UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-QSB



[X]     Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
        Exchange Act of 1934

        For the quarter ended September 30, 2006

                                             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:   0-10379




                           STEM CELL INNOVATIONS, INC.
             (Exact Name of Registrant as Specified in its Charter)

          Delaware                                               22-2313648
-------------------------------                               ----------------
(State or other jurisdiction of                               (I.R.S. Employer
 incorporation or organization)                              Identification No.)

1812 Front Street, Scotch Plains, New Jersey                             07076
--------------------------------------------                          ----------
(Address of principal executive offices)                              (Zip code)

(908) 663-2150
----------------------------------------------------
(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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.

                                 Yes [X] No [ ]

Number of shares outstanding of each of issuer's classes of common stock as of
October 27, 2006.

                      Common Stock        1,052,660,329 shares
<PAGE>

                  STEM CELL INNOVATIONS, INC. AND SUBSIDIARIES

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                     Page
                                                                                     ----
<S>         <C>                                                                       <C>
Part I.     Financial Information
---------------------------------

Item 1.     Financial Statements (Unaudited)
            Consolidated Condensed Balance Sheet - September 30, 2006                  1

            Consolidated Condensed Statements of Operations Three Months and
            Nine Months Ended September 30, 2006 and 2005 (As Restated)                2

            Consolidated Condensed Statement of Stockholders' Equity (Deficiency)-
            Nine Months Ended September 30, 2006                                       4

            Consolidated Condensed Statements of Cash Flows - Nine Months
            Ended September 30, 2006 and 2005 (As Restated)                            5

            Notes to Consolidated Condensed Financial Statements                       6

Item 2.     Management's Discussion and Analysis of Financial Condition               15
            and Results of Operations

Item 3.     Controls and Procedures                                                   19

Part II.    Other Information
-----------------------------

Item 1.     Legal Proceedings                                                         20

Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds               20

Item 3.     Defaults on Senior Securities                                             20

Item 4.     Submission of Matters to a Vote of Security Holders                       20

Item 5.     Other Information                                                         20

Item 6.     Exhibits and Reports on Form 8-K                                          20
</TABLE>

                                       1
<PAGE>

Item. 1     Financial Statements
--------------------------------

                  STEM CELL INNOVATIONS, INC. AND SUBSIDIARIES
                      CONSOLIDATED CONDENSED BALANCE SHEET


                                                                   September 30,
                                                                       2006
                                                                    (Unaudited)

ASSETS
Current assets
  Cash and cash equivalents                                        $    812,168
  Other receivables                                                     201,548
  Prepaid expenses and other current assets                              36,944
                                                                   ------------
Total current assets                                                  1,050,660
                                                                   ------------

Property, plant and equipment, at cost                                1,490,980
Less accumulated depreciation                                          (788,834)
                                                                   ------------
                                                                        702,146
                                                                   ------------

Acquired intangibles, net                                             5,328,507
Deferred finance costs, net                                           1,832,463
Other assets                                                              9,879
                                                                   ------------
Total assets                                                       $  8,923,655
                                                                   ============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses                              $  1,467,044
                                                                   ------------
Total current liabilities                                             1,467,044
                                                                   ------------

Long-term liabilities
  Notes payable - Stockholders/Directors                                400,000
  Convertible notes payable, net of debt discount                       502,136
  Amount due Eaglestone (including Series 2 preferred stock)          4,784,068
                                                                   ------------
Total long-term liabilities                                           5,686,204
                                                                   ------------
Commitments and contingencies
Stockholders' Equity
Preferred stock, par value $.01 per share;
  authorized-5,000,000 shares;  Series 1 Convertible
  Preferred Stock; None issued and outstanding                               --
  Series 2 Preferred Stock; 2,000,000 issued and outstanding                 --
Common stock, par value $.01 per share; authorized-4,000,000,000
shares; issued  and outstanding-1,047,045,253 shares                 10,470,453
Additional paid-in capital                                           13,066,619
Accumulated deficit                                                 (21,766,665)
                                                                   ------------
Total stockholders' equity                                            1,770,407
                                                                   ------------
Total liabilities and stockholders' equity                         $  8,923,655
                                                                   ============

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

                                       1
<PAGE>

                  STEM CELL INNOVATIONS, INC. AND SUBSIDIARIES
                 CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                         Three Months Ended
                                                                                 ----------------------------------
                                                                                  September 30,      September 30,
                                                                                      2006               2005
                                                                                 ---------------    ---------------
                                                                                                      As Restated
                                                                                                       (Note 10)
<S>                                                                              <C>                <C>
Revenue
  Royalty income                                                                 $            --    $            --
  Contract Research                                                                        6,090                 --
  License Fees                                                                            10,000                 --
  Sales                                                                                       --              2,425
                                                                                 ---------------    ---------------
  Total revenue                                                                           16,090              2,425
                                                                                 ---------------    ---------------

Costs and expenses
  Cost of sales                                                                               --                125
  General and administrative                                                           1,143,238            371,711
  Research and development                                                               122,620             37,348
  Depreciation and amortization                                                          260,826             11,542
                                                                                 ---------------    ---------------
Total costs and expenses                                                               1,526,684            420,726
                                                                                 ---------------    ---------------

Loss from operations before other expense                                             (1,510,594)          (418,301)

Interest expense including accretion of debt discount of $197,556 in 2006 and           (461,111)          (162,613)
none in 2005, amortization of deferred financing costs of $207,449 in 2006 and
none in 2005
Sale of royalty rights                                                                   620,000                 --
Loss on sale of securities                                                               (83,719)                --
Other expense, net                                                                        (1,343)           (11,720)
                                                                                 ---------------    ---------------
Net loss                                                                         $    (1,436,767)   $      (592,634)
                                                                                 ===============    ===============

Basic and diluted net loss per share attributable to common stockholders         $            --    $          (.01)
                                                                                 ===============    ===============

Weighted average number of shares outstanding -
basic and diluted, (common shares limited to
authorized shares available through July 5, 2006)                                    982,076,169         55,000,000
                                                                                 ===============    ===============

Proforma basic and diluted net loss per share                                    $            --    $            --
                                                                                 ===============    ===============

Proforma weighted average number of shares outstanding -                           1,046,612,476        378,910,715
basic and diluted (assuming sufficient authorized shares)
                                                                                 ===============    ===============
</TABLE>

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

                                       2
<PAGE>

                  STEM CELL INNOVATIONS, INC. AND SUBSIDIARIES
                 CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                       Nine Months Ended
                                                                                 ------------------------------
                                                                                 September 30,    September 30,
                                                                                     2006             2005
                                                                                 -------------    -------------
                                                                                                   As Restated
                                                                                                    (Note 10)
<S>                                                                              <C>              <C>
Revenue
  Royalty income                                                                 $      17,282    $          --
  Contract Research                                                                     25,368               --
  License Fees                                                                          10,000               --
  Sales                                                                                     --            8,355
                                                                                 -------------    -------------
  Total revenue                                                                         52,650            8,355
                                                                                 -------------    -------------

