida Medical School.
From December 2002 through August 2003, Mr. Jiang served as a Patent and
Trademark Attorney in Shanghai, China for Sounding Intellectual Property Counsel
Sino Co. Ltd. In this capacity, he performed inventor interviews, patent prior
art searches in the area of medical science and chemistry, drafted and
prosecuted patent applications in the areas of mechanic, chemistry and medical
sciences, prosecuted trademark applications, performed intellectual property
litigation in petition, infringement and disputation, and docketed
patent/trademark files and maintained dockets of all due dates for patent and
trademarks.
From December 2003 through June 2006, Mr. Jiang served as a Patent
Prosecution Agent for Cedar Patent LLC, in Tampa, Florida. In this capacity, he
performed inventor interviews, drafted computer science patent applications in
the area of MSQL database and Macromedia flash communication server software,
performed prior art searches for medical science and chemistry patents, drafted
and prosecuted medical science patent applications in the fields of Chinese
medicine, western blotting, PCR, immunohistochemistry staining, cell
cryo-preservation, gene transfer, including a patent for PEP nadir and its
apparatus, drafted more than 5 mechanical patent applications, prosecuted
Trademark applications and docketed patent/ trademark files; and maintained
docket of all due dates for patent and trademark cases
Lixian (John) Jiang is currently employed in the capacity of Chief
Operating Officer and Patent Trademark Counsel of the China Division of the
Company and reports directly to the Board of Directors and the Chief Executive
Officer of the Company.
Lixian (John) Jiang is responsible for the supervision and the operations of the
joint venture of the China Division of the Company and a local Beijing hospital.
He will commence establishing the Company's stem cell cryo-preservation bank in
China, coordination of patient treatment procedures with the hospital(s) in
China, and the ongoing management and oversight of the general business
operations of the China Division of the Company, providing legal representation
and directing the market of China Operations, as well as being the legal advisor
for all of the Company's patents and trademarks in stem cell and biotechnology
in China.
EUROPEAN SCIENTIFIC AND MEDICAL ADVISORY BOARD & OFFICERS OF ICT'S CLINIC IN THE
UKRAINE
The Company has also appointed the Director of the ICT and four leading
international scientists in the field of stem cell transplantation therapy to
the Company's Medical Advisory Board. In management's opinion, these members
are leading international scientists in the field of stem cell transplantation
therapy. These individuals are neither employees nor directors of the Company,
51
but are rather employee's of the ICT clinic in Kiev, Ukraine. Members of the
Advisory Board, who are also part of the management team of ICT are compensated
through the Master License Agreement with ICT and are not compensated with any
additional shares of the Company's common stock. They are as follows:
SERGEI MARTYNENKO, Senior Administrator and Director of the clinic in Kiev,
Ukraine. Mr . Martynenko' organizational, administrative and communications
skills provide a vital link of information and technology exchange between the
Kiev based manufacturing, research and development facility and the SCTI
affiliated patient treatment facility.
DR. YURIV GLADKIKH, Chief of Scientist: A graduate of the Kiev Medical
Institute of A.A. Bohomolets, Dr. Gladkikh. has worked in Europe and Asia in the
field of management and organization of health protection, as well as research
in cryobiology and cryo-medicine, internal diseases, virology, quantum, cell and
tissue therapy, modern methods of diagnostics and laboratory researches,
epidemiology and infectious diseases.
DR. GALINA LOBYNTSEVA, Chief of Manufacture: A graduate of Kharkov State
University with a specialty in genetics, Dr. Lobyntseva has been in the
forefront of research in embryonic hematopoitic cells and work on methods for
long-term storage of the cells at low temperatures. She has been working with
Cryobiology and Cryomedicine at the National Academy of Sciences of the Ukraine
since its foundation in 1972. Ms. Lobyntseva has received 15 authors'
certificates and patents. Dr. Lobyntseva is also responsible for the Quality
Control, testing and Quality Certification of every dose of the allo stem cell
biological solution.
DR. DIMITRIY LOBYNTSEV, Director of Research: A graduate of the Odessa Academy
-
of Cold with a specialty in cryogenic technique and technologies, Dr.
Lobyntsevis the author of five patents in the Ukraine and co-author of volume
one of "Human Stem Embryonic Hemopoitic Cells. Theory and Clinical Practice."
DR. VLADIMIR GLADKIKH, Medical Director: A graduate of the Vinnitsa National
Medical University with a specialty in surgery, Dr. Gladkikh is engaged in
research in the field of vascular surgery.
SCIENTIFIC AND MEDICAL ADVISORY BOARD - UNITED STATES AND MEXICO
The Company has also engaged the following persons as independent
consultants to assist as part of its Scientific and Medical Advisory Board in
the United States and Mexico:
DR. NICHOLAS KIPSHIDZE, MD., PH. D. - Lenox Hill Hospital, NYC
DR. WEIWEN DENG, MD., PH.D. - Research Instructor, Tulane University, LA
DR. ALEXEY BERSENEV, MD., PH.D. - Thomas Jefferson University, PA
IGOR KATKOV, PH.D. - Project Scientist, Level V, UCSD & Burnham Institute, La
Jolla, CA
DR. SALVADOR VARGAS, MD., - Betania West Institute, Tijuana, Mexico
52
DR. LUIS JORGE QUINTERO, MD., - Neurosurgery, Tijuana, Mexico
DR. NIKITA TREGUBOV, MD., - Internal Medicine, Walter Reed Army Institute of
Research, Seminole, FL
Each member of the Advisory Board, that is not a member of the management
of ICT, receives 10,000 shares of restricted common stock as compensation for
services provided to the Company as a member of the Advisory Board. These
shares are awarded without regard to the number of patients recommended for stem
cell therapy, if any.
Management believes that it has recruited industry respected individuals to
form the Advisory Board and encourages all members of the Advisory Board to
recommend only what is in the best interest of each patient. A potential
conflict of interest exists as the member of the MSAB are compensated in
restricted stock and the value of that stock may be influenced by the number of
patient procedures recommended by the Advisory Board. In addition, two members
of the Advisory Board located in Mexico are also treating physicians, which
could result in a potential conflict of interest.
Some members of the Advisory Board are requested to perform additional
services such as evaluate new technologies and products that are available for
stem cell treatment. These Advisory Board members are compensated with
additional shares of the Company stock as determined by the Company.
ITEM 6. EXECUTIVE COMPENSATION.
SUMMARY COMPENSATION TABLE
The following table sets forth the total compensation paid to or accrued, during
the calendar year ended December 31, 2005 to Stem Cell Therapy International,
Inc.'s highest paid executive officers. No restricted stock awards, long-term
incentive plan payout or other types of compensation, other than the
compensation identified in the chart below, were paid to these executive
officers during that fiscal year.
53
ANNUAL ANNUAL OTHER
COMPEN- COMPEN- ANNUAL COMPEN- LONG TERM
SATION SATION COMPEN- SATION COMPEN- ALL
NAME AND SALARY BONUS SATION RESTRICTED SATION LTIP OTHER
POSITION YEAR ($) ($) STOCK OPTIONS PAYOUTS (1)
- ----------- ---- -------- -------- ------- ---------- --------- ------- ------
Calvin Cao,
CEO and
Chairman 2005 NIL NIL NIL NIL NIL NIL NIL
- ----------- ---- -------- -------- ------- ---------- --------- ------- ------
Daniel
Sullivan,
CFO and 200,000
Director 2005 NIL NIL NIL shares NIL NIL NIL
- ----------- ---- -------- -------- ------- ---------- --------- ------- ------
*Valued at par value or an aggregate of $200.
(1) All other compensation includes health insurance and life insurance plans
or benefits, car allowances, etc. The Company may omit information regarding
group life, health, hospitalization, medical reimbursement or relocation plans
that do not discriminate in scope, terms or operation, in favor of executive
officers of directors of the registrant and that are available generally to all
salaried employees.
LTIP: "Long-Term Incentive Plan" means any plan providing compensation intended
to serve as incentive for performance to occur over a period longer than one
fiscal year, whether such performance is measured by reference to financial
performance of the Company or an affiliate, the Company's stock price, or any
other measure, but excluding restricted stock, stock option and Stock
Appreciation Rights (SAR) plans.
The Company has no Long-Term Incentive Plan and has made no Long-Term Incentive
Plan payouts The Company has granted no bonuses to any of its employees since
inception.
Calvin Cao, Chairman & CEO - was paid no compensation in 2005 for his
services as Chairman and Chief Executive Officer. He has forfeited all
compensation, and the Company does not owe him any compensation for his services
in 2005. His expected initial level of normal cash compensation for those
services per year will be determined by a comparable salary based on industry
standards.
Daniel J. Sullivan, CFO - was issued 200,000 shares of common stock as
compensation in 2005 for his services as CFO. He received no monetary
compensation. His expected initial level of normal cash compensation for
services per year will be determined by a comparable salary based on industry
standards.
Peter K. Sidorenko, U. S. COO - was paid no compensation in 2005 for his
services as COO. He has forfeited all compensation, and the Company does not
own him any compensation for his services in 2005. His expected initial level
of normal cash compensation for services per year will be determined by a
comparable salary based on industry standards.
54
The rest of the employees of the Company were paid no compensation in cash
and only marginal stock compensation, in 2005 for their services. The expected
initial level of normal cash compensation for services per year will be
determined by a comparable salary based on industry standards.
STOCK OPTION GRANTS
As of the date hereof, the Company has not made any stock option grants to
any of its officers, directors or employees.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
At inception Stem Cell Florida accepted the business contacts, contracts
and services of the Founders. After the reverse acquisition, the Company
accepted the business contacts, contracts and services of Stem Cell Florida.
The Board of Directors of Stem Cell Florida was composed at the time of its
founding of Global Capital Corp., which purchased shares of Stem Cell Florida at
par value. Global Capital Corp., whose sole director was and remains Calvin
Cao, was not compensated for its services as director, and was subsequently
replaced as sole director by Mr. Cao and Mr. Sidorenko. Pursuant to the terms
of the reverse acquisition, Global Capital Corp.'s shares of Stem Cell Florida
were exchanged for shares of the Company (then named Altadyne, Inc.).
The Company has received funding from Calvin Cao in the total amount of
$48,378 at December 31, 2005 to assist with its financial obligations. These
advances are non-interest bearing, unsecured and due on demand.
The Company has also received funding totaling $224,582 at December 31,
2005 from Global Capital Corp. for funding of the Company's operations. The
note is non-interest bearing and unsecured.
The above terms and amounts are not necessarily indicative of the terms and
amounts that would have been received had comparable transactions been entered
into with independent party.
55
ITEM 8. DESCRIPTION OF SECURITIES.
The following statements relating to the capital stock set forth the
material terms of the Company's securities; however, reference is made to the
more detailed provisions of the Articles of Incorporation and the By-laws,
copies of which are filed as exhibits to this registration statement.
OVERVIEW
The Company's Articles of Incorporation authorize the issuance of
100,000,000 shares of common stock, par value $0.001 per share, and 10,000,000
shares of preferred stock, par value $0.001 per share. There are presently
33,563,234 shares of common stock issued and outstanding as of March 31, 2006
and 500,000 shares of Series A preferred stockThere are no issued and
outstanding shares that could be sold pursuant to Rule 144. The Company is not
registering for sale any currently outstanding share under this registration
statement, for sale either by the Company or its shareholders.
