UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934.
FOR THE FISCAL YEAR ENDED MARCH 31, 2007
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934.
FOR THE TRANSITION PERIOD FROM , 20 , TO , 20 .
COMMISSION FILE NUMBER
0-17232
STEM CELL THERAPY INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
NEVADA 88-0374180
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
2203 N. LOIS AVENUE, 9TH FLOOR, TAMPA, FL 33607
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(813) 600-4088
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
[GRAPHIC OMITED]
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 12 months (or
for such shorter period that the Registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. [x]
YES [ ] NO
Check if no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is contained in this form, and no disclosure will be contained,
to the best of registrant's knowledge, in definitive proxy of information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB [x]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act) [ ] YES [x] NO
State issuer's revenues for its most recent fiscal year $345,510
1
Aggregate market value of the voting and non-voting common equity of the
registrant held by non-affiliates of the registrant at March 31, 2007, was
$10,348,611 based upon the closing sale price of $0.30 or the Registrant's
common stock, $.001 par value, as reported by the National Association of
Securities Dealers OTC Bulletin Board on June 22, 2007.
There were 34,750,889 shares of the Registrant's $.001 par value common
stock outstanding as of June 20, 2007
Transitional Small Business Format (check one) Yes NO
STEM CELL THERAPY INTERNATIONAL, INC.
FORM 10-KSB - INDEX
Part I
Item 1. Description of Business
Item 2. Description of Property
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
Part II
Item 5. Market for Common Equity and Related Stockholder Matters
Item 6. Management's Discussion and Analysis
Item 7. Consolidated Financial Statements
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Item 8A. Controls and Procedures
Item 8B Other Information
Part III
Item 9. Directors, Executive Officers, Promoters, and Control Persons;
Compliance with Section 16(a) of the Exchange Act
Item 10. Executive Compensation
Item 11. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
Item 12. Certain Relationships and Related Transactions
Item 13. Exhibits and Reports on Form 8-K
Item 14. Principal Accountants Fees and Services
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STEM CELL THERAPY INTERNATIONAL, INC.
This Annual Report on Form 10-KSB and the documents incorporated herein by
reference contain forward-looking statements that have been made pursuant to the
provisions of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements are based on current expectations, estimates and
projections about Stem Cell Therapy International, Inc.'s industry, management
beliefs, and assumptions made by management. Words such as "anticipates,"
"expects," "intends," "plans," "believes," "seeks," "estimates," variations of
such words and similar expressions are intended to identify such forward-looking
statements. These statements are not guarantees of future performance and are
subject to certain risks, uncertainties and assumptions that are difficult to
predict; therefore, actual results and outcomes may differ materially from what
is expressed or forecasted in any such forward-looking statements.
PART I
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 Cell 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, as discussed below, 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).
On September 1, 2005, 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.
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.
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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 Lixian
Jiang, Chief Operating Officer and Patent Trademark Counsel.
We are indirectly involved, as a "middle man," in research and development
and practical application within the field of regenerative medicine. 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 three agreements with highly
specialized, professional medical treatment facilities in the Ukraine, Mexico
and China and are pursuing other facilities 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
consist of independent consultants.
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 14 for a more complete discussion.
We have an agreement with a treatment facility in Kiev in the Republic of the
Ukraine. 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.
4
We also have affiliate treatment facilities in Tijuana, Mexico and Shenzhen,
China.
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.
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 in Ukraine, Mexico and China. 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 for treatment to facilities in Kiev,
Ukraine, Tijuana, Mexico and Shenzhen, China. All 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 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 three independent clinics for
referrals of our patients. Since September 2006, all referrals of patients have
been to treatment facilities located in Mexico and China.
Accordingly, our primary source of revenue comes from: (1) providing referral
services, including information and education services, to patients, and (2)
purchasing 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. We have negotiated with the
three treatment facilities we utilize 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
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 received a one-time award
of 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
5
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. 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 is
acquired from local stem cell manufacturers. 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. We provide stem cell
products and technology to clinics in Ukraine, Mexico and China (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.
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
6
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.
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/B rain_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.
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
7
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/
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.
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.
8
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
[GRAPHIC OMITED]
9
BASIC STEM CELL CYCLE
[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]
[GRAPHIC OMITED]
[GRAPHIC OMITED]
10
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.
[GRAPHIC OMITED]
[GRAPHIC OMITED]
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,
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.
11
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 the
referral of patients for treatment with stem cell technologies 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 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
and focus on the sales and distribution of the biological solutions 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. 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.
12
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.
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.
13
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.
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 AnemiSOURCES: CBR; FCBS; Hearthstone.
14
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
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).
15
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).
16
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, Tijuana, Mexico and Shenzhen, China
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 several patients for treatment to each of the above treatment
facilities.
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 can purchase stem cell materials
for delivery to patients from ICT. Stem Cell Florida has a fixed pricing
arrangement with ICT. 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. The Company was originally required to
purchase a minimum quantity of 60 portions from ICT in a given twelve month
period. In conjunction with the minimum purchase requirements, the Company had
provided ICT with a $120,000 irrevocable letter of credit in ICT's favor for the
first three year's of the agreement, of which ICT had withdrawn $116,000,
however, the Company is not required to replenished the amount due to ICT's
failure to deliver the product. As long as the Company is satisfied to have ICT
provide the product on a non-exclusive basis it is not necessary to maintain the
$120,000 letter of credit in ICT's favor.
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 at the measurement date, 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. The Company has not purchased any stem cell materials since
September 2006 and is not utilizing the technology patented by any of the
patents held by ICT. As such, during the year ended March 31, 2007, the Company
impaired the remaining balance of $4,333 of intangible assets with a charge to
the consolidated statement of operations.
17
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 three clinics:
1. Kiev, Ukraine: Institute of Cell Technology,
2. Tijuana, Mexico: Dr. Salvador Vargas's clinic has been offering stem
cell transplants since 2000.
3. Shenzhen, China
The clinics in Kiev, Ukraine, Tijuana, Mexico and Shenzhen, China are
independently owned and operated. We have no ownership and we do not treat any
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.
MANUFACTURING
Basic Approach
The basis of stem cell therapy is the presence of preparations of allo stem
cell biological solutions. The Company holds licensing rights to a patented
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
18
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.
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
ofUkraine.
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.
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, 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 ICT to create high-quality
cryogenically-preserved embryonic stem cells, tissue preparations and extracts
for clinical applicationand system of examination and treatment of patients with
minimum risk and maximum effect with the most diversified pathologies.
19
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.
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.
RESEARCH AND DEVELOPMENT
We do not directly engage in Research and Development. Instead, we rely on
the technology that results from Research and Development activities performed
through contractual arrangements and possibly the technology that results from
such arrangements 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
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
20
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 ell 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 the marketing team 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.
- 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.
21
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.
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 facilities
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.
Currently, the Company has three affiliate treatment facilities outside of
the United States: Kiev, Ukraine, Shenzhen, China 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.
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,
22
- 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. 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.
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.
We currently have three patent pending filings in the US:
- U.S. P&T Office Patent Pending filed February 27, 2007; U.S. 11/712,535.