Costs and expenses
  Cost of sales                                                                             --            2,126
  General and administrative                                                         7,833,380          855,708
  Research and development                                                             370,868           89,708
  Depreciation and amortization                                                        614,524           62,073
                                                                                 -------------    -------------
Total costs and expenses                                                             8,818,772        1,009,615
                                                                                 -------------    -------------

Loss from operations before other  expense                                          (8,766,122)      (1,001,260)

Interest expense including accretion of debt discount of $502,136 in 2006 and       (3,025,757)        (411,977)
none in 2005, amortization of deferred financing costs of $518,622 in 2006 and
none in 2005  and a charge for beneficial conversion expense of $1,794,375 in
2006 and none in 2005
Sale of royalty rights                                                                 620,000               --
Loss on sale of securities                                                             (83,719)              --
Other expense, net                                                                      (2,935)         (10,316)
                                                                                 -------------    -------------
Net loss                                                                           (11,258,533)      (1,423,553)
Less: Amount attributable to preferred stock beneficial conversion feature          (1,563,500)              --
                                                                                 -------------    -------------

Net loss attributable to common stockholders                                     $ (12,822,033)   $  (1,423,553)
                                                                                 =============    =============

Basic and diluted net loss per share attributable to common stockholders         $        (.03)   $        (.03)
                                                                                 =============    =============

Weighted average number of shares outstanding -
basic and diluted, (common shares limited to
authorized shares available through July 5, 2006)                                  367,421,273       55,000,000
                                                                                 =============    =============

Proforma basic and diluted net loss per share                                    $       (0.01)   $        (.01)
                                                                                 =============    =============

Proforma weighted average number of shares outstanding -                           934,324,170      378,910,715
basic and diluted (assuming sufficient authorized shares)
                                                                                 =============    =============
</TABLE>

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

                                        3
<PAGE>

                  Stem Cell Innovations, Inc. and Subsidiaries
      Consolidated Condensed Statement of Stockholder's Equity (Deficiency)
                      Nine Months Ended September 30, 2006

                                   (unaudited)

<TABLE>
<CAPTION>
                                        Series 1
                               Convertible Preferred Stock         Common Stock          Additional
                              ----------------------------  ---------------------------   Paid-In       Accumulated
                                  Shares        Amount          Shares       Amount       Capital         Deficit         Total
                              -------------  -------------  ------------- ------------- -------------  -------------  -------------
<S>                                  <C>     <C>               <C>        <C>           <C>            <C>            <C>
Balances at
  January 1, 2006 (1)                37,891  $         379                              $   1,375,959  $ (10,508,132) $  (9,131,794)

Issuance of shares to Plurion
  for acquired intangibles
  and assumption of certain
  liabilities (1)                    37,891            379                                  5,611,621                     5,612,000

Notes and accrued interest
  thereon exchanged (1)              16,083            161                                  3,307,607                     3,307,768

Capital contribution by
  stockholders/directors on
  exchange of notes (1)                                                                       103,939                       103,939
                              -------------   -------------                             -------------  -------------  -------------
                                     91,865            919                                 10,399,126    (10,508,132)      (108,087)
  Recapitalization
Issuance of shares in merger
  less expenses of $391,161
  and $569,361 capital
  contribution representing
  note payable                                                 37,339,286 $     373,393       195,968                       569,361
Notes payable and accrued
  interest thereon exchanged
  for preferred stock                 1,012             10                                    303,740                       303,750
Beneficial conversion charge
  on fair value of shares
  exchanged for notes payable                                                               1,794,375                     1,794,375
Net proceeds from issuance of
  Series 1 Preferred and
  warrants in private
  placement less expenses
  of $236,800                         5,212             52                                  1,326,648                     1,326,700
Fair value of warrants issued
  and beneficial conversion
  feature in connection with
  debt issued in private
  placement                                                                                 2,350,000                     2,350,000
Preferred stock beneficial
  conversion feature                                                                        1,563,500                     1,563,500
Amortization of beneficial
  conversion feature                                                                       (1,563,500)                   (1,563,500)
Proceeds from Series 1\
  Preferred purchased by
  employees in private
  placement                           1,700             17                                    509,983                       510,000
Estimated fair value of
  Series 1 Preferred and
  warrants purchased by
  employees in private
  placement in excess
  of proceeds                                                                               3,995,000                     3,995,000
Shares issued in cashless
  exercise of warrants                                          9,488,554        94,886       (94,886)
Fair value of placement
   agent's warrants
   attributable to debt
   issued in private
   placement                                                                                1,995,885                     1,995,885
Conversion of notes into
   common stock                                                 2,328,733        23,287        46,575                        69,862

Equity based compensation
  for directors                                                                               164,043                       164,043
Imputed interest on
  convertible notes                                                                            58,051                        58,051
Issuance of common stock
  in exchange for Series 1
  Preferred                         (99,789)          (998)   997,888,680     9,978,887    (9,977,889)
Net Loss                                                                                                 (11,258,533)   (11,258,533)
                              -------------  -------------  ------------- ------------- -------------  -------------  -------------

Balance at
  September 30, 2006                     --  $          --  1,047,045,253 $  10,470,453 $  13,066,619  $ (21,766,665) $   1,770,407
                              =============  =============  ============= ============= =============  =============  =============
</TABLE>

(1)  In connection with the reverse merger representing a capital transaction,
     the capital of the accounting acquirer has been retroactively adjusted.

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

                                       4
<PAGE>

                  STEM CELL INNOVATIONS, INC. AND SUBSIDIARIES
                 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                        Nine Months Ended
                                                                          September 30,
                                                                      2006            2005
                                                                  ------------    ------------
                                                                                   As Restated
                                                                                    (Note 10)
<S>                                                               <C>             <C>
Cash flows from operating activities:
     Net loss                                                     $(11,258,533)   $ (1,423,553)
     Adjustments to reconcile net loss
         to net cash used for operating activities:
         Beneficial conversion charge                                1,794,375              --
         Depreciation and amortization                                 614,525          62,073
         Sale of royalty right for marketable securities              (620,000)             --
         Realized loss on sale of marketable securities                 83,719              --

         Equity based compensation charge                            4,159,043              --
         Non cash interest charge                                      127,913              --
         Accretion of debt discount                                    502,136              --
         Amortization of deferred finance costs                        518,622              --
Change in operating assets and liabilities:
         Accounts receivable                                             7,000              --
         Other receivables                                             (89,547)
         Prepaid expenses and other current assets                     (30,553)             --
         Accounts payable and accrued expenses                         306,647         (49,008)
                                                                  ------------    ------------

         Net cash used in operating activities                      (3,884,653)     (1,410,488)
                                                                  ------------    ------------

Cash flows from investing activities:
Proceeds from sale of marketable securities                            525,939              --
Cost of acquiring Plurion intangibles                                 (178,500)             --
Additions to property, plant and equipment                            (532,711)       (176,916)
Net cash received on merger with public shell                        1,115,922              --
                                                                  ------------    ------------

Net cash provided by (used in) investing activities                    930,650        (176,916)
                                                                  ------------    ------------

Cash flows from financing activities:
     Collection of other receivables                                   395,066       1,578,778
     Net proceeds from issuance of Series 1 preferred stock          1,326,700              --
     Partial repayment of Eaglestone Note                              (15,932)             --
     Net proceeds from issuance of convertible notes payable         1,994,800              --
                                                                  ------------    ------------