COMMON STOCK
Holders of shares of common stock are entitled to one vote for each share
on all matters to be voted on by the stockholders. Holders of common stock do
not have cumulative voting rights. Holders of common stock are entitled to
share ratably in dividends, if any, as may be declared from time to time by the
Board of Directors in its discretion from funds legally available therefore.
In the event of a liquidation, dissolution or winding up of the Company,
the holders of common stock are entitled to share pro rata all assets remaining
after payment in full of all liabilities.
Holders of common stock have no preemptive rights to purchase the Company's
common stock. There are no conversion or redemption rights or sinking fund
provisions with respect to the common stock.
PREFERRED STOCK
There are currently 500,000 shares of Series A preferred stock outstanding
and no other shares of preferred stock. Our Board of Directors is authorized,
without further action by the shareholders, to issue series of preferred stock
from time to time, and to designate the rights, preferences, limitations and
restrictions of and upon shares of each series including dividend, voting,
redemption and conversion rights. The Board of Directors also may designate par
value, preferences in liquidation, and the number of shares constituting any
series. We believe that the availability of preferred stock issuable in series
will provide increased flexibility for structuring possible future financings
and acquisitions, if any, and in meeting other corporate needs. The rights and
privileges of holders of preferred stock could adversely affect the voting power
of holders of common stock, and the authority of our Board of Directors to issue
56
preferred stock without further shareholder approval could have the effect of
delaying, deferring, or preventing a change in control of the Company The board
of directors has the authority to designate classes or series of preferred stock
in the future with rights that may adversely affect the rights of the holders of
our common stock or its market price.
SERIES A PREFERRED STOCK
There are currently 500,000 shares of Series A preferred stock outstanding
to one holder. The shares of Series A preferred stock have the same voting and
dividend rights as common shares and are convertible on a one for one basis upon
a minimum of 61 days notice to the CompanyThe Series A preferred stock may not
be converted into common stock if such conversion would result in the holder
holding more than 5% of the issued and outstanding common stock of the Company.
There are no liquidation preferences over the common stock for the Series A
Preferred Stock.
DIVIDEND POLICY
We do not intend to pay additional dividends on our common stock. We plan
to retain any earnings for use in the operation of our business and to find
future growth.
The Company has never paid a cash dividend on its Common Stock nor does the
Company anticipate paying cash dividends on its Common Stock in the near future.
It is the present policy of the Company not to pay cash dividends on the Common
Stock but to retain earnings, if any, to fund growth and expansion. Under
Nevada law a company is prohibited from paying dividends if the Company, as a
result of paying such dividends, would not be able to pay its debts as they come
due, or if the Company's total liabilities and preferences to preferred
shareholders if any exceed total assets. Any payment of cash dividends of the
Common Stock in the future will be dependent upon the Company's financial
condition, results of operations, current and anticipated cash requirements,
plans for expansion, as well as other factors the Board of Directors deems
relevant.
REPORTS TO STOCKHOLDERS
The Company intends to comply with the periodic reporting requirements of
the Securities Exchange Act of 1934. The Company plans to furnish its
stockholders with an annual report for each fiscal year ending March 31
containing financial statements audited by its independent certified public
accountants.
TRANSFER AGENT
The transfer agent and registrar for our Common Stock is Standard Transfer
& Trust Company, 2980 South Rainbow Blvd., Suite 220H, Las Vegas, NV 89146.
57
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.
MARKET INFORMATION:
Stem Cell Therapy International, Inc. common stock is quoted in United
States markets in the Pink Sheets under the symbol "SCII". Stem Cell Therapy
International, Inc. intends to apply to have its capital shares quoted on the
Over the Counter Bulletin Board ("OTCBB") or listed on the American Stock
Exchange ("AMEX"). We have not, at this time, made application to the OTCBB or
AMEX. We will make such application only upon completion of this 10-SB
Registration Statement and our consequent status as a reporting company under
SEC rules. We will also have to meet the other qualification requirements from
OTCBB and/or AMEX. However, Stem Cell Therapy International, Inc. cannot make
any assurance that trading on OTCBB or AMEX will be approved.
As the Pink Sheets are not appropriately deemed as a public trading market,
there is no public trading market for our common stock. Currently there are
500,000 issued and outstanding shares of Series A Preferred stock, which are
convertible to shares of common stock on a one for one basis after a certain
time period. There are no issued and outstanding shares that could be sold
pursuant to Rule 144. The Company is not registering for sale any currently
outstanding share under this registration statement, for sale either by the
Company or its shareholders.
PENNY STOCK REGULATIONS:
Our common stock is quoted on the Pink Sheets, maintained by Pink Sheets
LLC, a privately owned company headquartered in New York City, under the symbol
"SCII". On February 27, 2007 the last reported sale price of our common stock
was $0.08 per share. The Company's common stock is subject to provisions of
Section 15(g) and Rule 15g-9 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), commonly referred to as the "penny stock rule." Section
15(g) sets forth certain requirements for transactions in penny stocks, and Rule
15g-9(d) incorporates the definition of "penny stock" that is found in Rule
3a51-1 of the Exchange Act. The SEC generally defines "penny stock" to be any
equity security that has a market price less than $5.00 per share, subject to
certain exceptions. As long as the Company's common stock is deemed to be a
penny stock, trading in the shares will be subject to additional sales practice
requirements on broker-dealers who sell penny stocks to persons other than
established customers and accredited investors.
The following table shows the high and low per share price quotations of
Stem Cell Therapy International, Inc. common stock as reported in the Pink
Sheets for the periods presented. These quotations reflect inter dealer prices,
without retail mark-up, mark-down or commissions, and may not necessarily
represent actual transactions. We completed our acquisition of Stem Cell
Therapy Corp.("Stem Cell Florida") in the third calendar quarter of 2005. Our
stock has been thinly traded.
58
HIGH LOW
(Calendar Quarters)
2006
Fourth Quarter $0.35 $0.10
Third Quarter $0.40 $0.23
Second Quarter $0.75 $0.40
First Quarter $1.00 $0.47
2005
Fourth Quarter $1.75 $0.45
Third Quarter $2.70 $0.51
Second Quarter $0.22 $0.001
First Quarter $0.005 $0.001
HOLDERS:
As of December 31, 2006 there were approximately 165 holders of record of
Stem Cell Therapy International, Inc. common stock. Many of these shares are
held in street name, and consequently we have numerous additional beneficial
owners.
ITEM 2. LEGAL PROCEEDINGS.
Stem Cell Therapy International, Inc. is not a party to any material legal
proceedings and to the company's knowledge no such proceedings are threatened or
contemplated by any party.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
Effective July 19, 2006, the Company terminated its prior accounting firm
Pender Newkirk and Company LLP, as its accounting firm and engaged .Aidman,
Piser & Company, Certified Public Accountants, Tampa, FL, as its new auditors.
Pender Newkirk's reports on the Company's financial statements for the past two
years have been qualified as to whether the Company would continue as a going
concern.
During the two most recent fiscal years and through July 31, 2006,
there have been no disagreements between the Company and Pender Newkirk on any
matter of accounting principles or practices, financial statement disclosure or
auditing scope of procedure, which disagreements, if not resolved to the
satisfaction of Pender Newkirk, would have caused them to make reference to the
subject matter thereof in their report on the Registrant's financial statements
for such periods.
During the two most recent fiscal years and through July 31, 2006,
there have been no reportable events (as defined in Item 304(a)(1)(v) of
Regulation S-K.
The Company has recently engaged Aidman, Piser & Company, Certified Public
Accountants, Tampa, FL, as its new independent accountants and who will audit
the financial statements for the Company's Annual Report on Form 10-KSB for
the year ended March 31, 2007.
59
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
* All of the below offerings and sales were deemed to be exempt under rule 506
of Regulation D and Section 4(2) of the Securities Act of 1933, as amended. No
advertising or general solicitation was employed in offering the securities. The
offerings and sales were made to a limited number of persons, all of whom were
accredited investors, business associates of the Company or executive officers
of the Company, and transfer was restricted by the Company in accordance with
the requirements of the Securities Act of 1933. In addition to representations
by the above-referenced persons, we have made independent determinations that
all of the above-referenced persons were accredited or sophisticated investors,
and that they were capable of analyzing the merits and risks of their
investment, and that they understood the speculative nature of their investment.
Furthermore, all of the above-referenced persons were provided with access to
our Securities and Exchange Commission filings.
On January 12, 2005, the Company awarded Daniel Sullivan, Chief Financial
Officer, 200,000 shares of common stock valued at par value ($200) for past
services. This issuance was completed without any public offering in accordance
with Section 4(2) and Regulation D promulgated under the Securities Act of 1933,
as amended.
On March 20, 2005, R Capital acquired the Company. Pursuant to agreement,
in June 2005, the Company (then named Altadyne, Inc., a shell company) issued
22,500,000 shares of common stock to R Capital, in exchange for $125,000. This
issuance was completed without any public offering in accordance with Section
4(2) and Regulation D promulgated under the Securities Act of 1933, as amended.
On September 1, 2005, Stem Cell Florida Acquired the Company (then
Altadyne, Inc.) from R Capital by way of a reverse acquisition. R Capital, Stem
Cell Florida, and the Company (then Altadyne, Inc.) entered into a
Reorganization and Stock Purchase Agreement. At that point, the Company had no
assets, liabilities or ongoing operations. Pursuant to the agreement, Altadyne
acquired 100% of the issued and outstanding shares of common stock of Stem Cell
Florida in a non-cash transaction and Stem Cell Florida became a wholly-owned
subsidiary of Altadyne. As consideration for 100% of the shares of Stem Cell
Florida, the shareholders of Stem Cell Florida acquired (1) shares newly issued
by the Company (then Altadyne, Inc.), and (2) certain shares transferred by R
Capital. Of the 22,500,000 shares originally held by R Capital, R Capital
retained 4,349,196 shares and transferred in a transaction exempt under Section
4(1) of the Securities Act a total of 4,000,000 shares to finders unaffiliated
with R Capital. R Capital transferred the remaining 14,150,804 shares held by
it to the shareholders of Stem Cell Florida and others as set forth below. This
transfer by R Capital Partners also was made in accordance with Section 4(1) of
the Securiteis Act, made to a very limited number of parties and did not involve
any public offering. In addition, the Company issued 11,030,000 new shares to
the shareholders of Stem Cell Florida and others as set forth below. The
recipients of these shares are as follows:
- 14,150,804 shares to the Shareholders of Stem Cell Florida as
consideration for 100% of the outstanding shares of Stem Cell Florida (all of
the shares transferred by R Capital were transferred to these shareholders);
this amount includes 10,000,000 shares of restricted common stock originally
purchased by the President of Stem Cell Florida on December 3, 2004 for $10,000
and 200,000 shares of restricted common stock issued to the Chief Financial
Officer as compensation for past services rendered, these shares were valued at
par value.
60
- 3,000,000 newly issued shares to parties related to the President of Stem
Cell Florida in exchange for a $3,000 reduction of the debt owed by the Company
to the President;
- 8,030,000 newly issued shares for services, consisting of:
o 5,000,000 shares to ICT as consideration for the licenses obtained
pursuant to the License Agreement between the Company and ICT, as described
above, page 19;
o 3,030,000 shares as consideration for consulting services valued at par
value to: USA Consulting Group (1,000,000); European Consulting Group
(1,000,000); Global Management Enterprises (1,000,000); and 3 independent
consultants unaffiliated with the Company (30,000).
Subsequent to the merger, Altadyne changed its name to Stem Cell Therapy
International, Inc. This issuance was completed without any public offering in
accordance with Section 4(2) and Regulation D promulgated under the Securities
Act of 1933, as amended.
