UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q/A

(AMENDMENT NO. 1)

 

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE QUARTERLY PERIOD ENDED June 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 December 8, 2017, there were approximately 27,596,000 shares of common stock and none of preferred stock issued and outstanding.

---

 

Explanatory Note

 

We are filing this Amendment No. 1 on Form 10Q/A to amend our Quarterly Report (“Amended Report”) ended June 30, 2017, originally filed with the Securities and Exchange Commission on August 14, 2017 (the “Original Report”), to restate our unaudited consolidated financial statements. This Amended Report contains only Part I, Item 1 “Financial Statements”, an additional description to Notes 4, 5 and 7 of “Notes to Unaudited Consolidated Financial Statements” and Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations, - “Overview of Results” and “Liquidity and Capital Resources” sections.

 

This Amended Report has not been updated for events occurring after the filing of the Original Report nor does it change any other disclosures contained in the Original Report. Accordingly, this Amended Report should be read in conjunction with the Original Report.

 

In accordance with applicable SEC rules, this Form 10Q/A includes new certifications required by Sections 302 and 906 of the SarbanesOxley Act of 2002, as amended, from our Chief Executive Officer and Chief Financial Officer dated 5/18/2017 10Q (link) as of the filing date of this Form 10Q/A.

 

Restatement Background

 

In the course of its financial statement closing process for the quarter ended September 30, 2017, the CEO and CFO (collectively, “the Management”) of Stemcell Holdings, Inc. (the “Company”), determined that the Company’s interim financial statements for the periods ended March 31, 2017 and June 30, 2017, could no longer be relied upon. Specifically, on November 5, 2017, Management discovered that certain material rental payments should have been expensed in the first and second quarters. As such, previously issued financial statements should be adjusted for such certain rental payments in the respective quarters to reflect such applicable expenses.

 

The Company has evaluated that the changes described above will result in an increase in expenses of $35,511 and $192,989 for the three and six-month periods ended June 30, 2017, decreases in income tax expense of $21,938 and $77,747 and decreases in net income of $13,573 and $115,242 for the three and six-month periods ended June 30, 2017, respectively. Accordingly, retained earnings will decrease by $115,242 as of June 30, 2017.

 

Because these revisions are treated as corrections of errors to our prior period financial results, the revisions are considered to be a “restatement” under U.S. generally accepted accounting principles. Accordingly, the revised financial information included in the Quarterly Report on Form 10-Q/A has been identified as “restated.”

 

Internal Control Consideration

 

As disclosed in the Company’s Form 10-K filed on May 15, 2017, Management had previously disclosed that material weakness existed as of December 31, 2016 with respect to the lack of a functioning audit committee and inadequate segregation of duties resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures. While management’s assessment of the Company’s internal control over financial reporting is ongoing, because of the material weaknesses identified, management concludes that the Company’s internal controls over financial reporting remain ineffective as of the date of this report. Management has determined that the failure to record this rental expense resulted from control deficiencies with respect to the tracking and disclosure of all Company agreements, and that this control deficiency constitutes a material weakness in the Company’s internal controls over financial reporting. The Company has thoroughly investigated all documents to ensure no other material agreements are left undiscovered that may affect the Company’s financial results. The Company has also hired an in-house legal counsel to keep all Company agreements in control.

 

---

INDEX

  

			Page
PART I - FINANCIAL INFORMATION
ITEM 1	FINANCIAL STATEMENTS		F1
CONSOLIDATED Balance Sheets as of June 30, 2017 (unaudited) and December 31, 2016			F1
CONSOLIDATED StatementS of Operations AND COMPREHENSIVE INCOME FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2017 AND JUNE 30, 2016 (UNAUDITED)			F2
CONSOLIDATED StatementS of cash flows for the SIX months ENDED JUNE 30, 2017 AND JUNE 30, 2016 (UNAUDITED)			F3
nOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS			F5
ITEM 2	Management’S discussion and analysis of financial conditionS and results of operations		2
ITEM 6	EXHIBITS		3
SIGNATURES			4

 

-1-

---

Table of Contents

 

PART I - FINANCIAL INFORMATION

 

ITEM 1

FINANCIAL STATEMENTS

  

 STEMCELL HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

 