Net cash provided by financing activities                            3,700,634       1,578,778
                                                                  ------------    ------------

Net increase in cash and cash equivalents                              746,631          (8,626)

Cash and cash equivalents at beginning of period                        65,537          19,000
                                                                  ------------    ------------

Cash and cash equivalents at end of period                        $    812,168    $     10,374
                                                                  ============    ============
Noncash investing and financing activities:
Acquisition of Intangibles:
         License and Patent                                       $  5,700,000
         Less: Liabilities assumed                                     (88,000)
                                                                  ------------

                                                                     5,612,000
                                                                  ============
Exchange of notes and accrued interest
for Series 1 preferred stock                                      $  3,611,518
                                                                  ============

Exchange of convertible notes for common stock                    $     69,862
                                                                  ============
</TABLE>

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

                                       5
<PAGE>

                  STEM CELL INNOVATIONS, INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

                                   (Unaudited)


Note 1.           Basis of Presentation and Description of Business

         The financial information included herein is unaudited. Such
information, however, reflects all adjustments (consisting solely of normal
recurring adjustments) that are, in the opinion of management, necessary for a
fair presentation of the financial position and operating results for the
interim periods. The operating results for interim periods are not necessarily
indicative of operating results to be expected for the year.

         Stem Cell Innovations, Inc. (the "Company") through its wholly owned
subsidiary, Amphioxus Cell Technologies, Inc. ("ACT") which is based in Houston,
Texas, is a cell biology company. It utilizes its proprietary C3A human liver
cell line in the field of drug discovery and toxicology testing and is also
engaged in the development and production of its proprietary pluripotent stem
cells. These human cell-based disease models create a platform for the
discovery, testing and development of all therapeutic modalities including small
molecules, cell-based therapeutics, small interfering RNAs and antibodies.

         Until March 2003, the Company was a biopharmaceutical company (formerly
known as Interferon Sciences, Inc.).

         Pursuant to the terms of the Agreement and Plan of Merger dated
February 14, 2006 (the "Merger Agreement") by and among the Company, ACT and a
wholly-owned subsidiary of the Company, Amphioxus Acquisition, Inc.
("Acquisition Sub"), ACT merged with and into Acquisition Sub (the "Merger"),
such that Acquisition Sub was the surviving corporation, changed its name to
Amphioxus Cell Technologies, Inc. and became a wholly-owned subsidiary of the
Company. Upon the completion of the Merger, the stockholders of ACT controlled
approximately 77% of the merged entity. The Merger has been accounted for as a
reverse purchase with ACT being the accounting acquirer.

         In the Merger, all outstanding shares of common stock of the ACT were
converted into 75,782 shares of Series 1 Convertible Preferred Stock (the
"Series 1 Preferred") of the Company. On July 6, 2006, the Company obtained
stockholder approval to increase the authorized common stock, par value $.01 per
share, of the Company (the "Common Stock") to 4,000,000,000 shares and the
Series 1 Preferred was mandatorily converted into an aggregate of 757,821,415
shares of Common Stock. Immediately prior to the completion of the Merger, ACT
acquired from Plurion, Inc. ("Plurion") all of its assets, consisting of a
patent and an assignment of its license to certain patents and patent
applications in the field of pluripotent stem cells (the "Vanderbilt License"),
and assumed certain liabilities of Plurion. The assets acquired from Plurion
were valued at $5,700,000, based upon an appraisal. This acquisition was
effected in exchange for 6,739,383 shares of the common stock of ACT (which were
exchanged for 37,891 shares of Series 1 Preferred in the Merger).

         In connection with the Merger, the Eaglestone Investment Partners I,
L.P. ("Eaglestone") investment in ACT was restructured. In exchange for its
investment in ACT which consisted of (i) a promissory note in the amount of $
3,529,335, including accrued interest, (ii) 2,000,000 shares of ACT's Series A
Preferred Stock and (iii) 1,185,265 shares of ACT's Class B Stock, Eaglestone
received 2,000,000 shares of Series 2 Preferred Stock, par value $.01 per share
(the "Series 2 Preferred"), of the Company, a promissory note from the Company
in the principal amount of $2,935,000 (the "Eaglestone Note") and a royalty
right with respect to revenues of the Company related to ACT's C3A liver cell
line technology (the "Royalty Right").

                                       6
<PAGE>

                  STEM CELL INNOVATIONS, INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

                                   (Unaudited)


         The Series 2 Preferred ranks senior to the Series 1 Preferred, does not
pay dividends, does not carry the right to any vote except as required by the
Delaware General Corporation Law and is redeemable by the Company for an
aggregate payment of $3,065,000. The Eaglestone Note bears interest at the rate
of 4% per annum from the date of the Merger and is repayable on June 15, 2009 or
earlier to the extent of (i) 50% of the excess proceeds of an offering of equity
securities by the Company that raises in excess of $6.5 million of net proceeds,
(ii) 10% of the excess proceeds of a series of such equity offerings that raise
in excess of $15 million or (iii) 25% of after-tax net income of the Company in
excess of $1 million measured cumulatively from the closing of the Merger, and
is also be repayable in full if there is a change in control of the Company. The
Series 2 Preferred is mandatorily redeemable on June 15, 2009 or earlier on the
same basis as the Eaglestone Note described above after the repayment of the
Eaglestone Note. In addition, the Royalty Right entitles Eaglestone to 2.5% of
the revenues from products incorporating the C3A liver cell line technology for
the greater of 10 years or the life of the relevant patents. The Company may
repurchase this Royalty Right at any time for $10 million. Until the Eaglestone
Note is repaid and the Series 2 Preferred redeemed as set forth above,
Eaglestone is also entitled to a 2.5% royalty on any other sales and licensing
revenues of the Company and its subsidiaries, provided, however, that any such
other royalty payments will be credited against the Company's obligations to pay
the principal of and interest on the Eaglestone Note and to redeem the Series 2
Preferred. Eaglestone has agreed that the Company may repurchase the Eaglestone
Note and the Series 2 Preferred at any time prior to May 14, 2007, for $4.8
million, against which will be credited any intervening principal payments on
the Eaglestone Note and redemption payments on the Series 2 Preferred, any
royalty payments resulting from technologies other than the C3A liver cell line
technology and the principal amount of any portion of the Eaglestone Note or the
liquidation value of any Series 2 Preferred voluntarily exchanged by Eaglestone
for other equity securities of the Company.

         In connection with the Merger, Mr. Germain and Dr. Sussman, who were
directors and stockholders of ACT and are directors and stockholders of the
Company, exchanged their ACT debt in the amount of $338,328 and $165,611,
respectively, for new debt of the Company in the amount of $250,000, and
$150,000, respectively. The difference between the principal amount of the notes
exchanged and the new notes issued was treated as a contribution to capital in
the amount of $103,939. In addition, a note payable in the amount of $569,361
including accrued interested, which was due to the Company, was cancelled in the
Merger and was treated as contribution to capital.

