Item
1. Financial StatementS
American CryoStem Corporation
Consolidated Balance Sheets
As
of June 30, 2018 and September 30, 2017
|
|
|
|
|
|
|
|
|
30-Jun-18
|
|
|
30-Sep-17
|
|
|
|
(unaudited)
|
|
|
(audited)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
234,355
|
|
|
$
|
410,342
|
|
Accounts Receivable - net of allowance for bad debt
|
|
|
182,195
|
|
|
|
171,860
|
|
Prepaid Expenses
|
|
|
85,630
|
|
|
|
33,333
|
|
Inventory
|
|
|
31,069
|
|
|
|
27,704
|
|
Total Current Assets
|
|
|
533,249
|
|
|
|
643,239
|
|
|
|
|
|
|
|
|
|
|
Other Assets:
|
|
|
|
|
|
|
|
|
Other Receivable
|
|
|
159
|
|
|
|
—
|
|
Investment in Autogenesis - at cost
|
|
|
1,000
|
|
|
|
1,000
|
|
Investment in Baoxin - at cost
|
|
|
300,000
|
|
|
|
—
|
|
Security Deposit
|
|
|
13,540
|
|
|
|
13,540
|
|
Patents and Patents Development - net of accumulated amortization
|
|
|
341,912
|
|
|
|
299,057
|
|
Fixed Assets - net of accumulated depreciation
|
|
|
167,710
|
|
|
|
52,357
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
1,357,570
|
|
|
$
|
1,009,193
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Accounts Payable & Accrued Expenses
|
|
$
|
441,848
|
|
|
$
|
362,576
|
|
Deferred Revenues
|
|
|
36,667
|
|
|
|
25,664
|
|
Bridge Notes Payable
|
|
|
226,500
|
|
|
|
226,500
|
|
Convertible Notes Payable
|
|
|
381,500
|
|
|
|
864,000
|
|
Commitments & Contingencies (Equipment Lease)
|
|
|
32,108
|
|
|
|
—
|
|
Total Current Liabilities
|
|
|
1,118,623
|
|
|
|
1,478,740
|
|
|
|
|
|
|
|
|
|
|
Long Term Liabilities:
|
|
|
|
|
|
|
|
|
Salaries Payable
|
|
|
621,192
|
|
|
|
443,360
|
|
Commitments & Contingencies (Equipment Lease)
|
|
|
53,932
|
|
|
|
—
|
|
Convertible Note Payable net of discount of $87,500 and $0 respectively
|
|
|
12,500
|
|
|
|
—
|
|
Payable to Related Party (ACS Global Inc.)
|
|
|
107,189
|
|
|
|
108,651
|
|
Total Liabilities
|
|
|
1,913,436
|
|
|
|
2,030,751
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ Equity:
|
|
|
|
|
|
|
|
|
Common Stock - $.001 par value, 300,000,000 shares authorized, 47,594,602
shares issued and outstanding at June 30, 2018 and 43,409,580 issued and outstanding at September 30, 2017
|
|
|
47,596
|
|
|
|
43,410
|
|
Additional Paid in Capital
|
|
|
13,263,356
|
|
|
|
11,581,197
|
|
Accumulated Deficit
|
|
|
(13,866,818
|
)
|
|
|
(12,646,165
|
)
|
Total Shareholders’ Deficit
|
|
|
(555,866
|
)
|
|
|
(1,021,558
|
)
|
|
|
|
|
|
|
|
|
|
Total Liabilities & Shareholders’ Deficit
|
|
$
|
1,357,570
|
|
|
$
|
1,009,193
|
|
See the notes to the financial statements.
American CryoStem Corporation
(unaudited)
Consolidated Statements of Operations
For
the Nine Months and Three Months Ended June 30, 2018 and 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9 Months
|
|
|
3 Months
|
|
|
|
30-Jun-18
|
|
|
30-Jun-17
|
|
|
30-Jun-18
|
|
|
30-Jun-17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
957,136
|
|
|
$
|
1,181,979
|
|
|
$
|
177,287
|
|
|
$
|
431,837
|
|
Less Cost of Revenues
|
|
|
(288,701
|
)
|
|
|
(415,169
|
)
|
|
|
(126,216
|
)
|
|
|
(141,949
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Margin
|
|
|
668,435
|
|
|
|
766,810
|
|
|
|
51,071
|
|
|
|
289,888
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Laboratory Expenses
|
|
|
415,818
|
|
|
|
162,913
|
|
|
|
139,251
|
|
|
|
61,435
|
|
General & Administrative
|
|
|
589,597
|
|
|
|
537,542
|
|
|
|
239,375
|
|
|
|
171,230
|
|
Professional Fees
|
|
|
84,650
|
|
|
|
55,898
|
|
|
|
25,637
|
|
|
|
13,794
|
|
Consulting Fees - Options Granted
|
|
|
549,588
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Consulting Fees - Stock for Services
|
|
|
64,050
|
|
|
|
—
|
|
|
|
64,050
|
|
|
|
—
|
|
Total Operating Expenses
|
|
|
1,703,703
|
|
|
|
756,353
|
|
|
|
468,313
|
|
|
|
246,459
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) from Operations
|
|
|
(1,035,268
|
)
|
|
|
10,457
|
|
|
|
(417,242
|
)
|
|
|
43,429
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss) on Settlement
|
|
|
(96,437
|
)
|
|
|
—
|
|
|
|
184
|
|
|
|
—
|
|
Penalties
|
|
|
(538
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(75,910
|
)
|
|
|
(78,826
|
)
|
|
|
(23,699
|
)
|
|
|
(31,897
|
)
|
Interest expense (beneficial conversion feature-debenture)
|
|
|
(12,500
|
)
|
|
|
(25,687
|
)
|
|
|
(12,500
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) before Provision for Income Taxes
|
|
|
(1,220,653
|
)
|
|
|
(94,056
|
)
|
|
|
(453,257
|
)
|
|
|
11,532
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for Income Taxes
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss)
|
|
($
|
1,220,653
|
)
|
|
($
|
94,056
|
)
|
|
($
|
453,257
|
)
|
|
$
|
11,532
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic & Fully Diluted Net Income (Loss) per Common Share:
|
|
$
|
(0.03
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average of Common Shares Outstanding:
|
|
|
45,455,400
|
|
|
|
37,731,141
|
|
|
|
45,519,016
|
|
|
|
37,995,091
|
|
Basic & fully diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See the notes to the financial statements.
American CryoStem Corporation
Consolidated Statements of Cash Flows
For
the Nine Months Ended June 30, 2018 and 2017
|
|
|
|
|
|
|
|
|
30-Jun-18
|
|
|
30-Jun-17
|
|
Operating Activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,220,653
|
)
|
|
$
|
(94,056
|
)
|
Adjustments to reconcile net loss items not requiring the use of cash:
|
|
|
|
|
|
|
|
|
Prepaid Rent - Stock Issued
|
|
|
110,096
|
|
|
|
—
|
|
Legal Bill - Stock Issued
|
|
|
89,959
|
|
|
|
—
|
|
Laboratory Rent - Stock Issued
|
|
|
24,466
|
|
|
|
—
|
|
Bad Debt Expense
|
|
|
(11,642
|
)
|
|
|
10,091
|
|
Consulting Fees - Stock for Services/Options Granted
|
|
|
613,638
|
|
|
|
66,000
|
|
Depreciation & Amortization Expense
|
|
|
52,557
|
|
|
|
30,289
|
|
Loss on Settlement of Legal Bill
|
|
|
96,437
|
|
|
|
—
|
|
Interest Expense - Stock Issued
|
|
|
37,953
|
|
|
|
—
|
|
Interest Expense- Beneficial Conversion Feature
|
|
|
12,500
|
|
|
|
104,476
|
|
Changes in other operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
1,307
|
|
|
|
(126,635
|
)
|
Prepaid expense
|
|
|
(76,763
|
)
|
|
|
(2,727
|
)
|
Inventory
|
|
|
(3,365
|
)
|
|
|
(3,006
|
)
|
Other Receivable
|
|
|
(159
|
)
|
|
|
—
|
|
Accounts payable and accrued expenses
|
|
|
79,272
|
|
|
|
24,756
|
|
Salaries payable
|
|
|
177,832
|
|
|
|
—
|
|
Deferred revenue
|
|
|
11,003
|
|
|
|
(4,833
|
)
|
Net cash provided (used) by operations
|
|
|
(5,562
|
)
|
|
|
4,355
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
Investment in Baoxin
|
|
|
(300,000
|
)
|
|
|
—
|
|
Purchase of lab equipment
|
|
|
(130,260
|
)
|
|
|
(43,434
|
)
|
Patents development
|
|
|
(47,243
|
)
|
|
|
(31,039
|
)
|
Net cash used by investing activities
|
|
|
(477,503
|
)
|
|
|
(74,473
|
)
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
Issuance of common shares
|
|
|
—
|
|
|
|
135,625
|
|
Issuance of convertible debenture
|
|
|
100,000
|
|
|
|
—
|
|
Proceeds from Capital Lease
|
|
|
102,790
|
|
|
|
|
|
Paid down capital lease
|
|
|
(16,750
|
)
|
|
|
—
|
|
Options exercised
|
|
|
122,500
|
|
|
|
—
|
|
Payable to related party (ACS Global Inc.)
|
|
|
(1,462
|
)
|
|
|
(11,264
|
)
|
Net cash provided by financing activities
|
|
|
307,078
|
|
|
|
124,361
|
|
|
|
|
|
|
|
|
|
|
Net change in cash
|
|
|
(175,987
|
)
|
|
|
54,243
|
|
|
|
|
|
|
|
|
|
|
Cash balance at beginning of the period
|
|
|
410,342
|
|
|
|
37,251
|
|
|
|
|
|
|
|
|
|
|
Cash balance at end of the period
|
|
$
|
234,355
|
|
|
$
|
91,494
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
Interest paid during the period
|
|
$
|
6,677
|
|
|
$
|
4,568
|
|
Income taxes paid during the period
|
|
|
—
|
|
|
|
—
|
|
See the notes to the financial statements.
See Note 14 for non-cash transactions.
American CryoStem Corporation
Statements of Changes in Shareholders’ Deficit
For the Nine
Months Ended June 30, 2018 and the Year Ended September 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
Par
|
|
|
Paid in
|
|
|
Retained
|
|
|
Total
|
|
|
|
Shares
|
|
|
Value
|
|
|
Capital
|
|
|
Deficit
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2016
|
|
|
37,121,709
|
|
|
$
|
37,122
|
|
|
$
|
9,440,282
|
|
|
$
|
(11,424,158
|
)
|
|
$
|
(1,946,754
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common shares
|
|
|
91,667
|
|
|
|
92
|
|
|
|
13,658
|
|
|
|
|
|
|
|
13,750
|
|
Convertible notes exercised
|
|
|
2,396,548
|
|
|
|
2,397
|
|
|
|
465,603
|
|
|
|
|
|
|
|
468,000
|
|
Options exercised
|
|
|
2,640,000
|
|
|
|
2,640
|
|
|
|
107,760
|
|
|
|
|
|
|
|
110,400
|
|
Shares issued for services
|
|
|
425,000
|
|
|
|
425
|
|
|
|
174,825
|
|
|
|
|
|
|
|
175,250
|
|
Shares issued to pay interest due
|
|
|
534,656
|
|
|
|
534
|
|
|
|
149,271
|
|
|
|
|
|
|
|
149,805
|
|
Issued shares to pay legal bill
|
|
|
200,000
|
|
|
|
200
|
|
|
|
209,800
|
|
|
|
|
|
|
|
210,000
|
|
Issuance of options
|
|
|
—
|
|
|
|
—
|
|
|
|
1,019,998
|
|
|
|
|
|
|
|
1,019,998
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,222,007
|
)
|
|
|
(1,222,007
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2017
|
|
|
43,409,580
|
|
|
|
43,410
|
|
|
|
11,581,197
|
|
|
|
(12,646,165
|
)
|
|
|
(1,021,558
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible notes exercised
|
|
|
2,740,452
|
|
|
|
2,741
|
|
|
|
479,759
|
|
|
|
|
|
|
|
482,500
|
|
Options exercised
|
|
|
950,000
|
|
|
|
950
|
|
|
|
121,550
|
|
|
|
|
|
|
|
122,500
|
|
Shares issued for services
|
|
|
80,000
|
|
|
|
80
|
|
|
|
63,970
|
|
|
|
|
|
|
|
64,050
|
|
Shares issued to pay interest due
|
|
|
44,377
|
|
|
|
45
|
|
|
|
37,908
|
|
|
|
|
|
|
|
37,953
|
|
Issued shares to pay legal bill
|
|
|
219,290
|
|
|
|
219
|
|
|
|
186,177
|
|
|
|
|
|
|
|
186,396
|
|
Issued convertible debenture
|
|
|
—
|
|
|
|
—
|
|
|
|
100,000
|
|
|
|
|
|
|
|
100,000
|
|
Issuance of options
|
|
|
—
|
|
|
|
—
|
|
|
|
549,588
|
|
|
|
|
|
|
|
549,588
|
|
Purchase prepaid rent
|
|
|
115,890
|
|
|
|
116
|
|
|
|
109,980
|
|
|
|
|
|
|
|
110,096
|
|
Purchase leasehold improvement
|
|
|
35,013
|
|
|
|
35
|
|
|
|
33,227
|
|
|
|
|
|
|
|
33,262
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,220,653
|
)
|
|
|
(1,220,653
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2018
|
|
|
47,594,602
|
|
|
|
47,596
|
|
|
|
13,263,356
|
|
|
|
(13,866,818
|
)
|
|
|
(555,866
|
)
|
See the Notes to Financial Statements
American
CryoStem Corporation
Notes
to the Consolidated Financial Statements
For
the Nine Months Ended June 30, 2018 and June 30, 2017
Note 1. Organization
of the Company and Principles of Consolidation and Summary of Accounting Policies
American CryoStem Corporation
(the “Company”) is a publicly held corporation formed on March 13, 2009 in the state of Nevada as R&A Productions
Inc. (R&A).