On September 15, 2005, the Company issued 379,000 shares to Westminster
Securities Corporation, pursuant to an Agreement to perform services relating to
the reverse merger, and as payment in lieu of monetary payment for the services
performed pursuant to the Agreement and valued at par value. The Company valued
the per share price used in this transaction at par value per the Company's
agreement with Westminster. This issuance was completed without any public
offering in accordance with Section 4(2) and Regulation D promulgated under the
Securities Act of 1933, as amended.
On September 15, 2005, the Company issued 500,000 shares of Series A
Preferred Stock to RHL Management Corp., an accredited investor, in
consideration for $25,000. The Series A Preferred Stock is convertible into
common stock on a one for one basis after a certain waiting period. This
issuance was completed without any public offering in accordance with Section
4(2) and Regulation D promulgated under the Securities Act of 1933, as amended.
On January 1, 2006, the Company issued a total of 20,000 shares to two
consultants unaffiliated with the company, for consulting services valued at
$17,800. This issuance was completed without any public offering in accordance
with Section 4(2) and Regulation D promulgated under the Securities Act of 1933,
as amended.
On January 20, 2006, the Company issued 20,000 shares to a consultant
unaffiliated with the Company, for consulting services valued at $20,000. This
issuance was completed without any public offering in accordance with Section
4(2) and Regulation D promulgated under the Securities Act of 1933, as amended.
On February 16, 2006, the Company issued 24,000 shares to Westminster
Securities and 96,000 shares to two employees of Westminster Securities, 48,000
each, pursuant to the terms of the termination of the agreement between Stem
Cell Florida and Westminster. The Company valued these shares at $0.85 per
share, the current fair value of the underlying common stock less a 15% thinly
61
trading discount, which approximates the fair value of the services provided.
This issuance eliminated all obligations of the Company and Stem Cell Florida
with respect to the Agreement between Stem Cell Florida and Westminster. This
issuance was completed without any public offering in accordance with Section
4(2) and Regulation D promulgated under the Securities Act of 1933, as amended.
On February 2, 2006, the Company issued a total of 70,000 shares to six
consultants who assisted the Company on the medical advisory board or who
performed other medical services on behalf of the Company. Although issued on
February 2, 2006, we valued these shares at market price as quoted on the pink
sheets as of the date the services were performed, pursuant to EITF Issue No.
96-18, as follows:
CONSULTANT DATE SERVICES WERE PROVIDED NUMBER OF SHARES MARKET PRICE
- ----------------------- --------------------------- ---------------- -------------
Alexey Bersenev 10/04/05 10,000 $ 1.75
Weiwen Deng 10/10/05 10,000 $ 1.45
Salvador Vargas MD 10/24/05 10,000 $ 1.05
Jorge Quintero MD 10/24/05 10,000 $ 1.05
Dr. Igor Katkov PhD 12/02/05 20,000 $ 0.97
Dr. Nikita Tregubov, MD 12/02/05 10,000 $ 0.97
The total value of the services rendered, and the total market price of these
shares on dates they were earned, was $85,100. This issuance was completed
without any public offering in accordance with Section 4(2) and Regulation D
promulgated under the Securities Act of 1933, as amended.
The Company has engaged a public relations firm to perform services in
exchange for $12,000 worth of the Company's common shares, at market price as
quoted on the pink sheets (average of the previous 20 days), per month.
Accordingly, the Company has issued the following shares:
MONTH AVERAGE MARKET PRICE NUMBER OF SHARES
- --------------- --------------------- ----------------
September, 2005 $ 1.88 6,400
October, 2005 $ 1.01 11,882
November, 2005 $ 0.86 13,953
December, 2005 $ 1.00 12,000
January, 2006 $ 0.85 14,118
February, 2006 $ 0.85 14,118
March, 2006 $ 0.40 30,361
Pursuant to this arrangement, on February 2, 2006 the Company issued a total of
44,234 to the public relations firm engaged by the Company for the services
performed from September through December, 2005. This issuance was completed
without any public offering in accordance with Section 4(2) and Regulation D
promulgated under the Securities Act of 1933, as amended.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Nevada General Corporation Law provides, in effect, that any person
made a party to any action by reason of the fact that he is or was a director,
officer, employee or agent of our company may and, in certain cases, must be
indemnified by our company against, in the case of a non-derivative action,
judgments, fines, amounts paid in settlement and reasonable expenses (including
attorneys' fees) incurred by him as a result of such action, and in the case of
a derivative action, against expenses (including attorneys' fees), if in either
62
type of action he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of our company and in any criminal
proceeding in which such person had reasonable cause to believe his conduct was
lawful. This indemnification does not apply, in a derivative action, to matters
as to which it is adjudged that the director, officer, employee or agent is
liable to our company, unless upon court order it is determined that, despite
such adjudication of liability, but in view of all the circumstances of the
case, he is fairly and reasonably entitled to indemnification for expenses.
At present, there is no pending litigation or proceeding involving any
director or officer as to which indemnification is being sought, nor are we
aware of any threatened litigation that may result in claims for indemnification
by any director or officer.
63
PART F/S FINANCIAL STATEMENTS
SET FORTH BELOW
64
PART III
ITEM 1. EXHIBITS
The following exhibits are filed as part of this registration statement:
3.1 Articles of Incorporation of Stem Cell Therapy International, Inc., as
amended
3.2 Articles of Incorporation of Stem Cell Therapy Corp.*
3.3 Certificate of Designation of Series A Preferred Stock*
3.4 By-laws of Stem Cell Therapy International, Inc.*
10.1 Business Consulting and Services Agreement dated as of December 16, 2004
between Stem Cell Therapy International Corp. and PMS SA.*
10.2 Consulting Agreement dated as of January 4, 2005 between Stem Cell
Therapy International Corp. and RES Holdings Corp.*
10.3 Investor and Media Relations Contract dated as of February 10, 2005
between Stem Cell Therapy International Corp. and Stern & Co.*
10.4 Executive Suite Lease Agreement dated as of February 15, 2005 between
Stem Cell Therapy International Corp. and Wilder Corporation.*
10.5 Engagement Letter dated as of May 3, 2005 between the Company and
Westminster Securities Corporation.*
10.6 Reorganization and Stock Purchase Agreement dated as of September 1, 2005
between the Company (then Altadyne, Inc.), Stem Cell Therapy
International Corp. and R Capital Partners, Inc.*
10.7 Licensing Agreement dated as of September 1, 2005 between the Company and
Institute of Cell Therapy.*
10.8 Consulting Agreement dated as of September 1, 2005 between the Company
and European Consulting Group, LLC.*
10.9 Consulting Agreement dated as of September 1, 2005 between the Company
and Global Management Enterprises, LLC.*
65
10.10 Consulting Agreement dated as of September 1, 2005 between the Company
and USA Consulting Group, LLC.*
10.11 Professional Services Agreement dated as of September 7, 2005 between the
Company and Bridgehead Group Limited , Inc.*
10.12 Public Relations Agreement dated as of September 19, 2005 between the
Company and Stern & Co.*
10.13 Advisory Physician Agreement dated as of October 4, 2005 between the
Company and Alexey Bersenev.*
10.14 Medical and Scientific Advisory Board Member Agreement dated as of
October 10, 2005, between the Company and Dr. Weiwen Deng.*
10.15 Medical and Scientific Advisory Board Member Agreement dated as of
October 24, 2005, between the Company and Dr. Jorge Quintero.*
10.16 Medical and Scientific Advisory Board Member Agreement dated as of
October 24, 2005, between the Company and Dr. Salvador Vargas.*
10.17 Medical and Scientific Advisory Board Member Agreement dated as of
December 2, 2005 between the Company and Dr. Igor Katkov.*
10.18 Medical and Scientific Advisory Board Member Agreement dated as of
December 2, 2005, between the Company and Dr. Nikita Tregubov.*
10.19 Business Advisory Board Agreement dated as of December 5, 2005 between
the Company and Fred J. Villella.*
10.20 Business Development Advisory Agreement dated as of January 1, 2006
between the Company and Alexander Kulik.*
10.21 Termination and Modification of Engagement Letter dated January 4, 2006
between the Company and Westminster Securities Corporation.*
10.22 Business Consulting and Services Agreement dated January 20, 2006 between
the Company and Julio C. Ferreira dba Sphaera Inte-Par.*
10.23 Business Development Advisory Agreement dated as of February 7, 2006
between the Company and Gus Yepes.*
10.24 Medical and Scientific Advisory Board Member Agreement dated as of April
5, 2006 between the Company and Dr. Nicholas Kipshidze, M.D.*
66
10.25 Treating Physician Agreement dated as of October 24, 2005 between the
Company and Dr. Salvador Vargas.
10.26 Treating Physician Agreement dated as of October 24, 2005 between the
Company and Dr. Jorge Quintero.
21. List of Subsidiaries
* Previously filed with the Company's initial filing of this Registration
Statement on Form 10-SB, file number 000-51931, filed on April 25, 2006, and
incorporated by this reference as an exhibit to this Registration Statement.
67
PURSUANT TO THE REQUIREMENTS OF SECTION 12 OF THE SECURITIES EXCHANGE ACT OF
1934, THE REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES STATED.
SIGNATURE TITLE DATE
President, Chief
Executive Officer and
Director (principal
/s/ Calvin Cao executive officer) February 27, 2007
- ------------------- -----------------
Calvin Cao
Chief Financial Officer
and Director (principal
financial and accounting
/s/ Daniel Sullivan officer) February 27, 2007
- ------------------- -----------------
Daniel Sullivan
Chief Operating Officer
/s/ Peter Sidorenko and Director February 27, 2007
- ------------------- -----------------
Peter Sidorenko
68
FINANCIAL STATEMENTS
STEM CELL THERAPY INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
As of March 31, 2006 and for
the year ended March 31, 2006 and
For the Periods December 2, 2004 (Date of Inception)
through March 31, 2005 and 2006
F-i
Stem Cell Therapy International, Inc.
(A Development Stage Enterprise)
Financial Statements
As of March 31, 2006 and for
the year ended March 31, 2006 and
For the Periods December 2, 2004 (Date of Inception)
through March 31, 2005 and 2006
Contents
Report of Independent Registered Public Accounting Firm F-1
Financial Statements:
Balance Sheet F-2
Statements of Operations F-3
Statements of Changes in Stockholders' Equity F-4 to F-7
Statements of Cash Flows F-8
Notes to Financial Statements F-9 to F-20
F-ii
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
Stem Cell Therapy International, Inc.
Tampa, Florida
We have audited the accompanying balance sheet of Stem Cell Therapy
International, Inc. (a development stage enterprise) as of March 31, 2006 and
the related statements of operations, changes in stockholders' deficit, and cash
flows for the year then ended and the period December 2, 2004 (Date of
Inception) through March 31, 2005 and 2006. These financial statements are the
responsibility of the management of Stem Cell Therapy International, Inc. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we expressed no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Company. as of March 31, 2006
and the results of its operations and its cash flows for the year then ended and
the period from December 2, 2004 (Date of Inception) through March 31, 2005 and
2006 in conformity with accounting principles generally accepted in the United
States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2, the Company
has an accumulated deficit of $532,402 from inception to March 31, 2006, cash
used by operations of $162,258 and negative working capital of $301,046. These
factors, among others, raise substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 2. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Pender Newkirk & Company, LLP
Certified Public Accountants
Tampa, Florida
May 18, 2006
F-1
Stem Cell Therapy International, Inc.