"STEM CELLS TO TREAT AND/OR PREVENT SYMPTOMS OF AVIAN INFLUENZA AND OTHER
DISEASES IN MAMALS AND OTHER ANIMALS"
- U.S. P&T Office Patent Pending filed April 5, 2007; U.S. 11/732,985.
"COMPOSITION AND METHODS OF TREATING BURN VICTIMS USING STEM CELLS."
- U.S. P&T Office Patent Pending filed February 26, 2007; U.S. 11/710,817.
"DIFFERENTIATION OF CORD BLOOD INTO
23
NEURAL CELLS AND METHOD TO TREAT PATIENTS WITH NEUROLOGICAL CONDITIONS WITHOUT
USING IMMUNE SUPPRESSION AGENT."
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 March 31, 2007, the Company employed 2 full-time employees, and one
part-time employee. 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.
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 a 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.
24
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, (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 operations. The Company is currently negotiating
long-term employment agreements with its executive officers and intends to
obtain "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.
25
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.
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
Over-the-Counter Bulletin Board, 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
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.
26
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
stockholers 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.
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.
ITEM 2. 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 $23,298 and $21,142 for the years months ended
March 31, 2007 and 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 3. 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the year ended March 31, 2007, the Company did not submit any matters to
a vote of its security holders.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
Stem Cell Therapy International, Inc. common stock is quoted in United
States markets on the Over the Counter Bulletin Board ("OTCBB") and intends to
become listed on the American Stock Exchange ("AMEX"). We have not, at this
time, made application to the AMEX. We will make such application once we meet
the other qualification requirements from AMEX. However, Stem Cell Therapy
International, Inc. cannot make any assurance that trading on AMEX will be
approved.
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. Currently there are no
outstanding warrants or options to purchase stock.
PENNY STOCK REGULATIONS:
Our common stock is quoted on the OTCBB, under the symbol "SCII". On June
22, 2007 the last reported sale
27
price of our common stock was $0.30 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 OTCBB for
the periods presented. High and low bid quotations reflect inter-dealer prices
without adjustment for retail mark-ups, markdowns 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.
HIGH LOW
(Calendar Quarters)
2007
First Quarter $0.37 $0.12
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
As of March 31, 2007 there were approximately 259 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.
DIVIDENDS
The Company has never declared or paid a dividend on its Common Stock, and does
not anticipate paying any cash dividends on its Common Stock in the foreseeable
future. The Company expects to retain, if any, its future earnings for expansion
or development of the Company's business. The decision to pay dividends, if any,
in the future is within the discretion of the Board of Directors and will depend
upon the Company's earnings, capital requirements, financial condition and other
relevant factors such as contractual obligations. There can be no assurance that
dividends can or will ever be paid.
RECENT SALES OF UNREGISTERED SECURITIES
During April 2006, the Company issued 10,000 shares of common stock to
consultants with a fair market value of $1.00 per share for a total of $10,000.
During June 2006, the Company issued 400,000 shares of common stock to
consultants with a fair market value of $0.39 per share for a total of $156,000.
During July 2006, the Company issued 300,000 shares of common stock to
consultants with a fair market value of $0.37 per share for a total of $111,000.
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 OTCBB (average of the previous 20 days), per month. Accordingly,
the Company has issued the following shares:
28
MONTH AVERAGE MARKET PRICE NUMBER OF SHARES
------------ --------------------- ----------------
April, 2006 $ 0.79 15,277
May, 2006 $ 0.73 16,484
June, 2006 $ 0.53 22,599
July, 2006 $ 0.40 30,265
August, 2006 $ 0.43 28,235
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
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 ANNUAL REPORT
THAT ARE NOT STATEMENTS OF HISTORICAL OR CURRENT FACT CONSTITUTES
"FORWARD-LOOKING STATEMENTS."
The following management discussion should be read together with the Stem Cell
Therapy International, Inc. consolidated financial statements included in this
annual report. See "Index to Consolidated 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, Daniel J. Sullivan, Chief Financial
Officer, and Lixian Jiang, Chief Operating Officer and Patent Trademark Counsel.
We are indirectly involved, as a "middle man," in research and development
and practical application within the field of regenerative medicine. We provide
allo (human) stem cell biological solutions that are currently being used in the
treatment of patients suffering from degenerative disorders of the human body.
We have established agreements with highly specialized, professional medical
treatment facilities around the world in locations where Stem Cell
Transplantation therapy is approved by the appropriate local government
agencies.
We intend to provide these biological solutions containing allo stem cell
products also in the United States to universities, institutes and privately
funded laboratory facilities for research purposes and clinical trials.
We will initially devote most of our efforts toward organization and fund
raising for planned clinics and patient operations and limited revenues have
been generated from any such operations. The Company has experienced recurring
losses from operations since its inception and at March 31, 2007, we had a
working capital deficit of $551,175 and an accumulated deficit from operations
of $1,189,448. As noted in the independent audit report for the audited Stem
Cell Therapy International, Inc. financial statements for the period from
inception to March 31, 2007, these factors raise doubt about the ability of the
Company to continue as a going concern. Realization of the Company's business
plan is dependent upon the Company's ability to meet its future financing
requirements, and the success of future operations. This is because we have not
generated substantial revenues since inception. Our only other source for cash
at this time is through investments or loans from management. We must raise cash
to implement our project and stay in business.
CRITICAL ACCOUNTING POLICIES
29
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.
Research and development costs are charged to operations when incurred and
are included in operating expenses.
RESULTS OF OPERATIONS
As of March 31, 2007 and for the years March 31, 2007 and 2006
We had revenue of $345,510 during the year ended March 31, 2007 as compared
to $80,934 of revenue for the comparable period in 2006. Revenues during 2007
reflected the treatment of nine patients' and only three patients were treated
during the same period ended 2006.
Our cost of goods sold for the stem cell biological material delivered
during the year ended March 31, 2007 was $289,993 as compared to $52,100 for the
same period ended 2006. 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, which,
due to ICT's failure to be able to deliver the product, has caused the minimum
purchase requirement to be terminated. The Company is now using alternative
vendors to supply the stem cell biological solutions to each treatment facility.
Gross margin for the year ended March 31, 2007 was $55,517 as compared to
$28,834 for the year ended March 31, 2006. Gross margin as a percentage of
revenue for the year ended March 31, 2007 was 16% as compared to 36% for the
year ended March 31, 2006. The decreased gross margin is primarily due to the
additional $116,000 charge by ICT for not meeting the minimum purchase
requirements.
Selling, general and administrative expenses increased $177,155 or 33% to
$714,227 for the year ended March 31, 2007 as compared to $537,072 for the year
ended March 31, 2006. Selling, general and administrative expenses for the year
ended March 31, 2007 primarily consists of the following items:
- Payroll expense of $176,205 for the year ended March 31, 2007, which is an
increase of $141,304 over the year ended March 31, 2006. This increase was
due to the Board of Directors approval of salaries for the two executives
beginning in January 2006, therefore the year ended March 31, 2006 only
included three months of payroll costs. In September 2006, the Company
hired an additional executive with an annual salary of $50,500 and in
January 2007, the Company terminated an executive with an annual salary of
$60,000.