In April 2011, R&A
purchased substantially all the assets and liabilities of American CryoStem Corporation (ACS), a company formed in 1987, for 21
million shares of common stock. ACS was deemed to be the accounting acquirer. At the date of the purchase, the former operations
of R&A were discontinued and R&A’s name was changed to ACS.
The Company is in the
business of collecting adipose tissue, processing it to separate the adult stem cells, and preparing such stem cells for long-term
storage. The process allows individuals to preserve their stem cells for future personal use in cellular therapy. The adipose
derived stem cells are prepared and stored in their raw form without manipulation, bio-generation or the addition of biomarkers
or other materials, making them suitable for use in cellular treatments and therapies offered by existing and planned treatment
centers worldwide. Individualized collection and storage of adult stem cells provides personalized medicine solutions by making
the patient’s own preserved stem cells available for future cellular therapies.
The Company has devoted
a significant amount of its time and resources to develop its technologies and intellectual property. These efforts have resulted
in the development of cell lines, cell culture medium and other laboratory products which the Company believes are suitable for
licensing and distribution by third parties. Additionally the Company has initiated a licensing program to license its technologies
to laboratories currently processing other types of biologic materials including cord blood and general blood banks.
The accompanying consolidated
financial statements include the accounts of American CryoStem Corporation and its wholly owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Accounting policies refer
to specific accounting principles and the methods of applying those principles to fairly present the company’s financial position
and results of operations in accordance with generally accepted accounting principles. The policies discussed below include those
that management has determined to be the most appropriate in preparing the company’s financial statements.
The Consolidated Financial
Statements for the period ended June 30, 2018 should be read in conjunction with the Company’s Form 10K for the year ended
September 30, 2017.
Use of Estimates
- The preparation
of the consolidated financial statements in conformity with United States generally accepted accounting principles (“GAAP”)
uniformly applied requires management to make reasonable estimates and assumptions that affect the reported amounts of the assets
and liabilities and disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses at the date
of the financial statements and for the period they include. Actual results may differ from these estimates.
Consolidation -
the
accompanying consolidated financial statements include the accounts of the Company and its subsidiaries. All significant
inter-company balances have been eliminated. Management believes all amounts have been adjusted properly.
Cash -
For the
purpose of calculating changes in cash flows, cash includes all cash balances and highly liquid short-term investments with an
original maturity of three months or less.
Revenue Recognition
-
The Company recognizes tissue storage revenue from the processing of adipose tissue into usable stem cells once all
the procedures have been performed and the client sample has been stored in the Company’ cryogenic storage tank. Storage
revenues for stored client samples are recognized on an annual basis on the anniversary date of the storage. Royalties from the
licensing of the Company’s assets are recognized when earned and collection of the royalty is reasonable assured.
Management evaluated
its various revenues to determine whether there are different operating segments based upon their respective source of revenue.
Management determined, at this time, that all types of revenue currently represent one segment.
Bad Debt Expense
-
The Company provides, through charges to income or loss, a charge for bad debt expense, which is based upon
management’s evaluation of numerous factors. These factors include economic conditions prevailing, a predictive
analysis of the outcome of the current portfolio by client, and prior credit loss experience of each client. The Company uses
the information from this analysis to develop an estimate of bad debt reserve based upon the amount of accounts receivable by
client at the balance sheet date. The Company’s reserve for bad debt is $11,794 at June 30, 2018 and $23,436 at
September 30, 2017.
Inventory -
Inventory
is valued at lower of cost or market using the last in, first out method. Inventory consists of the disposables and
materials to produce production kits for the processing of adipose tissue and cellular samples, the manufacture of our Medias
used to prepare the samples and cryoprotectant for the storage of the samples.
Inventory is composed
of Raw Materials and Finished Goods which was valued at $31,069 on June 30, 2018 and $27,704 on September 30, 2017.
Long Lived Assets
-
The Company reviews for the impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. An impairment loss would be recognized when estimated future cash flows expected to
result from the use of the asset and its eventual disposition is less than its carrying amount.
Fixed Assets
-
Fixed assets are stated at cost. Depreciation expense is computed using the straight-line method over the estimated useful
life of the assets, which is estimated as follows:
Office equipment
|
5 years
|
Lab improvements
|
7 years
|
Lab equipment
|
7 years
|
Furniture
|
15 years
|
Leased equipment assets are
depreciated over the estimated life of the asset or its lease term, whichever is less.
Income taxes -
The
Company accounts for income taxes in accordance with generally accepted accounting principles which require an asset and liability
approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed annually
for differences between financial statement and income tax bases of assets and liabilities that will result in taxable income
or deductible expenses in the future based on enacted tax laws and rates applicable to the periods in which the differences are
expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets and liabilities
to the amount expected to be realized. Income tax expense is the tax payable or refundable for the period adjusted for the change
during the period in deferred tax assets and liabilities.
The Company follows the
accounting requirements associated with uncertainty in income taxes using the provisions of Financial Accounting Standards Board
(FASB) ASC 740,
Income Taxes
. Using that guidance, tax positions initially need to be recognized in the financial statements
when it is more likely than not the positions will be sustained upon examination by the tax authorities. It also provides guidance
for derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. As of June
30, 2018, the Company has no uncertain tax positions that qualify for either recognition or disclosure in the financial statements.
All tax returns from fiscal years 2015 to 2017 are subject to IRS and State of New Jersey audit.
Recently Issued
Accounting Pronouncements -
In February 2016, the FASB issued ASU No. 2016-02 which supersedes ASC 840,
Accounting for
Leases
. The new guidance requires the recognition of lease assets and lease liabilities for operating leases with lease
terms of more than twelve months. Presentation of leases within the consolidated statements of operations and consolidated
statement of cash flows will be generally consistent with current lease accounting guidance. The amended ASU is effective for
reporting periods beginning after December 15, 2018, with early adoption permitted. We plan to adopt the amended ASU in the
first quarter of fiscal year 2019 and do not expect the accounting change to have a material effect on our financial
statements.
In
May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which was an updated standard on revenue recognition.
The ASU provides enhancements to the quality and consistency of how revenue is reported by companies while also improving comparability
in the financial statements of companies that report using the International Financial Reporting Standards or U.S. GAAP. The main
purpose of the ASU is for companies to recognize revenue to depict the transfer of goods or services to customers in amounts that
reflect the consideration to which a company expects to be entitled in exchange for those goods or services. The new standard
also enhances disclosures about revenue, providing guidance for transactions not previously addressed comprehensively and improves
the guidance for multiple-element arrangements. The FASB deferred approval of the ASU to effective date for periods after December
15, 2017. The Company expects the change to not have a material effect on the financial statements.
Note 2. Going Concern
The accompanying consolidated
financial statements have been presented in accordance with generally accepted accounting principles in the U.S., which assume
the continuity of the Company as a going concern. However, the Company has incurred significant losses since its inception which
creates substantial doubt of the company’s ability to continue as a going concern. Management’s plans with regard
to this matter are as follows:
The company may continue
to rely on debt and equity issuances to fund future operations and business expansion.
Note 3. Loss per Share
The Company applies ASC
260, “
Earnings per Share”
to calculate loss per share. In accordance with ASC 260, basic and fully diluted
net loss per share has been computed based on the weighted average of common shares outstanding during the years. The dilutive
effects of the convertible notes and the options outstanding are not included in the calculation of loss per share since their
inclusion would be anti-dilutive.
Net Income (Loss) per share
is computed as follows:
|
|
9 Months
30-June-18
|
|
|
9 Months
30-June-17
|
|
|
3 Months
30-June-18
|
|
|
3 Months
30-June-17
|
|
Net Income (Loss)
|
|
($
|
1,220,653
|
)
|
|
($
|
94,056
|
)
|
|
($
|
540,757
|
)
|
|
$
|
11,532
|
|
Weighted average shares outstanding
|
|
|
45,455,400
|
|
|
|
37,731,141
|
|
|
|
45,519,016
|
|
|
|
37,995,091
|
|
Basic & fully diluted net loss per common share:
|
|
($
|
0.027
|
)
|
|
($
|
0.002
|
)
|
|
($
|
0.012
|
)
|
|
$
|
0.000
|
|
Note 4. Fixed Assets
The fixed assets owned by
the Company are comprised as follows.
|
|
30-Jun-18
|
|
|
30-Sep-17
|
|
Office equipment
|
|
$
|
26,637
|
|
|
$
|
26,637
|
|
Furniture
|
|
|
2,455
|
|
|
|
2,455
|
|
Lab improvement (clean room)
|
|
|
33,262
|
|
|
|
0
|
|
Lab equipment
|
|
|
418,952
|
|
|
|
288,693
|
|
Accumulated depreciation
|
|
|
(313,596
|
)
|
|
|
(265,428
|
)
|
Fixed assets- net
|
|
$
|
167,710
|
|
|
$
|
52,357
|
|
Note 5. Patent &
Patents Filings
The patents and patents
development are recorded at cost and are being amortized on a straight line basis over a period of seventeen years. The Company
at this time has only been amortizing those patents which have been issued to the Company. Patents still in the application process
have not to date been amortized. The unamortized costs of the patents in the application process are $294,028.
The following is a description
of the Company’s patent assets.
On August 2, 2011, the
Company was awarded U.S. Patent No. US 7,989,205 B2, titled Cell Culture Media, Kits, and Methods of Use. The Patent is for cell
culture media kits for the support of primary culture of normal non-hematopoietic cells of mesodermal origin suitable for both
research and clinical applications. The Company filed and maintains a continuation (U.S. Serial No. 13/194,900) and additional
claims were granted on November 8, 2016 under patent Number 9,487,755. The Company filed an additional continuation on November
7, 2016 as part of our overall patent strategy and to cover expanded modifications of the original patent grant, US Patent Application
No. 15/344,805.
On July 3, 2018 the Company’s
was awarded U. S. Patent No. US 10,014,079 B2 titled “Business Method for Collection, Cryogenic Storage and Distribution
of a Biologic Sample Material originally filed as US Serial No 13/702,304 filed June 6, 2011 with a priority date of June 6, 2010.
The patent covers the Company’s comprehensive business method for collecting, processing, cryogenic storage and distribution
of a biologic sample material. The Company has filed a continuation of the patent to cover additional claims and will file additional
Continuation in Part claims for improvements that it has developed since the original patent filing.
The Company has filed
the following additional patents to extend its intellectual property to encompass additional aspects of the Company’s platform
processing technologies. To date the following additional patent filings have been made.
Systems and Methods for
the Digestion of Adipose Tissue Samples Obtained from a Client for Cryopreservation U.S. Serial No. 13/646,647 filed October 5,
2012 with a priority date of October 6, 2011.
On July 6, 2018 the Company
received a ‘Notice of Allowance” from the USPTO concerning the allowance of a number of claims contained in the patent
filing. The Company is in the process of filing a continuation of the patent and certain continuations in part to further protect
its intellectual property with regard to the processing of adipose tissue for cell culture.
Compositions and Methods
for Collecting, Washing, Cryopreserving, Recovering and Return of Lipoaspirates to Physician for Autologous Adipose Transfer Procedures
PCT/US13/44621 filed June 6, 2013 with a priority date of June 7, 2013. Additionally, this
patent has been filed European Union Application No. EPI3800847.9 and China Application No. 2013800391988
Stem Cell Based Therapeutic
Devices and Methods U.S. Serial No. 14/196,616 filed March 4, 2014 with a priority dated of March 10, 2013.
Autologous Serum for Transport
of Isolated Stromal Vascular Fraction or Adipose Derived Stem Cells US Serial No. 14,250,338 filed in 2014 with a priority date
of April 11, 2013.
