UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
| [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2017
OR
| [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
COMMISSION FILE NUMBER: 000-55583
Stemcell Holdings, Inc.
(Exact name of registrant as specified in its charter)
| Delaware | 36-4827622 | ||
|
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | ||
|
C/O Stemcell Co., Ltd., 5-9-15-3F, Minamiaoyama Minato-ku, Tokyo, Japan |
107-0062 (Zip Code) |
||
| (Address of Principal Executive Offices) |
Issuer's telephone number: +81-3-3400-0077
Fax number: +81-3-3403-2181
Email: stemcellholdings@gmail.com
C/O Omotesando Helene Clinic, 3-18-17-6F, Minamiaoyama
Minato-ku, Tokyo, Japan
(Former address)
Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 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
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). [X] Yes [ ] No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ | Non-accelerated filer ☐ (Do not check if a smaller reporting company) | ||
| Smaller reporting company ☒ | Emerging growth company ☒ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
[ ] Yes [X] No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
As of November 13, 2017, there were approximately 27,596,000 shares of common stock and none of preferred stock issued and outstanding.
-1-
INDEX
-2-
PART I - FINANCIAL INFORMATION
| ITEM 1 | FINANCIAL STATEMENTS |
STEMCELL HOLDINGS, INC.
| As of September 30, 2017 (Unaudited) | As of December 31, 2016 | ||||
| ASSETS | |||||
| Current Assets | |||||
| Cash | $ | 3,948,044 | $ | 2,646,855 | |
| Trade receivables | 181,868 | - | |||
| Prepaid expenses and other current assets | 579,104 | 30,452 | |||
| TOTAL CURRENT ASSETS | 4,709,106 | 2,677,307 | |||
| Property and equipment, net | 972,219 | 529,747 | |||
| Deferred tax assets | - | 21,848 | |||
| Other non-current assets | 46,092 | - | |||
| TOTAL ASSETS | $ | 5,727,327 | $ | 3,228,902 | |
| LIABILITIES AND SHAREHOLDERS' EQUITY | |||||
| Current Liabilities | |||||
| Accounts payable to related party | $ | 218,044 | $ | 530,490 | |
| Loan from director | 43,657 | 43,337 | |||
| Accrued expenses and other liabilities | 1,922,840 | 106,413 | |||
| Income tax payables | 462,277 | 1,187,722 | |||
| TOTAL CURRENT LIABILITIES | 2,646,817 | 1,867,962 | |||
| TOTAL LIABILITIES | 2,646,817 | 1,867,962 | |||
| Commitments and contingencies (Note 6) | |||||
| Shareholders’ Equity | |||||
| Preferred stock ($.0001 par value, 20,000,000 shares authorized; none issued and outstanding as of September 30, 2017 and December 31, 2016) | - | - | |||
| Common stock ($.0001 par value, 500,000,000 shares authorized, 27,596,000 shares and 27,596,000 shares issued and outstanding as of September 30, 2017 and December 31, 2016 | 2,760 | 2,760 | |||
| Additional paid-in capital | 65,116 | 65,116 | |||
| Accumulated earnings | 3,074,575 | 1,397,421 | |||
| Accumulated other comprehensive loss | (61,941) | (104,357) | |||
| TOTAL SHAREHOLDERS’ EQUITY | 3,080,510 | 1,360,940 | |||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 5,727,327 | $ | 3,228,902 | |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
- F1 -
STEMCELL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(UNAUDITED)
| Three months | Three months | Nine months | Nine months | ||||||
| Ended | Ended | Ended | Ended | ||||||
| September 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | ||||||
| Revenues from related parties | |||||||||
| Stem cell culturing & tissue handling technical assistance fees | $ | 861,165 | $ | 784,531 | $ | 3,016,632 | $ | 1,181,776 | |
| Coordination fees | 290,357 | - | 909,593 | - | |||||
| Marketing & other services | 159,850 | 459,340 | 239,952 | 529,778 | |||||
| Rental services | 55,602 | - | 275,437 | - | |||||
| Total revenues from related parties | 1,366,974 | 1,243,871 | 4,441,614 | 1,711,554 | |||||
| Revenues from third parties | |||||||||
| Marketing & other services | 60,301 | 54,192 | 76,321 | 69,194 | |||||
| Rental services | 97,937 | - | 148,713 | - | |||||
| Total revenues from third parties | 158,238 | 54,192 | 225,034 | 69,194 | |||||
| Total revenues | 1,525,212 | 1,298,063 | 4,666,648 | 1,780,748 | |||||
| Cost of revenues | 290,431 | 126,396 | 838,870 | 126,396 | |||||
| Gross profit | 1,234,781 | 1,171,667 | 3,827,778 | 1,654,352 | |||||
| 81.0% | 90.3% | 82.0% | 92.9% | ||||||
| Operating expenses | |||||||||
| Selling, general and administrative expenses | 350,970 | 71,099 | 985,364 | 122,111 | |||||
| Total operating expenses | 350,970 | 71,099 | 985,364 | 122,111 | |||||
| Other income (expenses) | (1,107) | - | (1,099) | 1 | |||||
| NET INCOME BEFORE TAXES | 882,704 | 1,100,568 | 2,841,315 | 1,532,242 | |||||
| Income tax expenses | 370,924 | 384,514 | 1,164,161 | 487,578 | |||||
| NET INCOME | $ | 511,780 | $ | 716,054 | $ | 1,677,154 | $ | 1,044,664 | |
| Other Comprehensive Income | |||||||||
| Foreign currency translation adjustment | $ | (10,068) | $ | 56,310 | $ | 42,416 | $ | 72,081 | |
| TOTAL COMPREHENSIVE INCOME | $ | 501,712 | $ | 772,364 | $ | 1,719,570 | $ | 1,116,745 | |
| BASIC AND DILUTED NET INCOME PER COMMON SHARE | $ | 0.02 | $ | 0.00 | $ | 0.06 | $ | 0.00 | |
| WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING, BASIC AND DILUTED (*) | 27,596,000 | 40,000,000,000 | 27,596,000 | 40,000,000,000 | |||||
| The accompanying notes are an integral part of these unaudited consolidated financial statements. | |||||||||
| (*) On October 29, 2016, the Company effected a forward stock split, whereby every one (1) share of the common stock was automatically reclassified and changed into two thousand (2,000) shares (the “2000-for-1 Forward Stock Split”). The authorized number of shares and par value per share were not affected by the 2000-for-1 Forward Stock Split. . The Company had 27,596,000 and 20,000,000 (as restated) shares of common stock outstanding as of September 30, 2017 and September 30, 2016. | |||||||||
- F2 -
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
| Nine months Ended | Nine months Ended | |||||
| September 30, 2017 | September 30, 2016 | |||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||
| Net income | $ | 1,677,154 | $ | 1,044,664 | ||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||
| Depreciation expense | 83,803 | 6,216 | ||||
| Changes in operating assets and liabilities: | ||||||
| Trade receivables | (181,868) | (744,919) | ||||
| Prepaid expenses and other current assets | (526,804) | (1,006) | ||||
| Accounts payable to related party | (312,447) | 826,306 | ||||
| Accrued expenses and other current liabilities | 1,816,427 | 58,711 | ||||
| Income tax payables | (725,445) | 521,971 | ||||
| Net cash provided by operating activities | 1,830,820 | 1,711,943 | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||
| Purchase of property and equipment | (526,275) | (393,141) | ||||
| Security deposit | (46,092) | - | ||||
| Net cash used in investing activities | (572,367) | (393,141) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||
| Loan from director | 320 | 69,047 | ||||
| Net cash provided by financing activities | 320 | 69,047 | ||||
| Net effect of exchange rate changes on cash | 42,416 | 72,081 | ||||
| Net change in cash | 1,301,189 | 1,459,930 | ||||
| Cash - beginning of period | 2,646,855 | - | ||||
| Cash - end of period | $ | 3,948,044 | $ | 1,459,930 | ||
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | ||||||
| Interest paid | $ | - | $ | - | ||
| Income taxes paid | $ | 1,898,605 | $ | - | ||
| NON-CASH FINANCING AND INVESTING TRANSACTIONS | ||||||
| Forgiveness of debt by former sole shareholder | $ | - | $ | 2,998 | ||
| The accompanying notes are an integral part of these unaudited consolidated financial statements. | ||||||
- F3 -
STEMCELL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2017
(UNAUDITED)
NOTE 1 - ORGANIZATION, DESCRIPTION OF BUSINESS, AND BASIS OF PRESENTATION
Stemcell Holdings, Inc., formerly known as Perfect Acquisition, Inc. (the “Company”), was incorporated under the laws of the State of Delaware on December 31, 2015, with an objective to acquire, or merge with, an operating business. On March 23, 2016, the Company entered into a Stock Purchase Agreement (the “Stock Purchase Agreement”) with Takaaki Matsuoka, our President, CEO and Director. Pursuant to the Stock Purchase Agreement, on March 24, 2016, Takaaki Matsuoka transferred to the Company, 500 shares of the common stock of Stemcell Co., Ltd., a Japanese corporation (“Stemcell”), which represented all of its issued and outstanding shares, in a cash consideration of JPY 5,000,000 ($44,476). Following the effective date of the share purchase transaction, Stemcell Holdings, Inc. gained a 100% interest in the issued and outstanding shares of Stemcell’s common stock and Stemcell became a wholly owned subsidiary of the Company.