- Professional fees-legal and accounting amounted to $92,244 for fiscal year
2007 as compared to $68,881 for fiscal year 2006. The increase in legal and
accounting was due to the Company completing its Form 10SB, incurring legal
fees related to the ICT licensing agreement and patent work during the year
ended March 31, 2007.
30
- Professional fees-consulting amounted to $357,282 for the year ended March
31, 2007 as compared to $372,506 for 2006. During the year ended March 31,
2007, the Company issued 112,860 shares of restricted common stock valued
at $60,000 for investor relations; this contract was terminated in
September 2006. The Company also issued 300,000 shares of restricted common
stock valued at $117,000 to advise and consult with the Company on merger
and acquisition issues in the European market, this agreement expired in
December 2006 and was not renewed. The Company issued 100,000 shares of
restricted common stock to a company for financial and investor advisory
services valued at $39,000, this agreement expired in December 2006 and was
not renewed. The Company issued 10,000 shares of restricted common stock
valued at $10,000 to a business development advisory consultant for Costa
Rica. This agreement expired in February 2007 and was not renewed. The
Company also issued 300,000 shares of restricted common stock to a
consulting company valued at $111,000. This agreement expires in July 2011
and the Company has included $26,208 of consulting fees in statement of
operations during the year ended March 31, 2007. The Company also had
contracts with various medical and advisory consultants who were
compensated with restricted common stock, the amount expensed under these
contracts totaled $73,330 for the year ended March 31, 2007. These
agreements expired during the year ended March 31, 2007 and the Company is
currently negotiating the renewal of some of those agreements.
Our net loss for the year ended March 31, 2007 was $657,046 as compared to
$516,161 during the same period in 2006. The loss primarily reflects increases
in payroll expenses, professional fees and the additional payment to ICT for not
meeting the minimum purchase requirement.
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial statements have been prepared assuming that the
Company will continue as a going concern. For the year ended March 31, 2007 and
the period since December 2, 2004 (date of inception) through March 31, 2007,
the Company has had a net loss of $657,046 and $1,189,448, respectively and cash
used by operations of $124,365 and $286,622, respectively, and negative working
capital of $551,175 at March 31, 2007.
As of March 31, 2007, the Company has not emerged from the development
stage. In view of these matters, recoverability of recorded asset amounts shown
in the accompanying financial statements is dependent upon the Company's ability
to begin significant operations and to achieve a level of profitability. Since
inception, the Company has financed its activities principally from shareholder
advances and some relatively minor sales of equity securities (as set
forth below). The Company intends on financing its future development activities
and its working capital needs largely from the sale of equity securities until
such time that funds provided by operations are sufficient to fund working
capital requirements.
Effective June 27, 2007, the Company entered into an agreement with
Newbridge Securities, Corp. ("Newbridge") to assist the Company on a "best
efforts" basis in raising approximately $250,000 in a private offering of up to
2 million shares of restricted common stock at a price of $.125 per share.
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.
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.
NEW ACCOUNTING PRONOUNCEMENTS
In July 2006, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 48, ("FIN 48") "Accounting for uncertainty in income taxes -
an interpretation of SFAS No. 109." This Interpretation provides guidance for
recognizing and measuring uncertain tax positions, as defined in FASB No. 109,
"Accounting for income taxes." FIN 48 prescribes a threshold condition that a
tax position must meet for any of the benefit of an uncertain tax position to be
recognized in the financial statements. Guidance is also provided regarding
derecognition, classification and disclosure of uncertain tax positions. FIN 48
is effective for fiscal years beginning after December 15, 2006. The Company
does not expect that this Interpretation will have a material impact on their
financial position, results of operations or cash flows.
In September 2006, the FASB issued SFAS No. 158, ("SFAS 158), "Employers'
Accounting for Defined Benefit Pension and Other Post-retirement Plans". Among
other items, SFAS 158 requires recognition of the over-funded status of an
entity's defined benefit postretirement plan as an asset or liability in the
financial statements, the measurement of defined benefit post-retirement plan
assets and obligations as of the end of the employer's fiscal year and
recognition of the funded status of defined post-retirement plans in other
comprehensive income ("OCI"). The standard was effective for the Company as of
March 31, 2007. The adoption of SFAS 158 did not have an impact on the
Company's financial position, results of operations or cash flows.
In February 2007, the FASB issued SFAS No. 159 ("SFAS 159"), "The Fair Value
Option for Financial Assets and Financial Liabilities", which permits an entity
to measure certain financial assets and financial liabilities at fair value.
Under SFAS 159, entities that elect the fair value option will report unrealized
gains and losses in earnings at each subsequent reporting date. The fair value
option may be elected on a instrument-by-instrument basis, with a few
exceptions, as long as it is applied to the instrument in its entirety. The
fair value option election is irrevocable, unless
31
a new election date occurs. SFAS 159 establishes presentation and disclosure
requirements to help financial statement users understand the effect of the
entity's election on its earnings but does not eliminate disclosure requirements
of other accounting standards. Assets and liabilities that are measured at fair
value must be displayed on the face of the balance sheet. SFAS 159 is effective
as of the beginning of the first fiscal year that begins after November 15,
2007. The Company does not expect the adoption of SFAS 159 to have a material
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.
32
ITEM 7. FINANCIAL STATEMENTS
TABLE OF CONTENTS:
Report of Independent Registered Public Accounting
Firm-Aidman, Piser & Company P.A.......................................F-2
Report of Independent Registered Public Accounting
Firm-Pender, Newkirk & Company LLP.....................................F-3
Consolidated Balance Sheets as of March 31,
2007 and 2006.........................................................F-4
Consolidated Statements of Operations for the years
ended March 31, 2007 and 2006 and for the period
from December 2, 2004 (Date of Inception) through
March 31, 2007........................................................F-5
Consolidated Statement of Changes in Stockholders'
(Deficit) for the period from December 2, 2004
(Date of Inception) through March 31, 2007........................F-6
Consolidated Statements of Cash Flows for the years
ended March 31, 2007 and 2006 and for the period
from December 2, 2004 (Date of Inception)
through March 31, 2007...............................................F-7
Notes to Consolidated Financial Statements..........................F-8
F-1
REPORT OF INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Stem Cell Therapy International, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheet of Stem Cell Therapy
International, Inc and Subsidiary as of March 31, 2007 and the related
consolidated statements of operations, stockholders' deficit, and cash flows for
the year ended March 31, 2007, and for the period from December 2, 2004 (date of
inception) through March 31, 2007. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audit. The financial statements of Stem Cell Therapy International, Inc. and
Subsidiary for the year ended March 31, 2006 were audited by other auditors.
Those auditors expressed an unqualified opinion on those financial statements in
their report dated May 18, 2006. Our opinion on the consolidated statements of
operations, changes in stockholders' equity, and cash flows, insofar as it
relates to the amounts included for the period from December 2, 2004 (date of
inception) through March 31, 2006, is based solely on the report of other
auditors.