(A Development Stage Enterprise)
Balance Sheet
March 31, 2006
ASSETS
Current assets:
Cash $ 32,642
Prepaid expenses 78,031
------
Total current assets 110,673
Certificate of deposit, restricted 120,000
Deposits 1,589
Prepaid expenses, long-term 5,625
-----
127,214
-------
Total Assets $ 237,887
=========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts Payable $ 28,370
Accrued expenses 75,000
Accrued payroll 35,000
Advances from shareholder 48,377
Due to related party 224,972
-------
Total current liabilities 411,719
-------
Stockholders' deficit:
Preferred stock; $.001 par value; 10,000,000
shares authorized and 500,000 outstanding 500
Common stock; $.001 par value; 100,000,000
shares authorized and 33,672,510 outstanding 33,672
Additional paid-in capital 324,398
Deficit accumulated during development stage (532,402)
---------
Total stockholders' deficit (173,832)
---------
Total liabilities & stockholders' deficit $ 237,887
=========
The accompanying notes are an integral part of the financial statements.
F-2
Stem Cell Therapy International, Inc.
(A Development Stage Enterprise)
STATEMENTS OF OPERATIONS
Period from Period From December 2,
Year Ended December 2, 2004 through 2004 (Date of Inception)
March 31, 2006 Through March 31, 2005 Through March 31, 2006
---------------- -------------------------- -------------------------
Sales $ 80,934 $ 80,934
Cost of goods sold 52,100 52,100
---------------- -------------------------- -------------------------
Gross profit 28,834 28,834
Operating expenses:
Selling, general and administrative 537,072 $ 26,280 563,352
---------------- -------------------------- -------------------------
537,072 26,280 563,352
---------------- -------------------------- -------------------------
Loss from operations (508,238) (26,280) (534,518)
Other (expense) income:
Interest (expense) income, net 2,077 39 2,116
---------------- -------------------------- -------------------------
Net loss before taxes (506,161) (26,241) (532,402)
Income tax expense
Net loss (506,161) (26,241) (532,402)
Less: Discount on preferred stock (10,000) (10,000)
---------------- -------------------------- -------------------------
Loss available to common shareholders $ (516,161) $ (26,241) $ (542,402)
================ ========================== =========================
Net loss per share $ (.02) $ (.00) $ (.02)
================ ========================== =========================
Weighted average number
of common shares 26,339,010 18,645,378 24,443,477
================ ========================== =========================
The accompanying notes are an integral part of the financial statements.
F-3
Stem Cell Therapy International, Inc.
(A Development Stage Enterprise)
Statements of Changes in Stockholders' Deficit
FOR THE PERIOD FROM DECEMBER 2, 2004 (DATE OF INCEPTION) THROUGH MARCH 31, 2006
DEFICIT
COMMON STOCK PREFERRED STOCK ACCUMULATED
------------------- ------------------ ADDITIONAL DURING
PAID-IN DEVELOPMENT
SHARES AMOUNT SHARES AMOUNT CAPITAL STAGE TOTAL
- -------------------------------------- ---------- ------- --------- ------- ----------- ------------- ---------
Issuance of common stock for
cash, December 2004* 11,600,000 $11,600 - $ - $ - $ - $ 11,600
- -------------------------------------- ---------- ------- --------- ------- ----------- ------------- ---------
Options exercised, December 2004* 500,000 500 - - - - 500
- -------------------------------------- ---------- ------- --------- ------- ----------- ------------- ---------
Issuance of common stock and value of
options for acquisition deposit,
December 2004* 5,000,000 5,000 - - 2,749 - 7,749
- -------------------------------------- ---------- ------- --------- ------- ----------- ------------- ---------
Value of options issued for services - - - - 906 - 906
- -------------------------------------- ---------- ------- --------- ------- ----------- ------------- ---------
Issuance of common stock for services,
January 2005* 2,170,000 2,170 - - - - 2,170
- -------------------------------------- ---------- ------- --------- ------- ----------- ------------- ---------
Issuance of common stock for cash,
January 2005* 200,000 200 - - - - 200
- -------------------------------------- ---------- ------- --------- ------- ----------- ------------- ---------
Issuance of common stock for cash,
February 2005* 1,100,000 1,100 - - - - 1,100
- -------------------------------------- ---------- ------- --------- ------- ----------- ------------- ---------
Issuance of common stock for cash,
March 2005* 650,000 650 - - - - 650
- -------------------------------------- ---------- ------- --------- ------- ----------- ------------- ---------
Net loss for the period - - - - - (26,241) (26,241)
The accompanying notes are an integral part of the financial statements.
F-4
Stem Cell Therapy International, Inc.
(A Development Stage Enterprise)
Statements of Changes in Stockholders' Deficit
FOR THE PERIOD FROM DECEMBER 2, 2004 (DATE OF INCEPTION) THROUGH MARCH 31, 2006
DEFICIT
COMMON STOCK PREFERRED STOCK ACCUMULATED
-------------------- ------------------ ADDITIONAL DURING
PAID-IN DEVELOPMENT
SHARES AMOUNT SHARES AMOUNT CAPITAL STAGE TOTAL
- ----------------------------------------- ----------- -------- --------- ------- ------------ ------------- ---------
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 May 2005* (5,600,000) (5,600) - - (2,749) - (8,349)
- ----------------------------------------- ----------- -------- --------- ------- ------------ ------------- ---------
Issuance of common stock for services,
September 2005* 379,000 379 - - - - 379
- ----------------------------------------- ----------- -------- --------- ------- ------------ ------------- ---------
Reverse acquisition, September 2005 6,310,678 6,311 - - (906) - 5,405
- ----------------------------------------- ----------- -------- --------- ------- ------------ ------------- ---------
Issuance of common stock for a reduction
in shareholder advances, September 2005* 3,000,000 3,000 - - - - 3,000
- ----------------------------------------- ----------- -------- --------- ------- ------------ ------------- ---------
Issuance of common stock for services,
September 2005* 8,030,000 8,030 - - - - 8,030
- ----------------------------------------- ----------- -------- --------- ------- ------------ ------------- ---------
Issuance of preferred stock for cash,
September 2005* - - 500,000 500 34,500 - 35,000
- ----------------------------------------- ----------- -------- --------- ------- ------------ ------------- ---------
Dividend on preferred stock (10,000) (10,000)
- ----------------------------------------- ----------- -------- --------- ------- ------------ ------------- ---------
Issuance of common stock for services,
September 2005, ($1.88 per share) 6,400 6 - - 11,994 - 12,000
- ----------------------------------------- ----------- -------- --------- ------- ------------ ------------- ---------
Issuance of common stock for services,
October 2005, ($1.01 per share) 11,882 12 - - 11,988 - 12,000
- ----------------------------------------- ----------- -------- --------- ------- ------------ ------------- ---------
The accompanying notes are an integral part of the financial statements.
F-5
Stem Cell Therapy International, Inc.
(A Development Stage Enterprise)
Statements of Changes in Stockholders' Deficit
For the period from December 2, 2004 (Date of Inception) through March 31, 2006
PREFERRED DEFICIT
COMMON STOCK STOCK ACCUMULATED
-------------- -------------- ADDITIONAL DURING
PAID-IN DEVELOPMENT
SHARES AMOUNT SHARES AMOUNT CAPITAL STAGE TOTAL
- --------------------------------------- ------ ------ ------ ------ ---------- ----------- ------
Issuance of common stock for services,
October 2005, ($1.05 per share) 20,000 20 - - 20,980 - 21,000
- --------------------------------------- ------ ------ ------ ------ ---------- ----------- ------
Issuance of common stock for services,
October 2005, ($1.75 per share) 10,000 10 - - 17,490 - 17,500
- --------------------------------------- ------ ------ ------ ------ ---------- ----------- ------
Issuance of common stock for services,
October 2005, ($1.45 per share) 10,000 10 - - 14,490 - 14,500
- --------------------------------------- ------ ------ ------ ------ ---------- ----------- ------
Issuance of common stock for services,
November 2005, ($.86 per share) 13,953 14 - - 11,986 - 12,000
- --------------------------------------- ------ ------ ------ ------ ---------- ----------- ------
Issuance of common stock for services,
December 2005, ($.97 per share) 30,000 30 - - 29,070 - 29,100
- --------------------------------------- ------ ------ ------ ------ ---------- ----------- ------
Issuance of common stock for services,
December 2005, ($1.00 per share) 12,000 12 - - 11,988 - 12,000
- --------------------------------------- ------ ------ ------ ------ ---------- ----------- ------
Issuance of common stock for services,
January 1, 2006, ($.89 per share) 10,000 10 - - 7,555 - 7,565
- --------------------------------------- ------ ------ ------ ------ ---------- ----------- ------
Issuance of common stock for services,
January 1, 2006, ($.89 per share) 10,000 10 - - 7,555 - 7,565
- --------------------------------------- ------ ------ ------ ------ ---------- ----------- ------
Issuance of common stock for services,
January 15, 2006, ($.85 per share) 14,118 14 - - 11,986 - 12,000
- --------------------------------------- ------ ------ ------ ------ ---------- ----------- ------
Issuance of common stock for services,
January 20, 2006, ($1.00 per share) 20,000 20 - - 16,980 - 17,000
- --------------------------------------- ------ ------ ------ ------ ---------- ----------- ------
The accompanying notes are an integral part of the financial statements.
F-6
Stem Cell Therapy International, Inc.
(A Development Stage Enterprise)
Statements of Changes in Stockholders' Deficit
FOR THE PERIOD FROM DECEMBER 2, 2004 (DATE OF INCEPTION) THROUGH MARCH 31, 2006
DEFICIT
COMMON STOCK PREFERRED STOCK ACCUMULATED
------------------- ------------------ ADDITIONAL DURING
PAID-IN DEVELOPMENT
SHARES AMOUNT SHARES AMOUNT CAPITAL STAGE TOTAL
- ------------------------------------------- ---------- ------- --------- ------- ----------- ------------- ----------
Issuance of common stock for services,
February 15, 2006, ($.85 per share) 14,118 14 - - 11,986 - 12,000
- ------------------------------------------- ---------- ------- --------- ------- ----------- ------------- ----------
Issuance of common stock for services,
February 16, 2006, ($1.00 per share) 24,000 24 - - 20,376 - 20,400
- ------------------------------------------- ---------- ------- --------- ------- ----------- ------------- ----------
Issuance of common stock for services,
February 16, 2006, ($1.00 per share) 48,000 48 - - 40,752 - 40,800
- ------------------------------------------- ---------- ------- --------- ------- ----------- ------------- ----------
Issuance of common stock for services,
February 16, 2006, ($1.00 per share) 48,000 48 - - 40,752 - 40,800
- ------------------------------------------- ---------- ------- --------- ------- ----------- ------------- ----------
Issuance of common stock for services,
March 15, 2006, ($.40 per share) 30,361 30 - - 11,970 - 12,000
- ------------------------------------------- ---------- ------- --------- ------- ----------- ------------- ----------
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)
=========================================== ========== ======= ========= ======= =========== ============= ==========
The accompanying notes are an integral part of the financial statements.
F-7
Stem Cell Therapy International, Inc.