The Company concentrates on regenerative medicine-related business which includes but is not limited to the culturing, storing and delivery of stem cells, providing related technical assistance thereof and other ancillary services to facilitate cell therapies through Stemcell, which is our wholly owned subsidiary.
The accompanying unaudited interim consolidated financial statements of the Company have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission, or the SEC, including the instructions to Form 10-Q and Regulation S-X. In the opinion of the management of the Company, all adjustments, which are of a normal recurring nature, necessary for a fair statement of the results for the three-month period, have been made. Results for the interim periods presented are not necessarily indicative of the results that might be expected for the full year. When used in these notes, the terms “Company”, “we”, “us” or “our” mean the Company. Notes to the financial statements which would substantially duplicate the disclosure contained in the audited financial statements for the most recent year, as reported in the Form 10-K for the year ended December 31, 2016, have been omitted. These interim consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2016, as reported by us in our Annual Report on Form 10-K filed with the SEC on May 15, 2017.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Stemcell Co., Ltd. Intercompany accounts and transactions are eliminated.
USE OF ESTIMATES
The presentation of financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. The most significant estimates and assumptions made by management include going concern and valuation allowance on deferred income tax. Operating results in the future could vary from the amounts derived from management's estimates and assumptions.
FOREIGN CURRENCY TRANSLATION
The reporting currency of the Company is the United States Dollars (“US$”) and the accompanying financial statements have been expressed in US$. Stemcell maintains its books and records in its local currency, Japanese YEN (“JPY”), which is a functional currency as being the primary currency of the economic environment in which its operation is conducted. In accordance with ASC Topic 830-30, “Translation of Financial Statement”, assets and liabilities of the Company whose functional currency is not US$ are translated into US$, using the exchange rate on the balance sheet date. Revenues and expenses are translated at average rates prevailing during the period. The gains and losses resulting from translation of financial statements are recorded as a separate component of accumulated other comprehensive income (loss) within the statements of shareholders’ equity. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.
Translation of amounts from the local currency of Stemcell into US$1 has been made at the following exchange rates:
| September 30, 2017 | |
| Current JPY: US$1 exchange rate | 112.47 |
| Average JPY: US$1 exchange rate | 111.90 |
RELATED PARTY TRANSACTIONS
A related party is generally defined as (i) the Company’s management, (ii) someone that directly or indirectly controls, is controlled by or is under common control with the Company, or (iii) anyone who can significantly influence the financial and operating decisions of the Company. A transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related parties. The Company conducts business with its related parties in the ordinary course of business.
Transactions involving related parties cannot be presumed to be carried out on an arm's-length basis, as the requisite conditions of competitive, free market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm's-length transactions unless such representations can be substantiated.
- F4 -
REVENUE RECOGNITION
The Company applies Accounting Standard Codification (“ASC”) 605 for revenue recognition. The Company recognizes revenue when it is realized or realizable and earned. The Company considers revenue realized or realizable and earned when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the product has been shipped or the services have been rendered to the customer, (iii) the sales price is fixed or determinable, and (iv) collectability is reasonably assured. The Company provides the warranty for the delivery of its service. If the Company cannot deliver its service to customers successfully, the Company will retry its operation until the delivery is completed. The Company has four revenue streams as described below.
Stem Cell Culturing and Tissue Handling Technical Assistance Revenue
Stem cell culturing and tissue handling technical assistance revenue is recognized by providing technical assistance to customers for culturing stem cells or handling of tissues when persuasive evidence of an arrangement exists, the cells are cultured or tissues handled and have been delivered, the sales price is fixed or determinable, collection of the resulting receivable is reasonably assured, there are no material contingencies and the Company does not have significant obligations for future performance. When collectability is not reasonably assured, the Company defers the revenue until the cash is received. Revenue is recorded net of any discounts given to the customer.
During the three and nine months ended September 30, 2017, the Company derived all of its stem cell culturing and tissue handling technical assistance revenue from Omotesando Helene Clinic (the “Helene Clinic”), which is fully owned by Takaaki Matsuoka. Pursuant to the agreement entered into by the two parties, once technical assistance is provided to the cells or tissues that were cultured or handled, no returns are allowed.
Coordination Service Revenue
During the three and nine months ended September 30, 2017, all of the coordination service was delivered to Helene Clinic. Pursuant to the service agreement entered into by the Company and Helene Clinic, the Company’s performance obligations under the coordination service include introducing patients to clinics, arranging schedules and any related translation thereof. Revenue is recognized when a series of abovementioned services are delivered and treatments for the patient are completed as identified by Helene Clinic.
Marketing and Other Services Revenue
During the three and nine months ended September 30, 2017, the Company provided internet marketing services by optimizing search engines for two third-party clinics and six health clinics, including Helene Clinic, that are fully owned or managed by Takaaki Matsuoka. Since July 2017, the Company commenced outsourcing services to clinics, encompassing administration services including accounting, payroll, tax support, clinic non-medical operations, recruiting and HR planning, facilities and maintenance services, IT support and legal services enabling the clinics to concentrate more on medical activities.
Rental Revenue
The Company leased certain medical equipment and properties to medical clinics. For the three and nine months ended September 30, 2017, rental revenue was derived from two third-party clinics and four clinics, including Helene Clinic, which are fully owned or managed by Takaaki Matsuoka.
CONCENTRATION OF CREDIT RISKS
Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash. The Company places its cash with financial institutions. The Company does not require collateral or other security to support financial instruments subject to credit risks.
The Company received lump-sum payments from individual patients for the services to be delivered by them and Helene Clinic as a whole. Historically, the Company deducted 10% of the total payments and remitted the remainder to Helene Clinic, after which the Company billed and received payments from Helene Clinic for stem cell culturing and tissue handling technical assistance services. Since the beginning of 2017, the Company changed this business model to deduct the 10% and the amount to be recognized as stem cell culturing and tissue handling technical assistance revenue prior to remitting the remainder to Helene Clinic. As of September 30, 2017, and December 31, 2016, the Company had accounts receivable from Helene Clinic of $33,960 and $548,884, respectively, and accounts payable to Helene Clinic of $218,044 and $573,827, respectively. Also see Note 4.
Net revenues from customers accounting for 10% or more of total revenues are as follows:
| Three months ended September 30, 2017 | Three months ended September 30, 2016 | Nine months ended September 30, 2017 | Nine months ended September 30, 2016 | ||||||
| % | % | % | % | ||||||
| Omotesando Helene Clinic | 75.4 | 100.0 | 87.2 | 100.0 | |||||
| Total | 75.4 | 100.0 | 87.2 | 100.0 | |||||
EFFECT OF RECENTLY ADOPTED AND ISSUED PRONOUNCEMENTS
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update 2014-09 (“ASU 2014-09”), Revenue from Contracts with Customers. This amendment updates addressing revenue from contracts with customers, which clarifies existing accounting literature relating to how and when a company recognizes revenue. Under the standard, a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods and services. This standard update was effective for interim and annual reporting periods beginning after December 15, 2016, and was to be applied retrospectively or the cumulative effect as of the date of adoption, with early application not permitted. In July 2015, a one-year deferral of the effective date of the new guidance was approved. We are currently conducting a detailed assessment of the impact that this guidance will have on our consolidated financial statements and related disclosures. We expect to complete this assessment by the end of 2017.
In August 2014, the FASB issued Accounting Standards Update 2014-15 (“ASU 2014-15”). This amendment requires management to assess an entity’s ability to continue as a going concern every reporting period including interim periods, and to provide related footnote disclosure in certain circumstances. Adoption of this standard is required for annual periods ending after December 15, 2016 and is to be applied retrospectively or the cumulative effect as of the date of adoption. The adoption of this amendment has changed our disclosures.
In November 2015, the FASB issued Accounting Standards Update 2015-17 (“ASU 2015-17”) to simplify the presentation of deferred taxes. This amendment requires that all deferred tax assets and liabilities, along with any related valuation allowances, be classified as noncurrent on the balance sheet. Adoption of this standard is required for annual periods beginning after December 15, 2016. The Company adopted this amendment from January 1, 2017. The adoption did not have an impact on our consolidated financial statements and related disclosures other than for reclassification.