         Upon the completion of the Merger, all of the other note holders of ACT
converted $3,274,768 of debt including accrued interest held by them into Series
1 Preferred and warrants, exercisable at $.06 per share (the "Warrants") to
purchase Common Stock. As a result of these transactions, these note holders
received 16,083 shares of Series 1 Preferred convertible into 160,825,597 shares
of Common Stock and Warrants to purchase 41,662,805 shares of Common Stock.

         Upon the completion of the Merger, all of the note holders of the
Company converted the $303,750 of debt including accrued interest held by them
into Series 1 Preferred and Warrants to purchase Common Stock. As a result of
these transactions, these note holders received 1,012 shares of Series 1
Preferred convertible into 10,125,000 shares of Common Stock and Warrants to
purchase 5,062,500 shares of Common Stock. The Series 1 Preferred and Warrants
were issued at a beneficial rate. The beneficial conversion feature related to
the Series 1 Preferred and the Warrants was valued at $1,794,375 and a charge of
$1,794,375 was recorded as interest expense in the quarter ended March 31, 2006.

         In connection with the Merger, on February 14, 2006, the Company
completed a private placement of notes, which are due December 31, 2008, and
Warrants to accredited investors pursuant to which the Company sold an aggregate
of $2,350,000 principal amount of notes convertible into 78,333,333 shares of

                                       7
<PAGE>

                  STEM CELL INNOVATIONS, INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

                                   (Unaudited)


Common Stock and Warrants to purchase 39,166,666 shares of Common Stock. The
Warrants were valued at $850,000 which amount is being amortized as interest
expense over the term of the notes. In addition, the notes are convertible into
Common Stock at a beneficial rate. The beneficial conversion feature is valued
at $1,500,000 and accounted for as debt discount and is being amortized as
interest expense over the term of the notes. In May 2006, $69,862 of such Notes
were converted into 2,328,733 shares of Common Stock. On February 14, 2006, the
Company completed another private placement of $1,563,500 of Series 1 Preferred
which are convertible into 52,116,667 shares of Common Stock and Warrants to
purchase an addition 26,058,333 shares of Common Stock. In connection therewith,
$1,563,500 has been treated as a beneficial conversion feature and has been
treated as a charge in calculating the net loss attributable to common
stockholders.

         In connection with the Merger, the three senior members of the
Company's management terminated their existing employment agreements with the
Company, which entitled them to receive an aggregate of $1,407,141. In exchange
for the termination of their existing employment agreements, these members of
management received an aggregate of $972,685 (which was charged to operations in
the quarter ended March 31, 2006), $170,000 of which was used by each of them
($510,000 in the aggregate) to purchase shares of Series 1 Preferred convertible
into 5,666,666 shares of Common Stock and Warrants to purchase 2,833,333 shares
of Common Stock, and each entered into new one-year employment agreements with
the Company. These agreements provide for an aggregate compensation of $23,000
per month. In connection with the shares and warrants purchased by management,
the Company recorded a charge of $3,995,000 in the three month period ended
March 31, 2006.

         The financial statements have been prepared assuming that the Company
will continue as a going concern which contemplates the realization of assets
and satisfaction of liabilities in the normal course of business. The Company
has incurred cumulative losses of $21,766,665 through the period ended September
30, 2006 and has been dependent on funding operations through the issuances of
convertible debt and the private sales of equity securities. At September 30,
2006 cash amounted to approximately $812,000. Management believes that current
cash resources will be insufficient to fund its operations through September 30,
2007. Management's plans include continuing to finance operations through
attempting a private or public placement of equity or debt securities, licensing
its human pluripotent stem cells (PluricellsTM) and reducing expenditures.
However, it is uncertain as to whether the Company will be able to achieve these
objectives. These factors, among others, raise substantial doubt about the
Company's ability to continue as a going concern. The financial statements do
not include any adjustments relating to the recoverability and classification of
recorded asset amounts or the amounts and classification of liabilities that
might be necessary should the Company be unable to continue as a going concern.



Note 2.       Summary of Significant Accounting Policies

         Principles of consolidation - The consolidated financial statements
include the operations of the Company, Amphioxus Cell Technologies, Inc., Stem
Cell Innovations BV and Interferon Sciences Development Corporation ("ISD"), the
Company's wholly owned subsidiaries. ISD is inactive.

         Acquired intangibles - Acquired intangibles consist of the license and
patent purchased from Plurion, are stated at cost and are being amortized using
the straight-line method over the estimated remaining useful lives (six years)
of the license and underlying patents.

                                       8
<PAGE>

                  STEM CELL INNOVATIONS, INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

                                   (Unaudited)


         Deferred finance costs - The Company capitalizes costs related to debt
financing and amortizes such costs to interest expense over the term of the
indebtedness on a straight line basis.

         Revenue and royalty recognition - Revenues will be recognized when the
products are shipped and title passes. Revenue from contract research is
recognized when the research and testing is completed. Revenue from royalties
were recognized over the royalty period based upon periodic reports received
from the licensee. See Note 9.

         Use of estimates in the preparation of financial statements - The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, and disclosure of contingent assets and liabilities, at the date of
the financial statements, and the reported amounts of revenue and expenses
during the reporting period. Such estimates include input variables for the
calculation of stock-based compensation. Actual results could differ from those
estimates.

         Recently Issued Accounting Policies - In July 2006, the FASB issued
FASB Interpretation Number 48, Accounting for Uncertainty in Income Taxes, an
Interpretation of FASB Statement No. 109, ("FIN48"). FIN 48 prescribes a
recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken in a tax return. The Company
must determine whether it is "more-likely-than-not" that a tax position will be
sustained upon examination, including resolution of any related appeals or
litigation processes, based on the technical merits of the position. Once it is
determined that a position meets the more-likely-than-not recognition threshold,
the position is measured to determine the amount of benefit to recognize in the
financial statements. FIN 48 applies to all tax positions related to income
taxes subject to FASB Statement No. 109, Accounting for Income Taxes. The
interpretation clearly scopes out income tax positions related to FASB Statement
No. 5, Accounting for Contingencies. We will adopt the provisions of this
statement beginning in the first quarter of 2007. The cumulative effect of
applying the provisions of FIN 48 will be reported as an adjustment to the
opening balance of retained earnings on January 1, 2007. We do not anticipate
that the adoption of this statement will have a material effect on our financial
position or results of operations.

         In September 2006, the Financial Accounting Standards Board (FASB)
issued SFAS No. 158, "Employers' Accounting for Defined Benefit Pension and
Other Postretirement Plans--an amendment of FASB Statements No. 87, 88, 106, and
132(R)," which requires employers to: (a) recognize in its statement of
financial position an asset for a plan's overfunded status or a liability for a
plan's underfunded status; (b) measure a plan's assets and its obligations that
determine its funded status as of the end of the employer's fiscal year; and (c)
recognize changes in the funded status of a defined benefit postretirement plan
in the year in which the changes occur. Those changes will be reported in
comprehensive income of a business entity. The requirement to recognize the
funded status of a benefit plan and the disclosure requirements are effective as
of the end of the fiscal year ending after December 15, 2006, for entities with
publicly traded equity securities. The requirement to measure plan assets and
benefit obligations as of the date of the employer's fiscal year-end statement
of financial position is effective for fiscal years ending after December 15,
2008. The Company currently does not have any defined benefit post retirement
plans.