(A Development Stage Enterprise)
Statements of Cash Flows
Year Period from December 2, 2004
Ended December 2, 2004 (Date of Inception)
March 31, Through Through
2006 March 31, 2005 March 31,2006
----------- ------------------ --------------------
OPERATING ACTIVITIES
Net loss $ (506,161) (26,241) $ (532,402)
Adjustments to reconcile net loss to net
cash used by operating activities:
Stock issued for services 308,539 2,170 310,709
Recapitalization 5,405 5,405
Value of options for services 906 906
(Increase) decrease in:
Prepaid expenses (75,107) (8,549) (83,656)
Deposits 3,410 (5,000) (1,590)
Increase in:
Accounts payable 22,863 5,507 28,370
Accrued payroll 35,000 35,000
Accrued liabilities 75,000 75,000
----------- ------------------ --------------------
Net cash used by operating activities (131,051) (31,207) (162,258)
----------- ------------------ --------------------
INVESTING ACTIVITIES
Investment in certificate of deposit (120,000) (120,000)
----------- ------------------ --------------------
Net cash used by investing activities (120,000) (120,000)
----------- ------------------ --------------------
FINANCING ACTIVITIES
Proceeds from advances from shareholder 27,685 24,467 52,152
Payments to shareholder (774) (774)
Advances from related party 224,972 224,972
Proceeds from sale of stock 24,500 14,050 38,550
----------- ------------------ --------------------
Net cash provided by financing activities 276,383 38,517 314,900
----------- ------------------ --------------------
NET INCREASE IN CASH 25,332 7,310 32,642
CASH AT BEGINNING OF PERIOD 7,310 0 0
----------- ------------------ --------------------
CASH AT OF END OF PERIOD $ 32,642 $ 7,310 $ 32,642
=========== ================== ====================
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION AND NON-CASH
FINANCING ACTIVITIES:
Cash paid for interest $ 79 $ 79
=========== ================== ====================
Common stock issued for a reduction
in advance from shareholder $ 3,000 $ 3,000
=========== ================== ====================
Common stock issued (returned) for
acquisition deposit $ (7,749) $ 7,749
=========== ================== ====================
The accompanying notes are an integral part of the financial statements.
F-8
Stem Cell Therapy International, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
For the Years Ended March 31, 2006 and the
periods from December 2, 2004 (Date of Inception)
through March 31, 2005 and 2006
1. BACKGROUND INFORMATION
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 provides 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.
Effective September 1, 2005, Stem Cell Florida entered into a Reorganization and
Stock Purchase Agreement (the Agreement) with the Company, which was then named
Altadyne, Inc., a company quoted on the Pink Sheets and which has no ongoing
operations. Under the terms of the agreement, the Company (then Altadyne, Inc.)
acquired Stem Cell Florida and changed its name to Stem Cell Therapy
International, Inc.
Effective September 1, 2005, Stem Cell Therapy International, Inc. revised its
Articles of Incorporation to reflect the establishment of 500,000 shares of
Series A Participating Preferred Stock with $.001 par value.
F-9
Stem Cell Therapy International, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
For the Year Ended March 31, 2006 and the
periods from December 2, 2004 (Date of Inception)
through March 31, 2005 and 2006
(Unaudited)
2. GOING CONCERN
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. For the year ended March 31, 2006 and
the period since December 2, 2004 (date of inception) through March 31, 2005 and
2006, the Company has had a net loss of $506,161, 26,241 and $532,402,
respectively and cash used by operations of $131,051, $31,207 and $162,258,
respectively, and negative working capital of $301,046 at March 31, 2006. As of
March 31, 2006, the Company has not emerged from the development stage. In view
of these matters, recoverability of recorded asset amounts shown in the
accompanying financial statements is dependent upon the Company's ability to
begin operations and to achieve a level of profitability. Since inception, the
Company has financed its activities principally from the sale of equity
securities and shareholder advances. The Company intends on financing its
future development activities and its working capital needs largely from the
sale of equity securities until such time that funds provided by operations are
sufficient to fund working capital requirements.
3. SIGNIFICANT ACCOUNTING POLICIES:
The significant accounting policies followed are:
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.
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
F-10
Stem Cell Therapy International, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
For the Year Ended March 31, 2006 and the
period from December 2, 2004 (Date of Inception)
through March 31, 2005 and 2006
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The majority of cash is maintained with a major financial institution in
the United States. Deposits with this bank may exceed the amount of insurance
provided on such deposits. Generally, these deposits may be redeemed upon
demand and, therefore, bear minimal risk.
Common stock transactions for services are recorded at either the fair
value of the stock issued or the fair value of the services rendered, which ever
is more evident on the day that the transactions are executed. The certificates
must be issued subsequent to the transaction date.
Deferred offering costs in connection with the Company raising additional
capital through the sale of its common stock will be capitalized and will be
charged against additional paid-in capital as common stock is issued. For stock
issued as payment for deferred offering costs, these costs will be capitalized
and included in a contra-equity account. If there is no issuance of common
stock, the costs incurred will be charged to operations.
The Company evaluates the recoverability of its long-lived assets or asset
groups whenever adverse events or changes in business climate indicate that the
expected undiscounted future cash flows from the related assets may be less than
previously anticipated. If the net book value of the related assets exceeds the
undiscounted future cash flows of the assets, the carrying amount would be
reduced to the present value of their expected future cash flows and an
impairment loss would be recognized. There has been no impairment losses in the
period presented.
F-11
Stem Cell Therapy International, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
For the Year Ended March 31, 2006 and the
period from December 2, 2004 (Date of Inception)
through March 31, 2005 and 2006
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In determining the value of options, the value of each option is estimated at
the date of grant using the Black-Scholes option model with the following
weighted average assumptions for options granted during the period ended March
31, 2005:
Dividend rate 0.00%
Risk free interest rate 4.18%
Expected lives 2 - 5 years
Volatility 290%
There were no options awarded during the year ended March 31, 2006.
Research and development costs are charged to operations when incurred and
are included in operating expenses. The Company had no research & development
expenses for the year ended March 31, 2006 or the periods December 2, 2004 (date
of inception) through March 31, 2005 and 2006.
We apply Staff Accounting Bulletin No. 104 "Revenue Recognition" ("SAB No. 104")
to our revenue arrangements. Currently, our only revenue transactions derive
from the licensing of stem cell technology, the sale of stem cell products, and
providing informational and referral services; we have no plans to enter into
any other revenue transaction in the near future. In accordance with SAB No.
104, we recognize revenue related to these licenses, sales and services upon
delivering the license or product, or rendering the services, respectively, 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.
Deferred tax assets and liabilities are recognized for the estimated future
tax consequences attributable to differences between the financial statements
carrying amounts of existing assets and liabilities and their respective income
tax bases. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized as income in the
period that included the enactment date.
F-12
Stem Cell Therapy International, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
For the Year Ended March 31, 2006 and the
periods from December 2, 2004 (Date of Inception)
through March 31, 2005 and 2006
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Basic and diluted earnings per share are computed based on the weighted
average number of common stock outstanding during the period. Common stock
equivalents are not considered in the calculation of diluted earnings per share
for the periods presented because their effect would be anti-dilutive.
In December 2004, the Financial Accounting Standards Board ('FASB") issued
SFAS No. 123R, "Share-Based Payment" ("SFAS No. 123R"), which requires, among
other things, that all share-based payments to employees, including grants of
stock options, be measured at their grant-date fair value and expensed in the
consolidated financial statements. The accounting provisions of SFAS No. 123R
are effective for reporting periods beginning after December 2005; therefore,
the Company is required to adopt SFAS No. 123R in the first quarter of 2006. The
pro forma disclosures previously permitted under SFAS No. 123 will no longer be
an alternative to financial statement recognition. There is no effect of the
adoption of SFAS No. 123R at March 31, 2006 as the Company did not have any
options issued or outstanding.
In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error
Corrections. SFAS No. 154 changes the requirements for the accounting for and
reporting of a change in accounting principle. In addition, it carries forward
without change the guidance contained in APB Opinion No. 20 for reporting the
correction of an error in previously issued financial statements and a change in
accounting estimate. SFAS No. 154 requires retrospective application to prior
periods' financial statements of changes in accounting principle in most
circumstances. The provisions of SFAS No. 154 are effective in fiscal years
beginning after December 15, 2005. The Company plans to prospectively adopt SFAS
No. 154 at the beginning of the 2007 fiscal year.
In June 2005, the Emerging Issues Task Force ("EITF") reached a consensus on
Issue No. 05-06, Determining the Amortization Period for Leasehold Improvements
Purchased after Lease Inception or Acquired in a Business Combination ("EITF
05-06"). EITF 05-06 concludes that the amortization period for leasehold
improvements acquired in a business combination and leasehold improvements that
are in service
F-13
Stem Cell Therapy International, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
For the Year Ended March 31, 2006 and the
periods from December 2, 2004 (Date of Inception)
through March 31, 2005 and 2006
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
significantly after and not contemplated at the beginning of the lease term
should be amortized over the shorter of the useful life of the assets or a term
that includes required lease periods and renewals that are deemed to be
reasonably assured at the date of inception. As of March 31, 2006, this
pronouncement had no impact on the financial statements.
Other recent accounting pronouncements issued by the FASB (including its EITF),
the AICPA, and the SEC did not or are not believed by management to have a
material impact on the Company's present or future financial statements.
4. ACQUISITIONS
Effective September 1, 2005, Stem Cell Florida entered into a Reorganization and
Stock Purchase Agreement (the Agreement) with the Company, then named Altadyne,
Inc., a company quoted on the Pink Sheets, which had no assets, liabilities or
ongoing operations. Under the terms of the agreement, the Company, (then
Altadyne) acquired 100% of the issued and outstanding shares of common stock of
Stem Cell Florida in a non-cash transaction and Stem Cell Florida became a
wholly owned subsidiary of the Company. Subsequent to the merger, the Altadyne
changed its name to Stem Cell Therapy International, Inc. This transaction is
accounted for as a reverse merger, with the Company treated as the accounting
acquirer for financial statement purposes.
The results of operations for Altadyne for the period September 1, 2005 through
March 31, 2006 have been included in the statement of operations of the Company.
Pro forma financial statements are not presented as the acquisition is deemed
not significant and the pro-forma financial statements for continuing operations
of the surviving entity are not materially different from the financial
statements presented.
F-14
Stem Cell Therapy International, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
For the Year Ended March 31, 2006 and the
periods from December 2, 2004 (Date of Inception)
through March 31, 2005 and 2006
4. ACQUISITIONS (CONTINUED)
BIO-CELLULAR RESEARCH ORGANIZATION LLC
On December 15, 2004 the Company entered into an agreement with Bio-Cellular
Research Organization LLC ("BCRO") to acquire the operations and intellectual
property of BCRO. BCRO prepares stem cell transplants of animal fetal origin of
200 cell types.
Effective May 1, 2005, Bio-Cellular Research Organization LLC terminated the
December 15, 2004 acquisition agreement. No assets were transferred to the
Company and all of the common stock and options issued to Bio-Cellular Research
Organization LLC have been cancelled. The Company shall have no obligations of
any nature to Bio-Cellular Research Organization LLC.
INNER SYSTEMS, INC.
On February 2, 2005 the Company entered into a Term Sheet Agreement ("Term
Sheet") with Inner Systems, Inc. ("ISI"). ISI is a publicly-reporting company
which presently has no ongoing operations. Under the terms of the Term Sheet,
the Company and ISI would arrange a transaction whereby the Company would merge
into ISI. Thereafter, the merged entity would change its name to Stem Cell
Therapy International Corp.
The Company has provided $5,000 under the terms of the Term Sheet to ISI for
ISI's legal fees related to the proposed transaction. The funds provided have
been recorded as an expense in the accompanying statement of operations, as the
contract was terminated.