In February 2016, the FASB issued Accounting Standards Update 2016-02 (“ASU 2016-02”) which requires lessees to recognize most leases on the balance sheet. This is expected to increase both reported assets and liabilities. The new lease standard does not substantially change lessor accounting. For public companies, the standard will be effective for the first interim reporting period within annual periods beginning after December 15, 2018, although early adoption is permitted. Lessees and lessors will be required to apply the new standard at the beginning of the earliest period presented in the financial statements in which they first apply the new guidance, using a modified retrospective transition method. The requirements of this standard include a significant increase in required disclosures. We began a detailed assessment of the impact that this guidance will have on our consolidated financial statements and related disclosures, and our analysis is ongoing.
NOTE 3 - GOING CONCERN ANALYSIS
The Company has a limited history of operations and started generating revenues for the first time during the year ended December 31, 2016. Additionally, the Company relies heavily on related parties for revenue generation. For the year ended December 31, 2016 and the nine months ended September 30, 2017, the Company derived 98% and 95% of its revenues, respectively, from its related parties. As a result, these conditions raise substantial doubt regarding the Company’s ability to continue as a going concern beyond twelve months from the date of this filing. However, as of September 30, 2017, the Company had cash of $3,948,044. In addition, for the nine months ended September 30, 2017, the Company had positive cash flow of $1,830,820 from operations. The combination of growth in the Company’s revenues, cash flows from operations and net income leads management to believe that it is probable that our cash resources will be sufficient to meet our cash requirements for current operations through and beyond twelve months from the date of this filing. As a result, the accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. While we believe in the viability of our strategy to generate sufficient revenues and cash flows and to control costs, there can be no assurances to that effect. Our ability to continue as a going concern is dependent upon our ability to further implement our business plan, generate sufficient revenues and cash flows and to control operating expenses.
NOTE 4 - RELATED-PARTY TRANSACTIONS
For the nine months ended September 30, 2017, the Company derived stem cell culturing and tissue handling technical assistance revenue and coordination revenue in the amount of $3,016,632 and $909,593, respectively, from Helene Clinic which is fully owned by Takaaki Matsuoka, the sole director of the Company.
For the nine months ended September 30, 2017, the Company provided marketing and other services in the amount of $239,952 to six clinics which are fully owned or managed by Takaaki Matsuoka, the sole director of the Company.
For the nine months ended September 30, 2017, the Company leased its properties and equipment in the amount of $275,437 to four clinics which are fully owned or managed by Takaaki Matsuoka, the sole director of the Company.
As of September 30, 2017, the Company had a balance for accounts payable in the amount of $218,044 to Helene Clinic, which is fully owned by Takaaki Matsuoka, the sole director of the Company.
For the nine months ended September 30, 2016, the Company derived service revenue which included stem cell culturing and tissue handling technical assistance and coordination revenues in the amount of $1,181,776 from Helene Clinic.
For the nine months ended September 30, 2016, the Company provided marketing services in the amount of $529,778 to six clinics which are fully owned or managed by Takaaki Matsuoka, the sole director of the Company.
The Company had a short-term loan from Takaaki Matsuoka, CEO and director of the Company, of an amount of $43,657 and $43,337 at September 30, 2017 and December 31, 2016 respectively.
As of December 31, 2016, after netting the receivable of $548,884 from stem cell culturing and tissue handling technical assistance, the Company had net payables of $573,827 to Helene Clinic. Starting from 2017, upon the mutual agreement between Helene Clinic and the Company, the business model was changed. Other than the 10% of the total payments received from individual patients, the Company also deducted the portion that will be charged for stem cell culturing and tissue handling technical assistance pursuant to the agreement entered into between the Company and Helene Clinic. The remainder was then remitted to Helene Clinic. As of September 30, 2017, the Company had payables of $218,044 to Helene Clinic.
NOTE 5 - INCOME TAXES
Stemcell Holdings, Inc., the holding company registered in the state of Delaware, does not plan to engage in any business activities. No provision for income taxes in the U.S. has been made as the Company had no U.S. taxable income.
Stemcell Co., Ltd., the wholly owned subsidiary of the Company, is registered in Japan and subject to income taxes within Japan at applicable tax rate on the taxable income as reported in Japan statutory financial statements in accordance with relevant income tax laws. The reconciliation of the effective national income tax rate of Stemcell to the statutory income tax rate in Japan for the nine months ended September 30, 2017 and 2016 is as follows.
|
Nine months ended September 30, 2017 |
Nine months ended September 30, 2016 | |||
| Japan national income tax rate | 23.40% | 15.00% | ||
| Valuation allowance recognized with respect to loss in Stemcell | 0.00% | -15.00% | ||
| Others | 0.00% | 0.00% | ||
| Total | 23.40% | 0.00% |
Income taxes are calculated on a separate entity basis. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. There currently is no tax benefit recorded for the United States. The provisions for income taxes for the nine months ended September 30, 2017 and 2016, respectively, are summarized as follows:
| Nine months ended September 30, 2017 | Nine months ended September 30, 2016 | ||||
| Current | $ | 1,164,161 | $ | 487,578 | |
| Deferred | - | - | |||
| Total | $ | 1,164,161 | $ | 487,578 |
NOTE 6 – COMMITMENTS AND CONTINGENCIES
The Company has entered into a lease agreement to rent space for Kita Senju Clinic on April 1, 2017 with a monthly rent of $7,690 for a lease term of 3 years. The monthly rent is paid by Kita Senju Clinic. In the event it fails to pay the rent, the Company is responsible for the payment. The Company has also put down the initial deposit for the lease in the amount of $46,092.
We are not a party to any material pending legal proceedings other than that which arise in the ordinary course of business. We believe that any liability that would ultimately result from the resolution on these matters will not, individually or in the aggregate, have a material adverse effect on our financial position or results of operations.
NOTE 7- NET INCOME PER SHARE
The following table shows the computation of basic net income per share of our common stock. There are no instruments that have dilutive effect on the number of shares computation.
|
Three months ended September 30, 2017 |
Three months ended September 30, 2016 |
Nine months ended September 30, 2017 |
Nine months ended September 30, 2016 | ||
| Net Income | Numerator (a) | 470,561 | 716,054 | 1,677,154 | 1,044,664 |
| Weighted Average Number of Common Shares Outstanding, Basic and Dilutive | Denominator (b) | 27,596,000 | 40,000,000,000 | 27,596,000 | 40,000,000,000 |
| Basic and Diluted Net Income | (a)/(b) | $0.02 | $0.00 | $0.06 | $0.00 |
- F5 -
| ITEM 2 | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Forward-Looking Statements
Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. We intend such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and are including this statement for purposes of complying with those safe-harbor provisions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on our operations and future prospects on a consolidated basis include, but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.
Company Overview
The Company was originally incorporated with the name Perfect Acquisition, Inc., under the laws of the State of Delaware on December 31, 2015, with an objective to acquire, or merge with, an operating business.
On January 27, 2016, Jeffrey DeNunzio of 780 Reservoir Avenue, #123, Cranston, RI 02910, the sole shareholder of the Company, entered into a Share Purchase Agreement with Takaaki Matsuoka with an address at 3-18-17-6F, Minamiaoyama, Minato-ku, Tokyo, 107-0062, Japan. Pursuant to the Agreement, Mr. DeNunzio transferred to Takaaki Matsuoka., 40,000,000,000 shares of our common stock which represents all of our issued and outstanding shares.
Following the closing of the share purchase transaction, Takaaki Matsuoka gained a 100% interest in the issued and outstanding shares of our common stock and became the controlling shareholder of the Company.
The sale of shares between Jeffrey DeNunzio and Takaaki Matsuoka was made pursuant to Regulation S of the Securities Act of 1933, as amended ("Regulation S"). No directed selling efforts were made in the United States. Takaaki Matsuoka is a Japanese Citizen.
On January 27, 2016, the Company changed its name to Stemcell Holdings, Inc. and filed with the Delaware Secretary of State, a Certificate of Amendment.
On January 27, 2016, Jeffrey DeNunzio resigned as our Chief Executive Officer, Chief Financial Officer, President, Director, Secretary, and Treasurer. The resignation was not the result of any disagreement with us on any matter relating to our operations, policies or practices.
On January 27, 2016, Mr. Takaaki Matsuoka was appointed as our Chief Executive Officer, Chief Financial Officer, President, Director, Secretary, and Treasurer.
On March 23, 2016, Stemcell Holdings, Inc., a Delaware corporation (the “Company”), entered into a Stock Purchase Agreement (the “Stock Purchase Agreement”) with Takaaki Matsuoka, our President, CEO and Director. Pursuant to this Agreement, on March 24, 2016, Takaaki Matsuoka transferred to Stemcell Holdings, Inc., 500 shares of the common stock of Stemcell Co., Ltd., a Japan corporation (“Stemcell”), which represents 100% of its issued and outstanding shares, in consideration of JPY5,000,000 ($44,476). Following the effective date of the share purchase transaction above on March 24, 2016, Stemcell Holdings, Inc. gained a 100% interest in the issued and outstanding shares of Stemcell’s common stock and Stemcell became a wholly owned subsidiary of the Company. The Company is now the controlling and sole shareholder of Stemcell.