                                       9
<PAGE>

                  STEM CELL INNOVATIONS, INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

                                   (Unaudited)


         Also in September 2006, FASB issued SFAS No. 157, "Fair Value
Measurements'" which defines fair value, establishes a framework for measuring
fair value in generally accepted accounting principles and expands disclosures
about fair value measurements. This Statement is effective for financial
statements issued for fiscal years beginning after November 15, 2007 and interim
periods within those fiscal years. Earlier application is encouraged provided
that the reporting entity has not yet issued financial statements for that
fiscal year including financial statements for an interim period within that
fiscal year. The Company is assessing SFAS No. 157 and has not determined yet
the impact that the adoption of SFAS No. 157 will have on its result of
operations or financial position.


Note 3.       Loss Per Share and Pro forma Loss Per Share

         Basic loss per share has been computed using the weighted average
number of shares outstanding. The shares of common stock of the accounting
acquirer were exchanged for 37,891 shares of Series 1 mandatorily convertible
preferred stock of the Company which represented 378,910,706 shares of the
Company's common stock upon their mandatory conversion in July 2006.
Accordingly, the weighted average number of shares outstanding has been limited
to the 55,000,000 shares of common stock authorized for issuance through July 5,
2006. For the three months and nine months ended September 30, 2006 and
September 30, 2005, common stock equivalents are not included in the calculation
of loss per share as the effect would be antidilutive. On July 6, 2006, the
stockholders of the Company approved increasing the number of shares of common
stock which the Company is authorized to issue to 4,000,000,000. As of September
30, 2006, there are 1,047,045,253 shares of common stock outstanding, warrants
to purchase an additional 196,264,904 shares of common stock and 76,004,599
shares of common stock issuable upon conversion of the notes. For the three
months and nine months ended September 30, 2006 and 2005, the presentation of
proforma loss per share is intended to represent the amounts per share that
would have been recognized if the Company had sufficient authorized common stock
and had issued common stock in lieu of Series 1 Preferred Stock. The proforma
weighted average shares outstanding for the three-month and nine-month periods
ended September 30, 2006 and 2005 assumes the Company had sufficient authorized
common stock to convert all of the Series 1 Preferred Stock and that the
conversions took place as of the beginning of each period presented. The
proforma weighted average shares outstanding for the three-month and nine-month
periods ended September 30, 2005 also assumes that the ACT common shares had
been exchanged for common shares of the Company at the beginning of the
respective periods.

Note 4.       Notes Payable and Redeemable Series 2 Preferred

         At September 30, 2006, the Company's long term obligations are set
forth in the table below.

                                       10
<PAGE>

                  STEM CELL INNOVATIONS, INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

                                   (Unaudited)


         Notes payable - Stockholder/Directors
         Interest at the rate of 4% per annum payable at maturity.
         Notes due June 15, 2009, subject to earlier repayment
         under certain conditions.  (See Note 1)                     $   400,000

         Convertible notes payable, net of debt discount
         $2,280,137 principal amount of non-interest bearing notes,
         due December 31, 2008 and convertible into an aggregate
         of 76,004,600 shares of common stock (See Note 1)               502,136

         Amount due Eaglestone
         Composed of (i) the Eaglestone Note, in the principal
         amount of $2,935,000, bearing interest at the rate of 4%
         per annum and due June 15, 2009 and (ii) 2,000,000
         shares of Series 2 Preferred Stock, mandatorily
         redeemable on June 15, 2009 for $3,065,000. The Company
         has the option to redeem the Eaglestone Note and the
         Series 2 Preferred Stock on or before May 14, 2007 for an
         aggregate of $4,784,068. (See Note 1)                         4,784,068
                                                                     -----------
                                                            Total    $ 5,686,204

         Because the Company has the right to defease the Eaglestone Note and
the Series 2 Preferred at any time prior to May 14, 2007 for $4.8 million, the
Company has classified the Eaglestone Note and Series 2 Preferred as Amount due
Eaglestone in the amount of $4.8 million on its balance sheet. After May 14,
2007 and until June 15, 2009 (which is the due date of the note and the date
fixed for redemption of the Series 2 Preferred), the Company will accrete the
difference between (i) $4.8 million and (ii) the face amount of the note and the
redemption amount of Series 2 Preferred (which as of September 30, 2006 was
$5,984,068).

Note 5.       Stock-based compensation

         In December 2004, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standard (SFAS) No. 123R, Share-Based
Payment (SFAS No. 123R), which revises SFAS No. 123, Accounting for Stock-Based
Compensation (SFAS No. 123), and supersedes Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees (APB No. 25), and requires
companies to recognize compensation expense for all equity-based compensation
awards issued to employees that are expected to vest. The Company adopted SFAS
No. 123R on January 1, 2006.

         On July 6, 2006, the stockholders approved the Company's 2006 Incentive
Stock Plan (the "2006 Plan"). Pursuant to the 2006 Plan, the Company may grant
awards of non-qualified stock options, incentive stock options, restricted
stock, stock units, performance shares, performance units and other incentives
payable in cash or in shares of the Company's Common Stock to officers,
employees or members of the Board of Directors. The Company is authorized to
grant an aggregate of 100,000,000 shares under the 2006 Plan.

         Prior to adopting SFAS No. 123, the Company accounted for stock-based
employee compensation under APB No. 25. The Company has applied the modified
prospective method in the adoption of SFAS No. 123R.

         Under SFAS No. 123R, the Company recognizes compensation expense on a
straight-line basis over the requisite service period for stock-based
compensation awards. The Company applies a forfeiture estimate to compensation
expense recognized for awards that are expected to vest during the requisite
service period, and revises that estimate if subsequent information indicates
that the actual forfeitures will differ from the estimate.

                                       11
<PAGE>

                  STEM CELL INNOVATIONS, INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

                                   (Unaudited)


         During the three months and nine months ended September 30, 2006, the
Company recognized $135,990 and $164,043, respectively of pre-tax stock-based
compensation expense under the fair value method in accordance with SFAS No.
123R. All of the compensation expense resulted from the issuance of stock
options. As of September 30, 2006, the Company had only non-qualified stock
options outstanding.

         The stock options were granted with an exercise price equal to the fair
market value of the Company's Common Stock at the date of grant, vest over a
period of two years, and expire five years from the date of grant.

         Summarized information for the Company's non-qualified stock options is
as follows:

<TABLE>
<CAPTION>
                                                                        Weighted
                                                         Weighted       average     Aggregate
                                          Number of       average      remaining    intrinsic
            Stock Options                  options     exercise price    years        value
---------------------------------------- ------------  -------------- -----------  -----------
<S>                                        <C>         <C>                  <C>    <C>
Outstanding at December 31, 2005                  --   $
Granted                                    3,000,000             .38        4.67

                                         -----------
Outstanding at September 30, 2006          3,000,000             .38        4.67   $        0
                                         ===========
Exercisable at September 30, 2006                 --              --          --   $        0
                                         ===========
</TABLE>

         As of September 30, 2006, the Company had $921,786 of unrecognized
compensation related to the unvested portion of outstanding stock options
expected to be recognized through June 2008.