Effective August 11, 2005, ISI terminated the "Term Sheet" and the Company shall
have no obligations of any nature to ISI.
F-15
Stem Cell Therapy International, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
For the Year Ended March 31, 2006 and the
periods from December 2, 2004 (Date of Inception)
through March 31, 2005 and 2006
5. RELATED PARTY TRANSACTION
During the year ended March 31, 2006, the majority shareholder purchased
3,000,000 shares of common stock valued at $3,000 and the Company reduced the
advances from the stockholder account by the same amount.
The advance from stockholder account is made up of advances from an officer of
the Company to assist with its financial obligations. These advances are
non-interest bearing, unsecured and due on demand.
Due to related party is a demand note to a consulting company related by
ownership. The note is non-interest bearing and unsecured.
The above terms and amounts are not necessarily indicative of the terms and
amounts that would have been received had comparable transactions been entered
into with independent party.
6. LEASE COMMITMENTS
The Company leases office space and office equipment under an operating lease on
a month-to-month basis. The terms of the lease agreement require 30 days
written notice to terminate the lease.
Rent expense amounted to $21,144, $3,440 and $24,584 for the year ended March
31, 2006 and the periods from December 2, 2004 (Date of Inception) through March
31, 2005 and 2006.
F-16
Stem Cell Therapy International, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
For the Year Ended March 31, 2006 and the
periods from December 2, 2004 (Date of Inception)
through March 31, 2005 and 2006
7. STOCK OPTIONS AND WARRANTS:
The following table summarizes the activity related to all Company stock options
and warrants for the year ended March 31, 2006 and the periods from December 2,
2004 (Date of Inception) through March 31, 2005 and 2006:
Weighted Average
Exercise Price Exercise Price
per Share per Share
Stock --------------------- ------------------
Warrants Options Warrants Options Warrants Options
- --------------------- -------- ----------- -------- ----------- -------- --------
Outstanding at
December 2, 2004 - - - - - -
Granted - 6,000,000 - $0.001-0.75 - $ 0.18
Exercised - 500,000 - 0.001 - 0.001
- --------------------- -------- ----------- -------- ----------- -------- --------
Outstanding at
March 31, 2005 - 5,500,000 - $0.003-0.75 - $ 0.196
Canceled or expired - (5,500,000) - - - -
- --------------------- -------- ----------- -------- ----------- -------- --------
Outstanding at
March 31, 2006 - - - - - -
- --------------------- -------- ----------- -------- ----------- -------- --------
Exercisable at
March 31, 2006 - - - - - -
- --------------------- -------- ----------- -------- ----------- -------- --------
8. CAPITALIZATION
The Company has 100,000,000 shares of common stock authorized. In addition,
there are 10,000,000 authorized shares of participating convertible preferred
stock, $.001 par value, the issuance of which is subject to approval by the
Board of Directors. The Board of Directors has the authority to declare
dividends. The voting rights of the convertible preferred stockholders are
equivalent to that of the common stockholders. The convertible preferred stock
can be converted at any time by the holder into one share of common stock. As
of March 31, 2006, the Company had 500,000 shares of convertible preferred stock
issued and outstanding valued at $25,000. Upon issuanced of the preferred
stock, management determined that the convertible preferred stock contained a
beneficial conversion feature calculated as of the date of commitment, September
15, 2005, based on the fair value of the closing price of the common stock, $.07
per share, and an exercise price of $.05 per share, calculated as $25,000 paid
for the preferred stock divided by the 500,000 shares of convertible preferred
stock received. Each share of Preferred Stock is convertible into one share of
common stock with no additional investment. The beneficial conversion which was
$10,000, was recorded as a dividend, as the preferred stock can be converted at
any time after the issue date.
F-17
Stem Cell Therapy International, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
For the Year Ended March 31, 2006 and the
periods from December 2, 2004 (Date of Inception)
through March 31, 2005 and 2006
9. INCOME TAXES
Income tax expense consists of the following:
Period from
December 2,
2004 through
2006 December 31, 2005
----- -----------------
Taxes currently payable (receivable):
Federal $ 0 $ 0
State 0 0
----- -----------------
Change in deferred income tax expense 0 0
----- -----------------
$ 0 $ 0
===== =================
The income tax provision differs from the amount of tax determined by applying
the Federal statutory rate as follows:
Period from
December 2,
2004 through
2006 March 31, 2005
---------- ----------------
Income tax provision at statutory rate $(172,100) $ (9,000)
Increase (decrease) in income tax due to:
Nondeductible expenses 60
State income taxes, net (18,260) (1,000)
Change in valuation allowance 190,300 10,000
---------- ----------------
$ 0 $ 0
========== ================
2006
----------
Deferred tax (liability) asset:
Accrued payroll $ 13,200
Net operating loss carryforward 187,100
----------
200,300
Valuation allowance (200,300)
----------
Total deferred taxes $
==========
F-18
Stem Cell Therapy International, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
For the Year Ended March 31, 2006 and the
periods from December 2, 2004 (Date of Inception)
through March 31, 2005 and 2006
9. INCOME TAXES
Income taxes are based on estimates of the annual effective tax rate and
evaluations of possible future events and transactions and may be subject to
subsequent refinement or revision.
The Company has incurred operating losses since its inception and, therefore, no
tax liabilities have been incurred for the periods presented. The amount of
unused tax losses available to carry forward and apply against taxable income in
future years totaled approximately $500,000. The loss carry forwards expire
beginning in 2025. Due to the Company's continued losses, management has
established a valuation allowance equal to the amount of deferred tax asset
because it is more likely than not that the Company will not realize this
benefit.
10. CONTINGENCIES AND COMMITMENTS
As of March 31, 2006, the Company had a standing letter of credit with a
financial institution for $120,000 which is available to be drawn against
accounts maintained by the Company with the financial institution. This letter
of credit serves as a guarantee of payment for a third party vendor. This
standing letter of credit is collateralized by a $120,000 certificate of
deposit.
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 payments of 3,529,000 shares of the Company's
common stock valued at $105,409. The Company has not entered into any
employment contracts to date.
The Company has entered into several consulting agreements with doctors to
provide consulting and advisory services to the Company. The agreements provide
for one year service terms. In exchange for these services, the Company issued
a total of 110,000 shares of common stock valued at $114,230.
F-19
Stem Cell Therapy International, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
For the Year Ended March 31, 2006 and the
periods from December 2, 2004 (Date of Inception)
through March 31, 2005 and 2006
10. CONTINGENCIES AND COMMITMENTS
The Company has entered into an agreement with an investor relations firm to
provide public relations services which expires on July 1, 2006. The agreement
calls for payment of $6,243 in cash and the issuance common stock valued at
$12,000 per month.
Effective December 16, 2004, the Company entered into a three year consulting
agreement with PMS SA in which the Company is obligated to issue an additional
500,000 shares of restricted common stock. On July 23, 2005, the Company
cancelled this agreement and returned the $500 paid for the common stock and the
consultant returned the 500,000 shares of common stock.
Effective September 1, 2005, the Company entered into a ten year licensing
agreement with the Institute of Cell Therapy, a company incorporated and
organized under the laws of Kiev, Ukraine ("ICT"). The agreement grants the
Company an exclusive right and license in most parts of the world to utilize
patents, processes and products owned or produced by ICT in connection with the
operation of the Company's business. In exchange for the license, the Company
agrees to exclusively purchase all biological solution of stem cell Allo
Transplant materials from ICT for a three year period. Such Allo Transplant
materials shall be at a cost of $6,500 per patient per condition. The 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
has provided ICT with a $120,000 irrevocable letter of credit in ICT's favor for
the first three year's of the agreement. In the event the letter of credit is
drawn upon, the Company agrees to replenish the letter of credit to the extent
of any such draws. The Company has also issued ICT a total license fee of 20%
of the Company's issued and outstanding common stock or 5,000,000 shares of
restricted common stock.
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, 2005,
no funding has been secured, however, Westminster did facilitate the acquisition
of Altadyne, and therefore received 379,000 shares of common stock valued at
$379.
F-20
Stem Cell Therapy International, Inc.
(a development stage enterprise)
Balance Sheets
December 31, March 31,
2006 2006
(unaudited)
ASSETS
Current assets:
Cash $ 87,267 $ 32,642
Inventory 5,988 -
Prepaid expenses 43,267 77,531
------------ ----------
Total current assets 136,522 110,173
Certificate of deposit, restricted 3,860 120,000
Deposits 1,589 1,589
Prepaid expenses, long-term 57,712 1,417
Intangible asset, net 4,333 4,708
------------ ----------
Total assets $ 204,016 $ 237,887
============ ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 44,561 $ 28,370
Accrued expenses 75,000 75,000
Accrued payroll 167,355 35,000
Deferred revenue 84,250 -
Stockholder advances 48,753 48,377
Due to related party 225,200 224,972
------------ ----------
Total current liabilities 645,119 411,719
------------ ----------
Commitments and contingencies (Note 9) - -
Stockholders' deficit:
Preferred stock; $.001 par value; 10,000,000 shares
authorized and 500,000 issued and outstanding 500 500
Common stock; $.001 par value; 100,000,000 shares
authorized and 34,495,369 and 33,672,510 issued
and outstanding as of December 31, 2006 and
March 31, 2006, respectively 34,496 33,672
Additional paid-in capital 660,574 324,398
Deficit accumulated during development stage (1,136,673) (532,402)
------------ ----------
Total stockholders' deficit (441,103) (173,832)
------------ ----------
Total liabilities and stockholders' deficit $ 204,016 $ 237,887
============ ==========
The accompanying notes are an integral part of the financial statements.
F-21
Stem Cell Therapy International, Inc.
(a development stage enterprise)
Statements of Operations
(unaudited)
Period from
December 2,
2004 (Date of
Three Months Ended Nine Months Ended Inception) through
December 31, December 31, December 31,
-------------------- -------------------- -------------------
2006 2005 2006 2005 2006
-------------------- -------------------- -------------------
Revenue $ 90,000 $ 27,464 $ 236,260 $ 50,934 $ 317,194
Cost of goods sold 32,435 17,500 241,060 34,600 293,160
Gross margin 57,565 9,964 (4,800) 16,334 24,034
Operating expenses
Selling general & administrative 157,363 115,569 601,706 273,452 1,165,060
--------------------------------------------------------------
157,363 115,569 601,706 273,452 1,165,060
Loss from operations (99,798) (105,605) (606,506) (257,118) (1,141,026)
Other (expense) income:
Interest (expense) income, net (219) 572 2,235 1,096 4,353
--------------------------------------------------------------
Net loss before taxes (100,017) (105,033) (604,271) (256,022) (1,136,673)
Income tax expense - - - - -
--------------------------------------------------------------
Net loss (100,017) (105,033) (604,271) (256,022) (1,136,673)
Less dividends on preferred stock - - - - (10,000)
--------------------------------------------------------------
Loss attributable to common shareholders $(100,017) (105,033) (604,271) (256,022) (1,146,673)
==============================================================
Net loss per share, basic & diluted $ (.00) $ (.00) $ (.02) $ (.01) $ (.04)
==============================================================
Weighted average number
of common shares, basic & diluted 34,495,369 33,408,481 34,248,756 24,251,611 28,001,954
==============================================================
The accompanying notes are an integral part of the financial statements.