We conducted our audit in accordance with standards of the Public Company
Accounting Oversight Board (United States of America). Those standards require
that we plan and perform the audit 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 express no such opinion. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes 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 provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Stem
Cell Therapy International, Inc. and Subsidiary as of March 31, 2007 and the
consolidated results of their operations and their cash flows for the year ended
March 31, 2007 and for the period from December 2, 2004 (date of inception)
through March 31, 2007 in conformity with accounting principles generally
accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming
that Stem Cell Therapy International, Inc. and Subsidiary will continue as a
going concern. As discussed in Note 2 to the consolidated financial
statements, the Company incurred significant losses and used cash in operating
activities during the year ended March 31, 2007, and had a deficit in working
capital at March 31, 2007. These factors, among others as discussed in Note 2
to the consolidated financial statements, raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regards
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.
/s/ Aidman, Piser & Company, P.A.
Tampa, Florida
July 10, 2007
33
F-2
Stem Cell Therapy International, Inc. and Subsidiary
(a development stage enterprise)
CONSOLIDATED BALANCE SHEETS
March 31,
------------------------
2007 2006
------------ ----------
ASSETS
Current assets:
Cash $ 27,905 $ 32,642
Inventory 5,988 -
Prepaid expenses 47,317 77,531
------------ ----------
Total current assets 81,210 110,173
Certificate of deposit, restricted 3,919 120,000
Deposits 2,169 1,589
Prepaid expenses 51,209 1,417
Intangible asset, net - 4,708
------------ ----------
Total assets $ 138,507 $ 237,887
============ ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 62,875 $ 28,370
Accrued expenses 75,000 75,000
Accrued payroll and payroll related expenses 170,557 35,000
Deferred revenue 50,000 -
Stockholder advances 48,753 48,377
Due to related party 225,200 224,972
------------ ----------
Total current liabilities 632,385 411,719
Commitments and contingencies (Note 8) - -
Stockholders' deficit:
Preferred stock; $.001 par value; 10,000,000 shares
authorized and 500,000 issued and outstanding 500 500
Common stock; $.001 par value; 100,000,000 shares
authorized and 34,495,369 and 33,672,510 issued
and outstanding, respectively 34,495 33,672
Additional paid-in capital 660,575 324,398
Deficit accumulated during development stage (1,189,448) (532,402)
------------ ----------
Total stockholders' deficit (493,878) (173,832)
------------ ----------
Total liabilities and stockholders' deficit $ 138,507 $ 237,887
============ ==========
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
Stem Cell Therapy International, Inc. and Subsidiary
(a development stage enterprise)
CONSOLIDATED STATEMENTS OF OPERATIONS
Period from December 2,
Years Ended 2004 (Date of Inception)
March 31, through March 31,
--------------------------- -------------------------
2007 2006 2007
------------- ------------ -------------------------
Revenue $ 345,510 $ 80,934 $ 426,444
Cost of goods sold:
General 173,993 52,100 226,093
Loss on firm purchase commitment 116,000 - 116,000
------------- ------------ -------------------------
Gross margin 55,517 28,834 84,351
Operating expenses:
Selling, general & administrative expenses 714,227 537,072 1,277,579
------------- ------------ -------------------------
Loss from operations (658,710) (508,238) (1,193,228)
Interest income, net 1,664 2,077 3,780
------------- ------------ -------------------------
Net loss before taxes (657,046) (506,161) (1,189,448)
Income tax expense - - -
------------- ------------ -------------------------
Net loss (657,046) (506,161) (1,189,448)
Less dividends on preferred stock - (10,000) (10,000)
------------- ------------ -------------------------
Loss attributable to common shareholders $ (657,046) $ (516,161) $ (1,199,448)
============= ============ =========================
Net loss per share, basic & diluted $ (.02) $ (.02) $ (.04)
============= ============ =========================
Weighted average number of common
shares, basic & diluted 34,310,534 26,339,010 28,669,098
============= ============ =========================
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
STEM CELL THERAPY INTERNATIONAL, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE PERIOD FROM DECEMBER 2, 2004 (DATE OF INCEPTION) THROUGH MARCH 31, 2007
DEFICIT
ACCUMULATED
COMMON STOCK PREFERRED STOCK 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
Exercise of stock
options for services
(December 2004) 500,000 500 - - - - 500
Issuance of common
stock and options for
acquisition deposit
(December 2004) 5,000,000 5,000 - - 2,749 - 7,749
Stock 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)
----------- -------- --------- ------- ------------ ------------- ---------
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
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 i
n stockholder advances
(September 2005) 3,000,000 3,000 - - - - 3,000
Issuance of common
stock for services
(September 2005) 3,030,000 3,030 - - - - 3,030
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) 6,400 6 - - 11,994 - 12,000
Issuance of common
stock for services
(October 2005) 11,882 12 - - 11,988 - 12,000
Issuance of common
stock for services
(October 2005) 20,000 20 - - 20,980 - 21,000
Issuance of common
stock for services
(October 2005) 10,000 10 - - 17,490 - 17,500
Issuance of common
stock for services
(October 2005) 10,000 10 - - 14,490 - 14,500
Issuance of common
stock for services
(November 2005) 13,953 14 - - 11,986 - 12,000
Issuance of common
stock for services
(December 2005) 30,000 30 - - 29,070 - 29,100
Issuance of common
stock for services
(December 2005) 12,000 12 - - 11,988 - 12,000
Issuance of common
stock for services
(January 2006) 10,000 10 - - 7,555 - 7,565
F-5
STEM CELL THERAPY INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT (CONTINUED)
FOR THE PERIOD FROM DECEMBER 2, 2004 (DATE OF INCEPTION) THROUGH MARCH 31, 2007
DEFICIT
ACCUMULATED
COMMON STOCK PREFERRED STOCK ADDITIONAL DURING
------------------- ------------------ PAID-IN DEVELOPMENT
SHARES AMOUNT SHARES AMOUNT CAPITAL STAGE TOTAL
---------- ------- --------- ------- ----------- ------------ ---------
Issuance of common
stock for services
(January 2006) 10,000 10 - - 7,555 - 7,565
Issuance of common
stock for services
(January 2006) 14,118 14 - - 11,986 - 12,000
Issuance of common
stock for services
(January 2006) 20,000 20 - - 16,980 - 17,000
Issuance of common
stock for services
(February 2006) 14,118 14 - - 11,986 - 12,000
Issuance of common
stock for services
(February 2006) 24,000 24 - - 20,376 - 20,400
Issuance of common
stock for services
(February 2006) 48,000 48 - - 40,752 - 40,800
Issuance of common
stock for services
(February 2006) 48,000 48 - - 40,752 - 40,800
Issuance of common
stock for services
(March 2006) 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)
Issuance of common
stock for services
(April 2006) 25,276 26 - - 21,974 - 22,000
Issuance of common
stock for services
(May 2006) 16,484 16 - - 11,984 - 12,000
Issuance of common
stock for services
(June 2006) 422,599 423 - - 167,577 - 168,000
Issuance of common
stock for services
(July 2006) 330,265 330 - - 122,670 - 123,000
Issuance of common
stock for services
(August 2006) 28,235 28 - - 11,972 - 12,000
Net loss for the year
ended March 31, 2007 - - - - - (657,046) (657,046)
---------- ------- --------- ------- ----------- ------------ ----------
Balance, March 31, 2007 34,495,369 $34,495 500,000 $ 500 $ 660,575 ($1,189,448) ($493,878)
========== ======= ========= ======= =========== ============ ==========