On May 2, 2016, Takaaki Matsuoka entered into a Stock Purchase Agreement with Primavera Singa Pte Ltd, a Singapore corporation (“Primavera Singa”) with an address at 60 Paya Lebar Rd #09-25, Paya Lebar Square 409051, Singapore. Pursuant to the Agreement, Takaaki Matsuoka transferred to Primavera Singa, 34,599,066,000 shares of our common stock in consideration of JPY3,000,000 ($28,145) which represents all of our issued and outstanding shares. Shiho Matsuoka, the wife of our sole officer and director Takaaki Matsuoka, owns and controls 100% of Primavera Singa Pte., Ltd.
Following the closing of the share purchase transaction, Primavera Singa Pte., Ltd. became the controlling shareholder of the Company.
On October 26, 2016, the Board and 7 major shareholders approved to cancel 39,972,404,000 shares owned by the 7 major shareholders (the “Stock Cancellation”).
On October 29, 2016, the Company performed the forward stock split, whereby every one (1) share of the common stock was automatically reclassified and changed into two thousand (2,000) shares (the “2000-for-1 Forward Stock Split”). The authorized number of shares and par value per share were not be affected by the 2000-for-1 Forward Stock Split. The 2000-for-1 Forward Stock Split was executed subsequent to the Stock Cancellation. On October 29, 2016, we filed a Certificate of Amendment with the Delaware Secretary of State.
Business Information of Stemcell
Our principal executive offices are located at C/O Stemcell Co., Ltd., 5-9-15-3F, Minamiaoyama, Minato-ku, Tokyo, Japan. Our phone number is +81-3-3400-0707.
The Company, through Stemcell, its wholly-owned subsidiary, provides cell culturing, cell storage, tissue handling, delivery and technical assistance thereof to designated (by local health authorities) medical clinics and institutions as well as other ancillary services to facilitate cell therapies, including coordination to arrange such therapies between and among sales agents, patients and clinics. We also provide marketing services and medical and other equipment rental services to clinics.
Overview of Results
The key financial results for the three months ended September 30, 2017 as compared to the previous year same period on a consolidated basis are as follows:
| w | Despite slower stem cell related business in summer months this year and changes to services provided to clinics, total revenues grew by $227,149 or 18% year over year primarily due to increasing number of patients receiving stem cell and related therapies from our major client, Helene Clinic. Patients increased as a result of growing interest of stem cell related therapies in Asia. 56% of revenue was derived from stem cell culturing and tissue handling technical assistance, 19% from coordination services and the remaining from marketing and rental services provided to clinics. The Company started to generate revenue from May 2016. Cell culturing technical assistance and coordination services revenue have increased by 47%, while certain marketing and other services provided to clinics were terminated or suspended for renegotiation causing such revenues to decline by $293,381 over the previous year. |
| w |
With the expansion of services to clinics (“enabling services”), total cost of revenues was $290,431 vs. $126,396 the previous year, up by $164,035 or 130%. Cost primarily consisted of material, equipment and labor costs related to providing technical assistance to culture cells and handle tissues and equipment and labor cost increases for expanded services to clinics. Gross profit margin has declined to 81.0% from 90.3% the previous year reflecting increasing costs for business expansion. Management considers this as a more realistic gross margin for our business going forward. |
| w | Operating expenses (excluding cost of revenues) were $350,970, up by $279,871 from $71,099 the prior year same period. Expenses increased due to costs associated with increase in headcount, sales and depreciation expenses to support business growth. |
| w | Effective tax rate was 46.7% versus 34.9% in the prior year due to differing applicable tax rates based on income size. |
| w | Net income was $470,561 with net income per share of $0.02, down by $245,493 from the prior year same period, primarily due to increased costs for supporting business growth and temporary declining clinic service revenues. |
The key financial results for the nine months ended September 30, 2017 as compared to the previous year same period on a consolidated basis are as follows:
| w | Total revenues grew by $2,885,900 or 2.6 times year over year primarily due to increasing number of patients receiving stem cell and related therapies from our major client, Helene Clinic. Patients increased as a result of growing interest of stem cell related therapies in Asia and from strengthening our marketing activities targeting sales agents in Asia. 65% of revenue was derived from cell culturing and tissue handling technical assistance, 20% from coordination services and the remaining from marketing and rental services provided to clinics. The Company began to generate revenue from May 2016. |
| w |
Total cost of revenues was $838,870 vs. $126,396 the previous year. Cost increased primarily due to increased material, equipment and labor costs related to providing technical assistance to culture cells and handle tissues to serve a larger patient base and depreciation and labor cost increases for expanded services to clinics. Gross profit margin has declined to 82.0% from 92.9% the previous year reflecting increasing costs for business expansion. Management considers this as a more realistic gross margin for our business going forward. |
| w | Operating expenses (excluding cost of revenues) were $985,364, up by $863,253 from the prior year same period. Expenses increased due to costs associated with increase in sales, depreciation expense and headcount to support both increased number of patients and expansion of enabling services to clinics. In addition, rental fees of equipment and facilities of $283,601 were incurred during the period that did not exist in the previous year, same period. |
| w | Effective tax rate was 40.9% versus 31.8% in the prior year due to differing applicable tax rates based on income size. |
| w | Net income was $1,677,154 with net income per share of $0.06 up by 61% or $632,490. |
Liquidity and Capital Resources
Our liquidity and cash position has improved over the previous year. As of September 30, 2017, our cash balance was $3,948,044 and our working capital was $2,062,199 up by $1,301,189 and $1,252,854 respectively compared to December 31, 2016. Our cash balance is currently sufficient to fund our operations for approximately six months. Operating cash flow was $1,830,820 up by $118,877 from $1,711,943 the prior year same period. Capital expenditures, composed primarily of equipment purchases, was $526,275. As of September 30, 2017 and December 31, 2016, the net book values of the equipment were $972,219 and $529,747 respectively.
If our revenue cannot cover our operating funds, we would need to either borrow funds from Takaaki Matsuoka, our sole Director, or obtain bank financing. Takaaki Matsuoka has informally agreed to advance funds to allow us to pay for operating expenses. He, however, has no formal commitment, arrangement or legal obligation to advance or loan funds to the Company. If we need additional cash and cannot raise it, we will either have to suspend operations until we raise the cash we need, or cease operations entirely.
Critical Accounting Policies and Estimates
We prepare our consolidated financial statements in accordance with U.S. Generally Accepted Accounting Principles (GAAP). In doing so, we have to make estimates and assumptions that affect our reported amounts of assets, liabilities, revenues and expenses, as well as related disclosure of contingent assets and liabilities. In some cases, we could reasonably have used different accounting policies and estimates. In some cases, changes in the accounting estimates are reasonably likely to occur from period to period. Accordingly, actual results could differ materially from our estimates. To the extent that there are material differences between these estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. We refer to accounting estimates of this type as critical accounting policies and estimates. We have reviewed our critical accounting policies and estimates with management. See Note 2 to our consolidated financial statements included in Part 1 of this report for discussion of our critical accounting policies.
Concentrations of Risk
Our revenue is highly dependent on one customer, Omotesando Helene Clinic, which comprised 87% of our total revenue. Our business will be significantly affected should we lose this customer. Helene Clinic is fully-owned by Takaaki Matsuoka, our CEO and director.
Principal Commitments
With the exception of the Company’s lease agreement for Kita Senju Clinic’s space, we are not a party to any agreements other than those services we provide to our customers as part of our normal course of business. See Note 6 to our consolidated financial statements included in Part 1 of this report.
Off Balance Sheet Arrangements
We are not a party to any material off balance sheet agreements.
Going Concern Analysis
As of September 30, 2017, the Company had cash of $3,948,044. In addition, for the nine months ended September 30, 2017, the Company had positive cash flow of $1,830,820 from operations. The combination of growth in the Company’s revenues, cash flows from operations and net income leads management to believe that it is probable that our cash resources will be sufficient to meet our cash requirements for current operations through and beyond twelve months from the date of this filing. As a result, the accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. While we believe in the viability of our strategy to generate sufficient revenues and cash flows and to control costs, there can be no assurances to that effect. Our ability to continue as a going concern is dependent upon our ability to further implement our business plan, generate sufficient revenues and cash flows and to control operating expenses.
| ITEM 3 | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide the information required by this Item.
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| ITEM 4 | CONTROLS AND PROCEDURES |
Management’s Report on Disclosure Controls and Procedures
We maintain “disclosure controls and procedures,” as such term is defined in Rule 13a-15e and Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and our chief financial officer to allow for timely decisions regarding required disclosure.