			RESTATED
			As of		As of
			June 30, 2017		December 31, 2016
			(UNAUDITED)
ASSETS
Current Assets
	Cash	$	4,540,907	$	2,646,855
	Trade receivables		185,296		-
	Prepaid expenses and other current assets		163,753		30,452
TOTAL CURRENT ASSETS			4,889,956		2,677,307
Property and equipment, net			777,609		529,747
Deferred tax assets			-		21,848
Other non- current assets			46,142		-
TOTAL ASSETS		$	5,713,707	$	3,228,902
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
	Accounts payable to related party	$	667,422	$	530,490
	Loan from director		43,704		43,337
	Accrued expenses and other liabilities		1,653,219		106,413
	Income tax payables		770,563		1,187,722
TOTAL CURRENT LIABILITIES			3,134,908		1,867,962
TOTAL LIABILITIES			3,134,908		1,867,962
Shareholders' Equity
	Preferred stock ($.0001 par value, 20,000,000 shares authorized;
	none issued and outstanding as of June 30, 2017 and December 31, 2016)		-		-
	Common stock ($.0001 par value, 500,000,000 shares authorized,
	27,596,000 shares and 27,596,000 shares issued and outstanding
	as of  June 30, 2017 and December 31, 2016		2,760		2,760
	Additional paid-in capital		65,116		65,116
	Accumulated earnings		2,562,796		1,397,421
	Accumulated other comprehensive loss		(51,873)		(104,357)
TOTAL SHAREHOLDERS' EQUITY			2,578,799		1,360,940
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY		$	5,713,707	$	3,228,902

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

-F1-

---

Table of Contents

 

STEMCELL HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(UNAUDITED)

 

			RESTATED				RESTATED
			Three months		Three months		Six months		Six months
			Ended		Ended		Ended		Ended
			June 30, 2017		June 30, 2016		June 30, 2017		June 30, 2016
Revenues from related parties
	Stem cell culturing & tissue handling technical assistance fees	$	1,449,415	$	337,563	$	2,155,467	$	337,563
	Coordination fees		487,823		-		619,236		-
	Marketing services		40,638		15,002		80,102		15,002
	Rental services		100,880		-		219,835		-
Total revenues from related parties			2,078,756		352,565		3,074,640		352,565
Revenues from third parties
	Marketing services		8,127		-		16,020		-
	Rental services		3,375		-		50,776		-
Total revenues from third parties			11,502		-		66,796		-
Total revenues			2,090,258		352,565		3,141,436		352,565
Cost of revenues			372,842		-		548,439		-
Gross profit			1,717,416		352,565		2,592,997		352,565
Operating expenses
	Selling, general and administrative expenses		275,874		51,012		634,394		55,534
Total operating expenses			275,874		51,012		634,394		55,534
Other income			8		-		8		-
NET INCOME BEFORE TAXES			1,441,550		301,553		1,958,611		297,031
Income tax expenses			609,995		103,064		793,237		103,064
NET INCOME		$	831,555	$	198,489	$	1,165,374	$	193,967
Other Comprehensive Income
	Foreign currency translation adjustment	$	6,805	$	15,771	$	52,484	$	15,664
TOTAL COMPREHENSIVE INCOME		$	838,360	$	214,260	$	1,217,858	$	209,631
BASIC AND DILUTED NET INCOME PER COMMON SHARE		$	0.03	$	0.00	$	0.04	$	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 2,000-for-1 Forward Stock Split. . The Company had 27,596,000 shares and 20,000,000 (as restated) shares of common stock outstanding as of June 30, 2017 and June 30, 2016.

 

-F2-

---

Table of Contents

 

CONSOLIDATED STATEMENT OF CASH FLOWS

(UNAUDITED) 

  

			RESTATED
			Six months			Six months
			Ended			Ended
			June 30, 2017			June 30, 2016
CASH FLOWS FROM OPERATING ACTIVITIES
	Net income	$	1,165,374		$	193,967
	Adjustments to reconcile net income to net cash provided by operating activities:
	Depreciation expense		51,110			1,291
	Changes in operating assets and liabilities:
	Trade Receivables		(185,296)			(50,166)
	Prepaid expenses and other current assets		(111,453)			(2)
	Accrued expenses and other current liabilities		1,683,738			-
	Income tax payables		(417,159)			111,387
	Net cash provided by operating activities		2,186,314			256,477
CASH FLOWS FROM INVESTING ACTIVITIES
	Purchase of property and equipment		(298,972)			(19,370)
	Security deposit		(46,142)			-
	Net cash used in investing activities		(345,114)			(19,370)
CASH FLOWS FROM FINANCING ACTIVITIES
	Loan from director		367			67,761
	Net cash provided by financing activities		367			67,761
Net effect of exchange rate changes on cash			52,484			15,664
Net change in cash			1,894,052			320,532
Cash - beginning of period			2,646,855			-
Cash - end of period		$	4,540,907		$	320,532
SUPPLEMENTAL  DISCLOSURES OF CASH FLOW INFORMATION
Interest paid		$	-		$	-
Income taxes paid		$	1,217,331		$	-
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-

---

Table of Contents

 

Restatement of Previously Issued Consolidated Financial Statements

 

The combined impact of all adjustments to the applicable line items in our unaudited consolidated financial statements for the periods covered by this Form 10-Q/A are provided in the table below.