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
Stem Cell Therapy International, Inc. and Subsidiary
(a development stage enterprise)
Consolidated Statements of Cash Flows
Period from December 2,
Years Ended 2004 (Date of Inception)
March 31, through March 31,
------------------------------ -------------------------
2007 2006 2007
-------------- -------------- -------------------------
OPERATING ACTIVITIES:
Net loss $ (657,046) $ (506,161) $ (1,189,448)
Adjustments to reconcile net loss
to net cash used by operating activities:
Stock based compensation 325,539 308,539 562,812
Recapitalization - 5,405 -
Investment income reinvested (2,943) - (2,943)
Amortization 375 - 667
Write off of intangible asset 4,333 - 4,333
(Increase) decrease in:
Inventory (5,988) - (5,988)
Prepaid expenses (8,117) (75,107) (12,318)
Deposits (580) 3,410 (2,169)
Increase in:
Accounts payable 34,505 22,863 62,875
Accrued payroll 135,557 35,000 170,557
Accrued expenses - 75,000 75,000
Deferred revenue 50,000 - 50,000
-------------- -------------- -------------------------
Net cash used by operating activities (124,365) (131,051) (286,622)
-------------- -------------- -------------------------
INVESTING ACTIVITIES:
Proceeds from (investment in)
certificate of deposit, restricted 119,024 (120,000) (976)
-------------- -------------- -------------------------
Net cash provided (used) by
investing activities 119,024 (120,000) (976)
-------------- -------------- -------------------------
FINANCING ACTIVITIES:
Proceeds from advances from stockholder 376 27,685 52,528
Payments to stockholder - (774) (775)
Advances from related party 228 224,972 225,200
Proceeds from sale of stock - 24,500 38,550
-------------- -------------- -------------------------
Net cash provided by financing activities 604 276,383 315,503
-------------- -------------- -------------------------
NET (DECREASE) INCREASE IN CASH (4,737) 25,332 27,905
Cash at beginning of period 32,642 7,310 -
-------------- -------------- -------------------------
Cash at end of period $ 27,905 $ 32,642 $ 27,905
============== ============== =========================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION AND NON-CASH FINANCING ACTIVITIES:
Cash paid for interest $ 1,554 $ 79 $ 1,663
============== ============== =========================
Common stock issued for a reduction in
advance from stockholder $ - $ 3,000 $ 3,000
============== ============== =========================
Common stock returned for
acquisition deposit $ - $ (7,749) $ -
============== ============== =========================
Common stock issued for purchase
of intangible asset $ - $ 5,000 $ 5,000
============== ============== =========================
The accompanying notes are an integral part of the consolidated financial
statements.
F-7
Stem Cell Therapy International, Inc.
(a development stage enterprise)
Notes to Consolidated Financial Statements
For the Years Ended March 31, 2007 and 2006
and for the period from December 2, 2004 (Date of Inception)
through March 31, 2007
1. BACKGROUND INFORMATION, BASIS OF PRESENTATION AND BUSINESS REORGANIZATION
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 three highly specialized, professional medical
treatment facilities in the Ukraine, China and Mexico 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.
Business reorganization:
Effective September 1, 2005, Stem Cell Florida entered into a Reorganization and
Stock Purchase Agreement (the "Agreement") with the Company, then named
Altadyne, Inc., a company quoted on the Pink Sheets, which had no assets,
liabilities or ongoing operations. Under the terms of the agreement, the
Company, (then Altadyne) acquired 100% of the issued and outstanding shares of
common stock of Stem Cell Florida in a non-cash transaction and Stem Cell
Florida became a wholly owned subsidiary of the Company. Subsequent to the
merger, Altadyne changed its name to Stem Cell Therapy International Inc. This
transaction is accounted for as a reverse merger, with Stem Cell Florida treated
as the accounting acquirer for financial statement purposes.
The results of operations for Stem Cell Florida, the accounting acquirer, for
the period from December 2, 2004 (Date of Inception) have been included in the
consolidated statements of operations of the Company.
Principles of consolidation:
The accompanying consolidated financial statements include the accounts of Stem
Cell Therapy International, Inc. and its wholly-owned subsidiary, Stem Cell
Therapy International Corp. All intercompany accounts and transactions have
been eliminated.
2. LIQUIDITY AND MANAGEMENT'S PLANS
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. For the year ended March 31, 2007
and the period since December 2, 2004 (date of inception) through March 31,
2007, the Company has had net losses of $657,046 and $1,189,448, respectively,
and cash used in operations of $124,365 and $286,622, respectively, and has
negative working capital of $551,175 at March 31, 2007. As of March 31, 2007,
the Company has not emerged from the development stage. In view of these
matters, the ability of the Company to continue as a going concern is dependent
upon the Company's ability to generate additional financing and ultimately
increase operations and to achieve a level of profitability. Since inception,
the Company has financed its activities principally from the use of equity
securities to pay for services and related party advances. The Company intends
on financing its future development activities and its working capital needs
largely from the sale of equity securities 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.
F-8
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.
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.
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. During the year ended March 31, 2007, the
Company impaired the remaining balance of $4,333 of intangible assets with a
charge to the consolidated statement of operations.
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.
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. Due to the Company's continued losses,
the Company has placed a full valuation allowance against the deferred tax
asset.
Loss per common share:
Basic and diluted loss per share are computed based on the weighted average
number of common shares outstanding during the period. Common stock equivalents
are not considered in the calculation of diluted earnings per share for the
periods presented if their effect would be anti-dilutive. The Company had no
common stock equivalents outstanding at March 31, 2007 or 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 SFAS 123R had no
significant impact on the Company's results of operations.
F-9
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Reclassifications:
Certain reclassifications have been made to the accompanying fiscal 2006
consolidated financial statements to conform to the March 31, 2007 presentation.
Such reclassifications had no impact on net loss as previously reported.
Recently issued accounting pronouncements:
In July 2006, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 48, ("FIN 48") "Accounting for uncertainty in income taxes -
an interpretation of SFAS No. 109." This Interpretation provides guidance for
recognizing and measuring uncertain tax positions, as defined in FASB No. 109,
"Accounting for income taxes." FIN 48 prescribes a threshold condition that a
tax position must meet for any of the benefit of an uncertain tax position to be
recognized in the financial statements. Guidance is also provided regarding
derecognition, classification and disclosure of uncertain tax positions. FIN 48
is effective for fiscal years beginning after December 15, 2006. The Company
does not expect that this Interpretation will have a material impact on their
financial position, results of operations or cash flows.