         The per share weighted average fair value of the Company's stock
options granted during the nine months ended September 30, 2006 was $.36, based
on the date of grant using the Black-Scholes option pricing model with the
following weighted average assumptions:


        Expected dividend yield                                    0%
        Risk-free interest rate                                  5.0%
        Expected volatility                                    181.7%
        Expected life                                         5 years


The Company also uses historical data in order to estimate the volatility factor
for a period equal to the duration of the expected life of stock options
granted. The Company believes that the use of historical data to estimate these
factors provides a reasonable basis for these assumptions. The risk-free
interest rate for the periods within the expected life of the option is based on
the U.S. Treasury yield curve in effect at the time of grant. Under SFAS 123(R)
forfeitures are estimated at the time of valuation and reduce expense ratably
over the vesting period. This estimate is adjusted periodically based on the
extent to which actual forfeitures differ, or are expected to differ, from the
previous estimate. As of September 30, 2006, the Company anticipates all
outstanding options will vest.

                                       12
<PAGE>

                  STEM CELL INNOVATIONS, INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

                                   (Unaudited)


Note 6.       Related Party Transactions

         The Company has a consulting arrangement with Mark Germain, Chairman of
the Board of the Company, which provides for a monthly consulting fee of $10,000
and a 3% success fee on corporate transactions other than sales of products in
the ordinary course of business. Either party can terminate the consulting
arrangement on 30 days notice. In addition, in March 2006, he received a fee of
$171,000 in connection with the acquisition of Plurion's assets by the Company.

         In connection with the Merger, the three senior members of the
Company's management terminated their existing employment agreements with the
Company, which entitled them to receive an aggregate of $1,407,141. In exchange
for the termination of their existing employment agreements, these members of
management received an aggregate of $972,685 (which was charged to operations in
the quarter ended March 31, 2006), $170,000 of which was used by each of them
($510,000 in the aggregate) to purchase shares of Series 1 Preferred convertible
into 5,666,666 shares of Common Stock and Warrants to purchase 2,833,333 shares
of Common Stock, and each entered into new one-year employment agreements with
the Company. These agreements provide for an aggregate compensation of $23,000
per month. In connection with the shares and warrants purchased by management,
the Company recorded a charge of $3,995,000 in the three month period ended
March 31, 2006.

Note 7.       Warrants

         Warrants outstanding at September 30, 2006, include warrants to
purchase an aggregate of 56,247,102 shares of common stock. The warrants were
issued in connection with a convertible note financing are exercisable at $.01
per share and expire in 2007 and 2008. During the quarter and nine months ended
September 30, 2006, stockholders exercised warrants to purchase 2,550,000 and
9,752,898 shares, respectively, on a cashless basis and received 2,488,554 and
9,488,554 shares of common stock, respectively.

         In addition, warrants outstanding at September 30, 2006, include
warrants to purchase an aggregate of 120,450,302 shares. The warrants which were
issued in connection with the Merger are exercisable at $.06 per share and
expire on July 6, 2011.

         Furthermore, warrants outstanding at September 30, 2006, include
warrants to purchase an aggregate of 19,567,500 shares. The warrants were issued
to the placement agent in connection with the Merger and 13,045,000 of the
warrants are exercisable at $.03 per share and 6,522,500 of the warrants are
exercisable at $.06 per share. All of the warrants expire on July 6, 2011. The
warrants issued to the placement agent related to the notes issued in the
private placement were valued at $1,995,885 are being amortized as interest
expense over the term of the notes. The warrants were valued using the Black
Scholes option pricing model, based upon the closing price of the common stock
on the date of issue and assuming a volatility of 145%, a risk-free rate of
4.57% and an expected term of five years.

Note 8.       Acquired Intangibles

Acquired intangibles are summarized as follows:
<TABLE>
<CAPTION>
                                                                Gross Carrying       Accumulated
                                                                    Amount           Amortization            Net
                                                             -------------------------------------------------------
<S>                                                          <C>                  <C>                 <C>
Amortized intangible assets:                                 $        5,878,500   $        549,993    $    5,328,507
     License and patent
Aggregate amortization expense:
     For the nine month period ended September 30, 2006                                               $      549,993
Estimated amortization expense:
For the year ended December 31, 2006 (remainder)                                                             221,560
For the year ended December 31, 2007                                                                         881,775
For the year ended December 31, 2008                                                                         881,775
For the year ended December 31, 2009                                                                         881,775
For the year ended December 31, 2010                                                                         881,775
Thereafter                                                                                                 1,579,847
                                                                                                      --------------
                                                                                                      $    5,328,507
                                                                                                      ==============
</TABLE>

                                       13
<PAGE>

                  STEM CELL INNOVATIONS, INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

                                   (Unaudited)


Note 9.        Termination of  Royalty Rights.

         In March 2003, the Company sold to Hemispherx Biopharma, Inc. all of
its inventory related to ALFERON N Injection and a license to sell ALFERON N
Injection. In connection with the sale, the Company continued to receive a
royalty on products containing natural alpha interferon. On July 26, 2006, the
Company terminated its royalty right in exchange for 250,000 shares of
Hemispherx Biopharma common stock. The Company recognized income of $620,000,
based on the fair value of the Hemispherx Biopharma common stock received on the
sale of the royalty right. During the quarter ended September 30, 2006, the
Company sold 245,000 shares of the Hemispherx Biopharma common stock and
realized net proceeds of $526,000.



Note 10. Restatement.


         The three and nine month periods ended September 30, 2005 have been
restated to reflect the elimination of a beneficial conversion feature which was
previously overstated. The effect was to reduce interest expense and net loss by
$775,000 for each period.

                                       Three Months Ended     Nine Months Ended
                                       September 30, 2005    September 30, 2005
                                       ------------------    ------------------

Net loss as previously
    reported                           $       (1,367,634)   $       (2,198,553)

Effect of reversal of
Beneficial Conversion Feature                     775,000               775,000
                                       ------------------    ------------------

Net loss as restated                   $         (592,634)   $       (1,423,553)
                                       ==================    ==================

                                       14
<PAGE>

Item 2.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                  CONDITION AND RESULTS OF OPERATIONS

The following discussion of our financial condition and results of operations
should be read in conjunction with the financial statements and notes thereto
appearing in this Quarterly Report on Form 10-QSB.

Overview
--------

         Stem Cell Innovations, Inc. (the "Company") through its wholly owned
subsidiary, Amphioxus Cell Technologies, Inc. ("ACT") which is based in Houston,
Texas, is a cell biology company. We have an ongoing business relating to the
use of its C3A human liver cell line in the field of drug discovery and
toxicology testing. We have not yet developed any substantial market for our
primary products. Our principal revenues have been contract research and testing
and consulting services for other companies, which have historically been
minimal. To achieve profitable operations, we, alone or with others, must
successfully develop, introduce and market our drug discovery and toxicology
testing and other products. We intend to attempt to develop our C3A human liver
cell line for the production of human serum proteins, including the clotting
factors, Factor VIII and Factor IX, used by hemophiliacs to allow their blood to
clot. In addition, we intend to broaden the application of our expertise into
the area of pluripotent cell biology. Our acquisition of Plurion's assets
consisted substantially of fundamental intellectual property applicable to the
development and use of human pluripotent cells, often referred to as embryonic
stem or germ cells. We are in the process of developing differentiated cell
lines from our proprietary human pluripotent cells, adding to the cell types
that may be used as a screen for drug discovery and toxicity, as well as for
cellular replacement therapy.