Human Serum for Cell Culture
Medium for Clinical Growth of Human Adipose Stromal Cells, International PCT filing PCT/US/68350 filed December 31, 2015 with
a priority date of December 31, 2014. During 2017 the Company extended the filing into China, the EU, India, Japan, the Kingdom
of Saudi Arabia, Canada and Mexico.
Systems and Methods to
Isolate and Expand Stem Cells from Urine Provisional Application Number 62/335,426 Filed May 12, 2016.
Note 6. Debt
The following table describes
the Company’s debt outstanding at June 30, 2018.
Debt
|
|
Carrying Value
|
|
|
Fair Value
|
|
|
|
Maturity
|
|
|
Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bridge notes
|
|
$
|
226,500
|
|
|
$
|
229,820
|
|
|
|
Demand
|
|
|
|
8.00
|
%
|
Convertible notes 40 cents
|
|
$
|
100,000
|
|
|
$
|
101,466
|
|
|
|
Fiscal 2020
|
|
|
|
8.00
|
%
|
Convertible notes 35 cents
|
|
$
|
86,000
|
|
|
$
|
87,261
|
|
|
|
Demand
|
|
|
|
8.00
|
%
|
Convertible notes 30 cents
|
|
$
|
45,000
|
|
|
$
|
45,660
|
|
|
|
Demand
|
|
|
|
8.00
|
%
|
Convertible notes 20 cents
|
|
$
|
155,000
|
|
|
$
|
157,272
|
|
|
|
Demand
|
|
|
|
8.00
|
%
|
Convertible notes 15 cents
|
|
$
|
95,500
|
|
|
$
|
96,900
|
|
|
|
Demand
|
|
|
|
8.00
|
%
|
Capital lease
|
|
$
|
86,040
|
|
|
$
|
87,301
|
|
|
|
Fiscal 2021
|
|
|
|
14.00
|
%
|
The convertible notes are
exercisable at any time and have exercise prices ranging from $0.15 to $0.40 with the amount of shares exercisable based on the
face value of the convertible note. The holders of the bridge notes also have an option to purchase the shares of the Company
at $0.05 per share with the number of shares dependent upon the face value of the bridge note. As of the date of this report,
36,500 of these options remain outstanding.
Fair value is calculated
using a mathematical model of similar debt.
On April 6, 2018, the
Company issued a debenture to a creditor and received proceeds of $100,000. The debenture matures in March 2020 and has an exercise
price of $.40 with interest at 8%. As a result of the issue, the Company recognized interest expense of $100,000 as a beneficial
conversion feature of the debenture which has been amortized over the life of the note. The Interest Expense due to the Beneficial
Conversion Feature for the Nine Months Ended June 30, 2018 was $12,500.
Note 7. Common Stock
Issuances
During the first nine
months of fiscal 2018, the Company issued 950,000 shares upon the exercise of options held by option holders. The Company received
proceeds of $122,500.
During the first nine
months of fiscal 2018, the Company issued 44,377 shares to pay interest due to debenture holders and bridge note holders. The
value of the interest paid is $37,953.
During the first nine
months of fiscal 2018, the Company issued 219,290 shares to pay an outstanding legal bill. The shares issued were valued at $186,396.
The Company recognized a loss on settlement of $76,437 on the transaction.
During the first nine
months of fiscal 2018, the Company issued 80,000 shares to consultants for services rendered valued at $64,050.
During the first nine
months of 2018, debenture holders exercised $482,500 of debentures and were issued 2,740,452 shares.
During the first nine
months of 2018, the Company issued 35,013 shares to build a “clean room” at the laboratory. The value of the improvement
is $33,262.
The Company issued 115,890
shares for nine months of prepaid rent for a value of $110,096.
During fiscal 2017, the
Company issued 91,667 shares of common stock and received proceeds of $13,750.
During fiscal 2017, the
Company issued 2,396,548 shares of common stock for Convertible Notes exercise at a value of $468,000.
During fiscal 2017, the
Company issued 2,640,000 shares of common stock for Options exercised at a value of $110,400.
During fiscal 2017, the
Company issued 425,000 shares of common stock to consultants for services rendered valued at $175,250.
During fiscal 2017, the
Company issued 534,656 shares of common stock to pay for interest due to holders of the bridge notes and convertible notes. The
value of the interest paid was $149,805.
During fiscal 2017, the
Company issued 200,000 shares of common stock to pay an outstanding legal bill. The value of the stock issued was $210,000.
Note 8. Option Issuances
The Company applies ASC
718, “Accounting for Stock-Based Compensation” to account for its option issues. Accordingly, all options granted
are recorded at fair value using a generally accepted option pricing model at the date of the grant. The Company uses the Black-Sholes
option pricing model to measure the fair values of its option grants. For purposes of determining the option values at issuance,
the fair value of each option granted is measured at the date of the grant by the option pricing model using the parameters of
the volatility of the Company’s share prices and the risk free interest rate.
During the first nine months
of fiscal 2018, the Company issued 500,000 options to a consultant exercisable at $.01 per option. The Company recorded a consulting
expense of $549,588 as a result of the issue.
The following is a summary
of common stock options outstanding at June 30, 2018:
|
|
|
|
|
Weighted
Average
|
|
|
Weighted
Avg. Years
|
|
|
|
Amount
|
|
|
Exercise Price
|
|
|
to Maturity
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2016
|
|
|
14,371,500
|
|
|
$
|
0.22
|
|
|
|
3.17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issues
|
|
|
1,885,000
|
|
|
|
|
|
|
|
|
|
Exercises
|
|
|
(2,640,000
|
)
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(150,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2017
|
|
|
13,466,500
|
|
|
$
|
0.25
|
|
|
|
2.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issues
|
|
|
500,000
|
|
|
|
|
|
|
|
|
|
Exercises
|
|
|
(950,000
|
)
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(75,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2018
|
|
|
12,941,500
|
|
|
$
|
0.22
|
|
|
|
1.90
|
|
Note 9. Fair Values of
Financial Instruments
Fair Value Measurements
under generally accepted accounting principles clarifies the principle that fair value should be based on the assumptions
market participants would use when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the information
used to develop those assumptions. Under the standard, fair value measurements are separately disclosed by level within the fair
value hierarchy as follows.
Level 1 - Quoted prices
in active markets for identical assets or liabilities.
Level 2 - Observable inputs
other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient
volume or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable
or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or
liabilities.
Level 3 - Unobservable
inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities.
To the extent that valuation
is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires
more judgment. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value
hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement
is disclosed and is determined based on the lowest level input that is significant to the fair value measurement.
The following classifies
the Company’s financial instruments as per the above hierarchy.
Instruments: 6/30/18
|
|
Level I
|
|
|
Level II
|
|
|
Level III
|
|
|
|
|
|
|
|
|
|
|
|
Investment in Autogenesis - at cost
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
1,000
|
|
Investment in Baoxin - at cost
|
|
|
0
|
|
|
|
0
|
|
|
|
300,000
|
|
Bridge notes and debentures payable
|
|
|
0
|
|
|
|
708,000
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
0
|
|
|
$
|
708,000
|
|
|
$
|
301,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Instruments: 9/30/17
|
|
Level I
|
|
|
Level II
|
|
|
Level III
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in Autogenesis - at cost
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
1,000
|
|
Bridge notes and debentures payable
|
|
|
0
|
|
|
|
1,090,500
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
0
|
|
|
$
|
1,090,500
|
|
|
$
|
1,000
|
|
Note 10. Commitments
& Contingencies
The Company is committed
to a non-cancelable lease for lab space in South Brunswick, New Jersey through fiscal year 2019. Minimum lease payments under
this lease are as follows.
2018
|
|
$
|
9,768
|
|
2019
|
|
|
13,024
|
|
|
|
|
|
|
Total minimum lease payments
|
|
$
|
22,792
|
|
The Company also leases
office space in Eatontown, New Jersey. The lease term is from May 1, 2018 to April 30, 2021 for $2,650 per month. Minimum lease
payments under this lease are as follows.
2018
|
|
$
|
7,950
|
|
2019
|
|
|
31,800
|
|
2020
|
|
|
31,800
|
|
2021
|
|
|
18,550
|
|
Total minimum lease payments
|
|
$
|
90,100
|
|
Rent Expense for the Nine Months
Ended June 30, 2018 and 2017 was $93,447 and $70,875, respectively and for the Three Months Ended June 30, 2018 and 2017 was $45,489
and $23,625, respectively.
The Company entered into
a capital lease for lab equipment in the first quarter of 2018. The minimum lease payments due on the capital lease are as follows.
2018
|
|
$
|
10,559
|
|
2019
|
|
|
42,235
|
|
2020
|
|
|
42,235
|
|
2021
|
|
|
7,039
|
|
Total minimum lease payments
|
|
$
|
102,068
|
|
Less amounts representing interest
|
|
|
(16,028
|
)
|
Present value of net minimum lease payments
|
|
$
|
86,040
|
|
Depreciation expense for the
leased equipment for the first nine months of 2018 was $24,795.
The Company is not party to
any litigation against it and is not aware of any litigation contemplated against it as of June 30, 2018.
Note 11. Concentrations
of Credit
From time to time, the
Company maintains cash balances at financial institutions that exceed federally insured limits.
During the first nine
months of fiscal year 2018, Cells on Ice accounted for 51% and Baoxin Ltd. accounted for 31% of Gross Revenues.
Note 12. Investments
During fiscal year 2014,
the Company invested $1,000 in a joint venture. The joint venture is called Autogenesis Corporation and was incorporated in the
state of Florida. The Company and its two chief executives own 50% of Autogenesis. Autogenesis was formed for the purpose of developing
a wound healing protocol. The Company has no further obligations to Autogenesis and the joint venture will be responsible for
its own funding. Autogenesis has no material business operations since its inception.
During the first quarter
of 2018, the Company invested $300,000 in Baoxin Asia Pacific Biotechnology (Shenzhen) Co., Ltd, (Baoxin) a Chinese company that
is involved in the implementation fo the Company’s ATGRAFT technology inChina. Baoxin is not a publically traded corporation
and the investment is carried at cost at June 30, 2018. In June of 2018 John Arnone and Anthony Dudzinski became members of the
Board of Directors of Baoxin.
Baoxin will develop, own
and operate multiple laboratory/treatment/training facilities in China using the Company’s intellectual property. The Company
has received an upfront fee of $300,000 USD and a 5 year minimum annual guarantee of $500,000 USD per year. Additionally, as part
of the transaction the Company has invested $300,000 into Baoxin to obtain 5% minority equity in Baoxin (China) and an option
to acquire up to a 20% equity ownership interest in its Regenerative Medicine Center in Hong Kong (HK). The short term goals are
to set up two additional GMP grade adipose tissue processing and storage facilities in Beijing and Shanghai to cover the need
of the whole China region, and a proper education facility in China to promote the use of ATGRAFT as a more natural dermal filler
over artificial fillers.
Note 13. Related Party
Transactions
At June 30, 2018, the
Company was indebted to a company that is majority owned by the Company’s two chief executive officers for $107,089. The
advances are due on demand, are unsecured, and carry no interest rate and not expected to be collected within the next year.
Note 14. Non- Cash
Transactions
As an addendum to the statement
of cash flows, the following are non-cash transactions taking place during the nine months ended June 30, 2018.
The Company entered into
a lease for laboratory equipment. The amount financed by the lease was $102,790.
The Company issued 219,290
shares to pay an outstanding legal bill. The shares issued were valued at $186,396. The Company recognized a loss of $76,437 on
settlement of the transaction.
Debentures in the amount
of $482,500 were exercised for 2,740,452 shares of common stock.
The Company issued 80,000
shares of Common Stock to consultants for services rendered, valued at $64,050.
The Company issued 35,013
shares of common stock to build a “clean room” at the laboratory. The value of the improvement is $33,262.
The Company issued 115,890
shares of common stock for nine months prepaid rent for the “clean room” and a reduction of rent for the rest of the
laboratory facilities.
Note 15. Subsequent
Events
The Company issued 150,000
shares of common stock upon the exercise of options by an Advisory Board member and received proceeds of $30,000.
The Company has made a review
of material subsequent events from June 30, 2018 through the date this report became available to be issued and found no additional
material subsequent events reportable during this period.