 

					As Previously Reported		Adjustment		As Restated
Effects on Consolidated Balance Sheet
As of June 30, 2017
Accounts payable to related party				$	474,433	$	192,989	$	667,422
Income tax payables					848,310		(77,747)		770,563
Total liabilities					3,019,666		115,242		3,134,908
Accumulated earnings					2,678,038		(115,242)		2,562,796
Total shareholders' equity					2,694,041		(115,242)		2,578,799
Effects on Consolidated Statement of Operations
Three Months Ended June 30, 2017
Selling, general and administrative expenses				$	240,363	$	35,511	$	275,874
Total operating expenses					240,363		35,511		275,874
Net income before taxes					1,477,061		(35,511)		1,441,550
Income tax expenses					631,933		(21,938)		609,995
Net income					845,128		(13,573)		831,555
Total comprehensive income					851,933		(13,573)		838,360
Six Months Ended June 30, 2017
Selling, general and administrative expenses				$	441,405	$	192,989	$	634,394
Total operating expenses					441,405		192,989		634,394
Net income before taxes					2,151,600		(192,989)		1,958,611
Income tax expenses					870,984		(77,747)		793,237
Netincome					1,280,616		(115,242)		1,165,374
Per share data - basic and diluted				$	0.05	$	(0.01)	$	0.04
Total comprehensive income					1,333,100		(115,242)		1,217,858
Effects on Consolidated Statement of Cash Flows
Six Months Ended June 30, 2017
Net income					1,280,616		(115,242)		1,165,374
Changes in accrued expenses and other current liabilities					1,490,749		192,989		1,683,738
Income tax payables					(339,412)		(77,747)		(417,159)
Net cash provided by (used in) operating activities					2,186,314		0		2,186,314

 

 

-F4-

---

Table of Contents

 

STEMCELL HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

AS OF JUNE 30, 2017

 

Explanatory Note 

This section only contains notes that have been changed from or added to the Original Report.

 

NOTE 4 – RELATED-PARTY TRANSACTIONS

 

For the three and six months ended June 30, 2017, the Company incurred $35,511 and $192,989 of expenses for rental fees of certain equipment and other assets to Takaaki Matsuoka, CEO and Director of the Company.

 

NOTE 5 - INCOME TAXES

 

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 six months ended June 30, 2017 and 2016, respectively, are summarized as follows:

 

		Six months Ended June 30, 2017			Six months Ended June 30, 2016
Current	$	793,237		$	103,064
Deferred		-			-
Total	$	793,237		$	103,064

 

NOTE 7- NET INCOME PER SHARE

 

The following table shows the computation of basic net income share of our common stock. There are no instruments that have a dilutive effect on the number of shares computation.

 

		Three months ended June 30, 2017	Three months ended June 30, 2016	Six months ended June 30, 2017	Six months ended June 30, 2016
Net Income	Numerator (a)	831,555	198,489	1,165,374	193,967
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)	$0.03	$0.00	$0.04	$0.00

 

 

-F5-

---

Table of Contents

 

ITEM 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Explanatory Note

This section only contains sections that reflect the changes from the Original Report.

Overview of Results

 

The key financial results for the three months ended June 30, 2017 as compared to the previous year same period on a consolidated basis are as follows: 

 

w

Operating expenses (excluding cost of revenues) were $275,874, up by $224,862 from $51,012 the prior year same period. Expenses increased due to costs associated with an increase in sales, depreciation expenses and headcount.  In addition, there were rental fees of $35,511 of certain equipment and facilities to a related party.

 

w

Effective tax rate was 42.3% versus 34.2% in the prior year due to differing applicable tax rates based on income and turning of deferred tax assets.

 

w

Net income was $831,555 with net income per share of $0.03, up by $633,066 the prior year same period.

 

The key financial results for the six months ended June 30, 2017 as compared to the previous year same period on a consolidated basis are as follows:

 

w

Operating expenses (excluding cost of revenues) were $634,394 up from $55,534 from the prior year same period. Expenses increased due to costs associated with an increase in sales, depreciation expenses and headcount.  In addition, there were rental fees of $192,989 of certain equipment and facilities to a related party.

 

w

Effective tax rate was 40.5% versus 34.7% in the prior year due to differing applicable tax rates based on income and turning of deferred tax assets.

 

w

Net income was $1,165,374 with net income per share of $0.04.

 

Liquidity and Capital Resources 

 

Our liquidity and cash position has improved significantly over the previous year. As of June 30, 2017, our cash balance was $4,540,907 and our working capital was $1,755,048 up by $1,894,052 and $945,703 respectively compared to December 31, 2016. Our cash balance is currently sufficient to fund our operations. Operating cash flow was $2,186,314, up by $1,929,837 from $256,477 the prior year same period. Capital expenditures, composed primarily of equipment purchases, were $298,972. As of June 30, 2017 and December 31, 2016, the net book values of the equipment were $777,609 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.

 

-2-

---

Table of Contents

 

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 June 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.

 

-3-

---

Table of Contents

 

SIGNATURES

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: December 8, 2017

 

By: /s/ Erika Nakazawa 

Name: Erika Nakazawa

CFO

Dated: December 8, 2017

-4- 

---