As of September 30, 2017, the end of the quarter covered by this report, we carried out an evaluation, under the supervision of our chief executive officer, with the participation of our chief financial officer, of the effectiveness of the design and the operation of our disclosure controls and procedures. The officers concluded that the disclosure controls and procedures were not effective as of the end of the period covered by this report due to material weaknesses identified below.
A material weakness is a significant deficiency, or combination of deficiencies, in internal control over financial reporting that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. As a result of the determination that there was a lack of resources to provide segregation of duties consistent with control objectives and establish procedures to identify, approve and report related party transactions, management has determined that a material weakness existed as of September 30, 2017. This material weakness was further confirmed by the fact that we are restating our March 31, 2017 and June 30, 2017 financial statements due to not properly identifying and reporting a related party transaction.
As a result of the material weakness, management has hired in-house legal counsel to review and manage contracts and agreements and is further evaluating mitigating controls to minimize errors related to financial reporting for related party transactions.
Inherent limitations on effectiveness of controls
Internal control over financial reporting has inherent limitations which include but is not limited to the use of independent professionals for advice and guidance, interpretation of existing and/or changing rules and principles, segregation of management duties, scale of organization, and personnel factors. Internal control over financial reporting is a process which involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements on a timely basis, however these inherent limitations are known features of the financial reporting process and it is possible to design into the process safeguards to reduce, though not eliminate, this risk. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Changes in Internal Control over Financial Reporting
Other than the hiring of the new chief financial officer, there have been no changes in our internal controls over financial reporting (as that term is defined in Rules 13(a)-15(f) and 15(d)-15(f) of the Securities Exchange Act of 1934) that have occurred since our report on our fiscal year end December 31, 2016 or for the interim period ending September 30, 2017, or subsequent to the end of the period covered in this report that have materially or are reasonably likely to materially affect, our internal controls over financial reporting.
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PART II - OTHER INFORMATION
| ITEM 1 | LEGAL PROCEEDINGS |
There are no legal proceedings against the Company and the Company is unaware of such proceedings contemplated against it.
| ITEM 1A | RISK FACTORS |
Our operations and financial results are subject to various risks and uncertainties, including those described in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2016, which could adversely affect our business, financial condition, results of operations and cash flows. There have been no material changes to our risk factors since our Annual Report on Form 10-K for the year ended December 31, 2016.
| ITEM 2 | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
On January 27, 2016, Mr. Jeffrey DeNunzio, the sole shareholder of Perfect Acquisition, Inc., consummated a sale of 40,000,000,000 shares of our common stock to Takaaki Matsuoka. Following the closing of the share purchase transaction, Takaaki Matsuoka, gained a 100% interest in the issued and outstanding shares of our common stock.
Following the closing of the share purchase transaction above, Takaaki Matsuoka gained a 100% interest in the issued and outstanding shares of our common stock and became the controlling shareholder of the Company.
On May 2, 2016, Takaaki Matsuoka entered into a Stock Purchase Agreement with Primavera Singa Pte Ltd, a Singapore corporation (“Primavera Singa”) with an address at 60 Paya Lebar Rd #09-25, Paya Lebar Square 409051, Singapore. Pursuant to the Agreement, Takaaki Matsuoka transferred to Primavera Singa, 34,599,066,000 shares of our common stock which represents 86% of our issued and outstanding shares, in consideration of JPY 3,000,000 ($28,145).
Following the closing of the share purchase transaction, Primavera Singa gained 86.5% interest in the issued and outstanding shares of our common stock and became the controlling shareholder of the Company. Shiho Matsuoka, the wife of our sole officer and director Takaaki Matsuoka, owns and controls 100% of Primavera Singa Pte., Ltd.
On May 6, 2016, Takaaki Matsuoka entered into stock purchase agreements with 67 Japanese shareholders. Pursuant to these agreements, Takaaki Matsuoka sold 5,000,934,000 shares of common stock in total to these individuals and received JPY 2,514,700 ($22,861) as aggregate consideration.
The aforementioned sale of shares was exempt from registration in accordance with Regulation S of the Securities Act of 1933, as amended ("Regulation S") because the above sales of stock were made to non-U.S. persons (as defined under Rule 902 section (k)(2)(i) of Regulation S), pursuant to offshore transactions, and no directed selling efforts were made in the United States by the issuer, a distributor, any of their respective affiliates, or any person acting on behalf of any of the foregoing.
| ITEM 3 | DEFAULTS UPON SENIOR SECURITIES |
None.
| ITEM 4 | MINE SAFETY DISCLOSURES |
Not applicable.
| ITEM 5 | OTHER INFORMATION |
None.
| ITEM 6 | EXHIBITS |
|
Exhibit No. |
Description | |
| 3.1 | Certificate of Incorporation (1) | |
| 3.2 | By-laws (1) | |
| 3.3 | Articles of Incorporation of Stemcell - translated (2) | |
| 10.1 | Stock Purchase Agreement (2) | |
| 31 | Certification of the Company’s Principal Executive and Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, with respect to the registrant’s report on Form 10-Q for the period ended September 30, 2017 (4) | |
| 32 | Certification of the Company’s Principal Executive and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (4) | |
| 99.1 | Resolutions Approving Acquisition (2) | |
| 101.INS | XBRL Instance Document (3) | |
| 101.SCH | XBRL Taxonomy Extension Schema (3) | |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase (3) | |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase (3) | |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase (3) | |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase (3) | |
(1) Filed as an exhibit to the Company's Registration Statement on Form 10, as filed with the SEC on February 12, 2015, and incorporated herein by this reference.
(2) Filed as an exhibit to the Company's Form 8-K, as filed with the SEC on March 28, 2016, and incorporated herein by this reference.
(3) Users of this data are advised that, pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or Annual Report for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Exchange Act of 1934 and otherwise are not subject to liability.
(4) Filed herewith.
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In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, there unto duly authorized.
Stemcell Holdings, Inc.
(Registrant)
By: /s/ Takaaki Matsuoka
Name: Takaaki Matsuoka
CEO, President, Director
Dated: November 13, 2017
By: /s/ Erika Nakazawa
Name: Erika Nakazawa
CFO
Dated: November 13, 2017
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EXHIBIT 31.1
Stemcell Holdings, INC.
OFFICER'S CERTIFICATE PURSUANT TO SECTION 302
I, Takaaki Matsuoka, the Principal Executive Officer of Stemcell Holdings, Inc., certify that:
1. I have reviewed this report on Form 10-Q of Stemcell Holdings, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report;
4. The small business issuer’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the small business issuer and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The small business owner’s other certifying officer and I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small issuer's board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting.
Dated: November 13, 2017
By: /s/ Takaaki Matsuoka
Takaaki Matsuoka,
Chief Executive Officer
(Principal Executive Officer)
EXHIBIT 31.2
Stemcell Holdings, INC.
OFFICER'S CERTIFICATE PURSUANT TO SECTION 302
I, Erika Nakazawa, the Principal Financial Officer of Stemcell Holdings, Inc., certify that:
1. I have reviewed this report on Form 10-Q of Stemcell Holdings, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report;
4. The small business issuer’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the small business issuer and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The small business owner’s other certifying officer and I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small issuer's board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting.
Dated: November 13, 2017
By: /s/ Erika Nakazawa
Erika Nakazawa,
Chief Financial Officer
(Principal Financial Officer)
EXHIBIT 32.1
Stemcell Holdings, INC.
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Stemcell Holdings, Inc. (the Company) on Form 10-Q for the quarter ended September 30, 2017 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Takaaki Matsuoka, Principal Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss.1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
A signed original of this written statement required by Section 906 has been provided to Takaaki Matsuoka and will be retained by Stemcell Holdings, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
Dated: November 13, 2017
By: /s/ Takaaki Matsuoka
Takaaki Matsuoka,
Chief Executive Officer
(Principal Executive Officer)
EXHIBIT 32.2
Stemcell Holdings, INC.