ITEM 2.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND PLAN OF OPERATIONS
|
Forward-looking
Statements
We
and our representatives may from time to time make written or oral statements that are “forward-looking,”
including statements contained in this quarterly report and other filings with the Securities and Exchange Commission (the
“SEC”), reports to our stockholders and news releases. All statements that express expectations, estimates,
forecasts or projections are forward-looking statements. In addition, other written or oral statements which constitute
forward-looking statements may be made by us or on our behalf. Words such as “expect,” “anticipate,”
“intend,” “plan,” “believe,” “seek,” “estimate,”
“project,” “forecast,” “may,” “should,” variations of such words and similar
expressions are intended to identify such forward-looking statements. These statements are not guarantees of future
performance and involve risks, uncertainties and assumptions which are difficult to predict. Therefore, actual outcomes and
results may differ materially from what is expressed or forecasted in or suggested by such forward-looking statements. We
undertake no obligation to update or revise any of the forward-looking statements after the date of this quarterly report to
conform forward-looking statements to actual results. Important factors on which such statements are based on assumptions
concerning uncertainties, including but not limited to, uncertainties associated with the following:
|
·
|
Inadequate
capital and barriers to raising the additional capital or to obtaining the financing needed to implement our business plans;
|
|
|
|
|
·
|
Our
failure to earn revenues or profits;
|
|
|
|
|
·
|
Inadequate
capital to continue business;
|
|
|
|
|
·
|
Volatility
or decline of our stock price;
|
|
|
|
|
·
|
Potential
fluctuation in quarterly results;
|
|
|
|
|
·
|
Rapid
and significant changes in markets;
|
|
|
|
|
·
|
Litigation
with or legal claims and allegations by outside parties; and
|
|
|
|
|
·
|
Insufficient
revenues to cover operating costs.
|
The
following discussion should be read in conjunction with the financial statements and the notes thereto which are included in this
quarterly report. This discussion contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual
results may differ substantially from those anticipated in any forward-looking statements included in this discussion as a result
of various factors.
Background
American
CryoStem Corporation was incorporated in the state of Nevada on March 13, 2009. On April 20, 2011, we acquired, through our wholly
owned subsidiary American CryoStem Acquisition Corporation, substantially all of the assets from, and assumed substantially all
of the liabilities of, ACS Global, Inc. (“
ACS
”) in exchange for our issuance of 21,000,000 shares of
Common Stock to ACS (the “
Asset Purchase
”). We filed a Current Report on Form 8-K with the Securities
and Exchange Commission (SEC) on April 27, 2011 disclosing the Asset Purchase and certain related matters.
Overview
American
CryoStem Corporation is a biotechnology pioneer in the field of Regenerative and Personalized Medicine and operates a state-of-the-art,
FDA-registered, laboratory dedicated to standardized processing, bio-banking and development of cellular tools, and applications,
using autologous adipose (fat) tissue and adipose derived stem cells (“
ADSCs
”). The Company has built
a strong, strategic portfolio of intellectual property, patent applications, and proprietary operating processes that form its
core standardized cellular platform which we believe supports and promotes a growing pipeline of biologic products and processes,
services and international licensing opportunities. Our FDA registered laboratory for human tissue processing, cryo-storage and
cell culture and differentiation media development is located in Monmouth Junction, New Jersey.
The
Company believes the reproducibility of scientific studies has become a substantial issue in life science research from drug discovery
and development through clinical trials as researchers throughout the world continue to use different protocols for processes
associated with sample preparation, cryopreservation and cold chain management. We believe by standardizing handling, storage,
and transportation protocols we can substantially improve the quality and reproducibility of preclinical and clinical data to
help accelerate the transition from lab research to product development and market launch.
Our
business strategy is centered on marketing our standardized collection and processing platform and products as a complete adipose
stem cell solution. We are expanding our international laboratory and product footprint, through internal research and development
and scientific collaborations. We intend to generate revenue through the sale and licensing of our patented collection, processing
and storage products, laboratory tools, and physician/researcher services to attempt to capitalize on: (1) ADSC technologies;
(2) scientific breakthroughs incorporating ADSCs that have been developing in the fast growing Regenerative and Personalized Medicine
industries; (3) providing these growth industries with a standardized ADSC cell processing platform; (4) enhancing the delivery
of healthcare through cellular-based therapies and applications which address disease treatment, wound and burn healing, joint
repair and personalized health and beauty care; and (5) building a global network of physicians and affiliated laboratory facilities
for the delivery of our products and services.
Our
proprietary, patent pending processing platform allows for the collection, preparation and cryo-preservation of adipose tissue
without manipulation, bio-generation or the addition of animal-derived products or other chemical materials which require removal
from the tissue sample upon retrieval or prior to use. Management believes this core process makes each tissue sample suitable
for use in cosmetic grafting procedures or for further processing to adult stem cells for other types of stem cell therapies.
Currently, we believe there are numerous therapeutic and orthopedic applications for adipose tissue and adult stem cell treatments
identified or in use globally.
Products
and Services
American
CryoStem is focused on multiple high margin business lines capable of generating sustainable, recurring revenue streams from each
of our developed products and services. The Company also incorporates its proprietary and patented or patent pending laboratory
products, such as our
ACSelerate
™
cell culture, transportation and cryopreservation mediums, into our
processing product production and contract manufacturing services. Additionally, the Company requires licensees of our tissue
and cell processing technologies to purchase our consumable products including our CELLECT
©
collection kit, ACSelerate
Max cell culture media, and ACSelerate–CP adipose tissue cryoprotectant for the collection, processing, expansion and storage
of tissue/stem cells.
We
have generated initial revenues from our licensee’s in Japan, China and Hong Kong and subject to, obtaining the requisite
financing; management believes that we are well positioned to leverage our developed products and services as the basis for expansion
of international distribution through licensees of our technologies for a host of Regenerative Medicine uses and future applications.
Our
branded product and service offerings include:
CELLECT
®
Validated Collection, Transportation, and Storage System
– An unbreakable “chain of custody” clinical
solution for physicians or researchers to collect and deliver tissue samples utilizing proprietary and patent pending methods
and materials. The CELLECT
®
service is monitored in real-time and assures the highest cell viability upon laboratory
receipt. The CELLECT
®
system incorporates our ACSelerate–TR
™
transport medium into all collection
bags which supports the health of the tissue during transport. The CELLECT
®
kit is an integral part of our validated
ATGRAFT
™
and ATCELL
™
technology platform to be used by all licensees of our platform technologies.
On
July 3, 2018 the Company’s was awarded U. S. Patent No. US 10,014,079 B2 titled “Business Method for Collection, Cryogenic
Storage and Distribution of a Biologic Sample Material originally filed as US Serial No 13/702,304 filed June 6, 2011 with a priority
date of June 6, 2010. The patent covers the Company’s comprehensive business method for collecting, processing, cryogenic
storage and distribution of a biologic sample material. The Company has filed a continuation of the patent to cover additional
claims and will file additional Continuation in Part claims for improvements that it has developed since the original patent filing.
American
CryoStem is the first tissue bank to globally incorporate through its CELLECT
®
service the International
Blood Banking identification and labeling and product identification coding system. The coding was developed in conjunction with
the American Association of Blood Banks (AABB), the American Red Cross and the International Society of Blood Transfusion (ISBT).
These groups form the International Council for Commonality in Blood Banking Automation (ICCBBA) and developed the ISBT 128 Standard
for machine readable labeling. This labeling system is an acceptable machine readable labeling standard, product description,
and bar coding system for FDA Center for Biologics Evaluation and Research under 21 CFR 606.12(c) 13. American CryoStem conforms
to this standard in its laboratory facility and all cellular and tissue products produced at the facility carry our W3750 ICCBBA
facility identifier allowing any hospital, clinic, laboratory and regulator worldwide to identify the origin and obtain additional
information on any sample produced at an American CryoStem facility. The Company will promote this standard in all laboratories
that license or utilize our technology.
ATGRAFT
™
Adipose Tissue Storage Service –
A clinical fat storage solution allowing physicians to provide their patients
with multiple tissue and cell storage options. The ATGRAFT
™
service, through one liposuction procedure
allows individuals to prepare for future cosmetic or regenerative procedures by storing multiple samples of their own adipose
tissue to be returned in the future as a natural biocompatible filler, or the sample may be further processed to create cellular
therapy applications without the trauma of further liposuctions. ATGRAFT
™
procedures may include breast
reconstruction, layered augmentation, buttocks enhancement or volume corrections of the hands, feet, face and neck areas that
experience significant adipose tissue (fat) volume reduction as we age.
ATGRAFT
™
is processed
and stored utilizing our standards so that any stored fat tissue sample may be retrieved in the future and re-processed to create
stem cells “ATCELL
™”
.
The
Company charges standardized fees for
ATGRAFT
™
tissue processing and a minimum annual storage fee depending
on the volume of tissue stored. These processing and storage fees may be paid to the Company by the collecting/treating physician
or the consumer. The Company earns additional fees, for the thawing, packaging and shipment of the stored samples back to the
physician or clinic for immediate use upon receipt. Additionally, physicians or patients may request that any stored ATGRAFT
™
tissue sample of 25ml or greater be reprocessed utilizing the Company’s ATCELL
™
and Autokine-CM
™
processing. The Company charges fees for the reprocessing of a 25ml stored ATGRAFT
™
sample and
may charge additional fee’s if expansion of the newly created ATCELL
™
sample is also requested.
The
Company believes the ATGRAFT
™
service may create significant revenue opportunities and patient retention
for the participating physician. The ATGRAFT
™
service lowers physician/patient overall costs by eliminating
additional liposuction procedures for each scheduled fat transfer or therapy procedure. Physician cost savings may include: materials,
supplies, equipment, and the expenses of utilizing a surgical center, hospital operating room or an in-office aseptic procedure
room. The ATGRAFT
™
service is designed to operate under the minimally manipulated regulations contained
in both 21 CFR 1271.10 and PHS 361.
ATCELL
™
Adipose Derived Stem Cells (ADSCs) –
Clinically processed and characterized adipose derived regenerative cells
(ADRCs) created using the Company’s proprietary Standard Operating Procedures (SOPs) and ACSelerate
™
patented
cell culture media. ATCELL
™
is the Company’s trademarked name for its ADRCs and differentiated
cell products and processing methodology. The Company maintains multiple master and differentiated cell lines and labels them
according to their characterization. (i.e. ATCELL
™
(adipose derived stem cells) ATCELL-SVF
™
(stromal vascular fraction), ATCELL–CH
™
(differentiated chondrocytes), etc.
Cell lines are custom created for patients desiring to store their cells for their own use in future Regenerative Medicine procedures.
The Company charges its customers fees to process a previously stored ATGRAFT
™
sample and for newly
collected client tissue samples to be processed. Customer samples submitted for processing must utilize the CELLECT
®
collection system and ACSelerate
™
mediums to conform to our internal SOPs and quality
control standards.
On
July 6, 2018 the Company received a ‘Notice of Allowance” from the USPTO concerning the allowance of a number of claims
contained in the patent filing titled “Systems and Methods for the Digestion of Adipose Tissue Samples from a Client for
Cryopreservation”, application number 13/646,647. The Company is in the process of filing a continuation of the patent and
certain continuations in part to further protect its intellectual property with regard to the processing of adipose tissue for
cell culture prior to the publication of the final granted claims.
The
Company’s ATCELL
™
cell lines are processed and cultured in our patented ACSelerate
™
cell culture media. All tissue, cells, and research materials made available for sale to research institutions are
tested for sterility, disease, lifespan, and population doubling rate (PDL). Cell morphology is confirmed by (i) flow cytometry
and (ii) differentiation analysis using ACSelerate
™
differentiation media. Each ATCELL
™
line can be further cultured and differentiated allowing the Company to provide genetically matched clinical grade
cell types. We believe this research methodology may provide opportunities for the Company’s ATCELL
™
and ACSelerate
™
products to become the building blocks of final developed commercial applications.
The
Company intends to support its cell therapy application research, development and collaborative efforts by making ATCELL
™
and ATGRAFT
™
samples available for research and product development purposes through
joint ventures, and university and commercial collaborations. These adipose tissue and cell line samples, we believe will be highly
sought after by private researchers and universities for use in pre-clinical trial studies and in-vitro research due to our clinical
processing methodology, donor sample data and the ability to create multiple cell types that have identical genetic profiles.
We believe the clinical processing methods, data collection and testing of our ATCELL
™
and the
ability to make multiple cell types from the same donor line allows research teams to focus on application development and avoid
bench to commercialization delays. The Company will also distribute its ATCELL
™
cell products to
users of its ACSelerate
™
cell culture media for research and development. The Company is investigating
new sources of human mesenchymal cell lines for production and distribution to the cellular therapy research market.
ACSelerate
™
Cell Culture Media Products
– Manufactured patented cell culture media products for growing human stromal
cells (including all cells found in human skin, fat and other connective tissue). Certain ACSelerate
™
cell
culture media lines are available in animal serum free, which is suitable for human clinical and therapeutic uses or a low serum
version for application development and research purposes. The patented ACSelerate
™
cell culture
media line was specifically developed to address increasing industry demand for animal serum-free cell culture products and for
the acceleration of products from the laboratory to the patient.
