NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

3 Months Ended

Mar. 31, 2018

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

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

FOREIGN CURRENCY TRANSLATION

The reporting currency of the Company is the United States Dollar (“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 Accounting Standard codification (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:

	March 31, 2018
Current JPY: US$1 exchange rate	106.26
Average JPY: US$1 exchange rate	108.35

RELATED PARTY TRANSACTIONS

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

REVENUE RECOGNITION

The Company applies 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 months ended March 31, 2018, the Company derived all 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 months ended March 31, 2018, all 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 months ended March 31, 2018, the Company provided internet marketing services by optimizing search engines for four 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 months ended March 31, 2018, rental revenue was derived from three third-party clinics and five clinics, including Helene Clinic, which are fully owned or managed by Takaaki Matsuoka.

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 March 31, 2018, and December 31, 2017, the Company had accounts receivable from Helene Clinic of $81,129 and $0 respectively, and accounts payable to Helene Clinic of $222,957 and $278,593, respectively. Accounts receivables from Helene clinic is from services provided other than stemcell culturing and tissue handling technical assistance services. Also see Note 3.

Net revenues from customers accounting for 10% or more of total revenues are as follows:

	Three months ended March 31, 2018	Three months ended March 31, 2017
	%	%
Omotesando Helene Clinic	69.0	81.0
Total	69.0	81.0

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 for public companies and December 15, 2017 for private companies, and was to be applied retrospectively or the cumulative effect as of the date of adoption. In July 2015, a one-year deferral of the effective date of the new guidance was approved. Since the Company is an Emerging Growth Company and has made the election under Section 107(b) for extended transition to new or revised accounting standards, it follows the effective date for private companies. As such, ASU 2014-09 will be effective for the Company on January 1, 2019. We are currently conducting a detailed assessment of the impact that this guidance will have on our consolidated financial statements and related disclosures.

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 and private companies, respectively, the standard will be effective for the first interim reporting period within annual periods beginning after December 15, 2018 and 2019, although early adoption is permitted. Since the company is an Emerging Growth Company and has made the election under Section 107(b) for extended transition to new or revised accounting standards, it follows the effective date for private companies. As such, ASU 2016-02 will be effective for the Company on January 1, 2020. 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.

Stemcell Holdings, Inc. 10-Q