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Stemcell Holdings, Inc. (the Company) on Form 10-Q for the quarter ended September 30, 2017 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Erika Nakazawa, Principal Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss.1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
A signed original of this written statement required by Section 906 has been provided to Erika Nakazawa and will be retained by Stemcell Holdings, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
Dated: November 13, 2017
By: /s/ Erika Nakazawa
Erika Nakazawa,
Chief Financial Officer
(Principal Financial Officer)
Document and Entity Information - USD ($) |
9 Months Ended | |
|---|---|---|
Sep. 30, 2017 |
Nov. 13, 2017 |
|
| Document And Entity Information | ||
| Entity Registrant Name | Stemcell Holdings, Inc. | |
| Entity Central Index Key | 0001666487 | |
| Document Type | 10-Q | |
| Document Period End Date | Sep. 30, 2017 | |
| Amendment Flag | false | |
| Current Fiscal Year End Date | --12-31 | |
| Entity Well Known Seasoned Issuer | No | |
| Entity Voluntary Filer Status | No | |
| Entity Current Reporting Status | Yes | |
| Entity Filer Category | Smaller Reporting Company | |
| Entity Public Float | $ 451 | |
| Entity Common Stock Shares Outstanding | 27,596,000 | |
| Document Fiscal Period Focus | Q3 | |
| Document Fiscal Year Focus | 2017 |
BALANCE SHEETS (Parenthetical) - $ / shares |
Sep. 30, 2017 |
Dec. 31, 2016 |
|---|---|---|
| StockholdersEquity | ||
| Preferred Stock Par Or Stated Value Per Share | $ 0.0001 | $ 0.0001 |
| Preferred Stock Shares Authorized | 20,000,000 | 20,000,000 |
| Preferred Stock Shares Issued | 0 | 0 |
| Preferred Stock Shares Outstanding | 0 | 0 |
| Common Stock Par Or Stated Value Per Share | $ .0001 | $ 0.0001 |
| Common Stock Shares Authorized | 500,000,000 | 500,000,000 |
| Common Stock Shares Issued | 27,596,000 | 27,596,000 |
| Common Stock Shares Outstanding | 27,596,000 | 27,596,000 |
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2017 |
Sep. 30, 2016 |
Sep. 30, 2017 |
Sep. 30, 2016 |
|
| Revenues from related parties | ||||
| Stem cell culturing & tissue handling technical assistance fees | $ 861,165 | $ 784,531 | $ 3,016,632 | $ 1,181,776 |
| Coordination fees | 290,357 | 909,593 | ||
| Marketing and other services | 159,850 | 459,340 | 239,952 | 529,778 |
| Rental services | 55,602 | 275,437 | ||
| Total revenues from related parties | 1,366,974 | 1,243,871 | 4,441,614 | 1,711,554 |
| Revenues from third parties | ||||
| Marketing and other services | 60,301 | 54,192 | 76,321 | 69,194 |
| Rental services | 97,937 | 148,713 | ||
| Total revenues from third parties | 158,238 | 54,192 | 225,034 | 69,194 |
| Total revenues | 1,525,212 | 1,298,063 | 4,666,648 | 1,780,748 |
| Cost of revenues | 290,431 | 126,396 | 838,870 | 126,396 |
| Gross profit | 1,234,781 | 1,171,667 | 3,827,778 | 1,654,352 |
| Operating Expenses | (1,107) | (1,099) | 1 | |
| Selling, general and administrative expenses | 350,970 | 71,099 | 985,364 | 122,111 |
| Total operating expenses | 350,970 | 71,099 | 985,364 | 122,111 |
| Other income (expenses) | (1,107) | (1,099) | 1 | |
| Net income before taxes | 882,704 | 1,100,568 | 2,841,315 | 1,532,242 |
| Income tax expenses | 370,924 | 384,514 | 1,164,161 | 487,578 |
| Net Income | 511,780 | 716,054 | 1,677,154 | 1,044,664 |
| Foreign currency translation adjustment | (10,068) | 56,310 | 42,416 | 72,081 |
| Total comprehensive income | $ 501,712 | $ 772,364 | $ 1,719,570 | $ 1,116,745 |
| BASIC AND DILUTED NET INCOME PER COMMON SHARE | $ 0.02 | $ 0.00 | $ 0.06 | $ 0.00 |
| WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING, BASIC AND DILUTED | 27,596,000 | 40,000,000,000 | 27,596,000 | 40,000,000,000 |
NOTE 1 - ORGANIZATION, DESCRIPTION OF BUSINESS, AND BASIS OF PRESENTATION |
9 Months Ended |
|---|---|
Sep. 30, 2017 | |
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
| Note 1 - Organization, Description of Business, and Basis of Presentation | NOTE 1 - ORGANIZATION, DESCRIPTION OF BUSINESS, AND BASIS OF PRESENTATION
Stemcell Holdings, Inc., formerly known as Perfect Acquisition, Inc. (the “Company”), was incorporated under the laws of the State of Delaware on December 31, 2015, with an objective to acquire, or merge with, an operating business. On March 23, 2016, the Company entered into a Stock Purchase Agreement (the “Stock Purchase Agreement”) with Takaaki Matsuoka, our President, CEO and Director. Pursuant to the Stock Purchase Agreement, on March 24, 2016, Takaaki Matsuoka transferred to the Company, 500 shares of the common stock of Stemcell Co., Ltd., a Japanese corporation (“Stemcell”), which represented all of its issued and outstanding shares, in a cash consideration of JPY 5,000,000 ($44,476). Following the effective date of the share purchase transaction, Stemcell Holdings, Inc. gained a 100% interest in the issued and outstanding shares of Stemcell’s common stock and Stemcell became a wholly owned subsidiary of the Company. The Company concentrates on regenerative medicine-related business which includes but is not limited to the culturing, storing and delivery of stem cells, providing related technical assistance thereof and other ancillary services to facilitate cell therapies through Stemcell, which is our wholly owned subsidiary.
The accompanying unaudited interim consolidated financial statements of the Company have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission, or the SEC, including the instructions to Form 10-Q and Regulation S-X. In the opinion of the management of the Company, all adjustments, which are of a normal recurring nature, necessary for a fair statement of the results for the three-month period, have been made. Results for the interim periods presented are not necessarily indicative of the results that might be expected for the full year. When used in these notes, the terms “Company”, “we”, “us” or “our” mean the Company. Notes to the financial statements which would substantially duplicate the disclosure contained in the audited financial statements for the most recent year, as reported in the Form 10-K for the year ended December 31, 2016, have been omitted. These interim consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2016, as reported by us in our Annual Report on Form 10-K filed with the SEC on May 15, 2017.
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NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||
| Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||
| Note 2 - Significant Accounting Policies | NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Stemcell Co., Ltd. Intercompany accounts and transactions are eliminated. USE OF ESTIMATES The presentation of financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. The most significant estimates and assumptions made by management include going concern and valuation allowance on deferred income tax. Operating results in the future could vary from the amounts derived from management's estimates and assumptions. FOREIGN CURRENCY TRANSLATION The reporting currency of the Company is the United States Dollars (“US$”) and the accompanying financial statements have been expressed in US$. Stemcell maintains its books and records in its local currency, Japanese YEN (“JPY”), which is a functional currency as being the primary currency of the economic environment in which its operation is conducted. In accordance with ASC Topic 830-30, “Translation of Financial Statement”, assets and liabilities of the Company whose functional currency is not US$ are translated into US$, using the exchange rate on the balance sheet date. Revenues and expenses are translated at average rates prevailing during the period. The gains and losses resulting from translation of financial statements are recorded as a separate component of accumulated other comprehensive income (loss) within the statements of shareholders’ equity. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred. Translation of amounts from the local currency of Stemcell into US$1 has been made at the following exchange rates:
RELATED PARTY TRANSACTIONS A related party is generally defined as (i) the Company’s management, (ii) someone that directly or indirectly controls, is controlled by or is under common control with the Company, or (iii) anyone who can significantly influence the financial and operating decisions of the Company. A transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related parties. The Company conducts business with its related parties in the ordinary course of business. Transactions involving related parties cannot be presumed to be carried out on an arm's-length basis, as the requisite conditions of competitive, free market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm's-length transactions unless such representations can be substantiated. REVENUE RECOGNITION The Company applies Accounting Standard Codification (“ASC”) 605 for revenue recognition. The Company recognizes revenue when it is realized or realizable and earned. The Company considers revenue realized or realizable and earned when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the product has been shipped or the services have been rendered to the customer, (iii) the sales price is fixed or determinable, and (iv) collectability is reasonably assured. The Company provides the warranty for the delivery of its service. If the Company cannot deliver its service to customers successfully, the Company will retry its operation until the delivery is completed. The Company has four revenue streams as described below. Stem Cell Culturing and Tissue Handling Technical Assistance Revenue Stem cell culturing and tissue handling technical assistance revenue is recognized by providing technical assistance to customers for culturing stem cells or handling of tissues when persuasive evidence of an arrangement exists, the cells are cultured or tissues handled and have been delivered, the sales price is fixed or determinable, collection of the resulting receivable is reasonably assured, there are no material contingencies and the Company does not have significant obligations for future performance. When collectability is not reasonably assured, the Company defers the revenue until the cash is received. Revenue is recorded net of any discounts given to the customer. During the three and nine months ended September 30, 2017, the Company derived all of its stem cell culturing and tissue handling technical assistance revenue from Omotesando Helene Clinic (the “Helene Clinic”), which is fully owned by Takaaki Matsuoka. Pursuant to the agreement entered into by the two parties, once technical assistance is provided to the cells or tissues that were cultured or handled, no returns are allowed. Coordination Service Revenue During the three and nine months ended September 30, 2017, all of the coordination service was delivered to Helene Clinic. Pursuant to the service agreement entered into by the Company and Helene Clinic, the Company’s performance obligations under the coordination service include introducing patients to clinics, arranging schedules and any related translation thereof. Revenue is recognized when a series of abovementioned services are delivered and treatments for the patient are completed as identified by Helene Clinic. Marketing and Other Services Revenue During the three and nine months ended September 30, 2017, the Company provided internet marketing services by optimizing search engines for two third-party clinics and six health clinics, including Helene Clinic, that are fully owned or managed by Takaaki Matsuoka. Since July 2017, the Company commenced outsourcing services to clinics, encompassing administration services including accounting, payroll, tax support, clinic non-medical operations, recruiting and HR planning, facilities and maintenance services, IT support and legal services enabling the clinics to concentrate more on medical activities. Rental Revenue The Company leased certain medical equipment and properties to medical clinics. For the three and nine months ended September 30, 2017, rental revenue was derived from two third-party clinics and four clinics, including Helene Clinic, which are fully owned or managed by Takaaki Matsuoka.