The
Company has entered into a licensing and manufacturing agreement with PeproTech, Inc a life sciences company formed in 1988. PeproTech
is the trusted source for the development and manufacturing of high quality cytokine products for the life-science and cell therapy
markets. The company has grown into a global enterprise with state-of-the-art manufacturing facilities in the US, and offices
around the world. With over 2,000 products PeproTech has developed and refined innovative protocols to ensure quality, reliability
and consistency. The Company and PeproTech completed the optimization and scale up manufacturing studies and the licensed
medium is marketed under PeproTech’s, PeproGrow
™
and the Company’s ACSelerate-Max
™,
brands. Additionally, the company offers its ATCELL
™
research grade adipose derived stem
cells to purchasers of either the PeproGrow
™
or ACSelerate Max
™
branded cell culture
mediums for research and development.
On
August 2, 2011, the Company was issued US patent number 7,989,205 for “Cell Culture Media, Kits and Methods of Use.”
The granted claims include media variations for cellular differentiation of ADSCs into osteoblasts (bone), chondrocytes (cartilage),
adipocytes (fat), neural cells, and smooth muscles cells in both HSA medium (clinical) grade and FBS (research) grade. This patent
covers both research grades and grades the Company believes suitable for cell culture of adipose-derived stem cells intended for
use in humans. Additionally on November 8, 2016 the Company was granted additional claims from the continuation U.S. Serial No.
13/194,900 issued as a new Patent Serial No. 9,487,755. Prior to the issuance the Company filed a continuation in part (CIP) containing
additional claims related to our ongoing media development.
Published
cell culture research indicates the most widely used cell culture medium today for growing and differentiating stem cell cultures
for in vitro diagnostics and research contains fetal bovine serum (FBS) and other animal derived products. The use of FBS and
other animal products in clinical cellular therapy application development and manufacture raises concerns and generates debates
within the scientific and regulatory community relating to potential human/animal cross-contamination. These same concerns may
lead to additional expensive and expansive testing and documentation requirements with the FDA during the application and approval
process for new cellular therapies manufactured with or containing animal or animal derived products. FDA concerns are evidenced
in their Guidance’s and Guidelines regarding cellular therapy involving human cells, tissues and products (HCT/Ps) published
and maintained by the FDA. Management believes that eliminating or greatly reducing FBS in cellular manufacturing, applications
and products can eliminate or ease these scientific and regulatory concerns and may prove to be a winning strategy for cellular
therapy application developers seeking FDA approval.
Our
media products are being utilized by our research partners engaged in developing novel new cellular applications and treatments.
The Company supports these efforts by making ATCELL
™
samples available for research purposes and
for internal product development through our research programs. We believe these cell lines are highly sought after by private
researchers and universities for use in pre-clinical trial studies and in-vitro research. We also believe that the Company’s
ability to provide materials for these research and development collaborators, partners and other third parties extends the Company’s
ability to become a primary source of autologous cellular materials and services necessary to support approved applications and
treatments.
The
Company has created several versions of its
ACSelerate
™
cell culture media including:
|
·
|
ACSelerate-MAX
™
- xeno serum free cell culture media,
|
|
·
|
ACSelerate-SFM
™
- animal serum free cell culture media,
|
|
·
|
ACSelerate-LSM
™
- low FBS (0.05%) cell culture media,
|
|
·
|
ACSelerate-CY
™
-
for differentiation of
ATCELL
™
into chondrocytes (
ATCELL-CY
™
),
|
|
·
|
ACSelerate-OB
™
-
for differentiation of
ATCELL
™
into osteoblasts (
ATCELL-OB
™
)
|
|
·
|
ACSelerate-AD
™
- for differentiation of
ATCELL
™
into adipocytes (
ATCELL-AD
™
)
|
|
·
|
ACSelerate-MY
™
-
for differentiation of
ATCELL
™
into myocytes (
ATCELL-MY
™
)
|
|
·
|
ACSelerate-CP
™
-
non-DMSO (Dimethyl Sulfoxide) cellular cryopreservation media
|
|
·
|
ACSelerate-
TR
™
- sterile transportation medium designed to maintain the viability of the tissue during the shipment
of adipose tissue to our processing facility.
|
The
Company continues to optimize additional versions of
ACSelerate
™
media through further research and testing
to develop medium versions for differentiation of
ATCELL
™
ADSCs into neural, lung and other specific cell
types that may be necessary for use in future clinical applications. On December 31, 2014 the Company filed a patent application
for an advanced medium formulation titled Human Albumin Serum for Cell Culture Medium for Clinical Growth of Human Adipose Stromal
Cells. (US Serial No. 62/098799). On December 31, 2015, the Company converted the provisional application to an international
PCT filing (PCT/US/68350) under the title Human Serum for Cell Culture for Clinical Growth of Human Adipose Stromal Cells.
ACS
Laboratories
™
:
Laboratory Product Sales, Contract Manufacturing and Professional Services
–
ACS Laboratories is a division of American CryoStem Corporation, responsible for the manufacturing and sale of all the Company’s
patented and patent pending cellular, cell culture, processing and testing products to professional, institutional and commercial
clients. The Company operates a separate website (
acslaboratories.com)
to distinguish the sale of commercial and research
products from its consumer products and services, which are marketed on its main website (
americancryostem.com
). ACS Laboratories
manufactures a full line of ACSelerate
™
cell culture media and ATCELL
™
products;
and provides these products to our collaborative partners and international licensees as further discussed below.
Contract
Manufacturing,
Autokine-CM
®
Anti-Aging, Autologous Skin Care Product Line
– Under agreement
with Personal Cell Sciences Corp. (PCS), we manufacture the key ingredient Autokine-CM
®
(autologous adipose
derived stem cell conditioned medium) for PCS’ U-Autologous
™
anti-aging topical formulation. Each product is
genetically unique to the individual and custom blended, deriving its key ingredients from the individual client’s own stem
cells. The Company provides its CELLECT
®
Tissue Collection service to collect the required tissue to manufacture
the U-Autologous
™
product and processes it under the same Standard Operating Procedures that it developed
for the ATGRAFT
™
and ATCELL
™
cell processing services utilizing ACSelerate
™
cell culture media. The Company receives collection, processing and long term storage fees and earns a royalty on all
U-Autologous product sales. The utilization of the Company’s core services in its contract manufacturing relationships provides
opportunities for the Company for its ATGRAFT
™
and ATCELL
™
products.
Our
Company’s contract manufacturing services can be extended to develop custom and/or white label products and services for
both local and global cosmetic and regenerative medicine companies, physicians, wellness clinics and medical spas. The Company
intends to expand its relationships and contract manufacturing regionally through its physician networks and globally through
its International Licensing Program.
International
Licensing Program –
The Company believes that many jurisdictions outside the US currently permit use of cellular therapies
and regenerative medicine applications. The Company has received international inquiries concerning the sale or licensing of our
SOPs, products and services in the Regenerative Medicine and Medical Tourism Markets. The Company believes that the inquiries
to date are a result of the global boom in Medical Tourism, Regenerative Medicine and the slow pace of approval of cellular therapies
and regenerative medicine applications in the US. To address the Company’s sales, marketing and branding opportunities globally,
the Company has created its international licensing program. To date we have licensed our technologies in Hong Kong, Shenzhen,
China, Bangkok Thailand and, Tokyo, Japan.
The
Company believes it can take advantage of the significant growth of the global cellular therapy market through its international
licensing and marketing efforts. A recently published study by Transparency Market Research predicts that the Stem Cell market
will grow at a CAGR of 24.2% upon its value of US $26.23 billion in 2013 and will reach an approximate value of US $119.52 billion
by 2019. The report, titled “Stem Cells Market - Global Industry Analysis, Size, Share, Growth, Trends and Forecast, 2012
- 2018”; which can be found at (
http://globenewswire.com/news-release/2014/12/22/693419/10113247/en/Global-Stem-Cells-Market-to-grow-at-a-CAGR-of-24-2-to-Push-US-119-52-billion-by-2019-Transparency-Market-Research
On
March 23, 2018 the Company entered into an Agreement with Cryoviva (Thailand) Ltd., (“Cryoviva”) established in 2007,
under which the Company licensed the rights to utilize the Company’s Standard Operating Procedures (SOP’s) to create and market
the Company’s ATGRAFT™ tissue storage service and ATCELL™ adipose derived stem cell processing and storage services
in Thailand. The Agreement calls for the payment of certain training fees and, a percentage of the gross revenue subject to annual
minimum payments generated from our products. Additionally, the Agreement calls for the purchase of CRYO consumable products required
for ATGRAFT and ATCELL sample processing including CRYO’s ACSelerate™ non-DMSO cryogenic tissue storage media, transportation
media, Cellect™ tissue collection kit, and ACSelerate – Max™ cell culture medium.
Baoxin
Asia Pacific Biotechnology (Shenzhen) Co., Ltd
During
2017 the Company entered into additional agreements with HIT to allow for the transfer of their rights to an affiliated Company
Baoxin Asia pacific Biotechnology Co, Ltd (“Baoxin”) in Shenzhen China. Baoxin will develop, own and operate multiple
laboratory/treatment/training facilities in China. CRYO has received a fee of $100,000 for the transfer of the rights to Baoxin
and a 5 year minimum annual guarantee of $500,000 USD per year. Additionally, as part of the transaction CRYO has invested $300,000
into Baoxin to obtain 5% minority equity in Baoxin (China) and an option to acquire up to a 20% equity ownership interest in the
Regenerative Medicine Center in Hong Kong (HK) being developed by HIT. The short term goals are to set up two additional GMP grade
adipose tissue processing and storage facilities in Beijing and Shanghai to cover the needs of the China region, and a proper
education facility in China to promote the use of ATGRAFT as a better more natural dermal filler over artificial fillers.
In
June of 2018 senior management representatives of the Company joined with members of the management and marketing team of Baoxin
in Shenzhen China for the official launch of the Company’s tissue collection processing and storage technologies by Baoxin
which included a meeting with Chinese Government and Investment officials at the government offices in Shenzhen. The purpose of
the meetings at the government offices was to formally present Baoxin’s business models and for Baoxin to execute investment
documents with the government affiliated investment funds that are supporting their business expansion plans in Shenzhen and throughout,
China. Company management subsequently accompanied and assisted Baoxin management and marketing team members on a five city tour
of plastic and cosmetic hospital facilities introducing Baoxin’s licensed ATRGAFT™ tissue collection, processing,
storage and retrieval services. Upon completion of the marketing tour and return to the US the Company has received initial consumable
orders from Baoxin. Additionally John S Arnone and Anthony Dudzinski became members of the Board of Directors of Baoxin in June
of 2018. (see Note 12 of the Financial Statements for additional information).
CellSource,
Ltd.
In
June of 2015, The Company entered into an initial agreement with CellSource, LTD. (“CellSource”) located in Shibuya,
Tokyo Japan for the licensing of our AGRAFT
™
tissue processing and storage technology and the purchase of our
CELLECT
®
collection products which include our ACSelerate-TR
™
transport medium. The Company also
assisted CellSource in upgrading its facility in Japan and provided training in ATGRAFT
™
processing and laboratory
recordkeeping procedures. Upon execution of the Agreement the Company received an upfront payment and will receive additional
minimum annual payments and consumable product sales revenue in future years. The Agreement also provided CellSource with a two
year (2) opportunity to exercise a right of first refusal for the licensing and distribution of other products marketed by the
Company in Japan. The right of first refusal expired on June 2, 2017.
Product
Development
Our
strategic approach to product development is to design, develop and launch new products and services that utilize our existing
products and services, i.e. the use of the CELLECT
®
collection materials in providing ATGRAFT
™
tissue storage services. Management believes that this approach will provide the Company with opportunities to produce near term
cash flow, strong recurring revenue streams, strong international licensing partners and complementary scientific data. We focus
on developing products, services and applications that require tissue collection and processing as the initial requirement to
produce cellular therapies and products. These products and services may include adipose tissue and stem cell sample processing
and storage as a form of personal
“bio-insurance”,
adipose tissue (fat) storage for cosmetic fat engraftment
procedures, and the creation and production of topical applications and ingredients used by other companies in the wound care
and cosmetic industries as well as cellular applications and bio-materials development.
We
intend to focus our efforts on expanding our products and services pipelines based upon our intellectual property portfolio, collaborative
development relationships, product sales and distribution, and international licensing and partnering opportunities. Our current
activities include supporting our university and industry collaborations by providing our products and services with the expectation
that our products and services become the basis for new adipose tissue and stem cell based Regenerative Medicine and cellular
therapy applications. We believe this strategy allows our proposed research partners and their application development teams to
begin with clinically harvested and processed adipose tissue and ADSCs (ATCELL
™
), which may be a significant
step toward accelerating the development and approval of new treatments.
Collaboration
/ Partnering Opportunities / Acquisitions
PeproTech,
Inc.