In September 2006, the FASB issued SFAS No. 157 ("SFAS 157"), "Fair Value
Measurements." SFAS 157 clarifies the principle that fair value should be based
on the assumptions that market participants would use when pricing an asset or
liability. Additionally, it establishes a fair value hierarchy that prioritizes
the information used to develop those assumptions. SFAS 157 is effective for
financial statements issued for fiscal years beginning after November 15, 2007.
The Company does not expect the adoption of SFAS 157 to have a material impact
on their financial position, results of operations or cash flows.
In September 2006, the FASB issued SFAS No. 158, ("SFAS 158), "Employers'
Accounting for Defined Benefit Pension and Other Post-retirement Plans". Among
other items, SFAS 158 requires recognition of the over-funded status of an
entity's defined benefit postretirement plan as an asset or liability in the
financial statements, the measurement of defined benefit post-retirement plan
assets and obligations as of the end of the employer's fiscal year and
recognition of the funded status of defined post-retirement plans in other
comprehensive income ("OCI"). The standard was effective for the Company as of
March 31, 2007. The adoption of SFAS 158 did not have an impact on the
Company's financial position, results of operations or cash flows.
In February 2007, the FASB issued SFAS No. 159 ("SFAS 159"), "The Fair Value
Option for Financial Assets and Financial Liabilities", which permits an entity
to measure certain financial assets and financial liabilities at fair value.
Under SFAS 159, entities that elect the fair value option will report unrealized
gains and losses in earnings at each subsequent reporting date. The fair value
option may be elected on a instrument-by-instrument basis, with a few
exceptions, as long as it is applied to the instrument in its entirety. The
fair value option election is irrevocable, unless a new election date occurs.
SFAS 159 establishes presentation and disclosure requirements to help financial
statement users understand the effect of the entity's election on its earnings
but does not eliminate disclosure requirements of other accounting standards.
Assets and liabilities that are measured at fair value must be displayed on the
face of the balance sheet. SFAS 159 is effective as of the beginning of the
first fiscal year that begins after November 15, 2007. The Company does not
expect the adoption of SFAS 159 to have a material impact on the financial
statements.
In September 2006, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 108, "Considering the Effects of Prior Year
Misstatements When Quantifying Current Year Misstatements." SAB No. 108 requires
analysis of misstatements using both an income statement (rollover) approach and
a balance sheet (iron curtain) approach in assessing materiality and provides a
one-time cumulative effect transition adjustment. SAB No. 108 is effective for
our 2007 annual financial statements. The adoption of SAB No. 108 did not have a
material 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.
F-10
4. RELATED PARTY TRANSACTIONS
Stockholder advances consist of advances from an officer and significant
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 amounts payable to a consulting company owned by
an officer and significant stockholder. These amounts are non-interest bearing
and unsecured.
5. STOCKHOLDERS' DEFICIT
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 March 31, 2007, the Company had 500,000 shares of
convertible preferred stock issued and outstanding. 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, 2005, 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 year ended March 31, 2007 and 2006 and for the period from December 2,
2004 (Date of Inception) through March 31, 2007:
Weighted Average
Exercise Price Exercise Price
Number of per Share per Share
Stock -------------- -----------------
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 March 31, 2006 -
=========== ============== =================
There were no options granted during the year ended March 31, 2007.
F-11
7. INCOME TAXES
There was no current or deferred provision or benefit for income taxes for the
years ended March 31, 2007 and 2006 and for the period from December 2, 2004
(Date of Inception) through March 31, 2007. The components of deferred tax
assets as of March 31, 2007 and 2006 are as follows:
March 31, March 31,
2007 2006
----------- -----------
Deferred tax assets:
Accrued payroll $ 64,200 $ 13,200
Net operating loss carryforward 382,700 187,100
----------- -----------
446,900 200,300
Less: Valuation allowance (446,900) (200,300)
----------- -----------
$ - $ -
=========== ===========
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 $980,000 at March 31, 2007. 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.
The income tax provision differs from the amount of tax determined by applying
the Federal statutory rate as follows:
Period from
December 2,
2004 (Date of
Inception)
Years Ended March 31, through March 31,
-------------------------- -------------------
2007 2006 2007
------------- ----------- -------------------
Income tax provision
at statutory rate $ (223,400) $ (172,100) $ (404,400)
Increase (decrease) in
income tax due to:
Nondeductible expenses 600 60 700
State income taxes, net (23,900) (18,260) (43,200)
Change in valuation
allowance 246,700 190,300 446,900
------------- ----------- -------------------
$ - $ - $ -
============= =========== ===================
Stem Cell Therapy International, Inc.
(a development stage enterprise)
Notes to Consolidated Financial Statements
For the Years Ended March 31, 2007 and 2006
and for the period from December 2, 2004 (Date of Inception)
through March 31, 2007
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.
8. 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 March 31, 2007.
Following the draw, the Company has not replenished the letter of credit as of
March 31, 2007 nor has the Company purchased the required minimum amounts of
biological stem cell solutions from ICT as required by the agreement. (see
discussion of the licensing agreement below)
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
F-12
8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
performance commitment. As of March 31, 2007, the Company had issued these
shares of common stock and has included $86,208 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 March 31, 2007, the Company had
issued these shares of common stock 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 March 31, 2007, no
funding has been secured; however, Westminster did facilitate the acquisition of
Altadyne, and therefore received 379,000 shares of common stock in September
2005. The Agreement with Westminster was mutually terminated effective January
4, 2006.
Licensing agreement:
Effective September 1, 2005, the Company entered into a ten year licensing
agreement with the Institute of Cell Therapy, a company incorporated and
organized under the laws of Kiev, Ukraine ("ICT"). Pursuant to the agreement,
the Company issued ICT 5,000,000 shares of the Company's common stock recorded
at the fair market value of the Company's common stock of $5,000. The agreement
grants the Company a right and license in most parts of the world to utilize
patents, processes and products owned or produced by ICT in connection with the
operation of the Company's business. In exchange for the license, the Company
agrees to exclusively purchase all biological solution of stem cell Allo
Transplant materials from ICT. Such Allo Transplant materials shall be at a cost
of $6,500 per patient per condition. The licensing agreement guarantees a
minimum purchase of 60 portions per twelve month period. In the event that the
Company is unable to purchase the minimum quantities, ICT will be entitled to
draw upon the irrevocable letter of credit at the rate of $2,000 for every
portion less than the minimum required purchase. The Company had provided ICT
with a $120,000 irrevocable letter of credit in ICT's favor for the first three
years of the agreement. In the event the Letter of Credit is drawn upon, the
Company agreed to replenish the Letter of Credit to the extent of any such
draws. As of September 2006, the Company had not met the first year's minimum
purchase requirement and ICT withdrew $116,000 on the letter of credit, which
has been included in the cost of goods sold in the accompanying Consolidated
Statements of Operations. However, ICT was unable to provide the product as
requested and the Company was required to purchase the stem cell materials from
alternative sources. Management believes that ICT's inability to provide the
requested stem cell materials relieves the Company of its obligations to
replenish the letter of credit and to fulfill the minimum purchase requirements.