CONCENTRATION OF CREDIT RISKS
Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash. The Company places its cash with financial institutions. The Company does not require collateral or other security to support financial instruments subject to credit risks.
The Company received lump-sum payments from individual patients for the services to be delivered by them and Helene Clinic as a whole. Historically, the Company deducted 10% of the total payments and remitted the remainder to Helene Clinic, after which the Company billed and received payments from Helene Clinic for stem cell culturing and tissue handling technical assistance services. Since the beginning of 2017, the Company changed this business model to deduct the 10% and the amount to be recognized as stem cell culturing and tissue handling technical assistance revenue prior to remitting the remainder to Helene Clinic. As of September 30, 2017, and December 31, 2016, the Company had accounts receivable from Helene Clinic of $33,960 and $548,884, respectively, and accounts payable to Helene Clinic of $218,044 and $573,827, respectively. Also see Note 4.
Net revenues from customers accounting for 10% or more of total revenues are as follows:
EFFECT OF RECENTLY ADOPTED AND ISSUED PRONOUNCEMENTS In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update 2014-09 (“ASU 2014-09”), Revenue from Contracts with Customers. This amendment updates addressing revenue from contracts with customers, which clarifies existing accounting literature relating to how and when a company recognizes revenue. Under the standard, a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods and services. This standard update was effective for interim and annual reporting periods beginning after December 15, 2016, and was to be applied retrospectively or the cumulative effect as of the date of adoption, with early application not permitted. In July 2015, a one-year deferral of the effective date of the new guidance was approved. We are currently conducting a detailed assessment of the impact that this guidance will have on our consolidated financial statements and related disclosures. We expect to complete this assessment by the end of 2017. In August 2014, the FASB issued Accounting Standards Update 2014-15 (“ASU 2014-15”). This amendment requires management to assess an entity’s ability to continue as a going concern every reporting period including interim periods, and to provide related footnote disclosure in certain circumstances. Adoption of this standard is required for annual periods ending after December 15, 2016 and is to be applied retrospectively or the cumulative effect as of the date of adoption. The adoption of this amendment has changed our disclosures. In November 2015, the FASB issued Accounting Standards Update 2015-17 (“ASU 2015-17”) to simplify the presentation of deferred taxes. This amendment requires that all deferred tax assets and liabilities, along with any related valuation allowances, be classified as noncurrent on the balance sheet. Adoption of this standard is required for annual periods beginning after December 15, 2016. The Company adopted this amendment from January 1, 2017. The adoption did not have an impact on our consolidated financial statements and related disclosures other than for reclassification. In February 2016, the FASB issued Accounting Standards Update 2016-02 (“ASU 2016-02”) which requires lessees to recognize most leases on the balance sheet. This is expected to increase both reported assets and liabilities. The new lease standard does not substantially change lessor accounting. For public companies, the standard will be effective for the first interim reporting period within annual periods beginning after December 15, 2018, although early adoption is permitted. Lessees and lessors will be required to apply the new standard at the beginning of the earliest period presented in the financial statements in which they first apply the new guidance, using a modified retrospective transition method. The requirements of this standard include a significant increase in required disclosures. We began a detailed assessment of the impact that this guidance will have on our consolidated financial statements and related disclosures, and our analysis is ongoing. |
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NOTE 3 - GOING CONCERN ANALYSIS |
9 Months Ended |
|---|---|
Sep. 30, 2017 | |
| Going Concern | |
| Note 3 - Going Concern Analysis | NOTE 3 - GOING CONCERN ANALYSIS
The Company has a limited history of operations and started generating revenues for the first time during the year ended December 31, 2016. Additionally, the Company relies heavily on related parties for revenue generation. For the year ended December 31, 2016 and the nine months ended September 30, 2017, the Company derived 98% and 95% of its revenues, respectively, from its related parties. As a result, these conditions raise substantial doubt regarding the Company’s ability to continue as a going concern beyond twelve months from the date of this filing. However, as of September 30, 2017, the Company had cash of $3,948,044. In addition, for the nine months ended September 30, 2017, the Company had positive cash flow of $1,830,820 from operations. The combination of growth in the Company’s revenues, cash flows from operations and net income leads management to believe that it is probable that our cash resources will be sufficient to meet our cash requirements for current operations through and beyond twelve months from the date of this filing. As a result, the accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. While we believe in the viability of our strategy to generate sufficient revenues and cash flows and to control costs, there can be no assurances to that effect. Our ability to continue as a going concern is dependent upon our ability to further implement our business plan, generate sufficient revenues and cash flows and to control operating expenses.
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NOTE 4 - RELATED PARTY TRANSACTIONS |
9 Months Ended |
|---|---|
Sep. 30, 2017 | |
| Related Party Transactions [Abstract] | |
| Note 4 - Related Party Transactions | NOTE 4 - RELATED-PARTY TRANSACTIONS
For the nine months ended September 30, 2017, the Company derived stem cell culturing and tissue handling technical assistance revenue and coordination revenue in the amount of $3,016,632 and $909,593, respectively, from Helene Clinic which is fully owned by Takaaki Matsuoka, the sole director of the Company. For the nine months ended September 30, 2017, the Company provided marketing and other services in the amount of $239,952 to six clinics which are fully owned or managed by Takaaki Matsuoka, the sole director of the Company. For the nine months ended September 30, 2017, the Company leased its properties and equipment in the amount of $275,437 to four clinics which are fully owned or managed by Takaaki Matsuoka, the sole director of the Company. As of September 30, 2017, the Company had a balance for accounts payable in the amount of $218,044 to Helene Clinic, which is fully owned by Takaaki Matsuoka, the sole director of the Company. For the nine months ended September 30, 2016, the Company derived service revenue which included stem cell culturing and tissue handling technical assistance and coordination revenues in the amount of $1,181,776 from Helene Clinic. For the nine months ended September 30, 2016, the Company provided marketing services in the amount of $529,778 to six clinics which are fully owned or managed by Takaaki Matsuoka, the sole director of the Company. The Company had a short-term loan from Takaaki Matsuoka, CEO and director of the Company, of an amount of $43,657 and $43,337 at September 30, 2017 and December 31, 2016 respectively. As of December 31, 2016, after netting the receivable of $548,884 from stem cell culturing and tissue handling technical assistance, the Company had net payables of $573,827 to Helene Clinic. Starting from 2017, upon the mutual agreement between Helene Clinic and the Company, the business model was changed. Other than the 10% of the total payments received from individual patients, the Company also deducted the portion that will be charged for stem cell culturing and tissue handling technical assistance pursuant to the agreement entered into between the Company and Helene Clinic. The remainder was then remitted to Helene Clinic. As of September 30, 2017, the Company had payables of $218,044 to Helene Clinic. |
NOTE 5 - INCOME TAXES |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Income Tax Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||
| NOTE 5 - INCOME TAXES |
NOTE 5 - INCOME TAXES
Stemcell Holdings, Inc., the holding company registered in the state of Delaware, does not plan to engage in any business activities. No provision for income taxes in the U.S. has been made as the Company had no U.S. taxable income. Stemcell Co., Ltd., the wholly owned subsidiary of the Company, is registered in Japan and subject to income taxes within Japan at applicable tax rate on the taxable income as reported in Japan statutory financial statements in accordance with relevant income tax laws. The reconciliation of the effective national income tax rate of Stemcell to the statutory income tax rate in Japan for the nine months ended September 30, 2017 and 2016 is as follows.