On
April 4, 2016 the Company entered into an Agreement with PeproTech, Inc of Rocky Hill, NJ. Under the Agreement PeproTech will
manufacture, market and distribute the Company’s ACSelerate–Max cell growth medium. The Company and PeproTech completed
the optimization and scale up manufacturing studies and the licensed medium is marketed under both PeproTech’s PeproGrow
and the Company’s ACSelerate-Max brands. PeproTech will leverage its current global sales relationships which reach a majority
of all research laboratories worldwide to maximize distribution of ACSelerate-Max and other optimized media lines. Additionally,
the Company and PeproTech have discussed the licensing of additional American CryoStem patented media and products for production
and distribution by PeproTech, any additional media licensed to PeproTech will undergo similar optimization and scale up production
testing prior to being released for sale.
BioLife
Customer and Physician Acquisition
In
February 2015 the Company entered into a binding asset purchase agreement with BioLife Cell Bank Dallas, LLC and BioLife Cell
Bank Management, LLC (collectively “BioLife”), to purchase all of BioLife’s adipose tissue, stem cell storage
clients samples, and physician network. The transaction was concluded in March of 2015. Transfer of the adipose tissue samples
was completed on April 24, 2015 and the Company undertook a complete physical inventory of the transferred samples. The Company
initiated annual storage fee billing to the acquired storage clients in June of 2015. Management believes that, with the acquisition
of BioLife, the Company became one of the largest commercial adipose tissue storage facility in the United States.
Protein
Genomics and Formation of Autogenesis Corporation
In
2012, American CryoStem entered into a Memorandum of Understanding (MOU) outlining our initial collaborative efforts with Protein
Genomics, Inc. (PGEN) to test and develop new products by combining certain components of our respective intellectual property
and patented products. We have provided PGEN and its research partner, Development Engineering Sciences (DES), with Adipose Derived
Stem Cells (ATCELL
™
) and our
patented cell culture mediums (ACSelerate
™
) for testing with
PGEN’s products designed for the wound healing market.
In
fiscal 2013 we entered into a formal joint venture with Protein Genomics through the incorporation of Autogenesis, Corp. as required
by the 2012 MOU. Each company (CRYO and PGen) initially has an equal ownership interest. All products capable of being commercialized,
as well as any new intellectual property, resulting from the ongoing scientific collaboration will be wholly-owned by Autogenesis.
The collaborative efforts resulted in successful initial “proof of concept” combining
PGEN’s unique biomaterial and the Company’s ATCELL
™
and ACSelerate
™
products. Management believes the preliminary
results showed successful healing of full depth wounds on the backs of immune deficient mice.
Cells
on Ice:
In
August of 2015 the Company entered into an Agreement with Cells On Ice, Inc. (COI) located in Los Angeles, California to process
and cryopreserve adipose tissue and adipose derived cellular samples for future use in Regenerative Medicine. COI is a network
of physicians interested in the development and use of adipose tissue and adipose derived cellular samples in regenerative therapies
and cellular medicine. The Company has agreed to distribute its CELLECT
®
collection boxes and provide its ATGRAFT
™
and ATCELL
™
processing services for the collection, processing and storage of tissue samples
at its NJ facility. Under the agreement, COI will pay the Company for the processing and storage of each sample generated by COI
network physicians. COI plans to seek regulatory approval for use of the stored samples in clinical studies utilizing adipose
tissue processed into Stromal Vascular Fraction (SVF) and ultimately expanded adipose derived mesenchymal adult stem cells. The
Company is incorporating its existing Standard Operating Procedures (SOPs), processing protocols and patented products into COI’s
studies and may provide processing and other data to COI in support of their ongoing efforts to develop and obtain regulatory
approval of its cellular therapies. COI has initiated several IRB approved studies. This initial work will become the basis for
a series of regulatory filings for product approval and registration with the FDA.
On
January 3, 2018 the Company received a warning letter from the US FDA concerning its contract manufacturing services provided
to Cells On Ice. The FDA has informed the Company through the letter that the FDA has determined that its autologous adipose derived
cell product ATCELL is a drug under current FDA regulations and guidance and requested that the Company file an Investigational
New Drug (IND) application. In response to the letter the Company has ceased shipment of its ATCELL product within the United
States and is currently in discussions with the FDA concerning the filing of the IND in the near future.
Since
receiving the Warning Letter from the FDA in January the Company undertook a complete reorganization and remediation of its facility
and operations and an expansion of its existing facilities. Working with its landlord at its Monmouth Junction Facility, NJ facility
the Company has leased additional space and is in the final stages of installing and certifying a new Clean Room designed specifically
for cellular expansion, medium filling and tissue processing. In addition, the Company has retained new consultants to assist
its personnel in the review and revalidation of its operating procedures, equipment and processing methods as well as designing
new procedures for upgraded and newly acquired laboratory operating and testing equipment. This work has been performed in expectation
of a pending Investigational New Drug Application (IND) with the FDA for the use of autologous adipose derived cells by its clients
for the relief of inflammation associated with certain conditions resulting from trauma. During the course of these efforts, the
Company has been engaged with representatives of the FDA regarding our responses to the Warning Letter and scheduled and completed
a Pre-IND meeting with FDA to clarify some of the requirements of the IND application process and documentation. Additionally
the Company has initiated a focused questionnaire program to obtain additional treatment and outcome data from all participants
under the COI program. The Company believes that it can complete this work and prepare and submit the Application to FDA in the
near future.
Additional
Collaborations
The
Company is in the early stages of developing collaborations with additional industry and university partners. These developing
relationships in their earliest stages are covered by Confidential Disclosure Agreements and those that are more advanced also
include Material Transfer Agreements under which the Company supplies either ATCELL
™
or ACSelerate
™
medium products for evaluation, testing, and the development of new cellular therapy
applications.
The
Company has entered into Non-Disclosure and Material Transfer Agreements with a number of potential collaborators. No assurance
can be given that these relationships will progress to full collaborative agreements or ultimately result in new technology for
future commercialization.
Intellectual
Property
From the
Company’s formation, our strategy has been to invest time and capital in intellectual property protection. This strategy
is intended to strengthen our Company’s foundation in any defensive or offensive legal challenge. In addition, we are developing
our IP portfolio to ensure and enhance our business flexibility and allow us to gain favorable terms in potential future collaborative
partnerships with third parties. Our intellectual property portfolio currently includes three issued U.S. patents (Serial No.
7,989,205, and Serial No. 9,487,755,
Cell Culture Media Kits and Methods of Use
); and U. S. Patent No. US 10,014,079 B2
titled “Business Method for Collection, Cryogenic Storage and Distribution of a Biologic Sample Material and has additional
pending patent applications which are detailed in the following chart:
Title
|
Technology
|
Application Number
|
Cell
culture media, Kits, and Methods of Use
|
ACS
cell culture media line
Covers 12 types of Medium
|
US
Patent No. 7,989,205
Issued August 2, 2011
|
Cell
culture media, Kits, and Methods of Use
|
ACS
cell culture media line
Additional claim Granted
for all 12 medium types
|
US
Patent No. 9,487,755
Issued November 8, 2016
Continuation of US Patent
No. 7,989,205
|
Cell
culture media, Kits, and Methods of Use
|
ACS
cell culture media line
Continuation of Granted Patent
covering additional improvements
|
US
Patent Application No. 15/344,805
Continuation of US Patent
No. 7,989,205
|
Human
serum for cell culture medium for growth of human adipose stromal cells
|
A
cell culture medium for growth of human adipose stromal cells for human and therapeutic applications
|
PCT/US15/68350
30 month National Phase entry
date of June 31, 2017
|
A
Business Method for Collection, Cryogenic Storage and Distribution of a Biological Sample Material
|
Company
Core Tissue Collection Processing and Storage Methodology
Covers CELLECT Kit, Transport
and Cryopreservation Medium for ATGRAFT and ATCELL Products
|
US
Patent No. US 10,014,079 B2 issued July 3, 2018
US Serial No 13/194,900
Filed June 6, 2010
Patent Application Published
December 5, 2013
|
A
Business Method for Collection, Cryogenic Storage and Distribution of a Biological Sample Material
|
Company
Core Tissue Collection Processing and Storage Methodology
Continuation covering Improvements
|
Developed
Improvement established; Divisional, Continuation-In-Part claiming priority to US Serial No. 13/194,900 imminent (PCT
Application filing planned)
|
Systems
and Methods for the Digestion of Adipose Tissue Samples Obtained From a Client For Cryopreservation
|
Adipose
Tissue Digestion Laboratory Processing Methods
|
Notice
of Allowance for certain claims received July 26, 2018
U.S. Serial No. 13/646,647
filed October 6, 2011
|
Systems
and Methods for the Digestion of Adipose Tissue Samples Obtained From a Client For Cryopreservation
|
Adipose
Tissue Digestion Laboratory Processing Methods
|
Developed
Improvement established; Divisional, Continuation-In-Part claiming priority to US Serial No. 13/646,900 imminent (PCT
Application filing planned)
|
Compositions
and Methods for collecting, Washing, Cyroprocessing, Recovering and Return of Lipoaspirate to Physicians for Autologous Adipose
Transfer Procedures”
|
Company
Adipose Tissue Storage Platform for Cosmetic Procedures Covers the core processing adipose tissue for ATGRAFT adipose tissue
dermal filler product
|
U.S.
Serial No. 14/406,203 National Phase entry date of December 5, 2014 based on PCT/US2013/044621
European Union Application
No. EPI3800847.9
China Application No. 2013800391988
|
Compositions
and Methods for “Collecting, Washing, Cyroprocessing, Recovering and Return of Lipoaspirate to Physicians for Autologous
Adipose Transfer Procedures”
|
Company
Adipose Tissue Storage Platform for Cosmetic Procedures
Covers additional claims
related to ATGRAFT process not included in original application
|
Developed
Improvement established; Divisional, Continuation-In-Part claiming priority to US Serial No. 14/406,203 imminent (PCT
Application filing planned)
|
Systems
and methods to isolate and expand stem cells from urine
|
Isolation
of stem cells from urine of patients for use in research and therapeutics
|
US
Serial Nos. 62/335,426 and 62/439,106
|
Additionally,
the Company has in-licensed IP with the following collaborations and joint ventures;
Patent
Title
|
Use
of Patent
|
Application
Number
|
Cosmetic
compositions including tropoelastin isomorphs
(wound healing)
|
Protein
Genomics and American CryoStem (Autogenesis) collaboration
|
USPTO
#5,726,040
|
Cosmetic
compositions
(wound healing)
|
Protein
Genomics and American CryoStem (Autogenesis) collaboration
|
USPTO
#6,451,326
|
Recombinant
hair treatment compositions
(wound healing)
|
Protein
Genomics and American CryoStem (Autogenesis) collaboration
|
USPTO
#6,572,845
|
Wound
healing compositions and methods using tropoelastin and lysyl oxidase
(wound healing)
|
Protein
Genomics and American CryoStem (Autogenesis) collaboration
|
USPTO:
#6,808,707
|
Business
methods, processes and systems for collection, cryogenic storage and distribution of
cosmetic formulations from an obtained stem cell based a biological
(PCS)
|
Personal
Cell Sciences and American CryoStem collaboration
|
USPTO
application #61/588,841
|
Trademarks
In
addition to patents, the Company has registered the following trademarks with the U.S. Patent and Trademark Office:
American
CryoStem
®
, CELLECT
®
and
ATGRAFT
™
. We utilize additional trademarks for
our products, slogans and themes to be used in our marketing initiatives, including, for example,
ACSelerate – MAX SFM
™
ACSelerate-SFM
™
,
ACSelerate- LSM
™
and
ATCELL
™
.
The
Company has also secured a number of online domain names relevant to its business, including www.americancryostem.com,
www.acslaboratories.com
and ATGRAFT.com.
Marketing
and Distribution
The
key objective of our marketing strategy is to position American CryoStem in the market as the “Gold Standard” for
adipose tissue collection, cell processing and cryogenic storage, therapeutic applications, and research/commercial uses of adipose
tissue within the current regulatory framework. The combination of a traditional sales approach supported by continuous internal
and external marketing programs, are closely coordinated with the expansion of our laboratory processing capabilities. Our initial
marketing efforts intend to disseminate current and future uses of adipose tissue and adult stem cells which support our business
model, products and services. We intend to continue to employ advertising and social media sales campaigns. In addition, we plan
to continue to utilize key leaders, and early adopters in the medical community as a marketing resource to enhance awareness of
our proprietary, patented products and services and to increase the number of surgeons who join our network, university and private
collaboration and consumers who use our products and services.
We
plan to continue marketing programs focused on reaching plastic and cosmetic surgeons to join the initial group of providers that
began to offer our services to their patients in 2015. This marketing initiative has been implemented using a traditional sales
approach common to the pharmaceutical and biotechnology industries. This fundamental sales approach at the core of our marketing
activities is being strategically and tactically expanded using a combination of in-house sales personnel and outside independent
channels.