         Until March 2003, the Company was a biopharmaceutical company (formerly
known as Interferon Sciences, Inc. ("ISI")) engaged in the study, manufacture,
and sale of ALFERON(R) N Injection, a highly purified, multispecies, natural
source alpha interferon product. In March 2003, the Company sold to Hemispherx
Biopharma, Inc. all of its inventory related to ALFERON N Injection and a
license to sell ALFERON N Injection. In connection with the sale, the Company
continued to receive a royalty on products containing natural alpha interferon.
On July 26, 2006, the Company terminated its royalty right in exchange for
250,000 shares of Hemispherx Biopharma common stock.

         Pursuant to the terms of the Agreement and Plan of Merger dated
February 14, 2006 (the "Merger Agreement") by and among the Company, ACT and a
wholly-owned subsidiary of the Company, Amphioxus Acquisition, Inc.
("Acquisition Sub"), ACT merged with and into Acquisition Sub (the "Merger"),
such that Acquisition Sub was the surviving corporation, changed its name to
Amphioxus Cell Technologies, Inc. and became a wholly-owned subsidiary of the
Company. Upon the completion of the Merger, the stockholders of ACT controlled
approximately 77% of the merged entity. The Merger has been accounted for as a
reverse purchase with ACT being the accounting acquirer.

         The operations of the Company include the operations of ACT from
January 1, 2005 and the operations of ISI from February 15, 2006.

Liquidity and Capital Resources

         In connection with the Merger, on February 14, 2006, the Company also
completed a private placement of notes and warrants to accredited investors
pursuant to which the Company sold an aggregate of $2,350,000 principal amount
of notes convertible into 78,333,332 shares of Common Stock and Warrants to
purchase 39,166,667 shares of Common Stock at an exercise price of $.06 per
share. On the same date the Company completed another private placement of
$1,563,500 of Series 1 Preferred convertible into 52,116,667 shares of Common

                                       15
<PAGE>

Stock and Warrants to purchase an additional 26,058,333 shares of Common Stock.
After fees and expenses of approximately $592,000, the Company received net
proceeds of approximately $3,321,000, from the private placements.

         At September 30, 2006, the Company had approximately $812,000 in cash
and cash equivalents. Until utilized, such cash and cash equivalents are being
invested principally in short-term interest-bearing investments.

         On July 26, 2006, the Company terminated its right to receive royalties
from the sale of products containing natural alpha interferon for 250,000 shares
of the common stock of Hemispherx Biopharma, Inc. During the quarter ended
September 30, 2006, the Company sold 245,000 shares of the Hemispherx Biopharma
common stock and realized net proceeds of $526,000.

         Following the Merger which took place on February 14, 2006, the Company
has carried on the business of ACT. The Company has incurred cumulative losses
of $21,766,665 through the period ended September 30, 2006 and has been
dependent on funding operations through the issuances of convertible debt and
the private sales of equity securities. At September 30, 2006 cash amounted to
approximately $812,000. Management believes that current cash resources will be
insufficient to fund its operations for the next twelve months. Management's
plans include continuing to finance operations through attempting a private or
public placement of equity or debt securities, licensing its human pluripotent
stem cells (PluricellsTM) and reducing expenditures. However, it is uncertain as
to whether the Company will be able to achieve these objectives. Insufficient
funds will require the Company to curtail or terminate its activities.

         The Company's Common Stock is traded in the over-the-counter market and
quoted on the OTC Bulletin Board, which may have a material adverse effect on
the liquidity of its Common Stock and on its ability to obtain additional
financing.

Results of Operations

         Nine Months Ended September 30, 2006 Versus Nine Months Ended September
30, 2005

         For the nine months ended September 30, 2006 (the "2006 Period") and
September 30, 2005 (the "2005 Period"), the Company recorded total revenues of
$52,650 and $8,355, respectively. For the 2006 Period, the increase in total
revenues was primarily due to royalty income, license fees and contract
research. The Company terminated its right to receive royalties from the sale of
products containing natural alpha interferon in July 2006. See Note 9. The
operations of Interferon Sciences, Inc. ("ISI") are only included in the
operations of the Company from February 15, 2006.

         General and administrative expenses for the 2006 Period were $7,833,380
as compared to $855,708 for the 2005 Period. The 2006 Period expenses include
(i) compensation charges of $4,159,000 and (ii) expenses of $892,508 of expenses
related to the Merger. The remaining difference is due principally to increased
salaries, legal and professional fees.

         Research and development expenses for the 2006 Period were $370,868 as
compared to $89,708 in the 2005 Period. The research and development incurred in
the 2006 Period related to Company's stem cell program and ACTIVTox program. The
increase for the 2006 Period was due the substantially improved liquidity of the
Company.

                                       16
<PAGE>

         Interest expense for the 2006 Period was $3,025,757 as compared to
$411,977 for the 2005 Period. The difference was primarily attributable to the
$2,187,009 charged to interest expense related to the beneficial conversion
feature of the $2,350,000 of notes issued on February 14, 2006, the notes of the
Company which were exchanged for Series 1 Preferred and Warrants, and the
valuation of the warrants issued to the placement agent in the private
placement.

         Sale of royalty rights in the 2006 Period was $620,000.

         Loss on sale of securities of $83,719 resulted from the loss on the
sale of the Hemispherx common stock.

         Depreciation and amortization for the 2006 Period was $614,524 as
compared to $62,073 for the 2005 Period. The increase in the 2006 Period was
attributable to amortization related to the patents acquired from Plurion in the
Merger.

         As a result of the foregoing, the Company incurred a net loss of
$11,258,533 for the 2006 Period as compared to a net loss of $1,423,553.

         Three months ended September 30, 2006 versus three months ended
September 30, 2005

         For the three months ended September 30, 2006 (the "2006 Period") and
September 30, 2005 (the "2005 Period"), the Company recorded total revenues of
$16,090 and $2,425, respectively. For the 2006 Period, the increase in total
revenues was primarily due to License fees and contract research by ACT. The
Company terminated its right to receive royalties from the sale of products
containing natural alpha interferon in July 2006. See Note 9. The operations of
ISI are only included in the operations of the Company after February 15, 2006.

         General and administrative expenses for the 2006 Period were $1,143,238
as compared to $371,711 for the 2005 Period. The difference is due principally
to increased salaries, legal and professional fees.

         Research and development expenses for the 2006 Period were $122,620 as
compared to $37,348 in the 2005 Period. The research and development incurred in
the 2006 Period related to Company's stem cell program and ACTIVTox program. The
increase for the 2006 Period was due the substantially improved liquidity of the
Company.

         Interest expense for the 2006 Period was $461,111 as compared to
$162,613 for the 2005 Period. The 2006 Period includes the amortization of
financing fees and interest on the debt issued in February 2006.

         Sale of royalty rights in the 2006 Period was $620,000.