As such, the accompanying consolidated financial statements do not reflect the
results, if any, of the Company's failure to purchase the minimum amount of stem
cell materials under the above mentioned license agreement.
Financing agreement:
During the year ended March 31, 2007, the Company entered into an agreement to
locate financing with a third party for three years. As consideration for these
consulting services, the Company has agreed to issue 500,000 shares of
restricted common stock and a 10% finder's fee for any funds brought into the
Company. As of March 31, 2007, the Company has not entered into any funding
agreements, and therefore the third party is not owed any consideration.
F-13
9. SUBSEQUENT EVENTS
Subsequent to year end, the Company entered into a six month consulting
agreement with a consulting group to provide consulting services in connection
with finance relations, financial services and mergers and acquisitions. In
exchange for these services, the Company has issued the consulting group 300,000
shares of restricted common stock valued at $117,000.
Subsequent to year end, the Company entered into a three month consulting
agreement with a consulting group to provide consulting services in connection
management consulting, business advisory services and public relations. In
exchange for these services, the Company has issued the consulting group 250,000
shares of restricted common stock valued at $45,000 and an additional $2,500 per
month.
Effective June 27, 2007, the Company entered into an agreement with Newbridge
Securities, Corp. ("Newbridge") to assist the Company on a "best efforts" basis
in raising approximately $250,000 in a private offering of up to 2 million
shares of restricted common stock at a price of $.125 per share. Newbridge is
entitled to a selling concession of 10% of the gross proceeds of the offering, a
3% non-accountable expense allowance and warrant coverage equal to 20% of the
total securities placed in the offering, including any penalty shares, at an
exercise price of $.15 per share. The Company is required to file a
registration statement covering the above securities within 45 days of the
completion of the offering. If the Company fails to have the registration
statement deemed effective by the Securities and Exchange Commission within 135
days after the completion of the offering, the Company will issue to the holders
of the securities, additional shares of restricted common stock equal to 1.5% of
the number of shares purchased for each thirty-day period until the registration
statement is deemed effective, up to a maximum of eight such thirty-day periods.
F-14
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
NONE
ITEM 8A. CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures.
------------------------------------------------
Under the supervision and with the participation of our Management, including
our Chief Executive Officer and Chief Financial Officer, we conducted an
evaluation of the effectiveness of the design and operations of our disclosure
controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") as of the end
of the period covered by this report. Based on this evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that our financial
disclosure controls and procedures were effective so as to timely identify,
correct and disclose information required to be included in our Securities and
Exchange Commission ("SEC") reports is recorded, processed, summarized and
reported within time periods specified in the SEC rules and forms relating to
Stem Cell Therapy International, Inc. and was made known to them by others
within those entities, particularly during the period when this report was being
prepared.
There have been no significant changes in the Company's internal control over
financial reporting or, to our knowledge, in other factors that could
significantly affect the Company's internal controls over financial reporting
subsequent to the evaluation date.
ITEM 8B OTHER INFORMATION
None
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
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
------------------- --- ----------------------------
Chief Executive Officer,
Calvin C. Cao 39 President and Chairman
------------------- --- ----------------------------
Chief Financial Officer
Daniel J. Sullivan 50 and Director
------------------- --- ----------------------------
Chief Operating Officer
and Patent Trademark Counsel
Lixian (John) Jiang 35 and Director
------------------- --- ----------------------------
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 assisting start-up
32
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 Vascular 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 2007 and his term expires March 2008, or when his replacement is duly
elected 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,
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, and is currently employed on a month
to month basis. Mr. Sullivan is a part-time employee of the Company.
CHIEF OPERATING OFFICER AND PATENT TRADEMARK COUNSEL - 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
33
the Company and reports directly to the Board of Directors and the Chief
Executive Officer of the Company. He was reelected in March 2007 and his term
expires March 2008, or when his replacement is duly elected and qualified.
Lixian (John) Jiang is responsible for the supervision and the operations of the
facility in China 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 in China
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 - EUROPE
The Company has also engaged the following persons as independent
consultants to assist as part of its Scientific and Medical Advisory Board in
Europe:
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
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
34
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 10. EXECUTIVE COMPENSATION
No Executive or employee was compensated over $100,000 for fiscal years ended
2007 or 2006.
SUMMARY COMPENSATION TABLE
ALL
OTHER
STOCK OPTION COMPEN
NAME YEAR SALARY BONUS AWARDS AWARDS SATION TOTAL
PRINCIPAL POSITIONS ENDED ($) ($) ($) ($)(A) ($) ($)
------------------------- ----- ------ ----- ------ ------ ------- ------
Calvin Cao, 2007 80,000 - - - - 80,000
President 2006 20,000 - - - - 20,000
------------------------- ----- ------ ----- ------ ------ ------- ------
Peter Sidorenko,
(Terminated January 2007) 2007 45,000 - - - - 45,000
Chief Operating Officer 2006 15,000 - - - - 15,000
------------------------- ----- ------ ----- ------ ------ ------- ------
Daniel Sullivan, 2007 - - - - - -
Chief Financial Officer 2006 - - - - - -
------------------------- ----- ------ ----- ------ ------ ------- ------
The Company does not have any annuity, retirement, pension, deferred or
incentive compensation plan or arrangement under which any executive officers
are entitled to benefits, nor does the Company have any long-term incentive plan
pursuant to which performance units or other forms of compensation are paid.
Executive officers may participate in group life, health and hospitalization
plans if and when such plans are available generally to all employees. All other
compensation consisted solely of health care premiums.
DIRECTOR COMPENSATION
Directors of the Company who are not employees or consultants do not receive any
compensation for their services as members of the Board of Directors, but are
reimbursed for expenses incurred in connection with their attendance at meetings
of the Board of Directors.
Change in
Non- Pension
Equity Value and
Fees Incent- Non Qualified All
Earned ive Plan Deferred Other
or Paid Stock Option Compen- Compensation Compen
in Cash Awards Awards sation Earnings sation Total
Name ($) ($) ($) ($) ($) ($) ($)
--------------- ------- ------ ------ -------- ------------- ------ -----
Calvin Cao - - - - - - -
--------------- ------- ------ ------ -------- ------------- ------ -----
Daniel Sullivan - - - - - - -
--------------- ------- ------ ------ -------- ------------- ------ -----
Lixian Jiang - - - - - - -
--------------- ------- ------ ------ -------- ------------- ------ -----
ITEM 11. 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 March 31, 2007. 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
34,495,369 shares being outstanding as of March 31, 2007, 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.
NAME AND ADDRESS OR AMOUNT AND NATURE OF PERCENTAGE
NUMBER IN GROUP BENEFICIAL OWNERSHIP (1) OF CLASS (2)
---------------------------------- ------------------------ ------------
Global Capital Corp.