F-22
STEM CELL THERAPY INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE PERIOD FROM DECEMBER 2, 2004 (DATE OF INCEPTION) THROUGH DECEMBER 31
2006 (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 3,741,832 3,741 - - 299,898 - 303,639
Issuance of common stock for intangible asset 5,000,000 5,000 - - - - 5,000
Reverse acquisition, September 1, 2005 6,310,678 6,311 - - (906) - 5,405
Issuance of common stock for a reduction
in stockholder advances 3,000,000 3,000 - - - - 3,000
Issuance of preferred stock for cash - - 500,000 500 34,500 - 35,000
Dividend on preferred stock - - - - (10,000) - (10,000)
Net loss for the year ended March 31, 2006 - - - - - (506,161) (506,161)
---------- -------- -------- ----- -------- ------------ -----------
Balance, March 31, 2006 33,672,510 33,672 500,000 500 324,398 (532,402) (173,832)
Issuance of common stock for services (unaudited) 822,859 824 - - 336,176 - 337,000
Net loss for the nine months ended December 31, 2006
(unaudited) - - - - - (604,271) (604,271)
---------- -------- -------- ----- -------- ------------ -----------
Balance, December 31, 2006 (unaudited) 34,495,369 $34,496 500,000 $500 $660,574 ($1,136,673) ($441,103)
========== ======== ======== ===== ======== ============= ===========
The accompanying notes are an integral part of the financial statements.
F-23
Stem Cell Therapy International, Inc.
(a development stage enterprise)
Statements of Cash Flows
December 2, 2004
Nine Months Nine Months (Date of Inception)
Ended Ended Through
December 31, December 31, December 31,
2006 2005 2006
--------- ---------- ----------
(unaudited) (unaudited) (unaudited)
OPERATING ACTIVITIES
Net loss $(604,271) $(256,022) $(1,136,673)
Adjustments to reconcile net loss to net
cash used by operating activities:
Stock based compensation 315,205 125,660 552,478
Investment income reinvested (2,884) - (2,884)
Amortization 375 167 667
(Increase) decrease in:
Inventory (5,988) - (5,988)
Prepaid expenses (236) (56,638) (4,437)
Deposits - 11,160 (1,589)
Increase in:
Accounts payable 16,191 (5,507) 44,561
Accrued payroll 132,355 - 167,355
Accrued expenses - 60,000 75,000
Deferred revenue 84,250 - 84,250
--------- ---------- ----------
Net cash used by operating activities (65,003) (121,180) (227,260)
--------- ---------- ----------
INVESTING ACTIVITIES
(Investment in)/Proceeds from
certificate of deposit, restricted 119,024 - (976)
--------- ---------- ----------
Net cash provided (used) by investing
activities 119,024 - (976)
--------- ---------- ----------
FINANCING ACTIVITIES
Proceeds from advances from stockholder 376 24,686 52,528
Payments to stockholder - (775) (775)
Advances from related party 228 224,582 225,200
Proceeds from sale of stock - 25,000 38,550
--------- ---------- ----------
Net cash provided by financing
activities 604 273,493 315,503
--------- ---------- ----------
NET INCREASE IN CASH 54,625 152,313 87,267
CASH AT BEGINNING OF PERIOD 32,642 7,310 -
--------- ---------- ----------
CASH AT END OF PERIOD $ 87,267 $ 159,623 $ 87,267
========= ========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION AND NON-CASH FINANCING ACTIVITIES:
Cash paid for interest $ 900 $ 79 $ 979
========= ========== ==========
Common stock issued for a reduction
in advance from stockholder $ $ 3,000 $ 3,000
========= ========== ==========
Common stock issued for purchase of
intangible assets $ $ 5,000 $ 5,000
========= ========== ==========
The accompanying notes are an integral part of the financial statements.
F-24
Stem Cell Therapy International, Inc.
(a development stage enterprise)
Notes to Financial Statements
For the Three and Nine Months Ended December 31, 2006 and 2005 (unaudited)
and for the period from December 2, 2004 (Date of Inception)
through December 31, 2006 (unaudited)
1. BACKGROUND INFORMATION AND BASIS OF PRESENTATION
Company Background:
Stem Cell Therapy International, Inc. (the "Company"), was originally
incorporated in the state of Nevada on December 28, 1992 as Arklow Associates,
Inc. The Company's operating business is Stem Cell Therapy International Corp.
("Stem Cell Florida") a wholly owned subsidiary which is a development stage
enterprise and was incorporated in the state of Nevada on December 2, 2004. The
corporate headquarters is located in Tampa, Florida.
The Company is engaged in the licensing of stem cell technology, the sale
of stem cell products, and information, education, and referral services
relating to potential stem cell therapy patients. The Company purchases 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 two highly specialized, professional
medical treatment facilities in locations outside of the United States where
stem cell transplantation therapy is approved by the appropriate local
government agencies. The Company intends to provide these biological solutions
containing stem cell products in the United States to universities, institutes
and privately funded laboratory facilities for research purposes and clinical
trials. Its products, which are available now, include various allo stem cell
biological solutions (containing human stem cells), low-molecular proteins and
human growth factor hormones. The Company intends to deliver stem cell
transplants worldwide and educate and consult with physicians and patients in
the clinical aspects of stem cell transplantation.
Effective September 1, 2005, Stem Cell Florida entered into a
Reorganization and Stock Purchase Agreement (the Agreement) with the Company,
which was then named Altadyne, Inc., a company quoted on the Pink Sheets and
which has no ongoing operations. Under the terms of the agreement, the Company
(then Altadyne, Inc.) acquired Stem Cell Florida and changed its name to Stem
Cell Therapy International, Inc.
F-25
Stem Cell Therapy International, Inc.
(a development stage enterprise)
Notes to Financial Statements
For the Three and Nine Months Ended December 31, 2006 and 2005 (unaudited)
and for the period from December 2, 2004 (Date of Inception)
through December 31, 2006 (unaudited)
1. BACKGROUND INFORMATION AND BASIS OF PRESENTATION (CONTINUED)
Basis of presentation:
In the opinion of management, the accompanying financial statements include all
adjustments, consisting only of normal recurring items, necessary for their fair
presentation in conformity with accounting principles generally accepted in the
United States of America. The results of operations for the nine months ended
December 31, 2006 are not necessarily indicative of the results for a full year.
The financial statements for the period ended December 31, 2006 and notes
thereto should be read in conjunction with the financial statements and notes
thereto for the year ended March 31, 2006 as filed in the Form 10-SB, as
amended, filed with the Securities and Exchange Commission as amended on January
19, 2007.
2. LIQUIDITY AND MANAGEMENT'S PLANS
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. For the nine months ended December 31, 2006
and the period since December 2, 2004 (date of inception) through December 31,
2006, the Company has had a net loss of $604,271 and $1,136,673, respectively
and cash used by operations of $65,003 and $227,260, respectively, and negative
working capital of $508,597 at December 31, 2006. As of December 31, 2006, 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 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
Use of estimates:
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
F-26
Stem Cell Therapy International, Inc.
(a development stage enterprise)
Notes to Financial Statements
For the Three and Nine Months Ended December 31, 2006 and 2005 (unaudited)
and for the period from December 2, 2004 (Date of Inception)
through December 31, 2006 (unaudited)
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Concentration of credit risk:
Cash balances are maintained with a major financial institution in the United
States. Deposits with this bank may exceed the amount of insurance provided on
such deposits. Generally, these deposits may be redeemed upon demand and,
therefore, bear minimal risk.
Intangible asset:
Intangible asset consists of licensing rights. Intangibles are amortized using
the straight-line method over a period of 10 years, the term of the licensing
rights agreement.
Impairment of long-lived assets:
The Company evaluates the recoverability of its long-lived assets or asset
groups whenever adverse events or changes in business climate indicate that the
expected undiscounted future cash flows from the related assets may be less than
previously anticipated. If the net book value of the related assets exceeds the
undiscounted future cash flows of the assets, the carrying amount would be
reduced to the present value of their expected future cash flows and an
impairment loss would be recognized. There have been no impairment losses in
the periods presented.
Revenue recognition:
Revenue is derived from the licensing of stem cell technology, the sale of stem
cell products, and providing informational and referral services. Revenue
related to these licenses, sales and services is recognized upon delivering the
license or product, or rendering the services, respectively. Any payments
received prior to delivery of the products or services are included in deferred
revenue and recognized once the products are delivered or the services are
performed.
F-27
Stem Cell Therapy International, Inc.
(a development stage enterprise)
Notes to Financial Statements
For the Three and Nine Months Ended December 31, 2006 and 2005 (unaudited)
and for the period from December 2, 2004 (Date of Inception)
through December 31, 2006 (unaudited)
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income taxes:
Deferred tax assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial statements
carrying amounts of existing assets and liabilities and their respective income
tax bases. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized as income in the
period that included the enactment date.
Loss per common share:
Basic and diluted earnings per share are computed based on the weighted average
number of common stock outstanding during the period. Common stock equivalents
are not considered in the calculation of diluted earnings per share for the
periods presented because their effect would be anti-dilutive. The Company had
no common stock equivalents outstanding at December 31, 2006.
Stock-based compensation:
In April 2006, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 123R - Share-based Payments ("FAS 123R") replacing
Accounting for Stock-Based Compensation ("FAS 123"), which are similar and
require the use of the fair-value based method to determine compensation for all
arrangements under which employees and others receive shares of stock or equity
instruments (warrants and options). The adoption of this standard had no
significant impact on the Company's results of operations during the nine months
ended December 31, 2006.
Reclassifications:
Certain reclassifications have been made to the accompanying fiscal 2006
financial statements to conform to the December 31, 2006 presentation. Such
reclassifications had no impact on net loss as previously reported.
F-28
Stem Cell Therapy International, Inc.
(a development stage enterprise)
Notes to Financial Statements
For the Three and Nine Months Ended December 31, 2006 and 2005 (unaudited)
and for the period from December 2, 2004 (Date of Inception)
through December 31, 2006 (unaudited)
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recently issued accounting pronouncements:
In February 2006, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard No. 155 ("SFAS 155"), Accounting for
Certain Hybrid Financial Instruments - An Amendment of FASB Statements No. 133
and 140, to simplify and make more consistent the accounting for certain
financial instruments. Specifically, SFAS No. 155 amends SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities, to permit fair
value re-measurement for any hybrid financial instrument with an embedded
derivative that otherwise would require bifurcation provided that the whole
instrument is accounted for on a fair value basis. Prior to fair value
measurement, however, interests in securitized financial assets must be
evaluated to identify interests containing embedded derivatives requiring
bifurcation. The amendments to SFAS No. 133 also clarify that interest-only and
principal-only strips are not subject to the requirements of the SFAS, and that
concentrations of credit risk in the form of subordination are not embedded
derivatives. Finally, SFAS No. 155 amends SFAS No. 140, Accounting for the
Impairment or Disposal for Long-Lived Assets, to allow a qualifying
special-purpose entity (SPE) to hold a derivative financial instrument that
pertains to a beneficial interest other than another derivative financial
instrument. SFAS No. 155 applies to all financial instruments acquired or
issued after the beginning of an entity's first fiscal year that begins after
September 15, 2006, with earlier application allowed. The Company does not
anticipate that the adoption of this statement will have a material impact on
its financial statements.
In September 2005, the FASB issued FASB Statement No. 157. This Statement
defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles (GAAP) and expands disclosures about
fair value measurements. This Statement applies under other accounting
pronouncements that require or permit fair value measurements, the Board having
previously concluded in those accounting pronouncements that fair value is a
relevant measurement attribute. Accordingly, this Statement does not require
any new fair value measurements. However, for some entities, the application of
this Statement will change current practices. This Statement is effective for
financial statements for fiscal years beginning after November 15, 2007.