Our
plan, capital permitting, provides for a comprehensive integrated marketing approach using various traditional and new media,
such as the Internet, social media/blogging, video, print, TV, radio and trade shows to reach targeted potential consumers and
promote awareness of our Company and our branded products and services. The essence of this targeted strategy is to reach the
end-users as quickly as possible and to accelerate the adoption curve of our products and services. We also plan to utilize outside
marketing resources and trade groups to increase the number of surgeons willing to offer our products and services to their patients.
Market
Size and Opportunities
By
leveraging and capitalizing on our proprietary Adipose Tissue Processing Platform, we are working to address multiple high growth,
multi-billion dollar market opportunities, including those prevailing within the Regenerative Medicine, Cosmeceuticals, Medical
Tourism and Cell Culture Media markets. The Company regularly reviews independent market research to gauge the market dynamics
of its intended domestic and international markets and to identify additional areas within these markets where the Company’s
cell culture medium, laboratory products, and tissue and cellular processing services, can be marketed, sold and/or licensed.
Global
Stem Cells Market
A
report from Transparency Market Research (TMR) forecasts that the global stem cells market is expected to register a healthy CAGR
of 13.8% during the period from 2017 to 2025 to become worth US$270.5 bn by 2025. Depending upon geography, the key segments of
the global stem cells market are North America, Latin America, Europe, Asia Pacific, and the Middle East and Africa. At present,
North America dominates the market because of the substantial investments in the field, impressive economic growth, rising instances
of target chronic diseases, and technological progress. As per the TMR report, the market in North America will likely retain
its dominant share in the near future to become worth US$167.33 bn by 2025.
A
report published by Markets and Markets Research in 2017 titled “Cell Expansion Market by Product (Reagent, Media, Flow
Cytometer, Centrifuge, Bioreactor), Cell Type (Human, Animal), Application (Regenerative Medicine & Stem Cell Research, Cancer),
End user (Research Institute, Cell Bank) - Global Forecasts to 2021”. The report states: The global cell expansion market
is expected to reach USD 18.76 Billion by 2021 from USD 8.34 Billion in 2016 at a CAGR of 17.6%. Geographically, the cell expansion
market is dominated by North America, followed by Europe, Asia, and the Rest of the World (RoW). Growth in the North American
segment is primarily driven by increasing incidence of chronic diseases in the North American countries. According to the American
Medical Association and the American Medical Group Association, more than 50% of Americans suffered from one or more chronic diseases
in 2012; the number of Americans suffering from chronic diseases was around 133 million in 2005 and this figure is expected to
reach around 157 million by 2020. With this significant growth in the number of patients suffering from chronic diseases, the
market for cell expansion is expected to grow in this region in the coming years.
Regenerative
Medicine Market
The
Global Translational Regenerative Medicine market is expected to grow significantly over the forecast period. The Global Translational
Regenerative Medicine market was valued at $5.8bn in 2016. Visiongain forecasts this market to increase to $14.5bn in 2021. The
market is estimated to grow at a CAGR of 19.9% in the first half of the forecast period and 17.7% from 2016 to 2027.
Medical
Tourism, Global Wellness Tourism
As
stated by the Global Wellness Institute; The global wellness economy, which encompasses 10 diverse sectors was worth an estimated
$3.7 trillion in 2015.
https://static1.squarespace.com/static/54306a8ee4b07ea66ea32cc0/t/58862a472994ca37b8416c61/1485187660666/GWI_WellnessEconomyMonitor
2017_FINALweb.pdf
Cell
Culture Market
The
Company believes the reproducibility of scientific studies has become a substantial issue in life science research from drug discovery
and development through clinical trials as researchers throughout the world continue to use different protocols for processes
associated with sample preparation, cryopreservation and cold chain management. We believe the scientific community is becoming
more aware of factors that affect sample integrity and experiment variability. By standardizing handling, storage, and transportation
protocols we believe we can substantially improve the quality and reproducibility of preclinical and clinical data which we believe
will help to accelerate the transition from lab research to drug development and market launch.
According
to MarketsandMarkets, “
the global cell culture market was valued at an estimated $14,772 million in 2013. This market
is expected to grow at a CAGR of 10.71% between 2013 and 2018, to reach $24,574 million in 2018. The cell culture media, sera,
and reagents market consists of six segments, namely, contamination detection kits, cryoprotective agents, lab reagents, media,
serum, and other reagents. Of these, the serum product segment had the largest share of the cell culture media, sera, and reagents
market in 2013, whereas the media product segment is expected to grow at the highest CAGR between 2013 and 2018.”
Development
of Regional U.S. Markets
Cells
on Ice
In
August of 2015 the Company entered into an Agreement with Cells On Ice, Inc. (COI) located in Los Angeles, California to process
adipose tissue and adipose derived cellular samples for future use in Regenerative Medicine. COI is a network of physicians interested
in the development and use of adipose tissue and adipose derived cellular samples in regenerative therapies and cellular medicine.
The Company has agreed to distribute its CELLECT
®
collection boxes and provide its ATGRAFT
™
and ATCELL
™
processing services for the collection, processing and storage of tissue samples at its NJ
facility. Under the agreement, COI will pay the Company for the processing and storage of each sample generated by COI network
physicians. COI plans to seek regulatory approval for use of the stored samples in clinical studies and trials utilizing adipose
tissue processed into Stromal Vascular Fraction (SVF) and ultimately expanded adipose derived mesenchymal adult stem cells. The
Company is incorporating its Standard Operating Procedures (SOPs), processing protocols and products into COI’s studies
and providing processing and other data to COI in support of their ongoing efforts to develop and obtain regulatory approval of
its cellular therapies.
On
January 3, 2018 the Company received a warning letter from the US FDA concerning its contract manufacturing services provided
to Cells On Ice. The FDA has informed the Company through the letter that the FDA has determined that its autologous adipose derived
cell product ATCELL™ is a drug under current FDA regulations and guidance and requested that the Company file an Investigational
New Drug (IND) application. In response to the letter the Company has ceased shipment of its ATCELL product within the United
States and is currently in discussions with the FDA concerning the filing of the IND in the near future. (for additional information
see Cells On Ice in the Collaboration / Partnering Opportunities / Acquisitions above)
Physician
Network
The
Company continues to develop relationships to leverage our products and services through existing cosmetic surgery and regenerative
medicine practices while at the same time growing its current efforts to develop and expand its network of individual physicians
and surgeons seeking to adopt the Company’s products and services. These efforts are currently focused on surgeons performing
liposuction, tissue transfer or regenerative procedures involving the use of adipose tissue. The Company intends to expand its
efforts to non-cosmetic medical professionals interested in Regenerative Medicine applications utilizing ADSCs to establish itself
as a primary source of collection, processing and preparation of cellular therapies as they are developed and approved for patient
use by the FDA.
Development
of International Markets
International
Licensing Program –
Globally, many jurisdictions outside the US permit the use of adipose tissue based cellular therapies
and regenerative medicine applications. The Company has received numerous inquiries concerning the sale or licensing of our products
and services in these jurisdictions. The Company believes that the inquiries to date are a result of the global boom in Medical
Tourism and the slow pace of approval of cellular therapies and regenerative medicine applications in the US. To address these
inquiries and to expand the Company’s sales, marketing and branding opportunities the Company has designed and is offering
an International Licensing Program.
The
program is designed to permit the licensing of the Company’s products and services to organizations that meet the Company’s
financial and technical criteria. The licensing program allows for a variety of business relationship including franchising, partnering
and joint venturing. Marketing efforts to date have been to clinics, physician and hospitals in foreign jurisdictions capable
of rapidly building or committing the appropriate facilities and personnel to create the required laboratory facilities to operate
the CELLECT ®, ATGRAFT™ and ATCELL™ services in their local market. Strategically, the Company’s international
licensees will maintain the branding of the Company’s services along the lines of the “Intel Inside” branding
program.
Qualified
Licensees can quickly take advantage of the rapidly expanding opportunity to collect, process, store and culture individual regenerative
cell samples for their clients with the comfort and confidence that they are providing services that have been developed to conform
to US FDA standards. Core to the relationship is the developed proprietary and patent pending processing and laboratory operational
methodologies contained in our Standard Operating Procedures, Training, and Continuous Quality Management, Testing Program, and
Laboratory Operations manuals.
Licensing
programs may be initiated through a letter of intent (LOI) agreement between the Company and the prospective licensee. This LOI
agreement is designed for due diligence and facility qualifications purposes. The Company may receive an initial fee under the
agreement which may or may not be credited toward future royalty payments. Following evaluation of the prospective licensee the
Company will enter into a final Agreement which outlines all upfront fees, minimum royalties and consumable purchase obligations
of the Licensee.
Significant
to our international development activities is the global expansion of the American CryoStem branded services and patented products,
as well as the expansion of the Company’s services, technology and products as the core platform to implement cellular therapies
and regenerative medicine.
Cryoviva
(Thailand) Ltd
On
March 23, 2018 the Company into an agreement to license its ATGRAFT™ and ATCELL adipose tissue (fat) processing and
storage technologies to Cryoviva (Thailand) Ltd., (“Cryoviva”) a Bangkok, Thailand based Cord Blood processing
and storage facility. Cryoviva, Thailand, currently offers collection, processing and storage of Cord Blood derived biologics
to patients throughout Thailand and South East Asia.
American
CryoStem licensed to Cryoviva (Thailand) Ltd., established in 2007, the rights to utilize the Company’s Standard Operating Procedures
(SOP’s) to create and market the Company’s ATGRAFT™ tissue storage service and ATCELL™ adipose derived stem cell processing
and storage services in Thailand. The financial terms include the payment of certain training fees and, a percentage of the gross
revenue subject to annual minimum payments generated from our products. Additionally, the Agreement calls for the purchase of
CRYO consumable products required for ATGRAFT and ATCELL sample processing including CRYO’s ACSelerate™ non-DMSO cryogenic
tissue storage media, transportation media, Cellect™ tissue collection kit, and ACSelerate – Max™ cell culture
medium.
Cryoviva
(Thailand) Ltd. was established in 2007 with the cooperation of leading companies in the world such as Indorama Ventures
(Public) Company Limited, Thailand, Cryoviva Biotech Pvt., Ltd., (formerly known as Cryobanks International India) and RJ
Corp India. Cryoviva is part of a large group engaged in healthcare comprising of stem cell banks, stem cell expansion
facilities, diagnostic labs and centres and a maternal hospital. The Company has been certified by AABB and the ISO
9001: 2008 Quality Management System. Cryoviva (Thailand) Co., Ltd. is the only stem cell bank that has
been approved by the Board of Investment of Thailand (BOI) and accredited by AABB in Thailand and awarded
Frost & Sullivan’s Thailand Stem Cell Company of the year for three consecutive years between 2015-2017.
Baoxin
Asia Pacific Biotechnology (Shenzhen) Co., Ltd
During
2017 the Company entered into additional agreements with HIT to allow for the transfer of their rights to an affiliated Company
Baoxin Asia pacific Biotechnology Co, Ltd (“Baoxin”) in Shenzhen China. Baoxin will develop, own and operate multiple
laboratory/treatment/training facilities in China. CRYO has received an upfront fee of $300,000 USD and a 5 year minimum annual
guarantee of $500,000 USD per year. Additionally, as part of the transaction CRYO has invested $300,000 into Baoxin to obtain
5% minority equity in Baoxin (China) and an option to acquire up to a 20% equity ownership interest in the Regenerative Medicine
Center in Hong Kong (HK). The short term goals are to set up two additional GMP grade adipose tissue processing and storage facilities
in Beijing and Shanghai to cover the need of the whole China region, and a proper education facility in China to promote the use
of ATGRAFT as a better more natural dermal filler over artificial fillers.
In
June of 2018 senior management representatives of the Company joined with members of the management and marketing team of Baoxin
in Shenzhen, China for the official launch of the Company’s tissue collection processing and storage technologies by Baoxin
which included a meeting with Chinese Government and Investment officials and the government offices in Shenzhen. The purpose
of the meetings at the government offices was to formally present Baoxin’s business models and for Baoxin to execute investment
documents with the government affiliated investment funds that are supporting their business expansion plans in Shenzhen and Shanghai,
China. Company management subsequently accompanied and assisted Baoxin management and marketing team members on a five city tour
of plastic and cosmetic hospital facilities introducing Baoxin’s licensed ATRGAFT tissue collection, processing, storage
and retrieval services. Upon completion of the marketing tour and return to the US the Company has received initial consumable
orders from Baoxin. (see Note 13 of the Financial Statements for additional information).