         Loss on sale of securities of $83,719 resulted from the loss on the
sale of the Hemispherx common stock.

         Depreciation and amortization for the 2006 Period was $260,826 as
compared to $11,542 for the 2005 Period. The increase in the 2006 Period was
attributable to amortization related to the patents acquired from Plurion in the
Merger.

         As a result of the foregoing, the Company incurred a net loss of
$1,436,767 for the 2006 Period as compared to a net loss of $592,634.

                                       17
<PAGE>

Recently Issued Accounting Policies

         In July 2006, the FASB issued FASB Interpretation Number 48, Accounting
for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109,
("FIN48"). FIN 48 prescribes a recognition threshold and measurement attribute
for the financial statement recognition and measurement of a tax position taken
in a tax return. The Company must determine whether it is "more-likely-than-not"
that a tax position will be sustained upon examination, including resolution of
any related appeals or litigation processes, based on the technical merits of
the position. Once it is determined that a position meets the
more-likely-than-not recognition threshold, the position is measured to
determine the amount of benefit to recognize in the financial statements. FIN 48
applies to all tax positions related to income taxes subject to FASB Statement
No. 109, Accounting for Income Taxes. The interpretation clearly scopes out
income tax positions related to FASB Statement No. 5, Accounting for
Contingencies. We will adopt the provisions of this statement beginning in the
first quarter of 2007. The cumulative effect of applying the provisions of FIN
48 will be reported as an adjustment to the opening balance of retained earnings
on January 1, 2007. We do not anticipate that the adoption of this statement
will have a material effect on our financial position or results of operations.

         In September 2006, the Financial Accounting Standards Board (FASB)
issued SFAS No. 158, "Employers' Accounting for Defined Benefit Pension and
Other Postretirement Plans--an amendment of FASB Statements No. 87, 88, 106, and
132(R)," which requires employers to: (a) recognize in its statement of
financial position an asset for a plan's overfunded status or a liability for a
plan's underfunded status; (b) measure a plan's assets and its obligations that
determine its funded status as of the end of the employer's fiscal year; and (c)
recognize changes in the funded status of a defined benefit postretirement plan
in the year in which the changes occur. Those changes will be reported in
comprehensive income of a business entity. The requirement to recognize the
funded status of a benefit plan and the disclosure requirements are effective as
of the end of the fiscal year ending after December 15, 2006, for entities with
publicly traded equity securities. The requirement to measure plan assets and
benefit obligations as of the date of the employer's fiscal year-end statement
of financial position is effective for fiscal years ending after December 15,
2008. The Company currently does not have any defined benefit post retirement
plans.

         Also in September 2006, FASB issued SFAS No. 157, "Fair Value
Measurements'" which defines fair value, establishes a framework for measuring
fair value in generally accepted accounting principles and expands disclosures
about fair value measurements. This Statement is effective for financial
statements issued for fiscal years beginning after November 15, 2007 and interim
periods within those fiscal years. Earlier application is encouraged provided
that the reporting entity has not yet issued financial statements for that
fiscal year including financial statements for an interim period within that
fiscal year. The Company is assessing SFAS No. 157 and has not determined yet
the impact that the adoption of SFAS No. 157 will have on its result of
operations or financial position.


Cautionary Statements

Cautionary Statement Pursuant to Safe Harbor Provisions of the Private
Securities Litigation Reform Act of 1995:

         Except for the historical information presented in this document,
including financial information for the nine months ended September 30, 2006 and
September 30, 2005, this Quarterly Report on Form 10-QSB, including the item
entitled "Management's Discussion and Analysis of Financial Condition and
Results of Operations," and documents and information incorporated by reference
into this Quarterly Report on Form 10-QSB contain "forward-looking statements"

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<PAGE>

(as such term is defined in the Private Securities Litigation Reform Act of
1995). These statements are identified by the use of forward-looking terminology
such as "believes", "plans", "intend", "scheduled", "potential", "continue",
"estimates", "hopes", "goal", "objective", expects", "may", "will", "should" or
"anticipates" or the negative thereof or other variations thereon or comparable
terminology, or by discussions of strategy that involve risks and uncertainties.
The safe harbor provisions of Section 21E of the Securities Exchange Act of
1934, as amended, and Section 27A of the Securities Act of 1933, as amended,
apply to forward-looking statements made by us.

         We caution you that no statements contained in this Quarterly Report on
Form 10-QSB should be construed as a guarantee or assurance of future
performance or results. These forward-looking statements involve risks and
uncertainties, including those identified within this Form 10-QSB. The actual
results that we achieve may differ materially from any forward-looking
statements due to such risks and uncertainties. These forward-looking statements
are based on current expectations, and we assume no obligation to update this
information. We urge you to carefully review and consider the various
disclosures made by us in this Form 10-QSB that attempt to advise interested
parties of the risks and factors that may affect our business and the market for
our stock.

Item 3.       Controls and Procedures

         The Company's management, including the Chief Executive Officer and the
Chief Financial Officer, have conducted an evaluation of the Company's
disclosure controls and procedures as of the end of the period covered by this
report and have concluded that these controls and procedures were effective to
provide reasonable assurance that the information required to be disclosed by
the Company in the reports the Company files or submits under the Securities
Exchange Act of 1934 is recorded, processed, summarized and reported within the
time periods specified in the SEC's rules and forms, and to provide reasonable
assurance that information required to be disclosed by the Company in such
reports is accumulated and communicated to the Company's management, including
its Chief Executive Officer and Chief Financial Officer, as appropriate to allow
timely decisions regarding the required disclosure.

         There have been no significant changes in internal control over
financial reporting, for the period covered by this report, that have materially
affected or are reasonably likely to materially affect, the Company's internal
control over financial reporting.

                                       19
<PAGE>

                  STEM CELL INNOVATIONS, INC. AND SUBSIDIARIES


                           PART II. OTHER INFORMATION

Item 1.    Legal Proceedings

           None.

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds

           During the quarter ended September 30, 2006, a stockholder exercised
           a warrant to purchase 2,550,000 on a cashless basis and received
           2,488,554 shares of common stock.

Item 3.    Defaults Upon Senior Securities

           None.

Item 4.    Submission of Matters to a Vote of Security Holders

           On July 6, 2006, the stockholders of the Company approved (i) an
           amendment to the Certificate of Incorporation increasing the number
           of shares of common stock authorized from 55,000,000 to 4,000,000,000
           and (ii) the Company's 2006 Stock Incentive Plan.

Item 5.    Other Information

           None.

Item 6.    Exhibits

           31.1     Certification of Chief Executive Officer and Chief Financial
                    Officer of the Company

           32.1     Certification of Chief Executive Officer and Chief Financial
                    Officer of the Company pursuant to 18 U.S.C. Section 1350 as
                    adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
                    2002.

                                       20
<PAGE>

                           STEM CELL INNOVATIONS, INC.

                               September 30, 2006





                                   SIGNATURES


         Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed in its behalf by the
undersigned thereunto duly authorized.


                                               STEM CELL INNOVATIONS, INC.


DATE:  November 14, 2006                       By: /s/ DR. JAMES H. KELLY
                                                   -----------------------------
                                                   Chief Executive
                                                   and Chief Financial
                                                   Officer

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