Management believes this Statement will have no material impact on the financial
statements of the Company once adopted.
In May 2005, the FASB issued Statement of Financial Accounting Standards No.
154, Accounting Changes and Error Corrections. ("SFAS 154")SFAS No. 154 changes
the requirements for the accounting for and reporting of a change in accounting
principle. In addition, it carries forward without change the guidance contained
in APB Opinion No. 20 for reporting the correction of an error in previously
issued financial statements
F-29
Stem Cell Therapy International, Inc.
(a development stage enterprise)
Notes to Financial Statements
For the Three and Nine Months Ended December 31, 2006 and 2005 (unaudited)
and for the period from December 2, 2004 (Date of Inception)
through December 31, 2006 (unaudited)
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
and a change in accounting estimate. SFAS No. 154 requires retrospective
application to prior
Recently issued accounting pronouncements (continued):
periods' financial statements of changes in accounting principle in most
circumstances. The provisions of SFAS No. 154 are effective in fiscal years
beginning after December 15, 2005. The adoption of SFAS No. 154 did not have a
material impact on its financial statements.
FASB issued Interpretation No. 48, "Accounting for Uncertainty in Income Taxes"
(FIN 48), which will be effective for fiscal years beginning after December 15,
2006. FIN 48 clarifies the accounting for uncertainty in income taxes
recognized in an enterprise's financial statements in accordance with FASB
Statement No 109, "Accounting for Income Taxes". FIN 48 prescribes a recognition
threshold and measurement of a tax position taken or expected to be taken in a
tax return. FIN 48 also provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods, disclosure and
transition. The Company has not determined the impact of the adoption of FIN 48
on its financial statements.
In September 2006, the SEC issued Staff Accounting Bulletin No. 108,
"Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements," ("SAB 108"). SAB 108
provides guidance on the consideration of effects of prior year misstatements in
quantifying current year misstatements for the purpose of a materiality
assessment. The SEC staff believes registrants must quantify errors using both
a balance sheet and income statement approach to evaluate whether either
approach results in quantifying a misstatement that, when all relevant
quantitative and qualitative factors are considered, is material. SAB 108 is
effective for the Company at the end of fiscal year 2007. The Company is
currently evaluating the effects of SAB 108 on its financial statements.
4. BUSINESS REORGANIZATION
Effective September 1, 2005, Stem Cell Florida entered into a Reorganization and
Stock Purchase Agreement (the "Agreement") with the Company, then named
Altadyne, Inc., a company quoted on the Pink Sheets, which had no assets,
liabilities or ongoing operations. Under the terms of the agreement, the
Company, (then Altadyne) acquired 100% of the issued and outstanding shares of
common stock of Stem Cell Florida in a non-cash transaction and Stem Cell
Florida became a wholly owned subsidiary of the Company. Subsequent to the
merger, Altadyne changed its name to Stem Cell Therapy International
F-30
Stem Cell Therapy International, Inc.
(a development stage enterprise)
Notes to Financial Statements
For the Three and Nine Months Ended December 31, 2006 and 2005 (unaudited)
and for the period from December 2, 2004 (Date of Inception)
through December 31, 2006 (unaudited)
4. BUSINESS REORGANIZATION (CONTINUED)
Inc. This transaction is accounted for as a reverse merger, with Stem Cell
Florida treated as the accounting acquirer for financial statement purposes.
The results of operations for Stem Cell Florida, the accounting acquirer, for
the period from December 2, 2004 (Date of Inception) have been included in the
statements of operations of the Company.
5. INTANGIBLE ASSET
Intangible asset consists of the following:
December 31,
2006 March 31,
(unaudited) 2006
----------- ----------
Licensing rights $ 5,000 $ 5,000
Less: accumulated amortization ( 667) ( 292)
----------- ----------
$ 4,333 $ 4,708
=========== ==========
Expected future amortization of the intangible asset is as follows:
Year ending December 31,
------------------------
2007 $ 500
2008 500
2009 500
2010 500
2011 500
Thereafter 1,833
-----
$ 4,333
=====
6. RELATED PARTY TRANSACTIONS
Stockholder advances consist of advances from an officer and stockholder of the
Company to assist the Company in meeting its financial obligations. These
advances are non-interest bearing, unsecured and due on demand.
Due to related party represents a demand note payable to a consulting company
owned by a significant stockholder. The note is non-interest bearing and
unsecured.
F-31
Stem Cell Therapy International, Inc.
(a development stage enterprise)
Notes to Financial Statements
For the Three and Nine Months Ended December 31, 2006 and 2005 (unaudited)
and for the period from December 2, 2004 (Date of Inception)
through December 31, 2006 (unaudited)
7. STOCKHOLDERS' EQUITY
Capitalization:
The Company has 100,000,000 shares of common stock authorized. In addition,
there are 10,000,000 authorized shares of participating convertible preferred
stock, $.001 par value, the issuance of which is subject to approval by the
Board of Directors. The Board of Directors has the authority to declare
dividends. The voting rights of the convertible preferred stockholders are
equivalent to that of the common stockholders. Each share of convertible
preferred stock can be converted at any time by the holder into one share of
common stock. As of December 31, 2006, the Company had 500,000 shares of
convertible preferred stock issued and outstanding valued at $25,000. Upon
issuance of the preferred stock, management determined that the convertible
preferred stock contained a beneficial conversion feature calculated as of the
date of commitment, September 15, 2006, based on the fair value of the closing
price of the common stock, $0.07 per share, and an exercise price of $0.05 per
share, calculated as $25,000 paid for the preferred stock divided by the 500,000
shares of convertible preferred stock received. Each share of the preferred
stock is convertible into one share of common stock with no additional
investment. The beneficial conversion was recorded as a dividend, as the
preferred stock can be converted at any time after the issue date.
Stock options:
The following table summarizes the activity related to all Company stock options
for the nine months ended December 31, 2006 and 2005 and the period from
December 2, 2004 (Date of Inception) through December 31, 2006:
Weighted Average
Exercise Price Exercise Price
Stock per Share per Share
Options Options Options
----------- -------------- -------------
Outstanding at December 2, 2004 - $ - $ -
Granted 6,000,000 $ 0.001-0.75 $ 0.18
Exercised (500,000) $ 0.001 $ 0.001
-----------
Outstanding at March 31, 2005 5,500,000 $ 0.003-0.75 $ 0.196
Canceled or expired (5,500,000) $ 0.003-0.75 $ 0.196
-----------
Outstanding at December 31, 2006 -
===========
F-32
Stem Cell Therapy International, Inc.
(a development stage enterprise)
Notes to Financial Statements
For the Three and Nine Months Ended December 31, 2006 and 2005 (unaudited)
and for the period from December 2, 2004 (Date of Inception)
through December 31, 2006 (unaudited)
8. INCOME TAXES
The income tax provision differs from the amount of tax determined by applying
the Federal statutory rate as follows:
Period from
December 2, 2004
Nine Months Ended December 31, through
2006 2005 December 31, 2006
-------------- ----------- ------------------
Income tax provision at statutory rate ($205,400) ($87,000) ($ 386,600)
Increase (decrease) in income tax due to:
Nondeductible expenses 1,400 (9,300) 1,500
State income taxes, net (21,900) (9,000) ( 41,100)
Change in valuation allowance 225,900 105,300 426,200
-------------- ----------- ------------------
$ - $ - $ -
============== =========== ==================
December 31, March 31,
2006 2006
------------ ----------
Deferred tax assets:
Accrued payroll $ 76,200 $ 13,200
Net operating loss carryforward 350,000 187,100
------------ ----------
426,200 200,300
Less: Valuation allowance (426,200) (200,300)
------------ ----------
$ - $ -
============ ==========
Income taxes are based on estimates of the annual effective tax rate and
evaluations of possible future events and transactions and may be subject to
subsequent refinement or revision.
The Company has incurred operating losses since its inception and, therefore, no
tax liabilities have been incurred for the periods presented. The amount of
unused tax losses available to carry forward and apply against taxable income in
future years totaled approximately $930,000 at December 31, 2006. The loss carry
forwards expire beginning in 2025. Due to the Company's continued losses,
management has established a valuation allowance equal to the amount of deferred
tax assets due to it being more likely than not that the Company will not
realize this benefit.
F-33
Stem Cell Therapy International, Inc.
(a development stage enterprise)
Notes to Financial Statements
For the Three and Nine Months Ended December 31, 2006 and 2005 (unaudited)
and for the period from December 2, 2004 (Date of Inception)
through December 31, 2006 (unaudited)
9. COMMITMENTS AND CONTINGENCIES
Letter of credit:
The Company had a standing letter of credit with a financial institution for
$120,000 which was available to be drawn against accounts maintained by the
Company with the financial institution. This letter of credit served as a
guarantee of payment for a third party vendor. This standing letter of credit
was collateralized by a $120,000 certificate of deposit of which this third
party had drawn $116,320 against this letter of credit as of December 31, 2006.
Following the draw, the Company has not replenished the letter of credit as of
December 31, 2006.
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 4,239,000 shares of the Company's
common stock valued at $382,409 on the date of the performance commitment. As
of December 31, 2006, the Company had issued these shares of common stock and
has included $96,542 in prepaid expenses for services not yet performed pursuant
to the agreements.
The Company has entered into several consulting agreements with doctors to
provide consulting and advisory services to the Company. The agreements provide
for six months to one year service terms. In exchange for these services, the
Company issued a total of 110,000 shares of common stock valued at $114,230 on
the date of the performance commitment. As of December 31, 2006, the Company
had issued these shares of common for services 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 had agreed to 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, 2006, no funding has been secured; however, Westminster did
facilitate the acquisition of Altadyne, and therefore received 379,000 shares of
common stock in September 2005. The Agreement with Westminster was mutually
terminated effective January 4, 2006.
F-34
Stem Cell Therapy International, Inc.
(a development stage enterprise)
Notes to Financial Statements
For the Three and Nine Months Ended December 31, 2006 and 2005 (unaudited)
and for the period from December 2, 2004 (Date of Inception)
through December 31, 2006 (unaudited)
9. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Licensing agreement:
Effective September 1, 2005, the Company entered into a ten year licensing
agreement with the Institute of Cell Therapy, a company incorporated and
organized under the laws of Kiev, Ukraine ("ICT"). The agreement grants the
Company an exclusive right and license in most parts of the world to utilize
patents, processes and products owned or produced by ICT in connection with the
operation of the Company's business. In exchange for the license, the Company
agrees to exclusively purchase all biological solution of stem cell Allo
Transplant materials from ICT for a three year period. Such Allo Transplant
materials shall be at a cost of $6,500 per patient per condition. The 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
has 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 agrees to replenish the Letter of Credit to the extent
of any such draws. As of December 31, 2006, the Company did not meet the
minimum purchase requirement and ICT has drawn on the letter of credit for
$116,000 and the Company has not yet replenished the Letter of Credit.
Pursuant to the agreement, the Company issued ICT 5,000,000 shares of the
Company's common stock recorded at the fair market value of the Company's common
stock of $5,000 and is included as intangible assets in the accompanying balance
sheets.
During the nine months ended December 31, 2006, the Company entered into an
agreement to locate financing with a third party for three years. As
consideration for these consulting services, the Company has agreed to issue
500,000 shares of restr icted common stock and a 10% finder's fee for any funds
brought into the Company. As of December 31, 2006, the Company has not entered
into any funding agreements, and therefore the third party is not owed any
consideration.
F-35