CellSource,
LTD. – Tokyo, Japan
In
the second quarter of 2015 the Company entered into negotiations with CellSource, LLC in Tokyo, Japan for the licensing of its
ATGRAFT ™ products and services and on June 2, 2015 the Company and Cell Source entered into an initial term sheet Licensing
the ATGRAFT™ technology to CellSource for Japan. According to Allied Market Research, World Regenerative Medicines Market
Currently, North America dominates the global Regenerative Medicine market due to heavy investment in development of regenerative
products. However, the growing focus on research and development in Japan and South Korea makes AsiaPacific the fastest growing
region at a CAGR of 30.9% during 2014-2020
Health
Information Technology Company, LTD – Hong Kong and Shenzhen, China
On
June 30, 2014 the Company granted Health Information Technology Company, LTD (“HIT”) exclusive rights to utilize the
Company’s Standard Operating Procedures (SOP’s) to market the Company’s ATGRAFT™ tissue storage service
in Hong Kong. The Agreement calls for upfront fees, royalties and the purchase by HIT of certain consumables manufactured by the
Company. The Company and HIT have reached further agreement to extend their relationship on a non exclusive basis to include HIT’s
cord blood laboratory located in Shenzhen, Guangdong Province, one of China’s most successful Special Economic Zones. The
HIT agreement includes, initial upfront fees and royalty payments for predetermined gross revenue volumes. HIT will also purchase
CRYO ACSelerate™ storage media, CELLECT™ collection and transportation kit as well as other American CryoStem products
necessary for clinical adipose tissue processing and storage at the Shenzhen cord blood collection facility. The final master
licensing agreement is for a period of 5 years with renewal options and was executed between the parties on September 24, 2014.
On Fiscal 2018 this Licensed was transferred to Baoxin Asia Pacific Biotchnology (Shenzhen) Co., Ltd, the Company received a $100,000
fee from HIT for the transfer.
Corporate
Information
Our
principal executive offices are located at 1 Meridian Road, Eatontown, New Jersey 07724 and our telephone number is (732) 747-1007
our fax number is 732-747-7782. Our website is
www.americancryostem.com
We also lease and operate a tissue processing
laboratory in Monmouth Junction, New Jersey at 7 Deer Park Rd, Monmouth Junction, NJ. 08852. Our laboratory website address is
www.acslaboratories.com
.
Available
Information
We
file electronically with the U.S. Securities and Exchange Commission (SEC) our annual reports on Form 10-K, quarterly reports
on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d)
of the Securities Exchange Act of 1934. The public can obtain materials that we file with the SEC through the SEC’s website
at http://www.sec.gov or at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. Information
on the operation of the Public Reference Room is available by calling the SEC at 800-SEC-0330.
Going
Concern
As
of the date of this annual report, there is substantial doubt regarding our ability to continue as a going concern as we have
not generated sufficient cash flow to fund our proposed business.
We
have suffered recurring losses from operations since our inception. In addition, we have yet to generate an internal cash flow
from our business operations or successfully raised the financing required to expand our business. As a result of these and other
factors, our independent auditor has expressed substantial doubt about our ability to continue as a going concern. Our future
success and viability, therefore, are dependent upon our ability to generate capital financing. The failure to generate sufficient
revenues or raise additional capital may have a material and adverse effect upon us and our shareholders.
Our
plans with regard to these matters encompass the following actions: (i) obtaining funding from new investors to alleviate our
working capital deficiency, and (ii) implementing a plan to generate sales of our proposed products. Our continued existence is
dependent upon our ability to resolve our liquidity problems and achieve profitability in our current business operations. However,
the outcome of management’s plans cannot be ascertained with any degree of certainty. Our financial statements do not include
any adjustments that might result from the outcome of these risks and uncertainties.
Results
of Operations- Nine Months
Revenues
for the nine month period ended June 30, 2018 decreased to $957,136 versus $1,181,979 in the same period of Fiscal 2017, a decrease
of 19%. Tissue storage and processing revenues decreased significantly in the period because we had to cease processing cells
until we come into compliance with FDA requirements. We expect to be compliant by the second quarter of fiscal 2019, when our
growth in this area will resume. Licensing Revenues increased to $451,037 compared to $110,000 in Fiscal 2017, an increase of
310%.
General
and administrative expenses increased to $589,597 for the nine month period ended June 30, 2018 an increase of 9.6% from the same
period for Fiscal 2017. The main cause in the increase was administrative expenses associated with our China and Thailand licensing
agreements. The increase in laboratory expenses was the result of an expansion of the laboratory and the addition of consulting
staff related to the improvements, upgrades and testing of the facility and processing methods, and overhead associated with increased
processing levels in the first quarter in Fiscal 2018.
Interest
expense for the nine month period ending June 30, 2018 decreased to $75,910 as compared to $78,826 for the same period last year.
This is a 3.7% decrease. The decrease was attributed to more debenture holders converting debentures to shares in Fiscal 2018.
Net
loss for the first nine months of Fiscal 2018 was $1,220,653, compared to a loss of $94,056 for the same period last year. Most
of the loss in Fiscal 2018 can be attributed to the option granted to a consultant in the first quarter of fiscal year 2018, increased
laboratory expenses for expansion, equipment and consultants, and the beneficial conversion feature charge for the debenture issued
in April 2018.
Net
loss per share for the first nine months ended June 30, 2018 was $0.03, compared to $0.00 last year.
Results
of Operations- Three Months
The
Company’s revenue for the quarter ended June 30, 2018 decreased to $177,287 versus $431,837 in the same period of Fiscal
2017, a decrease of 59%, mainly as a result our stoppage in cellular processing revenues until we come into compliance with FDA
regulations, which we expect to resume in the second quarter of fiscal 2019. Licensing Revenue increased to $155,129 compared
to $40,000 in Fiscal 2017, an increase of 287%, as the Company added the Baoxin licensing revenues in Fiscal 2018.
Administrative
expenses increased to $239,375 for the quarter ended June 30, 2018, an increase of 39% from the same period for Fiscal 2017. The
main cause in the increase was laboratory expenses. The increase in laboratory expenses was the result of an expansion of laboratory
staff, additional equipment purchased, and testing during the third quarter in Fiscal 2018 in response to the FDA requirements.
Interest
expense for the quarter ending June 30, 2018 decreased to $23,699 as compared to $31,897 for the same period last year. This is
a 25% decrease. The decrease was attributed to more debenture holders converting their debentures to shares in Fiscal 2018.
Net
loss for the third quarter of Fiscal 2018 was $453,257, compared to net income of $11,532 last year.
Net
loss per share for the quarter ended June 30, 2018 was $0.01, compared to $0.00 the same quarter last year.
Liquidity
and Capital Resources
As
of June 30, 2018, the Company had a cash balance of $234,355 a decrease of $175,987 since September 30, 2017, our fiscal year
end. Operations used $5,562 of our cash. We used $477,503 in cash for investments including $300,000 to purchase our Baoxin equity
stake, $130,260 for the purchase of lab equipment and $47,243 in patent development. The main sources of cash provided by financing
activities, from licensing fees, and options exercised during the nine months of fiscal 2018.
Our
accounts receivable increased to $182,195 at June 30, 2018 from $171,860 at September 30, 2017 mainly due from Baoxin for licensing
fees. Convertible debt decreased to $381,500 as more of our debenture holders converted to shares.
We
will need cash for our future plans. We expect to receive positive cash flows from operations once we are compliant with FDA requirements
as regards to our tissue processing. Should we be unable to raise sufficient funds, we will be required to curtail our operating
plans if not cease them entirely. We cannot assure you that we will generate the necessary funding to operate or develop our business.
There
was no significant impact on the Company’s operations as a result of inflation for the nine months ended June 30, 2018.
Cash
Requirements
We
will require additional capital to fund marketing, operational expansion, processing staff training, as well as for working capital.
We are attempting to raise sufficient funds that would enable us to satisfy our cash requirements for a period of the next 12
to 24 months. In order to finance further market development with the associated expansion of operational capabilities for the
time period, we will need to raise additional working capital. However, we cannot assure you we can attract sufficient capital
to enable us to fully fund our anticipated cash requirements during this period. In addition, we cannot assure you that the requisite
financing, whether over the short or long term, will be raised within the necessary time frame or on terms acceptable to us, if
at all. Should we be unable to raise sufficient funds we may be required to curtail our operating plans if not cease them entirely.
As a result, we cannot assure you that we will be able to operate profitably on a consistent basis, or at all, in the future.
In
order to move our Company through its next critical growth phase of development and commercialization and to ensure we are in
position to support our research collaborations and market penetration strategies, Management continues to seek new investment
into the Company from existing and new investors with particular emphasis on identifying the best deal structure to attract and
retain meaningful capital sponsorship from both the retail and institutional investing communities, while limiting dilution to
our current shareholders. Management also focuses its efforts on increasing sales and licensing revenue and reducing expenses.
Commitments
The
Company is committed to a non-cancelable lease for lab space in South Brunswick, New Jersey through fiscal year 2019. Minimum
lease payments under this lease are as follows:
2018
|
|
$
|
9,768
|
|
2019
|
|
|
13,024
|
|
|
|
|
|
|
Net minimum lease payments
|
|
$
|
22,792
|
|
The
Company also leases office space in Eatontown, New Jersey. The lease is on a “month to month” basis and rents for
$2,650 per month.
In
addition, we are committed to a lease for equipment as of June 30, 2018; the remaining payments due on the lease are as follow.
2018
|
|
$
|
10,559
|
|
2019
|
|
|
42,235
|
|
2020
|
|
|
42,235
|
|
2021
|
|
|
7,039
|
|
|
|
|
|
|
Total minimum lease payments
|
|
$
|
102,068
|
|
|
|
|
|
|
Less amounts representing interest
|
|
|
(16,028
|
)
|
|
|
|
|
|
Present value of net minimum lease payments
|
|
$
|
86,040
|
|
Depreciation
Expense for the leased equipment for the first nine months or Fiscal 2018 was $24,795
The
Company is not party to any litigation against it and is not aware of any litigation contemplated against it as of June 30, 2018.
We
anticipate that any further capital commitments that may be incurred will be financed principally through the issuance of our
securities. However, we cannot assure you that additional financing will be available to us on a timely basis, on acceptable terms,
or at all.
Related
Party Transactions
At June 30, 2018, the Company
was indebted to a company that is majority owned by the Company’s two chief executive officers for $107,189. The advances
are due on demand, are unsecured, and carry no interest rate and is not expected to be collected within the next year.
Off
Balance Sheet Arrangements
We
have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial
condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital
resources that are material to investors.
Critical
Accounting Policies
We
prepare financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”), which requires
us to make estimates and assumptions that affect the amounts reported in our combined and consolidated financial statements and
related notes. We periodically evaluate these estimates and assumptions based on the most recently available information, our
own historical experience and various other assumptions that we believe are reasonable under the circumstances, the results of
which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from
other sources. Since the use of estimates is an integral component of the financial reporting process, actual results could differ
from those estimates. Some of our accounting policies require higher degrees of judgment than others in their application. We
believe the following accounting policies involve the most significant judgments and estimates used in the preparation of our
financial statements.
Basis
of Presentation
Our
financial statements are presented on the accrual basis of accounting in accordance with generally accepted accounting principles
in the United State of America, whereby revenues are recognized in the period earned and expenses when incurred.
Management’s
Use of Estimates
The
preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from those estimates.
Long-Lived
Assets
We
review and evaluate our long-lived assets for impairment whenever events or changes in circumstances indicate that their net book
value may not be recoverable. When such factors and circumstances exist, we compare the assets’ carrying amounts against
the estimated undiscounted cash flows to be generated by those assets over their estimated useful lives. If the carrying amounts
are greater than the undiscounted cash flows, the fair values of those assets are estimated by discounting the projected cash
flows. Any excess of the carrying amounts over the fair values are recorded as impairments in that fiscal period.
Statement
of Cash Flows
For
purposes of the statement of cash flows, we consider all highly liquid investments (i.e., investments which, when purchased, have
original maturities of three months or less) to be cash equivalents.
Recent
Accounting Pronouncements
Recently
Issued Accounting Pronouncements -
In February 2016, the FASB issued ASU No. 2016-02 which supercedes ASC 840,
Accounting
for Leases
. The new guidance requires the recognition of lease assets and lease liabilities for operating leases with
lease terms of more than twelve months. Presentation of leases within the consolidated statements of operations and
consolidated statement of cash flows will be generally consistent with current lease accounting guidance. The amended ASU is
effective for reporting periods beginning after December 15, 2018, with early adoption permitted. We plan to adopt the
amended ASU in the first quarter of fiscal year 2019 and do not expect the accounting change to have a material effect on our
financial statements.
In
May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which was an updated standard on revenue recognition.
The ASU provides enhancements to the quality and consistency of how revenue is reported by companies while also improving comparability
in the financial statements of companies that report using the International Financial Reporting Standards or U.S.GAAP. The main
purpose of the ASU is for companies to recognize revenue to depict the transfer of goods or services to customers in amounts that
reflect the consideration to which a company expects to be entitled in exchange for those goods or services. The new standard
also enhances disclosures about revenue, providing guidance for transactions not previously addressed comprehensively and improves
the guidance for multiple-element arrangements. The FASB deferred approval of the ASU to effective date for periods after December
15, 2017. The Company expects the change to not have a material effect on the financial statements.