2203 N. Lois Avenue, 9th Floor
Tampa, FL 33607 4,000,000 11.5%
Institute of Cell Therapy
c/o Alan Brutten, Attorney at Law
1341 Ocean Parkway
Brooklyn, NY 11230 5,000,000 14.5%
Thuy-Van Chau
2203 N. Lois Avenue, 9th Floor
Tampa, FL 33607 3,000,000 8.7%
Vivian Cao Irrevocable Trust
2203 N. Lois Avenue, 9th Floor
Tampa, FL 33607 2,000,000 5.8%
Christopher Cao Irrevocable Trust
2203 N. Lois Avenue, 9th Floor
Tampa, FL 33607 2,000,000 5.8%
Calvin C. Cao
2203 N. Lois Avenue, 9th Floor
Tampa, FL 33607 11,000,000 (1) 31.9%
35
Daniel J. Sullivan
2203 N. Lois Avenue, 9th Floor
Tampa, FL 33607 200,000 .6%
M. Richard Cutler
c/o Cutler Law Group
3206 West Wimbledon Drive
Augusta, GA 30909 2,674,196 (2) 7.8%
RHL Management, Inc.
c/o Cutler Law Group 100% Series
3206 West Wimbledon Drive A Preferred
Augusta, GA 30909 500,000 Stock
All Directors and
Executive Officers
as a Group (2 persons) 11,200,000 32.5%
(1) Consists of 4,000,000 shares held by Global Capital Corp., 2,000,000
shares held by Vivian Cao Irrevocable Trust and 2,000,000 shares held by
Christopher Cao Irrevocable Trust and 3,000,000 shares held by Thuy-Van Chau.
(2) Consists of 1,292,259 shares held by Cutler Law Group and 1,381,937
shares held by R Capital Partners, Inc.
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 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Stockholder advances of $48,753 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 of $225,200, represents a demand note payable to a
consulting company owned by a significant stockholder. 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.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit Index. The following exhibits are filed with or incorporated by
-------------
reference into this quarterly report:
3.1 Articles of Incorporation of Stem Cell Therapy International, Inc., as
amended*
3.2 Articles of Incorporation of Stem Cell Therapy Corp.*
3.3 Certificate of Designation of Series A Preferred Stock*
3.4 By-laws of Stem Cell Therapy International, Inc.*
10.1 Business Consulting and Services Agreement dated as of December 16,
2004 between Stem Cell Therapy International Corp. and PMS SA.*
10.2 Consulting Agreement dated as of January 4, 2005 between Stem Cell
Therapy International Corp. and RES Holdings Corp.*
10.3 Investor and Media Relations Contract dated as of February 10, 2005
between Stem Cell Therapy International Corp. and Stern & Co.*
10.4 Executive Suite Lease Agreement dated as of February 15, 2005 between
Stem Cell Therapy International Corp. and Wilder Corporation.*
36
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.*
10.10 Consulting Agreement dated as of September 1, 2005 between the Company
and USA Consulting Group, LLC.*
10.11 Professional Services Agreement dated as of September 7, 2005 between
the Company and Bridgehead Group Limited , Inc.*
10.12 Public Relations Agreement dated as of September 19, 2005 between the
Company and Stern & Co.*
10.13 Advisory Physician Agreement dated as of October 4, 2005 between the
Company and Alexey Bersenev.*
10.14 Medical and Scientific Advisory Board Member Agreement dated as of
October 10, 2005, between the Company and Dr. Weiwen Deng.*
10.15 Medical and Scientific Advisory Board Member Agreement dated as of
October 24, 2005, between the Company and Dr. Jorge Quintero.*
10.16 Medical and Scientific Advisory Board Member Agreement dated as of
October 24, 2005, between the Company and Dr. Salvador Vargas.*
10.17 Medical and Scientific Advisory Board Member Agreement dated as of
December 2, 2005 between the Company and Dr. Igor Katkov.*
10.18 Medical and Scientific Advisory Board Member Agreement dated as of
December 2, 2005, between the Company and Dr. Nikita Tregubov.*
10.19 Business Advisory Board Agreement dated as of December 5, 2005 between
the Company and Fred J. Villella.*
10.20 Business Development Advisory Agreement dated as of January 1, 2006
between the Company and Alexander Kulik.*
10.21 Termination and Modification of Engagement Letter dated January 4,
2006 between the Company and Westminster Securities Corporation.*
10.22 Business Consulting and Services Agreement dated January 20, 2006
between the Company and Julio C. Ferreira dba Sphaera Inte-Par.*
10.23 Business Development Advisory Agreement dated as of February 7, 2006
between the Company and Gus Yepes.*
10.25 Treating Physician Agreement dated as of October 24, 2005 between the
Company and Dr. Salvador Vargas.*
10.26 Treating Physician Agreement dated as of October 24, 2005 between the
Company and Dr. Jorge Quintero.*
10.27 Consulting Agreement dated as of June 9, 2006 between the Company and
Rick Langley.**
10.28 Patient Treatment Agreement dated November 1, 2006 between the Company
and Shenzhen Beike Biotechnology Company Limited.
10.29 Consulting Agreement dated as of October 12, 2006 between the Company
and SOS Resource Services, Inc.
21. List of Subsidiaries*
31.1 Chief Executive Officer certification pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32.1 Chief Executive Officer certification pursuant to 18 U.S.C. Section
1350
32.2 Chief Financial Officer certification pursuant to 18 U.S.C. Section
1350
* Previously filed with the Company's initial filing of Form 10-SB, file number
000-51931, filed on April 25, 2006, and incorporated by this reference as an
exhibit to this Form 10-QSB.
** Previously filed with the Company's filing of Form 10-QSB, filed on November
14, 2006 and incorporated by this reference as an exhibit.
37
(b) Reports on Form 8-K.
Form 8-K filed on August 4, 2006 reporting that effective July 19, 2006, the
Company terminated its prior accounting firm Pender Newkirk and Company LLP, as
its accounting firm and engaged Aidman, Piser & Company, P.A. , Certified Public
Accountants, Tampa, FL, as its new auditors.
Form 8-K filed on January 19, 2007 reporting that the Company and Peter
Sidorenko, the Company's Chief Operating Officer, mutually determined that Mr.
Sidorenko would be terminated from that position. The Company is presently
seeking a replacement for Mr. Sidorenko.
ITEM 14. PRINCIPAL ACCOUNTANTS FEES AND SERVCIES
Audit Fees
-----------
During 2007 and 2006, we incurred fees for services from our principal
accountants of approximately $55,700 and $31,500, respectively, for audit and
review services associated with our filings.
Non-Audit related fees
------------------------
None
Tax Fees
---------
None
All Other Fees
----------------
None
Audit Committee Pre-Approval Process, Policies and Procedures
-------------------------------------------------------------------
Our principal auditors have performed their audit procedures in accordance with
pre-approved policies and procedures established by our Board of Directors. Our
principal auditors have informed our Board of Directors of the scope and nature
of each service provided. With respect to the provisions of services other than
audit, review, or attest services, our principal accountants brought such
services to the attention of our Board of Directors prior to commencing such
services.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: July 12, 2007
By: /s/Calvin Cao
-------------
Name: Calvin Cao
Title: President
Date: July 12, 2007
By: /s/Daniel Sullivan
------------------
Name: Daniel Sullivan
Title: Chief Financial Officer and
Chief Accounting Officer
38
Exhibit