Income taxes are calculated on a separate entity basis. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. There currently is no tax benefit recorded for the United States. The provisions for income taxes for the nine months ended September 30, 2017 and 2016, respectively, are summarized as follows:
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NOTE 6 - COMMITMENTS AND CONTINGENCIES |
9 Months Ended |
|---|---|
Sep. 30, 2017 | |
| Commitments and Contingencies Disclosure [Abstract] | |
| NOTE 6 - COMMITMENTS AND CONTINGENCIES |
NOTE 6 – COMMITMENTS AND CONTINGENCIES The Company has entered into a lease agreement to rent space for Kita Senju Clinic on April 1, 2017 with a monthly rent of $7,690 for a lease term of 3 years. The monthly rent is paid by Kita Senju Clinic. In the event it fails to pay the rent, the Company is responsible for the payment. The Company has also put down the initial deposit for the lease in the amount of $46,092. We are not a party to any material pending legal proceedings other than that which arise in the ordinary course of business. We believe that any liability that would ultimately result from the resolution on these matters will not, individually or in the aggregate, have a material adverse effect on our financial position or results of operations.
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NOTE 7 - NET INCOME PER SHARE |
9 Months Ended | ||||||||||||||||||||||||
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Sep. 30, 2017 | |||||||||||||||||||||||||
| Accounting Policies [Abstract] | |||||||||||||||||||||||||
| NOTE 7 - NET INCOME PER SHARE |
NOTE 7- NET INCOME PER SHARE The following table shows the computation of basic net income per share of our common stock. There are no instruments that have dilutive effect on the number of shares computation.
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NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2017 | |||||||||||||||||||||||||||||||||||||||||
| Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||
| Principals of Consolidation | PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Stemcell Co., Ltd. Intercompany accounts and transactions are eliminated.
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| Use of Estimates |
USE OF ESTIMATES The presentation of financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. The most significant estimates and assumptions made by management include going concern and valuation allowance on deferred income tax. Operating results in the future could vary from the amounts derived from management's estimates and assumptions. |
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| Foreign Currency Translation |
FOREIGN CURRENCY TRANSLATION
The reporting currency of the Company is the United States Dollars (“US$”) and the accompanying financial statements have been expressed in US$. Stemcell maintains its books and records in its local currency, Japanese YEN (“JPY”), which is a functional currency as being the primary currency of the economic environment in which its operation is conducted. In accordance with ASC Topic 830-30, “Translation of Financial Statement”, assets and liabilities of the Company whose functional currency is not US$ are translated into US$, using the exchange rate on the balance sheet date. Revenues and expenses are translated at average rates prevailing during the period. The gains and losses resulting from translation of financial statements are recorded as a separate component of accumulated other comprehensive income (loss) within the statements of shareholders’ equity. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred. Translation of amounts from the local currency of Stemcell into US$1 has been made at the following exchange rates:
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| Related Party Transactions | RELATED PARTY TRANSACTION
A related party is generally defined as (i) the Company’s management, (ii) someone that directly or indirectly controls, is controlled by or is under common control with the Company, or (iii) anyone who can significantly influence the financial and operating decisions of the Company. A transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related parties. The Company conducts business with its related parties in the ordinary course of business. Transactions involving related parties cannot be presumed to be carried out on an arm's-length basis, as the requisite conditions of competitive, free market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm's-length transactions unless such representations can be substantiated. |
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| Revenue Recognition | REVENUE RECOGNITION
The Company applies Accounting Standard Codification (“ASC”) 605 for revenue recognition. The Company recognizes revenue when it is realized or realizable and earned. The Company considers revenue realized or realizable and earned when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the product has been shipped or the services have been rendered to the customer, (iii) the sales price is fixed or determinable, and (iv) collectability is reasonably assured. The Company provides the warranty for the delivery of its service. If the Company cannot deliver its service to customers successfully, the Company will retry its operation until the delivery is completed. The Company has four revenue streams as described below. Stem Cell Culturing and Tissue Handling Technical Assistance Revenue Stem cell culturing and tissue handling technical assistance revenue is recognized by providing technical assistance to customers for culturing stem cells or handling of tissues when persuasive evidence of an arrangement exists, the cells are cultured or tissues handled and have been delivered, the sales price is fixed or determinable, collection of the resulting receivable is reasonably assured, there are no material contingencies and the Company does not have significant obligations for future performance. When collectability is not reasonably assured, the Company defers the revenue until the cash is received. Revenue is recorded net of any discounts given to the customer. During the three and nine months ended September 30, 2017, the Company derived all of its stem cell culturing and tissue handling technical assistance revenue from Omotesando Helene Clinic (the “Helene Clinic”), which is fully owned by Takaaki Matsuoka. Pursuant to the agreement entered into by the two parties, once technical assistance is provided to the cells or tissues that were cultured or handled, no returns are allowed. Coordination Service Revenue During the three and nine months ended September 30, 2017, all of the coordination service was delivered to Helene Clinic. Pursuant to the service agreement entered into by the Company and Helene Clinic, the Company’s performance obligations under the coordination service include introducing patients to clinics, arranging schedules and any related translation thereof. Revenue is recognized when a series of abovementioned services are delivered and treatments for the patient are completed as identified by Helene Clinic. Marketing and Other Services Revenue During the three and nine months ended September 30, 2017, the Company provided internet marketing services by optimizing search engines for two third-party clinics and six health clinics, including Helene Clinic, that are fully owned or managed by Takaaki Matsuoka. Since July 2017, the Company commenced outsourcing services to clinics, encompassing administration services including accounting, payroll, tax support, clinic non-medical operations, recruiting and HR planning, facilities and maintenance services, IT support and legal services enabling the clinics to concentrate more on medical activities. Rental Revenue The Company leased certain medical equipment and properties to medical clinics. For the three and nine months ended September 30, 2017, rental revenue was derived from two third-party clinics and four clinics, including Helene Clinic, which are fully owned or managed by Takaaki Matsuoka. |
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| Concentration of Credit Risks | CONCENTRATION OF CREDIT RISKS
Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash. The Company places its cash with financial institutions. The Company does not require collateral or other security to support financial instruments subject to credit risks.
The Company received lump-sum payments from individual patients for the services to be delivered by them and Helene Clinic as a whole. Historically, the Company deducted 10% of the total payments and remitted the remainder to Helene Clinic, after which the Company billed and received payments from Helene Clinic for stem cell culturing and tissue handling technical assistance services. Since the beginning of 2017, the Company changed this business model to deduct the 10% and the amount to be recognized as stem cell culturing and tissue handling technical assistance revenue prior to remitting the remainder to Helene Clinic. As of September 30, 2017, and December 31, 2016, the Company had accounts receivable from Helene Clinic of $33,960 and $548,884, respectively, and accounts payable to Helene Clinic of $218,044 and $573,827, respectively. Also see Note 4.
Net revenues from customers accounting for 10% or more of total revenues are as follows:
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| Effect of Recently Adopted And Issued Pronouncements | EFFECT OF RECENTLY ADOPTED AND ISSUED PRONOUNCEMENTS In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update 2014-09 (“ASU 2014-09”), Revenue from Contracts with Customers. This amendment updates addressing revenue from contracts with customers, which clarifies existing accounting literature relating to how and when a company recognizes revenue. Under the standard, a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods and services. This standard update was effective for interim and annual reporting periods beginning after December 15, 2016, and was to be applied retrospectively or the cumulative effect as of the date of adoption, with early application not permitted. In July 2015, a one-year deferral of the effective date of the new guidance was approved. We are currently conducting a detailed assessment of the impact that this guidance will have on our consolidated financial statements and related disclosures. We expect to complete this assessment by the end of 2017. In August 2014, the FASB issued Accounting Standards Update 2014-15 (“ASU 2014-15”). This amendment requires management to assess an entity’s ability to continue as a going concern every reporting period including interim periods, and to provide related footnote disclosure in certain circumstances. Adoption of this standard is required for annual periods ending after December 15, 2016 and is to be applied retrospectively or the cumulative effect as of the date of adoption. The adoption of this amendment has changed our disclosures. In November 2015, the FASB issued Accounting Standards Update 2015-17 (“ASU 2015-17”) to simplify the presentation of deferred taxes. This amendment requires that all deferred tax assets and liabilities, along with any related valuation allowances, be classified as noncurrent on the balance sheet. Adoption of this standard is required for annual periods beginning after December 15, 2016. The Company adopted this amendment from January 1, 2017. The adoption did not have an impact on our consolidated financial statements and related disclosures other than for reclassification. In February 2016, the FASB issued Accounting Standards Update 2016-02 (“ASU 2016-02”) which requires lessees to recognize most leases on the balance sheet. This is expected to increase both reported assets and liabilities. The new lease standard does not substantially change lessor accounting. For public companies, the standard will be effective for the first interim reporting period within annual periods beginning after December 15, 2018, although early adoption is permitted. Lessees and lessors will be required to apply the new standard at the beginning of the earliest period presented in the financial statements in which they first apply the new guidance, using a modified retrospective transition method. The requirements of this standard include a significant increase in required disclosures. We began a detailed assessment of the impact that this guidance will have on our consolidated financial statements and related disclosures, and our analysis is ongoing. |
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